London Mastermind

Technical Analysis
Trader Group
Ray Francis
Technical analysis of shares and
financial derivatives.

1
 Web Sites
• http://www.moneyextra.com/stocks/ftse100/
• http://www.liffe-data.com/equityOptions.aspx
• http://bigcharts.marketwatch.com/
• http://www.comdirect.co.uk/ Broker Web site
• http://www.mybroker.com/
• http://www.nasdaq.com/
• http://www.optionetics.com/
• http://www.advfn.com/
• https://wwws.ameritradeplus.com/
• http://www.bloomberg.com/markets/stocks/wei.html The Technical
•
•
http://www.cboe.com/home/default.asp Analysis Course
http://www.chartpatterns.com/
• http://www.euronext.com/home/0,3766,1732,00.html
• http://www.londonstockexchange.com/default.asp Thomas A Meyers
• http://www.prophet.net/default.jsp
• http://finance.lycos.com/qc/default.aspx ISBN 1-55738-523-8
• http://finance.yahoo.com/
• http://www.gann.co.uk
• FreeTraining@WinInvesting.com

2
Money Extra FREE Stuff

3
Technical analysis of shares and
financial derivatives.

Rules and Regulations

This presentation is for
education and interest and is
not advice

4
Technical analysis of shares and
financial derivatives.

Acknowledgements to
AIQ charting
MyTrack
MyBroker
5
Technical analysis of shares and
financial derivatives.

Understanding Graphs

6
Reading a Chart
Line Graph

Price

Time
7
 Day or period bars

High
OHLC Close

Open
Low

8
 Day or period bars

OHLC High
Close

Open

Low

9
 Reading a chart
Open High Low Close (OHLC)

Dow Jones &Co graph in OHLC

10
Day or period bars
Candlesticks

Any
Specified period

11
 Reading a Chart
Candle stick

Dow Jones &Co graph in HLOC

12
Day or period bars
Gaps

Something happened after the market close

and the next day opening

13
Why losses are greater than gains
Slippage
The Gain
SELL
BUY

14
Why losses are greater than gains
Slippage
The loss SELL

BUY

15
 The Market Maker

• Task to maintain a market liquidity

• Obliged to offer prices to buy and sell

16
 Brokers

Nobody cares more about your money than

you

17
TECHNICAL ANALYSIS

Chart Patterns

18
 5 Major Chart Patterns

Wedge &
triangles
Head & shoulders
W

Cup & handle

Rounded
bottom

19
 5 Major
Chart patterns (either way up)

Head & shoulders

Cup & handle

Rounded top
Wedge & triangles

20
Head and Shoulders

21
W

22
Dow Jones Industrial Average
W
1600 points = $8000
400% in 4 months

8800 +1600
= 10400
Target

7200 – 8800
1600 points

23
 Triangle or Wedge

Descending Triangle

Tar
get
lin e

More contact points = greater reliability

24
Rounded Bottom

25
Cup and Handle !!!

Hard to find but worthwhile

26
(IBM) Chart bottom ?

27
(IBM) Chart bottom ?

28
(IBM) Chart bottom ?

29
Why Bull and Bear Markets

30
Why Bull and Bear Markets

31
 Technical analysis
Charting

• What to look for

• Selecting shares

32
The First Step

Fast Searching

33
34
35
36
37
38
Market forces cause rising and
falling oscillations

39
 Why it Works
After each rise the price looks high. After the 3rd
Buyers taking profit rally most long
term buyers
have bought

After the fall the price looks low

more buyers return

40
Tools of the trade

41
 Look at bar size
RUNNING OUT OF STEAM
Reducing
Daily bars

Large
daily bars

42
Support and Resistance

43
The Trend line

44
Support and Resistance

45
FREE Stuff

46
47
 10 DAY MOVING AVERAGE
Mid - Price
• Find the average for the last 10 days
• Plot it today
• Next day do it again
9
8
7
6
5
Series1
4
3
2
1
0

15

17

19

21
1

11

13
48
Support and Resistance 10 day
moving average

49
Support and Resistance 10 and
21 day moving average

50
Support and Resistance
Caution

51
Support and Resistance 10 and
21 day moving average
Cross over

52
Golden Cross

53
What is MACD?

2 moving averages

54
 MACD oscillator
Trending only not flat

The difference between 2 MA

55
Indicators
• The
• blow off
• bottom

56
Look for a Volume spike

57
RSI Relative Strength Index

50

NOTE 21 day setting

58
Accumulation distribution

59
 Test technical indicators

• Test out the indicator

• Look back at any stock to ensure that:
• It worked reliably in the past
• Change the constants up or down to improve
• Example change 21 day MA to 18 or 28

60
 FIBONARCCI
A naturally occurring
number sequence

23.6%
38.2%
50%
61.8%
161.8%, 261.8%, 423.6%
1,2,3,5,8,13,21,55

61
 FIBONARCCI pattern

61.8% 5 a c
b
4

38.2% 3
2
One of the more
reliable strategy
1

62
FIBONACCI the law of nature
3 steps up

63
 FIBONACCI the law of nature
Same Graph up close

61.8%

38.2%

64
FIBONACCI 1,2,3,5,8,13,21,55

13 21 34

65
 Gann

• A famous trader
• Many factors 50% 25% 12.5% / 33% 17.5%
• Some difficult to follow
• Some methods questionable
• 50% method very strong

66
Graph of Gann in action

50%

67
Graph of Gann in action FTSE

50%

68
Graph of Gann Angle

69
 FREE Stuff

• http://www.gann.co.uk
• Free training course
• You can learn more
• Do not believe the profits claimed
• Keep your money

70
How to avoid owning
a falling portfolio

Let us say you find £10,000

Are you happy now

71
Buying and taking profits?
Half and half

What is natural

Getting rid of those bad stocks

72
 Buy 10 Different Stocks
• 5 up stocks • 5 down

73
 Buy 10 Different Stocks
• 5 new • 5 down

74
 Buy 10 Different Stocks
• 3 up • 5 down
• 2 down

75
 Buy 10 Different Stocks
• 3 new • 7 down

76
 Buy 10 Different Stocks
• 1 up • 7 down
• 2 down

77
 Buy 10 Different Stocks
• 1 new • 9 down

78
Random walk and probability

79
 Random Walk

Logical path

80
 Stop loss not too close (logical)

• If you use a close stop loss you will fail

• The natural market fluctuation backtracks

81
Targets for a Stop Loss

82
 The Long and the Short of it

• What is going short

• What is going long

83
 Selling Short

• What is going short

• IS IT LEGAL?

84
 What to look for

• A stock with a small spread. (Well Traded)

• A good trade pattern or changing trend
• A good indicator to confirm trend
• Cross over of moving average
• Cross over of a trend line
• No line of resistance in the way

85
 Day Trading
Typical decision time 5 to 8 seconds

86
 What is a Future

• It is a contract to deliver the underlying

• On the FT100 a basket of all shares in the
correct proportion to equal the value of the
FTSE.

87
 Index Futures

• Dow Mini = $5 per point per contract

• Average move each day 170 high to low
• If you could pin the top and bottom $850
• Trading 10 contracts = $8500
• Account size needed $20,000
• Potential 30% a day ( + or - )

88
What if the future gains too fast
Arbitrage
Future
Index Sell
Buy

Close out

Typically 35 seconds

89
Dow 2 minutes ( Before Announcement)

90
Dow 1 minute ( to Announcement)

91
 Dow I minute ( After 8 Minuets)

Drop from 8440 to 8388

52 points
52 points at $5 = 260

92
 Dow I minute ( After 15 Minuets)
100 points = $500
8 in minutes

93
Next day at 10:00:30sec

Drop 30
points in 30
seconds

94
Next day at 10:01
Recovery of
40 points in
30 seconds

95
FREE stuff * mybroker.com

96
Options

97
Down on the farm

98
What is this strange thing?
A Call Option

99
 Options. The covered Call

The safest strategy to use,

But How Safe?

Warren Buffett

100
 The covered Call
BUY Sell

Stock 1 Call Option

certificate contract
1000 share To Supply 1000
Barclays Barclays shares at
Bank
£5
1000 x £5 = £5000
1000 X 35p = £350
•True cost of trade =465p
•X1000 = £4650 101
 •1 Happy Bunny
Price up

• The Call is exercised

• You keep the premium £350
• You get £5000 and keep the call premium
• 35p X 1000 = 350
• Total £5350 from £4650
• 14% in a few weeks

102
 Price the same £5

• The Call is worthless

• You keep the premium
• You still have the stock and £350
• Next action DO IT AGAIN

103
 Stock Price at 450p

• 1) Buy 1000 shares at 500p

• 2) Sell 1 call say 35p (6 weeks?)
• True cost of trade = 465p

• Loss £150
• Simple share purchase = £350 loss

104
Check out an option table

FREE Stuff
105
106
 The Cunning Plan

• 1- Have money
• 2- Exchange money for positions
• 3- Close the positions back to more money

107
 Buying shares at a discount

• What is a Put
• The right but not the obligation to sell at the
agreed price within the period.

108
 Selling Time

• Time decay. Sell a 50 call for 15

Option Price Stock Price
15 60
10
5
0 50

40
3 month 2 month 1 month

109
Put Contract

Contract
The right to sell
1000 shares in BP
For 500p each
expiring 17 June
2004

110
 Buying shares at a discount
• If you want 1000 Barclays ( trading at £5 )
• Sell a £5 put for 30 p (x 1000 = £300)
• If the price drops below £5 at or near expiry
• You buy at £5 and keep the 30p
• Outlay £4700
• If the price stays high you have no shares
• But, you do have the £300

111
 Free Stuff

• Optionetics
• www.optionetics.co.uk
• You can learn a little for free.
• You can pay for more
• Do not believe massive profits promised

112
Danger

113
Conditions and Tactics

114
 Back to Basics

• Trade with the trend (up or down )

• Money management ( Diversity )
• Stop loss ( Position and execution )
• Run profits
• Any single risk < 2% of account

115
 Know your risks
• Trading is dangerous
• If you are failing

• Look at the conditions

• Paper trade to find out what is wrong
• Or you may blow out your account

116
 A good trader

• Will stalk and wait for the opportunity

• You do not have to trade a bad chance
• There are plenty of good chances
• All you have to do is be ready

117
 1 Professional trader
Claims to have a 53% hit record
However she is very profitable as
her gains are 3 times greater than
losses

118
So you gained without a stop loss

• Many times you can recover

WITH LUCK Sell
Buy

119
 Stop Loss
BUY£9800
10
9
It’s turning £8000
8
It’s turning £7000
7
Look out 6

for Splits 5

It’s turning £4000 4

3
MARCONI No money left
2
1
120
 Well… It is not that often is it?

Enron Psion
Marconi Microsoft
British Rail Bookham Technology
British Telecom

121
Sooner or later the LUCK runs out

122
 Gain v Loss %
• 10,000 - 50% = 5000
• Recovery 5,000 + 50% = 7500

• 10,000 + 50% = 15000

• Compounding 15,000 - 50% = 7500
Fixed 10,000 – 50% = 5,000 loss
Fixed 10,000 + 50% = 5,000 gain = 10,000 left

123
 Success
• Plan each trade
• Know and place a stop loss
• Have a target
• Place a tight stop under it when the target is
reached

124
 Technical Analysis provides
greater probability

• Some indicators are said to be 90%

reliable?
• Subjective????

125
 What account do you need

• Low charges
• Phone and internet
• Ability to trade both long and short
• Ability to trade Options
• Support stop loss
• Comdirect

126
 Trading check list

• Plan each trade and trade the plan

• Consider profit v loss ratio >2.5:1
• Select correct entry point and stop loss
• Re-position stop losses under rising prices

127
 Free Stuff

Darren Winters
FreeTraining@WinInvesting.com

• You can learn a little for free.

• You can pay for more
• Do not believe massive profits promised

128
 The Book

The Technical Analysis

Course
Thomas A Meyers
ISBN 1-55738-523-8
129
 Interesting shares
Oxford Instruments

130
Interesting shares

Scottish and Newcastle

131
Interesting shares
Abbey National

132
Interesting shares

IBM

133
London Mastermind

Ray Francis

Ray Francis

Th, th, th That’s all folks

134