Introduction to

Technical Analysis

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 What to Expect?

Not even T of Technical Analysis

(3 Hours is too less a time to expect anything
w.r.t Technical Analysis, theres too much out
there)
Expect just an introduction to what is technical
analysis
Get yourself convinced by end of the
presentation that technical analysis is good
enough to buy and sell stocks

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What Is Technical Analysis
in two words?

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Price & volume

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 What wiki says?

Technical analysis is a security

analysis discipline for forecasting the
future direction of prices through the
study of past market data, primarily
price and volume.

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 Different Kind of Charts used:

Line charts

Bar charts

Candlestics

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 Line Charts

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 Bar Charts

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 Candlesticks

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 An Example

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How to use Candle Sticks?

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Is That all?? No

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 Dow Theory

Market Discounts everything

The 3 Trends
-> Primary Trends
-> Secondary Trends
-> Minor Trends

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Primary Trends and Secondary Trends

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 Continued
Primary Trends : They run for years

Secondary Trends : Few weeks to months

1/3 , 50% , 2/3 retracements

Minor Trends : Day to day moments which are of

not importance to dow theory.

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 Continued
The Bull market
-> Accumulation
-> Public Participation phase
-> Excess

The Bear Market

-> Distribution
-> Public Participation phase
-> Panic

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 Continued
The 2 Averages must confirm
-> Industrial Average
-> Rail Average

Volumes goes with the trend

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 Continued
A trend be assumed to continue in effect until
such time as its reversal has been definitely
signaled

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Some Examples

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Support and Resistance

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 Role Reversals

Support becomes Resistance and vise versa

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Real world Example

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 Chart Patterns

Reversal Patterns
Ex: Head and Shoulders, Rounding tops and
bottoms, Triangles, Rectangles, Double and
triple tops and bottoms, diamonds, wedges etc

Continuation Patterns
Pennants and flags etc

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Head and Shoulders

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Double tops and bottoms

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 Triangles

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Flags and Pennants

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Some Examples

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 Bullish Flag

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 Falling wedge

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Right Angles Triangle

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Head and Shoulders breakout

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Head and Shoulder formation

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Triangular Consolidation breakout

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 Averages

Simple moving average (20 DMA, 50 DMA,

100DMA)
Exponential moving average(20 EMA, 50 EMA)
Triangular moving average
Volume adjusted moving average
Weighted moving average

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 Simple Moving Average
DAY PRICE SUM OF 3 DAYS 3rd COLUMN / 3

1 10

2 11

3 12 33 11

4 13 36 12

5 14 39 13

6 15 42 14

7 16 45 15

8 17 48 16

9 18 51 17

10 19 54 18

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 Exponential Moving Average

Exponential Percentage = 2
----------------------------
Time Periods + 1

Ex: for 3 day EMA,

E % = 2/(3 + 1)
E % = 2/4 = 0.5

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 3 DAY EMA
A B C D E

DAY PRICE PRICE * 0.5 YESTERDAY E * 0.5 C+D

1 10 10.000

2 11 5.5 5 10.500

3 12 6 5.25 11.250

4 13 6.5 5.625 12.125

5 14 7 6.062 13.062

6 15 7.5 6.531 14.031

7 16 8 7.015 15.015

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Moving Averages as Support

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Use of major moving average as support

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 Indicators

Leading Indicators Ex: RSI, CCI, Stochastic, etc

Lagging Indicators Ex: MACD, moving averages

etc

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 Bollinger Bands

Shown in 3 bands

Middle Band = SMA

Upper Band = Middle band + 2 Standard
Deviations
Lower Band = Middle band 2 Standard
Deviations

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 RSI

Relative Strength Index

Usage
-> Tops and Bottoms (70 and 30)
-> Chart Formations
->Support and Resistance
-> Divergance

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 Calculation

100 - (100 / (1 + (U/D)))

U -> Upward Price Change

D -> Downward Price Change

Ex : 3 day RSI

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 Continued
A B C D E
Closing Price Upward Price Smoothed B Down word Price Smoothed D
Change Change
10
11 1 0
9 0 2
13 4 1.66 0 0.66
10 0 1.33 3 1.33
14 4 2.66 0 1

C E F G H I = RSI

C E C/F F+1 100/G 100 - H

1.66 0.66 2.51 3.51 28.5 71.5

1.33 1.33 1 2 50 50

2.66 1 2.66 3.66 27.3 72.7

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Some Examples

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 MACD

Moving Average Convergence and Divergence

Calculation
12 EMA 16 EMA

Usage
-> Crossovers
-> Overbought/Oversold
-> Divergence

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 Examples

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 Other Technical Indicators

Absolute Breadth Index

Accumulation/Distribution Line
Advance/Decline Line and Ratio
Arms Index (TRIN)
AROON
Chalkin Oscillator
CCI
KST
OBV (There are 1000s of indicators )

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 Pivot Points

PP = (H + L + C) / 3

R1 = (2*PP) - L
R2 = PP + (H - L)
R3 = H + 2*(PP-L)

S1 = (2*PP) - H
S2 = PP - (H - L)
S3 = L - 2*(H - PP)

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 Other Important Things not Discussed

Elliott Wave Theory

Fibonacci Studies
Gann angles

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 Q&A

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Thank You

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