Technical Analysis: of The Financial Markets

Technical analysis
Of the Financial Markets
What is ta?
Forecasting of future financial price
movements based on an examination
of past price movements
Like weather forecasting, does not
provide an absolute prediction
Offers a glimpse at where prices are
most likely to go in the future
What is Technical Analysis?

Method of evaluating securities by
analyzing statistics generated by
Market activity
Past Prices
Volume
Do not attempt to measure intrinsic

value
Instead look for patterns and
indicators on charts to determine
future performance

(Continued)
Technicians believe
that securities move
in very predictable
trends and patterns
Trends continue until
something happens
to change the trend
Until that change
takes place, price
levels are predictable

(Continued)
Most agree that
technical analysis
is much more
effective when
combined with
fundamental
analysis
The technicians mission

BEAT THE CROWD!
Markets are 80% psychological and
20% logical
Thousands and Thousands of people
make their first trade every day, and
90% of them have no idea what they
are doing
Technicians employ tricks to take
advantage of Dumb Money
ASSUMPTIONS
The market value of the script is determined by
the interaction of supply and demand
The market discounts everything
The market always move in a trend
Any layman know the facts that history repeats
itself
Price Fields
Technical analysis is based almost entirely on the analysis of price and volume. The
fields which define a security's price and volume are explained below.
Open - This is the price of the first trade for the period (e.g., the first trade of the
day). When analyzing daily data, the Open is especially important as it is the
consensus price after all interested parties were able to "sleep on it"
High - This is the highest price that the security traded during the period. It is the point
at which there were more sellers than buyers (i.e., there are always sellers willing to sell
at higher prices, but the High represents the highest price buyers were willing to pay)
Low - This is the lowest price that the security traded during the period. It is the point
at which there were more buyers than sellers (i.e., there are always buyers willing to
buy at lower prices, but the Low represents the lowest price sellers were willing to
accept)
Close - This is the last price that the security traded during the period. Due to its
availability, the Close is the most often used price for analysis. The relationship between
the Open (the first price) and the Close (the last price) are considered significant by
most technicians. This relationship is emphasized in candlestick charts
Price Fields
Volume - This is the number of shares (or contracts) that were traded during
the
period. The relationship between prices and volume (e.g., increasing prices
accompanied with increasing volume) is important
Bid - This is the price a market maker is willing to pay for a security (i.e., the price
you will receive if you sell)
Ask - This is the price a market maker is willing to accept (i.e., the price you will
pay to buy the security)
Fields That Are Used For Several Security
FUTURES
MUTUAL FUNDS
STOCKS
OPEN
Yes
No
Often
HIGH
Yes
Closed end
Yes
LOW
Yes
Closed end
Yes
CLOSE
Yes
Yes (*NAV)
Yes
VOLUME
Yes
Closed end
Yes
BID
Intraday
Closed end
Intraday
ASK
Intraday
Closed end
Intraday
The basis of all technical analysis

dow theory
Charles Dow
known as the
Godfather of TA
Dow Theory pieced
together from the
writings of Charles
Dow over several
years
Charles dows theory

Dow Theory presumes market moves
in persistent bull and bear trends
Often used for market as a whole,
but used for individual securities
also
Types of movements defined by Dow
theorists
Primary trends (bull or bear market)
Secondary trends (corrections)
Market
collapses
or
upward
surges lasting a few weeks or
months
Tertiary
moves
(little
daily
fluctuations)
Meaningless random wiggles but

should be studied to determine if
relate to a primary trend
TRENDS
A PRIMARY TREND
B & C SECONDARY TREND
Primary Bullish
Trend
Y
Prices
(Speculation
And inflation)
(Revival of
Confidence)
O
(Improvement in
corporate earnings)
Days
Primary Bearish
Trend
Y
prices
Abandonme
nt of hopes
Realization
of lower
profits and
dividend
Distress
selling
Days
NOT ALWAYS RANDOM
"One way of viewing it is that markets may witness extended periods of random
fluctuation, interspersed with shorter periods of nonrandom behavior. The goal of
the chartist is to identify those periods (i.e. major trends)." - Jack Schwager
CHARTS
LINE
CHART
CHARTS
BAR CHART
CHARTS
CHARTS
CANDLESTICK
CHART
SUPPORT AND RESISTANCE
A security's price represents the fair market value as agreed between

buyers (bulls) and sellers (bears)
Changes in price are the result of changes in investor expectations of the

security's future price
Support levels occur when the consensus is that the price will not
move lower. It is the point where buyers outnumber sellers
Resistance levels occur when the consensus is that the price will
not move higher. It is the point where sellers outnumber buyers
#20. SUPPORT AND RESISTANCE
The penetration of a support or resistance level indicates a change in

investor expectations and a shift in the supply/demand lines
Volume is useful in determining how strong the change of expectations

really is #19. Significance of Volume of Trade
Traders' remorse often follows the penetration of a support or resistance
level as prices retreat to the penetrated level. #21. TRADERS REMORSE
Significance of Volume of Trade
TRADERS REMORSE
Two things can happen in this period
The consensus of expectations will be that the new price is not
warranted, in which case prices will move back to their previous
level
Investors will accept the new price, in which case prices will
continue to move in
the direction of the penetration
HOW SUPPLY AND DEMAND IS RELATED TO

REVERSAL PATTERN
Reversal patterns are chart formations that tend to signal a change
in direction of the earlier trend
HEAD AND SHOULDER FORMATION

It occurs at a end of a long uptrend and is indicative of a
reversal of trend.
This formation exhibits a hump or top followed by still higher
top or peak and then another hump or lower top.
It consists of four elements
H&S Top
Left shoulder.
Head
Head
Right Shoulder
Left Shoulder
Right shoulder
Neck line
Neckline
H&S Bottom
Neckline
Left Shoulder
Right Shoulder
Head
HEAD AND SHOULDER FORMATION
ROUNDINGS TOPS AND BOTTOMS
DOUBLE TOP BOTTOM
TRIANGLES
A "symmetrical triangle" occurs when prices are making

both lower-highs and higher-lows.
An "ascending triangle" occurs when there are higher-lows
(as with a symmetrical triangle), but the highs are occurring at
the same price level due to resistance. The odds favor an
upside breakout from an ascending triangle
A "descending triangle" occurs when there are lower-highs
(as with a symmetrical triangle), but the lows are occurring at
the same price level due to support. The odds favor a
Ascending
downside breakout from
a descending triangle.
Symmetrical
Symmetrical
Descending
Thank U

Technical Analysis: of The Financial Markets

Uploaded by

Copyright:

Available Formats

Technical Analysis: of The Financial Markets

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Technical Analysis: of The Financial Markets

Uploaded by

Copyright:

Available Formats

What is technical analysis?

What is technical analysis?

What are some common reversal patterns discussed?

What are some common reversal patterns discussed?

Technical analysis

Of the Financial Markets

What is Technical Analysis?

Do not attempt to measure intrinsic

What is Technical Analysis?

What is Technical Analysis?

The technicians mission

Fields That Are Used For Several Security

The basis of all technical analysis

Charles dows theory

Secondary trends (corrections)

Meaningless random wiggles but

NOT ALWAYS RANDOM

SUPPORT AND RESISTANCE

A security's price represents the fair market value as agreed between

Changes in price are the result of changes in investor expectations of the

The penetration of a support or resistance level indicates a change in

Volume is useful in determining how strong the change of expectations

SUPPORT AND RESISTANCE

Significance of Volume of Trade

HOW SUPPLY AND DEMAND IS RELATED TO

HEAD AND SHOULDER FORMATION

HEAD AND SHOULDER FORMATION

ROUNDINGS TOPS AND BOTTOMS

DOUBLE TOP BOTTOM

A "symmetrical triangle" occurs when prices are making

You might also like