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Basic's of Technical Analysis

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manish.pucsd@gmail.com

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Contents
1. 2. 3. . Difference between Fundamental and Technical Analysis How to use Support and Resistance How to use Trendlines to find Support and Resistance How to use !scillators to "#$ an S%&&

Who must Read this Book

This book is going to teach you some basic and most important concepts of Technical Analysis . Anyone who trades or Invests in any arkets like !tock arkets " Commodities " Currency etc" can use these concepts . These Concepts in themselves do not guarantee any success " there is much more than Technical Analysis which you need to understand and #earn like oney anagemenet " Investment or Trading $sychology and %iscipline in !tock arkets .

Important $oints

&ach Chapter has e'ample(s to help reader understand the concepts well. )ou are *ree to share the content +provided, you link back to http-..www./agoinvestor.com and give proper credits to Author ie. anish Chauhan . If you have any 0uestions or concerns " mail me at manish.pucsd1gmail.com %o not 2se this ebook or its contents for any commercial $urpose .

*undamental Analysis and Technical Analysis

There are two important 'uestions which you ha(e to answer when you want to buy shares ) They are *+hat to buy* and *+hen to buy* ) $ou may be familiar with Fundamental Analysis , Fundamental Analysis answers the 'uestion *+hat to buy* ) . -t a study of companies Financial statements , cash boo.s , mar.ets study to find out the future prospects of a company. -t answers the 'uestion *+ill this company be a /ood buy for lon/ term* ) , *+ill it be more (aluable than what it is now * etc etc * "ut 00 , %(en thou/h you ha(e pic.ed up some e1cellent companies for your lon/ term in(estments , That2s not the end of the story . 3ow the bi//est challen/e and 'uestion you ha(e is *+hen to buy it* ) $ou should not 4ust /o ne1t day and buy the share , that2s not the ri/ht approach . There can be a price area where buyin/ is best in terms of ris.5reward . Technical Analysis is the study of charts , price and (olume patterns and other indicators deri(ed from price and (olume . Technical Analysis /i(es us hint on what can happen in future , understand that it only /i(es you chances, not a /uarantee . So e(erythin/ should be ta.en with crossed fin/ers , Decisions ta.en on basis of TA only increases your ris.5reward scenario . Fundamental Analysis and Technical Analysis is a personal choice and one may wor. for you and other may not wor. for you . -ts you who ha(e to find out what fits your personality and if you want to use it or not . &et us see an %1ample in the ne1t 6a/e .

I will give you an example .

Reliance is a (ery /ood lon/ term -n(estment 7do your own analysis to find out why, but it is 89 9 . !n Feb 1 2::; , A4ay and Robert want to in(est Rs 1 lac in Reliance for lon/ term . "oth of them understand that Reliance is truly lon/ term buy . A4ay in(ests in Reliance on Feb 1 , because share is /oin/ up and he feels its a /ood time to enter other . He buys the stoc. at Rs 13<: . After some days Stoc. starts fallin/ and reaches around Rs 1,1=: . Roberts buys the stoc. at that time . See the >hart "elow .

Here you can see that Robert has /ot the stoc. at 1=? lower price , which means his profits will always be more than A4ay2s by that much . +hat did Robert do ) Robert used simple Technical Analysis concepts and entered in the stoc. with better prices , -t does not mean it will always happen , but there are /ood chances for /ettin/ better price . -n the abo(e case of Reliance , there is no si/nificant price difference , but there can be cases ,where there can be drastic differences , and it would be really worth to use basic Technical Analysis .

3ow to use !upport and Resistance

!upport 8 Support for a price is a price area
where there are lots of buyers ready to buy the stoc.s rather than sellers . At that price point , the /eneral perception is that its a /ood buy , and lots of buyers come to buy it . Hence buyers outnumber sellers and there is a hi/her possibility that prices will bounce bac. from that point . This is a point where "uyin/ has less ris. . -n other words , at support le(els demand is thou/ht to be stron/ enou/h to pre(ent the price from declinin/ further . 6lease understand that Support point is not a place from where it will for sure bounce bac. , -ts only the hi/her probability that it will bounce bac. . Also understand that its not e1actly a fi1ed price which should be considered as Support , /enerally its a ran/e li.e ;@A1:: or =<:A=B: .. +hich point is Support point 8 %(ery &ow made by the price can be considered as Support Area . !upport &'ample 4 - "elow chart is for Caipra.ash Associates 7clic. to enlar/e9 , -t made a low of Rs =3 7closin/ price9 on 2Bth !ct 2::@ and then bounced up from there . 3ow Rs =3 is the support point , 6rices went up from that point and after reachin/ Rs ;: , it a/ain started headin/ down , $ou can clearly see in charts that it reached Rs =3 le(els , but could not brea. down from that point and a/ain bounced bac. from there .

-t was a (ery /ood *"#$* around Rs =3 .#nderstand that buyin/ around Rs =3 , is only a lessAris.y trade , not a *noAris.* trade . 6rices can brea. down from there also .

!upport &'ample 5 - "elow is a chart of R6& . Here you can see that prices made lows of Rs B: around Dec 1 , :@ . That became a support point , and then prices reached thou/ht le(els around first wee. of Dar :; , -t bounces bac. from that point , -t was a less ris. trade around Rs B: .

Resistance - Resistance is 4ust opposite of Support , At this price le(els there are
more sellers than buyers and with hi/h probability prices re(erses from this point . At this point there are enou/h sellers in the mar.et to pre(ent it from risin/ further . Resistance point is the Hi/h made by a price . All the hi/h2s will act as some .ind of resistance points . &ets see e1amples 8 Resistance %1ample 1 8 "elow is Reliance >harts , $ou can see that reliance made a hi/h of Rs 1 :: around Dec 2::@ , After that you can see how it re(ersed from that point 2 times in Can and Feb 2::; . -t was a wise decision to sell at those points

$ou can also find many e1amples li.e this if you in(esti/ate yourself . Try to see other charts if you are interested , you can loo. at charts at ichart.in or http855www.baEaartrend.com5inde1.php , find yourself9

Important 6ote - +hen prices are near Support or Resistance le(els , you should
be more alert . -t does not mean that you 4ust 4ump onto mar.et and buy or sell , "e patient to see the actual price re(ersal , Thou/h you will loose some part , that would be a better trade . Also there are se(eral other factors which should be considered , but for now lets not touch upon them . lets .eep it simple for readers . &ets also loo. at some important points

Break %own - Always remember that when prices dont hold support and brea.
them and fall further , it tells that buyers are not stron/ enou/h and Sellers ha(e ta.en o(er them and prices will ma.e new lows , +hen support is bro.en , Sell further . %1ample 8"elow is the chart of R6& , which shows how it bro.e down its support point and then made further lows .

Break 7ut - +hen prices dont hold resistance points and brea. them on upside ,
prices then indicate that they are /oin/ to ma.e new hi/hs . "etter to buy at that point .

!ome 7ther points to remember 1. Support and Resistance points are places where you should be more alert and loo. for other si/nals to buy or Sell, 4ust dont buy because prices ha(e reached near support , buy it when it starts risin/ and there are positi(e si/nals . 2. Support once bro.en becomes Resistance for ne1t time , and Resistance once bro.en becomes Support point for ne1t time , use this .nowled/e . See 8
http855candlestic.mania.blo/spot.com52::@5:B5resistanceAbecomesAsupport.html

3. Dany times there are false brea.out and brea.down , So it will many times happen that you /et out at important le(els and miss the lar/e mo(ement , thats fine , you can always enter after /ettin/ out . . This is most important point , %(erythin/ - tal.ed about in this article can increase your chances of ma.in/ more money in tradin/ , but remember that you are dealin/ in Dar.ets , and if you dont control your FR%%D and emotions , your failure is /uaranteed . #se strict Stop losses and use Doney mana/ement techni'ues 7it means not puttin/ all your money at once , if you ha(e 1: lacs , put only 1 lac , dont be /reedy enou/h , else someday you mar.ets will punish you badly , then no Technical analysis or any thin/ will help . ha(e /ood amount of cash with you always 9.

All technical Analysis and .nowled/e are of no help if a person cant control his /reed and emotions in Dar.et . TA and your .nowled/e will contribute not more than 2:? of your success in lon/ run .

3ow to use Trendlines to find !upport and Resistance

What is a Trend#ine 8
A trend line is a strai/ht line that connects two or more price points and then e1tends into the future to act as a line of support or resistance. -n the #ptrend , we 4oin two low prices points and in Downtrend we 4oin two hi/h prices and e1tend it further . 3e1t time when prices approach them , it should probably act as Support or resistance point . &et us see one e1ample of each of them. %1ample of trend line while D!+3TR%3D

$ou can see in the chart how Two hi/h prices were 4oined and the line acted as Stron/ Resistance in future , 3 times prices touched it and bro.e down a/ain , These are /ood price area where either one can /o Short 7sell9 , or boo. there profits . $ou can see that now prices are a/ain Approachin/ to this Resistance line ,so once prices reach this point , it may pro(ide a /ood opportunity to sell . +hat will happen e1actly , better not to predict and let mar.et decide . #nderstand that we are not sayin/ that prices has to necessarily touch the Resistance line and then /o bac. down , the trend line only pro(ides Resistance , it may a/ain /o bac. much before touchin/ it .

%1ample of trend line #6TR%3D "elow if the 2 yrs chart of H-3D &%G%R , &et us try to ma.e a trend line which acts as support .

-f you see the chart , i ha(e connected two low prices and e1tended it in future , you can clearly see how it acted as support area and prices went bac. up from there , At the end , you can see how prices are a/ain approachin/ this support area , most probably this will a/ain hold and it should be a /ood "#$ 89 &et us see one more e1ample for Trend lines . This e1ample will show us followin/ thin/s 8 A Resistance line usin/ trend line . A "rea.out A How Resistance once bro.en became Support A Resistance line usin/ trendline for shorter time frame . &et us see a 2 yrs chart of CA-6RAHASH ASS!>-AT%S

$ou can see here how i 4oined two H-FH 6oints and e1tended the trendline in future , and how prices reacted to this Resistance line . Recently 6rices bro.e out of this resistance line and then this same resistance line acted as Support line and prices bounced bac. from there . Also you can see a small trendline , which was made 4oinin/ the low points . you can see how prices bounced up as this support line held the prices . So , we ha(e seen some e1amples of Trend lines and how they can act as Resistance or Support lines 7as per situation9 .

!ome of the important points to note are

Its more of an art to make a trendline , it depends how you make them using HIGH PRICE , CLOSE PRICE etc . You can make Trendline for any time frame. Its not necessary for prices to touch trendlines , you should not expect it . Its a wise decision to BUY OR SELL using trendlines . If trade goes in your favor , let your profits run , if it fails, cut your losses short and accept it . there is no problem with being wrong . even the best in Industry fail . Trendlines will be of no help unless you control your GREED in markets . dont put all your money in a single trade . Keep adequate cash for bad times . Once trendlines are broken , take it seriously , it has happened for a reason :) . Make sure that the two points used to make trendline are not very near , there should be some time gap between them to believe in them . More times trendline is touched by the price stronger it becomes , And stronger is the break out from that trendline .

6ractise Iuestion for you "elow is a chart , and - ha(e drawn se(eral trendlines in different time frames , - ha(e mar.ed some points with 1,2,3, ,= , please tell me what are each of them and comments on each point . please do it indi(idually . &et me see who comments correctly on each of them . Also tell me if there is any other trendline which could ha(e been made , but i ha(e left it )

Conclusion So we end this Article here , +e saw -mportance of Support and Resistance and how to ma.e trendlines and use them . -n the ne1t part 7last part9 , we will see how we can use some of the -ndicators from technical Analysis to ma.e decision better . Also , we can see that e(en by (isual inspection we can /et some idea about which area is support and resistance area . For people interested in learnin/ these thin/s in detail , - would recommend a boo. *How to ma.e money tradin/ with >harts* by Ashwini Fu4ral .

3ow to use 7scillators to B2) an !&##

+hat are !scillators 8 !scillators are the indicators which mo(e from o(erbou/ht to o(ersold area , /enerally from : to 1:: . when they are nearin/ 1:: it means stoc.s are o(erbou/ht and *e1pected* to /o down now . when they are nearin/ : , it means , stoc.s are in o(ersold area and fresh buyin/ can come and mo(e the stoc. up . - will discuss 4ust 2 oscillators which -n(estors can use to ma.e better "#$ A3D S%&& decisions . &et ta.e a time frame of < months and see how indicators /a(e si/nals of buy and sell . +e will see 2 indicators here RS- and Slow Stocastics 7SS9 7Read what is RS- and +hat is Slow Stocastic 9 .

Rules
+hen its o(erbou/ht , we S%&& the share . +hen its o(ersold , we "#$ the share . SS "#$ si/nal J when blue color line crosses down the Red line . SS S%&& si/nal J when blue color line crosses abo(e the Red line . RS- "#$ si/nal J when RS- has mo(ed below 3: and starts mo(in/ up . RS- S%&& si/nal J when RS- has mo(ed abo(e B: and starts fallin/ down . To ma.e si/nals more stron/er , we will use both the indicators si/nal and ta.e "#$ or S%&& only when both shows same .ind of si/nal . !G%R"!#FHT J when RS- and SS both are o(erbou/ht !G%RS!&D J when RS- and SS both are o(ersold .

6ote
At any point of time, mar.ets may be in any of 3 state . 9 2ptrend 9 %owntrend 9 !ide ways ovement

#nderstand that these si/nals wor. best in ran/e bound mar.et , li.e we had for last < months . +hen mar.et were mo(in/ in ran/e of 31::A2<:: . -f mar.ets are in stron/ #ptrend or Downtrend , these indicators will /enerate many false si/nals . Hence , -n different mar.ets we ha(e to use different strate/ies . #ptrend Dar.et 8 -3 #ptrend , you should a(oid sellin/ the stoc. , when there is small correction , -ndicators can fast mo(e in o(ersold re/ion , that is the time you should "#$ . "ut not S%&& when prices are in o(er bou/ht mar.et . Downtrend Dar.et 8 -n Downtrend , you should a(oid "uyin/ the stoc. , only S%&& when the indicators are in o(erbou/ht re/ion . Sideways Dar.et 8 -n this mar.et , you can buy and sell both . &ets see some e1amples for last < months . This was a Sideways mar.et 7but still downward bias was there , so be careful with "#$ , you can ta.e S%&& easily9 . %#*

ICICI BA6:

R&#IA6C& CA$ITA#

!ome Important things to 67T& ;very important<

!scillators should not be used in -solation alone , $ou should also confirm it with other thin/s li.e Support and resistance to ma.e your "#$ or S%&& more stron/er . *or e'ample 8 -f prices are near the !(erbou/ht , but you see that prices ha(e bro.en the resistance point , its tells you that you should not "#$ . because !scillators are secondary thin/ , prices are primary . Also , -f prices are near support and not brea.in/ it , and oscillator are in o(er sold area , then its safe to "#$ . 3e(er rely 4ust on !scillators , they are only helpin/ tools used with other si/nals .

Thanks
Than.s for readin/ the eboo. . - hope you ha(e learned some thin/ which can help you . To read more articles li.e these (isit http855www.4a/oin(estor.com
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