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Two Best Selling Books

Two Best Selling Books


MARK L. LARSON
www.incometrader.com
MARK L. LARSON
www.whymoney.com
FUNDAMENTALS
FUNDAMENTALS
or
or
TECHNI CALS
TECHNI CALS
As you become an experienced technical
As you become an experienced technical
trader youll realize that a companies
trader youll realize that a companies
fundamentals do
fundamentals do
NOT
NOT
have as much
have as much
importance as the value of technical
importance as the value of technical
indicators. Take Microsoft as an example:
indicators. Take Microsoft as an example:
They may has a great cash reserve and PE
They may has a great cash reserve and PE
ratio yet the stock has only moved about
ratio yet the stock has only moved about
$4 from the time frame of 2000
$4 from the time frame of 2000

2007.
2007.
WHY TECHNICAL INDICATORS
WHY TECHNICAL INDICATORS
Technical Indicators tell you when to do
Technical Indicators tell you when to do
something while the fundamentals of a
something while the fundamentals of a
company tell you what to do with a
company tell you what to do with a
company. Companies with strong
company. Companies with strong
fundamentals have greater upside
fundamentals have greater upside
strength while companies with weak
strength while companies with weak
fundamentals have greater downside
fundamentals have greater downside
strength. Yet technical indicators tell us
strength. Yet technical indicators tell us
when to get in or get out.
when to get in or get out.
Cracking the Code
Cracking the Code
to
to
Technical Indicators
Technical Indicators
Technical Indicators
Technical Indicators
for
for
Bull & Bear Markets
Bull & Bear Markets

Technical Indictors tell you when to buy or sell.
Technical Indictors tell you when to buy or sell.

Over 200 different type of technical indicators.
Over 200 different type of technical indicators.

Technical Indicators tell you when to do something.
Technical Indicators tell you when to do something.

They can be leading or lagging indicators.
They can be leading or lagging indicators.

Technical Indicators are only as good as your
Technical Indicators are only as good as your
settings.
settings.

Each technical indicator works for certain market
Each technical indicator works for certain market
conditions.
conditions.

Create and Build your own technical system.
Create and Build your own technical system.

You must back test your studies.
You must back test your studies.
VARIOUS TYPE
VARIOUS TYPE
of
of
TECHNICAL INDICATORS
TECHNICAL INDICATORS
Support Levels
Support Levels
Ease of Movement
Ease of Movement
Resistance Levels
Resistance Levels
Chaikin
Chaikin
Money Flow
Money Flow
Volume Bars
Volume Bars
Momentum %
Momentum %
Stochastics
Stochastics
Directional Movement
Directional Movement
MACD
MACD
Bollinger Bands
Bollinger Bands
Rate of Change
Rate of Change
Fibonacci
Fibonacci
Retracement
Retracement
Interia
Interia
Average True Range
Average True Range
SUPPORT LEVELS
SUPPORT LEVELS
We refer to a support level as a floor
We refer to a support level as a floor
and at these levels the stock or index
and at these levels the stock or index
will move higher towards resistance, if
will move higher towards resistance, if
not this is often a weak sign for the
not this is often a weak sign for the
stock or index. These levels of support
stock or index. These levels of support
are 2 or more points of contact. Often
are 2 or more points of contact. Often
your Moving Average can be the support
your Moving Average can be the support
level too.
level too.
SUPPORT LEVEL
SUPPORT LEVEL
Support
New Support
MOVING AVERAGES
MOVING AVERAGES
as
as
SUPPORT LEVELS
SUPPORT LEVELS
200 Day Moving Average
acts as MAJ OR SUPPORT
RESI STANCE LEVELS
RESI STANCE LEVELS
Resistance is referred to as a ceiling, if a
Resistance is referred to as a ceiling, if a
stock or index does break thru this level
stock or index does break thru this level
with increased volume this is a bullish sign
with increased volume this is a bullish sign
as the resistance level will now often
as the resistance level will now often
become the new support level. If not the
become the new support level. If not the
stock will move down towards its past
stock will move down towards its past
level of support which can be the Moving
level of support which can be the Moving
Averages.
Averages.
RESI STANCE LEVELS
RESI STANCE LEVELS
Resistance
Support
Resistance
Support
MAJ OR RESISTANCE
MAJ OR RESISTANCE
200 Day Moving Average
200 Day Moving Average
200 Day Moving Average
Acts as MAJ OR RESISTANCE
SUPPORT & RESI STANCE
SUPPORT & RESI STANCE
SUMMARY
SUMMARY
Major Points of Interest
Major Points of Interest
Support is the floor
Support is the floor
Resistance is the ceiling
Resistance is the ceiling
Volume is needed to break thru these levels
Volume is needed to break thru these levels
Old Resistance is new Support (bullish)
Old Resistance is new Support (bullish)
Old Support is new Resistance (bearish)
Old Support is new Resistance (bearish)
Can be drawn in any direction
Can be drawn in any direction
MOVING AVERAGES
MOVING AVERAGES
Moving Averages are used for two primary
Moving Averages are used for two primary
purposes, one to help determine levels of
purposes, one to help determine levels of
support or resistance and secondly to help
support or resistance and secondly to help
identify a stock or indexes strength or
identify a stock or indexes strength or
weakness. Often the Simple Moving
weakness. Often the Simple Moving
Average is used for shorter time frames
Average is used for shorter time frames
while the Exponential Moving Average is
while the Exponential Moving Average is
used for longer term time frames.
used for longer term time frames.
SIMPLE vs. EXPONENTIAL
SIMPLE vs. EXPONENTIAL
Simple Moving Average:
Simple Moving Average:
Less of a
Less of a
reaction allowing for a slower and
reaction allowing for a slower and
more affective signal.
more affective signal.
Exponential Moving Average:
Exponential Moving Average:
More
More
reactive causing a faster and less
reactive causing a faster and less
affective signal.
affective signal.
Time Frames:
Time Frames:
Different time frames
Different time frames
create different affects; the shorter
create different affects; the shorter
the setting the faster the Moving
the setting the faster the Moving
Average will move.
Average will move.
SIMPLE MOVING AVERAGE
SIMPLE MOVING AVERAGE
A Simple Moving Average is calculated by
A Simple Moving Average is calculated by
totaling up the closing prices for a certain
totaling up the closing prices for a certain
number of days and then dividing that
number of days and then dividing that
total by the days.
total by the days.
A 30 day Moving Average represents the
A 30 day Moving Average represents the
average price of the stock or index for the
average price of the stock or index for the
last 30 days.
last 30 days.
SIMPLE
SIMPLE
vs
vs
EXPONENTIAL
EXPONENTIAL
Simple GREEN
Exponential RED
30 day
200 day
MULTIPLE MOVING AVERAGES
MULTIPLE MOVING AVERAGES
Using multiple Moving Averages help us
Using multiple Moving Averages help us
determine the strength and weakness of
determine the strength and weakness of
investments as well as their projected
investments as well as their projected
target. Some of the more common Moving
target. Some of the more common Moving
Averages are the 30, 50, 100 and 200 day
Averages are the 30, 50, 100 and 200 day
Moving Averages. These will also act as
Moving Averages. These will also act as
levels or support or resistance.
levels or support or resistance.
MOVING AVERAGES
MOVING AVERAGES
30
30

50
50

100
100
-
-
200
200
100 day
50 day
30 day
200 day
MOVING AVERAGE
MOVING AVERAGE
100 DAY SUPPORT
100 DAY SUPPORT
MOVING AVERAGES
MOVING AVERAGES
as
as
SUPPORT or RESISTANCE
SUPPORT or RESISTANCE
Resistance
BULLISH TREND
BULLISH TREND
PRI CE ABOVE ALL
MOVI NG AVERAGES
BULLISH to BEARISH
BULLISH to BEARISH
BULLISH
BEARI SH
BEARISH TREND
BEARISH TREND
30- 50 100 -200
Simple
30, 50, 100, 200 Simple
Multiple Moving Averages
Multiple Moving Averages
(Bearish to Bullish)
(Bearish to Bullish)
BEARI SH
BULLISH
MOVING AVERAGE
MOVING AVERAGE
CLUSTER
CLUSTER
A Cluster can be
Bullish or Bearish
BULLISH CLUSTER
FASTER MOVI NG AVERAGES
FASTER MOVI NG AVERAGES
10 and 20 Day
10 and 20 Day
10 & 20 Day Simple
BULLISH
BEARI SH
MOVING AVERAGE
MOVING AVERAGE
SUMMARY
SUMMARY
They act as levels of Support or Resistance
They act as levels of Support or Resistance
May use multiple Moving Averages such as
May use multiple Moving Averages such as
the 30, 50, 100 or 200 day.
the 30, 50, 100 or 200 day.
The larger the number the slower the
The larger the number the slower the
movement.
movement.
Shorter term averages such as the 5 & 20 or
Shorter term averages such as the 5 & 20 or
10 & 20 can be a confirmation sign.
10 & 20 can be a confirmation sign.
By far the most commonly used Technical
By far the most commonly used Technical
Indicator in the Industry
Indicator in the Industry
VOLUME
VOLUME
Volume is a sign of a continuation and
Volume is a sign of a continuation and
during a bullish movement we want positive
during a bullish movement we want positive
volume and the same applies to a bearish
volume and the same applies to a bearish
movement. Stocks that trend sideways
movement. Stocks that trend sideways
typically indication a lack of volume. With
typically indication a lack of volume. With
any break out (up or down) volume is a
any break out (up or down) volume is a
must in order for the trend to continue.
must in order for the trend to continue.
Volume is truly a sign of supply and
Volume is truly a sign of supply and
demand.
demand.
VOLUME CHART
VOLUME CHART
VOLUME
VOLUME
with
with
MOVING AVERAGES
MOVING AVERAGES
Use a 15 or 20
VOLUME
VOLUME
SUMMARY
SUMMARY
Used in a sideways trend or as a confirmation
Used in a sideways trend or as a confirmation
of a break out showing greater strength.
of a break out showing greater strength.
Typically 1 times more than the average
Typically 1 times more than the average
volume (based on 20 day volume).
volume (based on 20 day volume).
Increased volume while bouncing off of
Increased volume while bouncing off of
Moving Averages is powerful.
Moving Averages is powerful.
Not needed during a sell off.
Not needed during a sell off.
Moving Averages can be added to your
Moving Averages can be added to your
volume.
volume.
BOLLINGER BANDS
BOLLINGER BANDS
The simplest way to use Bollinger Bands is to use
The simplest way to use Bollinger Bands is to use
the upper and lower bands as price targets. In
the upper and lower bands as price targets. In
other words, if prices bounce off the lower band
other words, if prices bounce off the lower band
and cross above the 20 day average, then the
and cross above the 20 day average, then the
upper band becomes the upper price target.
upper band becomes the upper price target.
A crossing below the 20 day average would
A crossing below the 20 day average would
identify the lower band as the downside target. In
identify the lower band as the downside target. In
a strong uptrend, prices will usually fluctuate
a strong uptrend, prices will usually fluctuate
between the upper band and the 20 day average.
between the upper band and the 20 day average.
In that case, a crossing below the 20 day average
In that case, a crossing below the 20 day average
warns of a trend reversal to the downside.
warns of a trend reversal to the downside.
BOLLINGER BANDS
BOLLINGER BANDS
with
with
20 Day Moving Average
20 Day Moving Average
SQUEEZE PLAY
SQUEEZE PLAY
BANDS TIGHTEN
BANDS TIGHTEN
Bands tighten and test 200 Day Moving Average
WIDE BANDS
WIDE BANDS
are
are
DANGEROUS
DANGEROUS
Wide Bands are a sign of weakness or uncertainty
BOLLINGER BAND
BOLLINGER BAND
SUMMARY
SUMMARY
A 20 Day Simple Moving Average is helpful
A 20 Day Simple Moving Average is helpful
With bullish bands stock should be moving
With bullish bands stock should be moving
with the upper band.
with the upper band.
With bearish bands the stock will be moving
With bearish bands the stock will be moving
with the lower band
with the lower band
The tighter the bands the bigger the break
The tighter the bands the bigger the break
out either up or down
out either up or down
Loose bands are signs of uncertainty
Loose bands are signs of uncertainty
RATE of CHANGE
RATE of CHANGE
The
The
Rate of Change
Rate of Change
is an oscillator that
is an oscillator that
displays the difference between the current
displays the difference between the current
price and the price
price and the price
x
x
-
-
days ago. As prices
days ago. As prices
increase, the ROC rises and as prices fall,
increase, the ROC rises and as prices fall,
the ROC falls. The greater the change in
the ROC falls. The greater the change in
prices, the greater the change in the ROC. A
prices, the greater the change in the ROC. A
standard setting is 10
standard setting is 10
-
-
14 days I use a slower
14 days I use a slower
setting of
setting of
21 days
21 days
.
.
RATE of CHANGE CHART
RATE of CHANGE CHART
RATE OF CHANGE
RATE OF CHANGE
SUMMARY
SUMMARY
A typical setting would be 14 to 21 days
A typical setting would be 14 to 21 days
With an upward stock movement you want
With an upward stock movement you want
the ROC to remain above 0 line.
the ROC to remain above 0 line.
Weakness is shown when the ROC drops
Weakness is shown when the ROC drops
below the 0 line.
below the 0 line.
Increased volume in the direction of the
Increased volume in the direction of the
trend is a positive signal.
trend is a positive signal.
MOVING AVERAGE
MOVING AVERAGE
CONVERGENCE/DIVERGENCE
CONVERGENCE/DIVERGENCE
The
The
MACD
MACD
(Moving Average Convergence/Divergence) is a
(Moving Average Convergence/Divergence) is a
momentum indicator used to show the relationship
momentum indicator used to show the relationship
between two moving averages. The MACD was
between two moving averages. The MACD was
developed by Systems and Forecasts publisher, Gerald
developed by Systems and Forecasts publisher, Gerald
Appel
Appel
. The MACD is simple and reliable. It uses moving
. The MACD is simple and reliable. It uses moving
averages to include trend
averages to include trend
-
-
following characteristics.
following characteristics.
These lagging indicators are turned into a momentum
These lagging indicators are turned into a momentum
oscillator and plotted as a line that moves above and
oscillator and plotted as a line that moves above and
below zero with no upper or lower limits. The MACD
below zero with no upper or lower limits. The MACD
proves most effective in studying wide
proves most effective in studying wide
-
-
swinging trading
swinging trading
markets.
markets.
THREE WAYS TO USE MACD
THREE WAYS TO USE MACD
Three popular ways to use the MACD are Three popular ways to use the MACD are crossovers crossovers, , overbought/oversold conditions overbought/oversold conditions
and and divergences divergences. .
Crossovers: Crossovers:
The basic MACD trading rule is sell when the MACD falls below it The basic MACD trading rule is sell when the MACD falls below its signal line and buy s signal line and buy
when the MACD rises above it. It is also common to buy/sell when when the MACD rises above it. It is also common to buy/sell when the MACD goes the MACD goes
above/below zero. above/below zero.
Overbought/Oversold Conditions: Overbought/Oversold Conditions:
The MACD is also can be used as an overbought/oversold indicator The MACD is also can be used as an overbought/oversold indicator. If the shorter . If the shorter
moving average pulls away dramatically from the longer moving av moving average pulls away dramatically from the longer moving average and the erage and the
MACD rises it is likely that the security price is overextended MACD rises it is likely that the security price is overextended and will soon return to and will soon return to
more realistic levels. more realistic levels.
Divergences: Divergences:
Expect the end a current trend may be near when the MACD diverge Expect the end a current trend may be near when the MACD diverges from the price s from the price
of a security. A bearish divergence occurs when the MACD is maki of a security. A bearish divergence occurs when the MACD is making new lows while ng new lows while
prices fail to match these lows. Likewise, a bullish divergence prices fail to match these lows. Likewise, a bullish divergence occurs when the MACD occurs when the MACD
is making new highs while prices fail to follow suit. Both of th is making new highs while prices fail to follow suit. Both of these divergences are ese divergences are
most significant when they occur at relatively overbought/overso most significant when they occur at relatively overbought/oversold levels. ld levels.
MACD INDICATOR
MACD INDICATOR
STOCHASTICS
STOCHASTICS
Directional Movement Index (DMI)
Directional Movement Index (DMI)
helps determine if a security is
helps determine if a security is
"trending." Two lines are generated in
"trending." Two lines are generated in
a DMI study, +DI and
a DMI study, +DI and
-
-
DI. The first
DI. The first
line measures positive (upward)
line measures positive (upward)
movement and the second number
movement and the second number
measures negative (downward)
measures negative (downward)
movement. A
movement. A
buy
buy
signal is given when
signal is given when
the
the
+DI line crosses over the
+DI line crosses over the
-
-
DI line
DI line
while a
while a
sell
sell
signal is generated when
signal is generated when
the
the
+DI line crosses below the
+DI line crosses below the
-
-
DI
DI
line.
line.
Directional Movement Index (14)
Directional Movement Index (14)
Directional Movement Index
Directional Movement Index
There is pressure to buy when a
There is pressure to buy when a
stock closes in the upper half of
stock closes in the upper half of
a period's range and there is
a period's range and there is
selling pressure when a stock
selling pressure when a stock
closes in the lower half of the
closes in the lower half of the
period's trading range. Setting
period's trading range. Setting
21 day.
21 day.
Chaikin
Chaikin
Money Flow (21)
Money Flow (21)
BULLISH
BEARISH
STOCK
CHAIKIN MONEY FLOW
CHAIKIN MONEY FLOW
BULLISH
BEARISH
NASDAQ
CHAIKIN MONEY FLOW
CHAIKIN MONEY FLOW
The
The
I nertia
I nertia
indicator takes its name from
indicator takes its name from
the realm of physics. Used to describe the
the realm of physics. Used to describe the
tendency of a body in motion to stay in
tendency of a body in motion to stay in
motion until acted upon by an outside
motion until acted upon by an outside
force, here it is used to measure the
force, here it is used to measure the
momentum of a stock based upon its
momentum of a stock based upon its
volatility. I nertia is measured on a scale
volatility. I nertia is measured on a scale
from 0 to 100.
from 0 to 100.
Negative
Negative
inertia is seen if
inertia is seen if
the indicator is
the indicator is
below 50
below 50
. I f the indicator
. I f the indicator
is
is
above 50
above 50
, it is said to have
, it is said to have
positive
positive
inertia. Signs of positive inertia are
inertia. Signs of positive inertia are
indicative of a long
indicative of a long
-
-
term upward trend.
term upward trend.
Signs of negative inertia illustrate long
Signs of negative inertia illustrate long
-
-
term downtrends.
term downtrends.
INTERIA (14,30)
INTERIA (14,30)
NEGATIVE
POSITIVE
INTERIA
INTERIA
I NTERI A
I NTERI A
DOW J ONES
Momentum % is quite similar to
Momentum % is quite similar to
Momentum. The difference lies in that
Momentum. The difference lies in that
rather than being the difference
rather than being the difference
between today's price and the one of
between today's price and the one of
n
n
days prior, Momentum % is a
days prior, Momentum % is a
measure of the day as a percentage
measure of the day as a percentage
of the
of the
maximum Momentum.
maximum Momentum.
Momentum % Indicator (12)
Momentum % Indicator (12)
BEARISH
BULLISH
BEARISH
Move above
200 day MA
a must
Momentum % Chart
Momentum % Chart
The Ease of Movement Indicator was designed
The Ease of Movement Indicator was designed
to illustrate the relationship between volume
to illustrate the relationship between volume
and price change. It shows how much volume is
and price change. It shows how much volume is
required to move prices. High Ease of
required to move prices. High Ease of
Movement values occur when prices are moving
Movement values occur when prices are moving
upward with light volume. Low values occur
upward with light volume. Low values occur
when prices are moving downward on light
when prices are moving downward on light
volume. If prices are not moving or if heavy
volume. If prices are not moving or if heavy
volume is required to move prices then the
volume is required to move prices then the
indicator will read near zero.
indicator will read near zero.
A
A
buy signal
buy signal
is produced when it crosses
is produced when it crosses
above
above
zero
zero
(an indication that prices are more easily
(an indication that prices are more easily
moving upward ). A
moving upward ). A
sell signal
sell signal
is produced when
is produced when
the indicator
the indicator
crosses
crosses
below
below
zero
zero
(prices are
(prices are
moving downward more easily).
moving downward more easily).
Ease of Movement (14)
Ease of Movement (14)
DOW JONES
Ease of Movement Chart
Ease of Movement Chart
FI BONACCI RETRACEMENTS
FI BONACCI RETRACEMENTS
Fibonacci
Fibonacci
Retracements
Retracements
are displayed by first
are displayed by first
drawing a
drawing a
trendline
trendline
between two extreme
between two extreme
points, i.e. bottoms and tops. A series of
points, i.e. bottoms and tops. A series of
horizontal lines are drawn intersecting the
horizontal lines are drawn intersecting the
trendline
trendline
at the Fibonacci levels. After a
at the Fibonacci levels. After a
significant price move in either up or down
significant price move in either up or down
direction, prices will often give back a significant
direction, prices will often give back a significant
portion (if not all) of the original move. As prices
portion (if not all) of the original move. As prices
retrace, look for support and resistance levels
retrace, look for support and resistance levels
often occurring at or near the Fibonacci
often occurring at or near the Fibonacci
Retracement
Retracement
levels.
levels.
FI BONACCI RETRACEMENTS
FI BONACCI RETRACEMENTS
Average True Range or ATR is a
Average True Range or ATR is a
measurement of volatility. It measures the
measurement of volatility. It measures the
average of true price ranges over time. The
average of true price ranges over time. The
True Range is the greatest distance between
True Range is the greatest distance between
today's high to today's low, yesterday's close
today's high to today's low, yesterday's close
to today's high, or yesterday's close to
to today's high, or yesterday's close to
today's low. The Average True Range is a
today's low. The Average True Range is a
moving average of the True Ranges. This is a
moving average of the True Ranges. This is a
great indicator to help with stop loss orders.
great indicator to help with stop loss orders.
Use the daily ATR number as a potential stop
Use the daily ATR number as a potential stop
loss. With some stocks you may want to
loss. With some stocks you may want to
double the ATR as your stop loss.
double the ATR as your stop loss.
Setting 15
Setting 15
days.
days.
Average True Range (15)
Average True Range (15)
Average True Range Chart
Average True Range Chart
Adjusting the ATR on a daily basis
Adjusting the ATR on a daily basis
is a good rule of thumb, or every
is a good rule of thumb, or every
time your Moving Averages crosses.
time your Moving Averages crosses.
I use the 10 and 20 day Simple
I use the 10 and 20 day Simple
Moving Average as a warning sign
Moving Average as a warning sign
indicating that it may be time to
indicating that it may be time to
tighten up my stop loss. Again with
tighten up my stop loss. Again with
some stocks you may want to set a
some stocks you may want to set a
stop loss at twice the ATR price,
stop loss at twice the ATR price,
this will help avoid being kicked out
this will help avoid being kicked out
of a trade to soon.
of a trade to soon.
ADJ USTING the ATR
ADJ USTING the ATR
Create a System and Trust It
Create a System and Trust It
ENTRY SIGNALS
ENTRY SIGNALS
with an
with an
EXIT PLAN
EXIT PLAN
All good traders begin with the end
All good traders begin with the end
in mind, having a technical system
in mind, having a technical system
that you trust and believe in will
that you trust and believe in will
build your confidence while
build your confidence while
reducing your risk.
reducing your risk.
As Ive always said Fundamentals
As Ive always said Fundamentals
tell you what to do while
tell you what to do while
Technical Indicators tell you
Technical Indicators tell you
when to do it.
when to do it.
Entry Signals with an Exit Plan
Entry Signals with an Exit Plan

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