Technical Analysis Workshop Series. Session Two

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1 Technical Analysis Workshop eries ession Two

2 DICLOURE & DICLAIMER This research material has been prepared by NU Invest. NU Invest specifically prohibits the redistribution of this material in whole or in part without the written permission of NU Invest. The research officer(s) primarily responsible for the content of this research material, in whole or in part, certifies that their views are accurately expressed and they will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this research material. TYPE

3 DICLOURE & DICLAIMER Nothing in this research material constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The research material should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this research material are subject to change without notice. TYPE

4 Agenda Chart Types Chart Construction upport & Resistance Trendlines & Channels Pivot Points TYPE

5 Chart Types TYPE

6 First chartists in U included Charles Dow Allows for study of market price action Reflects tides of greed and fear among traders Each price is a momentary consensus of value of all market participants TYPE

7 Did you know??? Herman Rorschach, wiss psychiatrist Developed Rorschach Inkblot Test Most people describe what they see but in reality, only inkblots! Most traders use charts as a giant Rorschach test TYPE

8 LINE TYPE

9 LINE Represents only closing prices Line connects prices over the time frame Closing prices considered most important price in stock data TYPE

10 BAR TYPE

11 BAR Each period s range represented by vertical bar Each bar is a balance of power between bulls and bears hows opening price, closing price, high and low Upward bar (Green) means closing higher than open Downward bar (red) means closing lower than open TYPE

12 CANDLETICK TYPE

CANDLETICK First used by Japanese rice traders More visually appealing, easier to analyze Body: Distance between open and closing Tip of upper wick/shadow/hair: High

13 CANDLETICK First used by Japanese rice traders More visually appealing, easier to analyze Body: Distance between open and closing Tip of upper wick/shadow/hair: High Bottom of lower wick/shadow/hair: Low Range (length) of candle stick indicates volatility Upward candlestick usually or green Downward candlestick usually black or red TYPE

14 BAIC PATTERN (PINNING TOP) Long upper and lower wicks and small bodies Indicates indecision between bulls and bears Body relatively unimportant Long wicks indicate significant price movements but resulted in a standoff pinning tops in uptrend or downtrend could indicated possible reversal in direction TYPE

15 BAIC PATTERN (MARUBOZU) White marubozu Long white body, no wicks Bullish candle Open equals low, closing equals high Indicates buyers in control during entire period Black marubozu Long black body, no wicks Bearish candle Indicates sellers in control during entire period TYPE

16 BAIC PATTERN (DOJI) ame open and close or bodies very short Long upper and lower wicks Reflects considerable indecision Long lower, no upper Bearish interpretation Long upper, no lower Bullish interpretation ame open, close, high and low Very rare Low volume situations TYPE

17 ome uses: BAIC PATTERN (DOJI) Doji formed after long white candlesticks (like white marubozu) Could signal buyers weakening ellers often look for opportunities to enter Doji formed after long black candlesticks (like black marubozu) Could signal sellers weakening Buyers often look for opportunities to enter TYPE

18 Chart Components: Vertical Axis: Price cale Horizontal Axis: Time Price data (chart type) Volume (and other indicators) TYPE

19 1. electing chart type: TYPE

20 2. electing price scale: pace between price points (10, 20, 30, 40) are equal Price sale measure moves in absolute terms pace between price depend on percentage change Price move from 10 to 20 is 100% change while 40 to 50 is 25% change, thus space not the same INTRODUCTION FM & BC MODEL TECHNICAL ANALYI DOW THEORY

21 2. electing price scale: TYPE

22 3. electing time horizon: TYPE

23 4. electing indicators: TYPE

24 TYPE

25 TYPE

26 upport (temporary floor) Price level where buying is strong enough to interrupt/reverse a downtrend Represented by a horizontal line connecting several bottoms Resistance (temporary ceiling) Price level where selling is strong enough to interrupt/reverse an uptrend Represented by a horizontal line connecting several tops TYPE

27 Effects of market psychology Both exist because people have memories Also attributed to pain and regret TYPE

28 TYPE

29 Also, notice how support can also CHANGE to resistance (and vice versa): TYPE

30 ometimes it might be easier to use a line chart first: TYPE

31 Determining strength of support/resistance: Length of time prices traded within the area and no. of hits Volume How recent trading took place within the area TYPE

32 ome useful trading rules: Whenever the trend approaches support or resistance, tighten your protective stop upport and resistance areas are more important on long-term charts than short-term e.g. If weekly chart is sailing through a clear zone, the fact that daily chart is hitting resistance is less important upport & resistance areas useful for placing stop-loss and protectprofit orders. NEVER adjust your support & resistance levels Avoid placing orders at round numbers Beware of false breakouts TYPE

33 Advanced technique: False breakout TYPE

34 TYPE

35 PRICE MOVE IN TREND TYPE

36 TREND Trend exists when prices keep rising or falling over time TYPE

37 TREND Uptrend characterized by higher highs and higher lows TYPE

38 TREND Trading range characterized by rallies that that stop at about the same high and declines that peter out at same low TYPE

39 TREND Downtrend characterized by lower highs and lower lows TYPE

40 TREND TYPE

41 TRENDLINE Peaks of rallies show where bulls weaken and bears gain control Bottoms of declines show where bears stopped and bulls regained control of market TYPE

42 TRENDLINE Uptrend line connects two nearby bottoms and shows lowest common denominator of bullish power TYPE

43 TRENDLINE Downtrend line connects two nearby tops and shows lowest common denominator of bearish power TYPE

44 TRENDLINE How to draw a trendline: Again, better to draw through edges of congestion areas rather than at extreme high and low points Often subjective; no two people will draw identical slants Most IMPORTANT feature is its angle it identifies the dominant market force Remember that technical analysis is partly a science and partly an ART TYPE

45 TRENDLINE Rating Trendlines (5 factors) 1. Timeframe of the trendline 2. Length 3. Number of times prices touch it 4. Angle 5. Volume TYPE

46 Trendline breaks TRENDLINE TYPE

47 TRENDLINE Trading rules 1. Trade in direction of the slope of a trendline 2. A trendline also provides support or resistance 3. teep trendlines often precede sharp breaks 4. Prices often retest latest extreme before breaking 5. Draw a channel line parallel to trendline to use as target for profit taking TYPE

48 A channel consists of two parallel lines that contain prices (or where prices trend) TYPE

49 Uptrend channels are drawn by first drawing an uptrend line across the bottoms of declines, followed by channel line parallel to it across the tops of rallies TYPE

50 Downtrend channels are drawn by first drawing a downtrend line across the tops of rallies, followed by channel line parallel to it across the bottoms of declines Trend line Channel line TYPE

51 Trading ideas It pays to trade in the direction of the channel Basic uptrend lines can be used as guide to initiate long positions and downtrend lines for short positions Channel lines can be used for short-term profit taking Go long in the lower quarter or half of a rising channel ell short in the upper quarter or half of a falling channel Breaking of a major trendline indicates change in trend TYPE

52 Trading ideas Breaking of a rising channel signals the acceleration of existing trend TYPE

53 TYPE

54 Predictive or leading indicators Originally used by floor traders to set key intraday levels Used to determine directional movement, future support & resistance Besides intraday levels, can be used for any time frame (daily, weekly, monthly) TYPE

55 Pivot point (P) calculated using prior period s high (H), low (L) & close (C) Further calculations made to set support 1 (1), support 2 (2), resistance 1 (R1) & resistance 2 (R2) with P as the base Equations: P = (H + L + C) / 3 1 = (P x 2) H 2 = P (H L) R1 = (P x 2) L R2 = P + (H L) TYPE

56 TIME FRAME Pivot points for 5, 10 & 15-min intraday charts use prior day s H, L & C. Once P is set, does not change throughout the day TYPE

57 TIME FRAME Pivot points for 30 & 60-min intraday charts use prior week s H, L & C. Once P is set, remains fixed for entire week. When week ends, new P can be calculated TYPE

58 TIME FRAME Pivot points for daily charts use prior month s H, L & C. In this example, points for June are based on H, L & C for May. Remain fixed for entire month of June TYPE

59 INTRODUCTION FM & BC MODEL TECHNICAL ANALYI DOW THEORY

60 UMMARY Construct charts based on personal preference and trading time horizon Art of drawing basic indicators ALWAY focus on a good entry INTRODUCTION FM & BC MODEL TECHNICAL ANALYI DOW THEORY

61 THANK YOU! INTRODUCTION FM & BC MODEL TECHNICAL ANALYI DOW THEORY

Technical Analysis Workshop Series. Session Six 1, 2, 3 Price-Bars Patterns

Technical Analysis Workshop Series Session Six 1, 2, 3 Price-Bars Patterns DISCLOSURES & DISCLAIMERS This research material has been prepared by NUS Invest. NUS Invest specifically prohibits the redistribution