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Basic Course on Technical Analysis

StockBangladesh.com
Rafiqul Hasan Siddiqui
Bangladesh Foreign Trade Institute

The basic trading strategy is try to systematize


"cut losses" and "let profits run".

Bull market
A bull market tends to be associated with increasing investors confidence, motivating investors to buy in anticipation of future price increases and future capital gains.

Bear market
A bear market is a steady drop in the stock market over a period of time.

Types of Trading Analysis


When the objective of the analysis is to determine what stock to buy and at what price, there are two basic methodologies:

Fundamental Analysis Technical Analysis

Fundamental analysis
Fundamental analysis is a way of looking at the market through economic, social and political forces that affect supply and demand.

Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value.

Technical Analysis
Technicians are only interested in the price movements in the market. Technical analysis just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future.

Technical Analysis Versus Fundamental Analysis


Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security. Technical analysis maintains that all information is reflected already in the stock price, so fundamental analysis is a waste of time. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional responses to price movements lead to recognizable price chart patterns. Technical analysis does not care what the 'value' of a stock is. Their price predictions are only extrapolations from historical price patterns.

Technical Analysis

Fundamental Analysis

Versus

Stock Market Volatility is your friend

The Power of Compounding is your friend

Technical Analysis

Fundamental Analysis

Versus

Day Trading Longer term investing with mutual fund managers like Peter Lynch or John Bogle

Technical Analysis

Fundamental Analysis

Versus

Make money out of movement from the market, with each movement often measured in pennies

Make money out of your stake in companies and how their products or services sell

Technical Analysis

Fundamental Analysis

Versus

How investors see traders

How traders see investors

Technical Analysis

Fundamental Analysis

Versus

This may yield a get rich quickly scheme, when you work on your own terms, using rapid reflexes and lightning fingers, but when you can go broke just as quickly if you dont know what youre doing. Market timing rules your methods.

This is the path taken to grow rich more slowly, relatively speaking, but depending on how your portfolio is set up, it can actually be quicker than you think. It often involves buy and hold and longer term investing strategies.

Principles of Technical Analysis


1. Price Discounts Everything
all relevant information is already reflected by prices

2. Price Moves In Trends


markets trend up, down, or sideways (flat)

3. Price Movements Are Historically Repetitive


investors collectively repeat the behavior of the investors that preceded them

TA=Charts

Types of Charts
1. 2. 3. 4. 5. Line Chart Bar Chart Volume Bar Chart Equi-Volume Chart Candlestick Chart

Line Chart

Bar Chart

Zero-Based Volume Bar Chart

Relative Adjusted Volume Bar Chart

Equi-Volume Chart

Equi-Volume Chart

Candle Volume Chart

Candle Volume Chart

Point and Figure Charts

Japanese Candlestick

Candlestick Patterns
Bullish Patterns Bearish Patterns Reversal Pattern

Bullish Patterns
1. 2. 3. 4. 5. 6. Long white (empty) line Hammer Piercing line Bullish engulfing lines Morning star Bullish doji star

Long white (empty) line

Hammer

Piercing line

Bullish engulfing lines

Morning star

Bullish doji star

Bearish Patterns
1. 2. 3. 4. 5. 6. 7. Long black (filled-in) line Hanging Man Dark Cloud Cover Bearish Engulfing Lines Evening Star Doji Star Shooting Star

Long black (filled-in) line

Hanging Man

Dark Cloud Cover

Bearish Engulfing Lines

Evening Star

Doji Star

Shooting Star

Reversal Pattern
1. 2. 3. 4. 5. Long-Legged Doji Dragon-Fly Doji Gravestone Doji Star Doji Star

Long-Legged Doji

Dragon-Fly Doji

Gravestone Doji

Star

Doji Star

Neutral Patterns
1. 2. 3. 4. Spinning Tops Doji Harami Harami Cross

Spinning Tops

Doji

Harami

Harami Cross

Reversal Pattern

Reversal Pattern

Overlays
Overlays are generally superimposed over the main price chart.
Resistance Support Breakout Trend line Channel Moving average Bollinger bands Pivot point

Price-based indicators
These indicators are generally shown below or above the main price chart.
Accumulation/distribution index Advance decline line Average Directional Index Commodity Channel Index MACD - moving average convergence/divergence Parabolic SAR Relative Strength Index (RSI) Stochastic oscillator Trix

Volume based indicators


Money Flow On-balance volume PAC charts

Thank you

Technical Analysis
CLASS -- II

Rajib bin Ahmed National Bank Ltd.

Support & Resistance


Support defines that level where buyers are strong enough to keep price from falling further. Resistance defines that level where sellers are too strong to allow price to rise further

Support & Resistance

Support & Resistance


Support and resistance are created because price has memory. When price pushes above resistance, it becomes a new support level. Support and resistance come in all varieties and strengths. Support and resistance exist in all time frames

Role Reversal

Support & Resistance

Trends
Bullish Bearish Neutral

Trend Direction

Trend

Bullish Trend lines

Bearish Trend

Trend Timeline
Hourly Daily Weekly Monthly Yearly

Technical Analysis Tools for Trends


Trendline Moving Avg.

Drawing Trendline
Connect Highs to Highs, Lows to Lows Draw through congestion areas Ignore tails or spikes

Drawing Trend lines

Strength of a trend
Trends are stronger..
The longer the trendline The more contacts between prices and the trendline When volume expands in the direction of the trend

Strength of a trend

Strength of a trend

Trading Rule

Protective Stop
1. Once you are long the market place a stop loss order just below the trendline 2. Move your stop up as trend progresses

Protective Stop

Break In Trendline
Steep trendlines (over 45 degrees) precede sharp breaks A pullback to the trendline after a break is often a good shorting opportunity

Break in Trend

Trade on Trend Breaks

Channel
A line running parallel to a trend line Drawn through tops of rallies and bottoms of declines

Channel

Channel
Marks maximum power of bulls & bears The wider the channel the stronger the trend

Types of Channel

Trading Rule for Channel


Go long in lower quarter of channel Take profits in upper quarter

Trading Rules

Moving Avg.
Simple Weighted Exponential

SMA

Linear or Weighted Moving Avg. WMA


SMA gives equal weight to each price point
WMA gives more emphasis to the latest data

EMA An exponential moving average multiplies a percentage of the most recent price by the previous period's average price

EMA

Moving average trend reversals are formed in two main ways:


when the price moves through a moving average and when it moves through moving average crossovers.

moving averages are used to identify support and resistance levels

When To Use
Works well in trending market Loses money in whipsaw market

Whipsaw Market

Thank you

Technical Analysis Course


By StockBangladesh.com

Rajib Bin Ahmed Software Developer

Bollinger Bands
Bollinger bands are used to measure a markets volatility . When a stock is making major price movements , Bollinger bands will be farther away (expand) from the stocks price chart. When a stock is moving steadily with minor price movements, the Bollinger bands will be closer to (contract upon) the stocks price chart .

Bollinger Bands
A simple moving average in the middle. An upper band (SMA plus 2 standard deviations) A lower band (SMA minus 2 standard deviations)

Simple moving average in the middle

Upper band

Lower band

Bollinger Bands

Bollinger Bounce

Bollinger Bounce

Bollinger Bounce

Bollinger Squeeze

Bollinger Squeeze

Bollinger Squeeze

Double Bottom Buy

Use
Bollinger Bands can help generate buy and sell signals, they are not designed to determine the future direction of a security

Use
To identify periods of high and low volatility. To identify periods when prices are at extreme, and possibly unsustainable, levels.

Moving Average Convergence Divergence (MACD)

Moving Average Convergence Divergence

MACD
MACD = shorter term moving average longer term moving average

MACD

Faster moving average Slower moving average Histogram

MACD (12, 26, 9)


The first number (commonly 12) represents the number of days used to calculate the faster moving average or EMA(12).

MACD (12, 26, 9)


The second number (commonly 26) represents the number of days used to calculate the slower moving average or EMA(26).

MACD (12, 26, 9)


The third number (commonly 9) represents the number of days used to calculate the trigger line using EMA(9).

EMA(12) - EMA(26)
A green line is calculated with the EMA using the first number of the MACD (commonly 12) minus the EMA using the second number (commonly 26).

EMA(12) - EMA(26).

EMA(12) - EMA(26)

EMA(9)
The red line (the MACD Signal Line or Trigger Line) is calculated using the EMA using the third number (commonly 9).

EMA(9)

EMA(9)

Histogram
Difference between the fast and slow moving average.

Histogram

Divergence

Convergence

MACD Crossover

MACD Centerline Crossover

MACD Crossover

Stochastics
Stochastics plots the current close in relation to the price range over the length set for this indicator and gives this a percentage value. Stochastics is an oscillator that measures overbought and oversold conditions in the market. Stochastics are scaled from 0 to 100.

Types of Stochastic Oscillators


Fast Slow Full

Fast Stochastics:

Example

%K(fast)

%D(fast)

Fast Stochastics:

Slow Stochastics

%K(slow)

%D(slow)

Slow Stochastics

Use
Readings below 20 are considered oversold Readings above 80 are considered overbought

Use

Buy and sell signals can also be given when %K crosses above or below %D

Use

Use

Use
Requires a double dip below 80 and the second dip results in the sell signal . For a buy signal, wait for a positive divergence to develop after the indicator moves below 20

Relative Strength Index (RSI)

Identifies overbought and oversold conditions in the market. Scaled from 0 to 100. Readings below 30 indicate oversold Readings over 70 indicate overbought.

Calculation

Overbought/Oversold

Centerline Crossover

Use

Use

Use

Average True Range


The Average True Range (ATR) determines a securitys volatility over a given period. The average true range is the (moving) average of the true range for a given period

The true range is the greatest of the following:


Difference between the current maximum and minimum (high and low). Difference between the previous closing price and the current maximum. Difference between the previous closing price and the current minimum.

True Range

Calculation
The first TR value in a series is simply the High minus the Low, and the first 14-day ATR is the average of the daily ATR values for the last 14 days.

Calculation
Second and subsequent 14-day ATR : Multiply the previous 14-day ATR by 13. Add the most recent day's TR value. Divide by 14.

Example

Use

Use
ATR cannot predict direction or duration, simply activity levels. Low levels indicate quiet trading (small ranges) High levels indicate violent trading (large ranges).

Money Flow Index (MFI)


Money flow in technical analysis is price multiplied by volume technical analysis. Indicates the rate at which money is invested into a security and then withdrawn from it.

Calculation
The typical price for each day is the average of high, low and close,

Calculation
Money flow is the product of typical price and the volume on that day .

Calculation
Positive money flow is the total for those days where the typical price is higher than the previous day's typical price . Negative money flow where below .

Calculation
money flow index ranging from 0 to 100

Calculation

Use
Readings above 80 on the scale are considered overbought (bearish). Readings below 20 on the scale are considered oversold (bullish). A divergence between price and MFI often signals an imminent reversal of the trend.

Divergence

Less Overbought & Oversold Signal

On Balance Volume (OBV)


This was one of the first and most popular indicators to measure positive and negative volume flow . OBV is based on a cumulative total volume.

Calculation
OBV is calculated by adding the day's volume to a running cumulative total when the security's price closes up, and subtracts the volume when it closes down.

Calculation
If today the closing price is greater than yesterday's closing price, then the new : OBV = Yesterday's OBV + Today's Volume

Calculation
If today the closing price is less than yesterday's closing price, then the new: OBV = Yesterday's OBV - Today's Volume

Calculation
If today the closing price is equal to yesterday's closing price, then the new: OBV = Yesterday's OBV

Calculation

Divergence
If the price is likewise rising, then the OBV can serve as a confirmation of the price uptrend. In such a case, the rising price is the result of an increased demand for the security, which is a requirement of a healthy uptrend.

Divergence
If prices are moving higher while the volume line is dropping, a negative divergence is present. This divergence suggests that the uptrend is not healthy and should be taken as a warning signal that the trend will not persist.

Example

Example

Example

Thank you

Technical Analysis Course


By StockBangladesh.com

Rajib Bin Ahmed Software Developer

Accumulation/Distribution Line
Assess the cumulative flow of money into and out of a security. Focus on the price action for a given period (day, week, month).

Accumulation/Distribution Line Vs OBV


OBV uses the change in closing price from one period to the next to value the volume as positive or negative. Focused on the price action for a given period (day, week, month)

Benefits
Monitor General Money Flow - The A/D line can be used as a gauge for the general flow of money. If the A/D line is moving higher, this signals that there is buying pressure that is starting to prevail. On the flip side, if the A/D line is moving downward, this signals that increased selling pressure is beginning to gain a foothold.

Confirmation - You can also use the A/D line to confirm the strength, and possibly the longevity, of a current move.

Drawbacks
Trading Gaps - The A/D line does not take trading gaps into consideration. Minor Changes - Sometimes it can be difficult to detect minor changes in volume flows.

Close Location Value


Looks at the location of the close and compares it to the range for a given period (one day, week or month). The CLV will have a value from +1 to -1:

A value of zero would mean that the price closed halfway between the high and low of the range. A value of +1 means the close is equal to the high of the range. A value of -1 means the close is equal to the low of the range.

Calculation
CLV = ([(C-L) - (H - C)] / (H - L)) Where: C = the closing price H = the high of the price range L = the low of the price range

Close Location Value


If the stock closes on the high, the top of the range, then the value would be plus one. If the stock closes above the midpoint of the highlow range, but below the high, then the value would be between zero and one. If the stock closes exactly halfway between the high and the low, then the value would be zero. If the stock closes below the midpoint of the highlow range, but above the low, then the value would be negative. If the stock closes on the low, the absolute bottom of the range, then the value would be minus one.

Accumulation/Distribution Line
The CLV is then multiplied by the corresponding period's volume, and the total will form the A/D line

Signals

Signals

Bullish Signals

Bearish Signals

Bollinger Band Width


Bollinger Band Width, which represents the expanding and contracting of the bands based on recent volatility. Bollinger Band Width is the distance between the two bands.

Calculation

Commodity Channel Index (CCI)


Commodity Channel Index (CCI) was designed to identify cyclical turns in commodities. Lambert recommended using 1/3 of a complete cycle (low to low or high to high) as a time frame for the CCI.

Calculation
Open up the stock's yearly chart. Locate two highs or two lows on the chart. Take note of the time interval between these two highs or lows (cycle length). Divide that time interval by three to get the optimal time interval to use in the calculation (1/3 of the cycle).

Calculation
Typical Price, TP = (HIGH + LOW +CLOSE)/3 SMA(TP, N) = SUM[TP, N]/N D = TP SMA(TP, N) SMA(D, N) = SUM[D, N]/N M = SMA(D, N) * 0,015 CCI = M/D Where: SMA Simple Moving Average N number of periods, used for calculation.

Signal
CCI can be used to identify overbought and oversold levels Divergences can be applied to increase the robustness of signals.

Signal

Signal

Ultimate Oscillator
The Ultimate Oscillator combines a stock's price action during three different time frames into one bounded oscillator. Values range from 0 to 100 with 50 as the center line. Oversold territory exists below 30 and overbought territory extends from 70 to 100.

Ultimate Oscillator
Three time frames can be specified by the user. Typically values of 7-periods, 14-periods and 28-periods are used.

Calculation
True Low (TL)
TL = the lower of today's low or yesterday's close.

Buying Pressure (BP) BP = Today's close - Today's TL. True Range (TR)

Calculation
Calculate BPSum1, BPSum2, and BPSum3 by adding up all of the BPs for each of the three specified time frames. Calculate TRSum1, TRSum2, and TRSum3 by adding up all of the TR's for each of the three specified time frames.

Calculation
The Raw Ultimate Oscillator (RawUO) is equal to: 4 * (BPSum1 / TRSum1) + 2 * (BPSum2 / TRSum2) + (BPSum3 / TRSum3)

The Final Ultimate Oscillator is equal to:

( RawUO / (4 + 2 + 1) ) * 100

Signal
A bearish divergence appeared well before the top and persisted until the stock reversed. Extreme values are rare for the Ultimate Oscillator. Crosses above and below the center line (50) are relatively common.

TRIX
TRIX is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security's closing price. Used to anticipate turning points in a trend through its divergence with the security price. TRIX is designed to filter out stock movements that are insignificant to the larger trend of the stock.

Calculation
For a 15-day period: 1. Calculate the 15-day exponential moving average of the closing price. 2. Calculate the 15-day exponential moving average of the moving average calculated in step #1. 3. Calculate the 15-day exponential moving average of the moving average calculated in step #2. 4. Finally, calculate the 1-day percent change of the moving average calculated in step #3.

Signal
A positive TRIX is thus akin to a positive trending price, allowing the indicator to act as a buy signal whenever it crosses up above the zero line. Crossing below the zero line suggests the price is tending to close down at the end of each period, which can be a sell signal.

Signal Line
A buy signal is triggered when TRIX crosses above its signal line. A sell signal is triggered when TRIX crosses below its signal line.

Advantages of TRIX
It filters out market noise using the triple exponential average calculation. TRIX is best used in conjunction with another market-timing indicator - this minimizes false indications.

Using two different time spans

StochRSI
StochRSI is an oscillator that measures the level of RSI relative to its range, over a set period of time. The indicator uses RSI as the foundation and applies to it the formula behind Stochastics. The result is an oscillator that fluctuates between 0 and 1.

Calculation

Calculation

Calculation

Signals
Overbought and Oversold Crossovers Centerline Crossovers Positive and Negative Divergences

Example

Momentum
The Momentum Technical Indicator measures the amount that a securitys price has changed over a given time span. Momentum is calculated as a ratio of todays price to the price several (N) periods ago.

Calculation
MOMENTUM = CLOSE(i)/CLOSE(i-N)*100 Where: CLOSE(i) is the closing price of the current bar; CLOSE(i-N) is the closing bar price N periods ago.

Momentum

Signals
Zero-line crossings Using Trendlines Extreme Values

Zero-line crossings
Crossing above the zero line could be a buy signal if the price trend is up and a crossing below the zero line, a sell signal, if the price trend is down.

Using Trendlines
The trendlines on the momentum chart are broken sooner than those on the price chart. The value of the momentum indicator is that it turns sooner than the market itself, making it a leading indicator.

Extreme Values
One of the benefits of oscillator analysis is being able to determine when markets are in extreme areas. At extreme positive values, momentum implies an overbought position; at extreme negative values, an oversold position

Envelopes
An envelope is comprised of two moving averages. One moving average is shifted upward and the second moving average is shifted downward. The envelope is plotted around a price plot or indicator.

Calculation
Calculate SMA(n) Using 5% as an example the calculation Top band = Moving Average + (Moving Average x 5 100) Bottom band = Moving Average - (Moving Average x 5 100)

Interpretation
Envelopes define the upper and the lower margins of the price range Signal to sell appears when the price reaches the upper margin of the band Signal to buy appears when the price reaches the lower margin.

Williams Percent
Williams Percent Range Technical Indicator (%R) is a dynamic technical indicator, which determines whether the market is overbought/oversold. Williams %R is very similar to the Stochastic Oscillator.

Calculation
%R = (HIGH(i-n)-CLOSE)/(HIGH(i-n)-LOW(in))*100 Where:
CLOSE is todays closing price; HIGH(i-n) is the highest high over a number (n) of previous periods; LOW(i-n) is the lowest low over a number (n) of previous periods.

Signal
Indicator values ranging between 80 and 100% indicate that the market is oversold. Indicator values ranging between 0 and 20% indicate that the market is overbought.

Example

Signal
An interesting phenomenon of the Williams Percent Range indicator is its uncanny ability to anticipate a reversal in the underlying securitys price.

Thank you

Technical Analysis
CLASS V

Mahbub Hasan MBA-Finance, CFA L1 Assistant Director, FIU, AMLD, Bangladesh Bank

Leading v Lagging Indicators


A leading indicator gives a buy signal before the new trend or reversal occurs. A lagging indicator gives a signal after the trend has started and basically informs you about the onset of a trend

2 categories of Indicators
Oscillators are leading indicators. Trend indicators are lagging indicators.

Oscilltors
RSI Stochastics Ultimate Oscillator Etc..

Oscillator.
They signal trend change. Usually when an oscillator remains in the overbought or oversold levels for a long period of time, that means there is a strong trend occurring

Oscillator.

Conflicting indication

Lagging Indicators
Trend Following indicators MACD SMA EMA etc.....

Momentum
Lagging and leading indicator

Classical Charting
Trend Lines Support/Resistance Channel Continuation Patterns Reversal Patterns Gaps & Spikes Moving Averages

Chart Patterns

Head & Shoulder

Cup & Handle

Double Tops & Bottoms

Triangles

Flag & Pennant

Wedge

Rounding Bottom

To profit from ascending & descending triangle

Watch For: An ascending or descending pattern forming over three to four weeks. SET Target Price: Entry price plus the patterns height for an upward breakout. Entry price minus the patterns height for a downward breakout.

To Profit from Symmetrical Triangles


Watch: Sideways movement, a period of rest, before the breakout. Price of the asset traveling between two converging trendlines. Breakout of the way to the apex.

Target Price: Entry price plus the patterns height for an upward breakout. Entry price minus the patterns height for a downward breakout.

Head & Shoulder

To Profit.
Sell as soon as the price moves below the neckline after the descent from the right shoulder Buy as soon as the price moves above the neckline after the ascent from the right shoulder

To Profit from the Double Bottom Pattern

Purchase When: The price exceeds the middle-peak price. Watch For: A price increase of 10% to 20% from the first trough to the middle peak. Two equal lows, not to differ by more than 3% or 4%.

To Profit from the Double Top

Sell when - The price drops below the middle-trough price Watch: A price decrease of 10% to 20% from the first peak to the middle trough. Two equal highs, not to differ by more than 3% or 4%

Profit from 3 bottom

Purchase When: The price exceeds the resistance established by the prior peaks. Watch For: A series of three identical troughs at the end of a prolonged downtrend. Target Price: Entry price plus the patterns height

Profit from 3 Tops

Purchase When: The price falls below the support that formed from the prior troughs. Watch For: A series of three peaks at relatively the same level. Target Price: Entry price minus the patterns height .

Fibonacci Studies
Fibonacci Numbers
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 610, etc.

4 popular Fibonacci studies:


Fibonacci Arcs Fibonacci Fans Fibonacci Retracements Fibonacci Time zone

Interpretation
Anticipating changes in trends as prices near the lines created by the Fibonacci studies

Fibonacci Arcs

Interpretation of Fibonacci Arc

anticipating support and resistance as Prices approach the arcs

Fibonacci Fan Lines


displayed by drawing a trend line between two extreme points

Calculation

Fibonacci Retracements
Price will retrace a large portion of an original move and Find support or resistance at the key Fibonacci levels before it continues in the original direction

Fibonacci Retracement - levels

Typical Retracements

GAPS

Gaps

Gaps

Pivot
Pivot point (P) = (H + L + C) / 3 First resistance level (R1) = (2 * P) - L First support level (S1) = (2 * P) - H Second resistance level (R2) = P + (R1 - S1) Second support level (S2) = P - (R1 - S1)

Usage of pivot

Money Management
Select a risk-reward ratio for yourself Determine the risk & reward of your decision to buy, sell or hold a stock Compare the previous two risk-reward to make a final decision

Money Management
Select a time period Select desired number of technical indicators

Money Management.
Get the statistics of those indicators for current stock From that you shall get the probability of successful predication of an indicator for current stock This will determine risk-reward of your decision based on an indicator

Thank you

Technical Analysis
CLASS VI

Mahbub Hasan MBA-Finance, CFA L1 Assistant Director, FIU, AMLD, Bangladesh Bank

Pivot ponts
Pivot point (P) = (H + L + C) / 3 First resistance level (R1) = (2 * P) - L First support level (S1) = (2 * P) - H Second resistance level (R2) = P + (R1 - S1) Second support level (S2) = P - (R1 - S1)

Pivot points

Andrews Pitchfork
uses 3 parallel trendlines to identify possible levels of support and resistance. The trendlines are created by placing three points at the end of identified trends. e.g. usually placing the points in three consecutive peaks or troughs. Once the points have been placed, a straight line is drawn from the first point that intersects the midpoint of the other two.

Andrews Pitchfork
Also known as median line studies

Pitchfork

Pitchfork

Pitchfork

Elliott Wave

Five wave pattern (dominant trend) Impulse Pattern

Dominant trend can be in either direction

Three types of dominant trend

Elliott Wave
counter-trend waves will usually retrace against the trending waves by 38.2, 50 and 61.8 percent

Three wave pattern (corrective trend) Corrective Pattern

Wave 1
Rarely obvious at its inception Fundamental news is almost universally negative Sentiment surveys are decidedly bearish Volume might increase a bit as prices rise, but not by enough to alert many technical analysts

Wave 2

Wave two corrects wave one Bearish sentiment quickly builds Volume isn't lower during wave 2 than during wave 1 Can never extend beyond the starting point of wave one Prices usually do not retrace more than 61.8% of the wave 1 gains

Wave 3

usually the largest and most powerful wave in a trend fundamental analysts start to raise earnings estimates prices rise quickly, corrections are short-lived and shallow

as wave3 starts, the news is probably still bearish, and most market players remain negative
by wave 3's midpoint, the crowd will often join the new bullish trend wave three often extends wave one by a ratio of 1.618:1

Wave 4

typically clearly corrective prices may meander sideways for an extended period wave 4 typically retraces less than 38.2% of wave 3

volume is well below than that of wave 3


a good place to buy a pull back the most distinguishing feature of fourth waves is that they often prove very difficult to count

Wave 5

the final leg in the direction of the dominant trend everyone is bullish this is when many average investors finally buy in volume is lower than that of wave 3 many momentum indicators start to show divergences

Types of Corrective Pattern


Simple Correction (Zig-Zag) Complex Corrections (Flat, Irregular, Triangle)

Simple Zig-Zag

Fibonacci Ratios inside a Zig-Zag Correction


Wave B
Usually 50% of Wave A Should not exceed 75% of Wave A

Wave C
either 1 x Wave A or 1.62 x Wave A or 2.62 x Wave A

Complex Corrections
Flat Irregular Triangle

Complex Correction

Triangle Correction

Alteration Rule

If Wave 2 is a simple correction,

expect Wave 4 to be a complex correction If Wave 2 is a complex correction, expect Wave 4 to be a simple correction

Wave A

typically harder to identify


the fundamental news is usually still positive increased volume rising volatility

Wave B

Prices reverse higher, which many see as a resumption of the now longgone bull market the peak may be seen as the right shoulder of a head and shoulders reversal pattern volume during wave B < volume during wave A fundamentals are probably no longer improving

Wave C

typically at least as large as wave A


often extends to 1.618 times wave A or beyond volume picks up

Chaikin Volatility
Calculate 10 days EMA of (High-Low)
EMA[H-L, 10]

Calculate % change in EMA during 10days


(EMA-EMA[10 days ago])/EMA(10days ago)

Chaikin

Chaikin Volatility
An increase in volatility => bottom is near An decrease in volatility => top is near

Fibonacci

Fibonacci Expansion

Fibonacci Rally

Fibonacci Morning gap

Fibonacci 2nd High/Low

Fib Time Zone

Market Psychology
Contrarian View of Trading Loss Aversion Loss v gain

Market Psychology
Contrarian View of Trading
Negative Vol Index Mutual Fund Cash Position Brokerage firm Credit Balance
MFR = Mu Fund Cash / Total Asset MFR < 5% => Market Bullish, firms investing cash MFR>13% => Mkt Bearish, firms holding cash

Loss Aversion
Psychologically losses are 2times more powerful than similar amount of gain

Sentiment Indicator
Put-Call Ratio Commercial Activities Media Mutual Fund Cash position Debit Balance of Brokerage Houses

Trading System
Basic Components 1. Market and timeframe 2. Entry: trigger that initiates your buy or sell signal.

3. Stop Loss: level at which you will cut your losses in the event of the trade going against you.
4. Profit Target: level at which you will exit the trade to take profits.

Market:

ForEx Market

Stock Market- DSE/CSE, Insurance/Bank, Basic Components Bond Market Options Market Futures Market

Trading System

Timeframe: Daily, Weekly, Monthly, Quarterly, Annual

Entry i.e. Trigger: Trading

System

Trigger from IndicatorsComponents Basic Trigger from Chart Analysis Trigger from Candlestick

Stop Loss:

Trading System = Trigger Price +/- n% of Trigger Price


Basic Components

If trigger is buy@100 Tk. Stop Loss = 100 5 = 95 Tk.


If trigger is sell@100 Tk. Stop Loss = 100 + 5 = 105 Tk.

Profit Target:

Trading System

= Trigger Price +/- n% of Trigger Price Basic Components If trigger is buy@100 Tk. Profit Target = 100 + 25 = 125 Tk.

If trigger is sell@100 Tk. Profit Target = 100 - 25 = 105 Tk.

Market:

ForEx Market

Stock Market- DSE/CSE, Insurance/Bank, Basic Components Bond Market Options Market Futures Market

Trading System

Timeframe: Daily, Weekly, Monthly, Quarterly, Annual

Developing a Trading system


Develop your own style of trading Build your own technical toolbox

Technical Tasks
Analyzing following 4: 1. Price 2. Vol 3. Time 4. Sentiment

Technical Toolbox
Areas of Technical Analysis: 4 areas: Price Analysis Vol. Analysis Time/period Analysis Sentiment Analysis

Price Analysis
Trend Identification Trendlines , channels Smoothing, Moving averages Patterns Triangles , flags , gaps Candlesticks Momentum Single line oscillators (RSI, Momentum) Multiple line oscillators (Stochastics) Directional Movement, Parabolics Bollinger Bands , Percent Bands Relative levels Benchmarking Log scaling Spreads and Ratios

Volume Analysis
Analysis of
Liquidity Participation Breadth

Volume Analysis
Participation: OBV, Cumulative Volume Liquidity: No. Shares Issued, Turnover Breadth: Sector Analysis, Adv.-Decline

Time Analysis
Cycles Timeframe Extent

Time Analysis
Cycles Seasonal, Economic, Political Timeframe Short, Medium, Long Cyclical vs. Secular Extent Length of trend Trend Correction

Sentiment Analysis
Speculation Consensus Anecdotal

Sentiment Analysis
Speculation IPO Margin Level Mutual Fund Cash Level Apparent effects of good & bad news

Consensus Anecdotal

Sentiment Analysis
Speculation Consensus % of bullish newsletter, % of bearish Apparent Public Opinion Anecdotal Superbowl, Magazine Covers

Combination Tools
Indicators that covers more than one area, such as: time & price, price & volume, price & sentiment etc.

Combination Tools
time & price:
Market Profile (shows time spent at each price during the day, forms a value area on the chart) MESA (maximum entropy spectral analysis, finds cycles in the data and projects them forward)

Combination Tools
price & volume:
Money Flow
price times volume summed per trade

used as a supply/demand indicator Equivolume bars


have width in proportion to volume used to allocate significance to price bars

Combination Tools
price & sentiment: Elliott Wave
wave structure follows public emotions, can identify ebb and flow of trading activity

Developing a Trading system


Be Objective
Why am I in this trade? Why do Iike/dislike my position?

How to remain objective?


Know what you are going to do before you do it. Write down your trading rules/system. Ignore absolute return, concentrate on Reward/Risk. Know your risk tolerance.

Risk management
Whats Risk? Its DEFINABLE PROBABILITY OF FAILURE

Risk management
Risk Tolerance 90% trader dont know it Risk to Reward Ratio

Risk mgmt
Risk tolerance Depends on your capital

Risk mgmt
Proper Stop Loss Dont use popular %

Risk Mgmt
Risk-Reward Ratio Most famous measure is Sharpe Ratio.

Sharpe Ratio
= (Stocks Return Risk Free Rate)/Std Div of Stocks Return

Risk Mgmt
Absolute return shouldnt be used while ranking stocks Stocks should be ranked in terms of riskreward ratio

Money Management
Select a risk-reward ratio for yourself Determine the risk & reward of your decision to buy, sell or hold a stock Compare the previous two risk-reward to make a final decision

Money Management
Select a time period Select desired number of technical indicators

Money Management.
Get the statistics of those indicators for current stock From that you shall get the probability of successful predication of an indicator for current stock This will determine risk-reward of your decision based on an indicator

TA Course: Class VII

Amibroker
How to install amibroker ? Setting up database for amibroker. Importing data into amibroker .

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

How to install amibroker

Setting up database

Setting up database

Setting up database

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Updating Data Daily


Go To http://www.stockbangladesh.com/download_ stock_data.php (Download section) daily after 4 PM. Click on Download last trading day data all together in a file. It will open http://www.stockbangladesh.com/download_ last_day_data.php page.

Using Amibroker

Using Amibroker

Using Amibroker

Using Amibroker

Working with chart sheets and Templates

Working with chart sheets and Templates

Working with chart sheets and Templates

Working with chart sheets and Templates

Working with chart sheets and Templates

Using Amibroker

Creating your own indicators


There are two ways to create your own indicators: 1) Using drag-and-drop interface. 2) By writing own formula.

How to insert a new indicator?

How to remove the indicator plot from the pane.

Writing your own formula

Writing your own formula

Writing your own formula

Writing your own formula

Writing your own formula

Bar Replay

Bar Replay

Fibonacci Trading
1, 2, 3, 5, 8, 13, 21, 34, 55 1+2=3 2+3=5 3+5=8 5+8=13

Fibonacci Retracements Pattern


Fibonacci retracements often occur at three levels 38.2%, 50%, and 61.8%.

Fibonacci Retracements Pattern

Stock Bangladesh portfolio

Stock Bangladesh portfolio

Stock Bangladesh portfolio

Stock Bangladesh portfolio

Thank you

Technical Analysis

Debabrata Kumar Sarker IDLC Finance Ltd.

Technical Analysis
Technicians are only interested in the price movements in the market. Technical analysis just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future.

Principles of Technical Analysis.


1. Price Discounts Everything 2. Price Moves In Trends 3. Price Movements Are Historically Repetitive

Tools of Technical Analysis - Volume Japanese Candlesticks Indicators

Bands (Risk Measurement)


Chart Pattern

Volume

Volume
Volume has two major premises: When prices rise or fall, an increase in volume is strong confirmation that the rise or fall in price is real and that the price movement had strength. When prices rise or fall and there is a decrease in volume, then this is interpreted as being a weak price move, because the price move had very little strength and interest from traders.

Volume Spikes

Japanese Candlestick

Japanese Candlestick

Candlestick Patterns
Bullish Patterns Bearish Patterns Reversal Pattern

Bullish Patterns
1. 2. 3. 4. 5. 6. Long white (empty) line Hammer Piercing line Bullish engulfing lines Morning star Bullish doji star

Long white (empty) line

Hammer

Piercing line

Bullish engulfing lines

Morning star

Bullish doji star

Bearish Patterns
1. 2. 3. 4. 5. 6. 7. Long black (filled-in) line Hanging Man Dark Cloud Cover Bearish Engulfing Lines Evening Star Doji Star Shooting Star

Long black (filled-in) line

Hanging Man

Dark Cloud Cover

Bearish Engulfing Lines

Evening Star

Doji Star

Shooting Star

Reversal Pattern
1. 2. 3. 4. 5. Long-Legged Doji Dragon-Fly Doji Gravestone Doji Star Doji Star

Long-Legged Doji

Dragon-Fly Doji

Gravestone Doji

Star

Doji Star

Neutral Patterns
1. 2. 3. 4. Spinning Tops Doji Harami Harami Cross

Spinning Tops

Harami

Harami Cross

Reversal Pattern

Reversal Pattern

Indicators

A leading indicator gives a buy signal before the new trend or reversal occurs. A lagging indicator gives a signal after the trend has started and basically informs you about the onset of a trend

Oscillators are leading indicators. Trend indicators are lagging indicators.

RSI Money Flow Index Williams % R Accumulation Distribution Line

Trend Following indicators SMA EMA MACD

RSI
The Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to previous prices

RSI
- Generate buy and sell signals

- Show overbought and oversold conditions


- Confirm price movement

RSI Buy Signal

Buy when the RSI crosses above the oversold line (30).
RSI Sell Signal

Sell when the RSI crosses below the overbought line (70).

Money Flow Index (MFI)


The Money Flow Index (MFI) uses price and volume and the concept of accumulation Distribution to create an overbought and oversold indicator that is helpful in confirming trends in prices and warning of potential reversals in prices.

Interpreting the MFl

Below 20 is considered oversold; look for buying opportunities. Above 80 is in overbought territory; look for sell signals.

Money Flow Index Divergences If price is rising, and the volume on up days is greater than the volume on down days, then this is confirming of the price rise.

Likewise, if price is falling and the volume on down days is greater than the volume on up days, then the recent downward trend in stock prices is confirmed.

Money Flow Index Divergences


In contrast, if prices rise, yet the volume on the up days is less than the volume transacted on down days, then money is secretly pouring out of the stock; this is a bearish divergence. And similarly, when prices fall, but the volume on the down days is less than the volume on up days, then money is flowing back into the stock, a bullish divergence

Money Flow Index Divergences

Williams %R

Williams %R is an overbought and oversold technical indicator that can give easy to interpret buy and sell signals.

Williams %R
Williams %R Buy Signal When the Williams %R indicator is below the oversold line (20) and it rises to cross over the 20 line, then buy. Williams %R Sell Signal Sell when the Williams %R indicator is above the overbought line (80) and then falls below the 80 line.

Williams %R

Accumulation Distribution
Accumulation Distribution uses volume to confirm price trends or warn of weak movements that could result in a price reversal.

Accumulation: Volume is considered to be accumulated when the day's close is higher than the previous day's closing price. Thus the term "accumulation day"
Distribution: Volume is distributed when the day's close is lower than the previous day's closing price. Many traders use the term "distribution day"

Simple Moving Average

The Simple Moving Average (SMA) is used mainly to identify trend direction, but is commonly used to generate buy and sell signals. The SMA is an average, or in statistical speak - the mean.

Exponential Moving Average


The Exponential Moving Average (EMA) weighs current prices more heavily than past prices. This gives the Exponential Moving Average the advantage of being quicker to respond to price fluctuations than a Simple Moving Average. However, that can also be viewed as a disadvantage because the EMA is more prone to whipsaws

MACD
The MACD indicator is one of the most popular technical analysis tools. MACD: The 12-period Exponential Moving Average (EMA) minus the 26-period EMA. MACD Signal Line: A 9-period EMA of the MACD. MACD Histogram:
The MACD minus the MACD Signal Line.

MACD Moving Average Crossovers


MACD Buy Signal A buy signal is generated when the MACD (blue line) crosses above the MACD Signal Line (red line).
MACD Sell Signal Similarly, when the MACD crosses below the MACD Signal Line a sell signal is generated

Risk Measurement

Bollinger bands are used to measure a markets volatility . Bollinger Bands When a stock is making major price movements , Bollinger bands will be farther away (expand) from the stocks price chart. When a stock is moving steadily with minor price movements, the Bollinger bands will be closer to (contract upon) the stocks price chart .

A simple moving average in the middle. Bollinger Bands An upper band (SMA plus 2 standard deviations) A lower band (SMA minus 2 standard deviations)

Bollinger Bands

Bollinger Squeeze

Bollinger Squeeze

Charting

Chart Pattern Elliot Wave Fibonacci Studies Regression Channel Support/Resistance

Elliott Wave
Elliott Wave theory states that prices move in waves. These waves occur in a repeating pattern of a (1) move up, (2) then a partial retracement down, (3) another move up, (4) a retracement, (5) then finally a last move up. Then, there is a (A) full retracement, followed by a (B) partial retracement upward, then (C) a full move downward. This repeats on a macro and micro time frame.

Fibonacci
Fibonacci tools utilize special ratios that naturally occur in nature to help predict points of support or resistance. Fibonacci numbers are 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc. The sequence occurs by adding the previous two numbers (i.e. 1+1=2, 2+3=5) The main ratio used is .618, this is found by dividing one Fibonacci number into the next in sequence Fibonacci number (55/89=0.618). The logic most often used by Fibonacci based traders is that since Fibonacci numbers occur in nature and the stock, futures, and currency markets are creations of nature - humans. Therefore, the Fibonacci sequence should apply to the financial markets.

Fibonacci Fibonacci Retracements Fibonacci Arcs

Fibonacci Fans
Fibonacci Time Extensions

Linear Regression Channel

Linear Regression Line: A line that best fits all the data points of interest. Upper Channel Line: A line that runs parallel to the Linear Regression Line and is usually one to two standard deviations above the Linear Regression Line. Lower Channel Line: This line runs parallel to the Linear Regression Line and is usually one to two standard deviations below the Linear Regression Line.

Support Level

&
Resistance Level

THANK YOU