www.pring.com Definition of Technical Analysis: The art of identifying a price trend reversal at a relatively early stage and riding on that trend until. ..the weight of the evidence shows or proves that the trend has reversed. www.pring.com The hopes and fears of all market participants are reflected in one thing .the price !! www.pring.com Technical analysis assumes that prices move in trends. www.pring.com Trends have a tendency to perpetuate. www.pring.com Prices in any freely traded market are determined by the attitude of all market participants to the underlying fundamentals. www.pring.com A trend is a trend is a trend. Always assume the prevailing trend is in existence until proven otherwise. www.pring.com There is no known technique for determining the duration and exact magnitude of a price move. www.pring.com We can only recognize a change in direction. It doesnt matter what time frame you are following... the principles of technical analysis remain constant. www.pring.com The only difference is www.pring.com the longer the time frame, the greater the significance of any given trend reversal. The principal difference between day and swing trading and other forms of trading is the time frame. www.pring.com It doesnt matter what security you are following... the principles of technical analysis remain constant. www.pring.com Look for the weight of the evidence; (several indicators, to indicate a reversal.) www.pring.com In technical analysis we are dealing in probabilities, never certainties. www.pring.com Always look down before you look up!! www.pring.com The first trading objective is to preserve capital. www.pring.com #1 Trading Rule Cut losses quickly, and let profits run. www.pring.com First trade has a 50% loss! www.pring.com Next trade has a 50% gain www.pring.com Next 3 trades make 10% each www.pring.com Next 4 trades make 80% www.pring.com Still not back to break even www.pring.com The Indicators www.pring.com 1.Peak and trough analysis 2.Support and resistance 5. One and two bar price patterns 6. Brokers as a leading market indicator 3. Trendlines 4. Placing stops 1. Peak and Trough Analysis www.pring.com Rising peaks and troughs is bullish www.pring.com Rally fails to make a new high. www.pring.com B Declining peaks and troughs now signaled. www.pring.com D Rising peaks and troughs now signaled. www.pring.com Price falls below breakout point, but rising peaks and troughs are still intact. www.pring.com Y Rising peaks are still intact . . . X . . . but a new low here www.pring.com Y Rising peaks and troughs now broken. www.pring.com New high! www.pring.com What constitutes a legitimate peak or trough? www.pring.com 100% of the advance Retracement should be about 1/3 - 2/3 of the previous move. www.pring.com Retracement far less than 1/3 - 2/3 of the previous rally. www.pring.com 1/3 or more of time taken to form the rally. 100% www.pring.com S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Low High 15-minute bar S&P Composite www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC New reference high 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Still intact 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Still intact 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Downtrend continues 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC New reference high 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Downtrend still intact 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Rally meets resistance 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Possible reference low 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Breakout above previous high. 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC and this one. 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC New reference low 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC New downtrend signaled 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Neutral trend 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Above previous high Below previous low 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Two benchmarks 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Uptrend confirmed 15-minute bar www.pring.com S&P Composite S & P Composite Bear ( Inverted) 6-wk MA S & P Comp(6MA) 13-wk ROC Sell signal 15-minute bar www.pring.com 2. Support and Resistance www.pring.com "Support" and "Resistance" are terms that are often misused! www.pring.com Support is where a declining trend can be expected to halt, temporarily, due to a concentration of demand. www.pring.com Resistance is where an advancing trend can be expected to halt, temporarily, due to a concentration of supply. www.pring.com Support and resistance areas are not predictors if where prices will reverse, but merely indicate possible, or probable, points. www.pring.com Previous low often becomes support Support www.pring.com A 1. Previous low is a good point to expect support. Support has been violated www.pring.com B A www.pring.com B A New support level C www.pring.com B C A 2. Support reverses its role to resistance on the way back up. Resistance www.pring.com B Previous support is now potential resistance A C www.pring.com B C 3. Resistance reverses its role to support on the way down. Support again A www.pring.com Where are Support/Resistance Points Likely to Develop? 1. Previous highs and lows. 2.The upper and lower area of gaps often represent crucial support / resistance pivotal points. 3. Retracement points for previous moves; e.g., 50% Fibonacci retracement levels, etc. . www.pring.com 3. Trendlines www.pring.com Down Trendline Connect first peak to . . . . . . second peak www.pring.com Breakout point is the buy signal. Down Trendline www.pring.com This line does not touch any peaks, and is not a valid trendline. Down Trendline www.pring.com To the second low . . . Connect the final low . . . Up Trendline www.pring.com Trendline break is the sell signal. Up Trendline www.pring.com Line is invalid because it only touches one point. Up Trendline www.pring.com Rules for Determining Significance of Trendlines 3. The steeper the angle of ascent or descent the less sustainable the trend and therefore the less significant the line. www.pring.com 1. The longer the line the greater the trend being measured and the greater the significance. 2. The more times a line has been touched or approached the greater its significance as a dynamic support resistance zone. 4.Placing Stops www.pring.com A key trading rule is always run scared. The number one decision when entering a trade is to know where you are going to get out if the market goes against you. That means setting stops ahead of time and changing them when appropriate. Best place to set stops is above resistance or below support The order is executed immediately the price is touched and there is no opportunity to second guess. www.pring.com The disadvantage is that locals and market makers can "go" for your stop. www.pring.com Advantages of placing Stops 1. Mentally preparing for the worst. 2. Decision more likely to be made with a more balanced judgment. 3. A correctly placed stop is usually executed at a better price. www.pring.com For liquidation of long positions, the best point to place a sell stop is below support and for covering a short one above resistance. www.pring.com December 1997 Corn 10-minute bar Do not place stops at support www.pring.com December 1997 Corn 10-minute bar www.pring.com December 1997 Corn 10-minute bar Place them below support www.pring.com December 1997 Corn 10-minute bar Place them above resistance S H S www.pring.com December 1997 Corn 10-minute bar ..but just in case you are wrong place a sell stop below support. www.pring.com December 1997 Corn 10-minute bar Break takes place just before the session close. www.pring.com December 1997 Corn 10-minute bar Breakout www.pring.com December 1997 Corn 10-minute bar www.pring.com December 1997 Corn 10-minute bar Enter partial profit taking stop at level of previous high. www.pring.com December 1997 Corn 10-minute bar Start of gap also represents resistance. www.pring.com December 1997 Corn 10-minute bar Price reverses at resistance. www.pring.com 5.One and Two Bar Price Patterns www.pring.com All one and two bar price patterns must be preceded by a short-term up or down trend. www.pring.com One and two bar patterns are usually short-term reversal phenomena. www.pring.com These patterns indicate exhaustion, where market psychology has reached a short-term extreme. www.pring.com Outside bars www.pring.com Outside bars are reversal patterns that indicate a change in sentiment. www.pring.com Encompasses trading range of previous bar and then some!! We want the close to be in the lower end of the trading range. www.pring.com Close should be in the upper part of the range. www.pring.com Measuring the Significance of Outside Bars 1. The wider the bar and the wider the difference between the open and close the better. 2. The sharper the preceding rally (reaction for a down reversal) the better. www.pring.com Outside bar 5-minute bar S&P Composite www.pring.com Outside bar failure 5-minute bar S&P Composite www.pring.com Outside bar Outside bar Dollar/franc 30-minute www.pring.com Two Bar Reversals www.pring.com Two bar reversals indicate a dramatic change in sentiment. www.pring.com Closes near the high First bar opens near the low. Sharp rally Two Bar Reversal www.pring.com Second bar opens near the high Closes near the low Two Bar Reversal www.pring.com Resistance zone The lower the resistance zone the better. Two Bar Reversal www.pring.com Opens near low Opens near high Closes near low Closes near high The higher the support line the better. Two Bar Reversal www.pring.com Two bar reversal Dollar/franc Daily Dollar/franc Two Bar Reversal www.pring.com December 2006 British Pound IMM 10-minute bar False breakout www.pring.com December 2006 British Pound IMM Hourly bar Two bar reversal signals false breakout www.pring.com Price closes near its low and that of the previous bar. 5-minute bar S&P Composite www.pring.com Pinocchio Bars Pinocchio bars give us a false impression of what is really going on. 1. Intrabar trading pushes the price through support or resistance but not the open or close. 2. Generally speaking, the longer the nose the stronger the signal. Pinocchio Characteristics False impression of strength Most of the trading range is above the open and close. Pinocchio Bars False impression of strength Pinocchio Bars Pinocchio bar March 1997 S&P 10-minute bar Most of bar outside of the recent trading range March 1997 S&P 10-minute bar Crude Oil Daily Pinocchio bar Strong outside day Confirmation Support line Crude Oil Daily Pinocchio peak March 1997 S&P 10-minute bar Exhaustion = Resistance March 1997 S&P 10-minute bar 6. Brokers are a leading stock market indicator. www.pring.com 1. Stock market discounts corporate profits. 2. Brokers get their profits from financial markets. c. More underwritings as companies come to market. b. Falling interest rates mean wider margins on bond and equity inventory.. a. There is more volume i.e. more commissions. www.pring.com 3. When markets are rising.. Why Brokers lead the Market S&P Composite S&P vs. Amex Brokers Index Brokers www.pring.com S&P Composite Merrill Lynch www.pring.com Merrill Lynch Vs S&P Composite www.pring.com Merrill Lynch Vs S&P Composite Joint breakout www.pring.com Merrill Lynch Vs S&P Composite www.pring.com Merrill Lynch Vs S&P Composite www.pring.com Merrill Lynch Vs S&P Composite www.pring.com Merrill Lynch Vs S&P Composite www.pring.com Merrill Lynch 3-month breakout www.pring.com The End www.pring.com