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Technical Analysis applied

Standard Online Share Trading


Riette Kotze

What is technical analysis?


Study charts Add technical indicators to:

Determine the trend and price movement*

Benefits of technical analysis


Determine what is most probable to happen in the future: Trend and price Know when to buy and sell Capital protection Maximize returns Eliminate emotions and thoughts Put the odds in your favour

Universal principles:
Applied Applied Applies

to any market place. to any instrument e.g. shares, warrants, CFDs to end of day or intraday data* Live data: Easy Trader, R99.00 per

month.

Factors that influence intent


Investment size Risk profile Market behaviour

Goals: % growth p.a. or p.m. index barometer outperform the index

Invest and or trade Instrument and period selection

Critical Components
Selection:

Instrument* company
Timing

One trending indicator to determine long-, medium and short term trend e.g.
MAC-D

One trading indicator to determine price movement e.g. Stochastic


Above will be determined by intent

Investing
Selection: Required: Long term upward trend Shares in sectors that outperform the index and is the best performer in the sector over at least 3 years. How? Compare all the sectors to the index, using Relative Strength. RS above 1: 1st outperformed 2nd Compare all the shares in the sector to the sector, to find the best performer consistently over 3 years. Timing:

Buy and hold 3 years+ or as long as the long term trend

is up.

Entry: Long term trend must be up, low on price on trading indicator or previous time frame. Exit: End of long term trend.

Measuring out- and under performance


Relative Strength:

Compare: two instruments.

Select a graph Select amount of data in line with intent Select a second graph: Enter the short code into the second window below the graph on the left hand side Select Rel Str from dropdown stats window Interpretation:

Above 1: 1st outperform 2nd Below 1: 1st underperform to 2nd

Where to find charts

List of indices

Relative strength of AUTM against ALSH

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Shares in sector

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Shares in sector

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Shares selected
News

Results

Dividends

Announcements

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Home and Market info: News

Tools: Company info: Company results and next results due

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Tools: Company info: Dividends payable and dividends paid

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Home: Special announcements

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Trading
Selection: Derivatives:

Derived from an underlying instrument. Instruments: warrants, SSFs, CFDs Differences between shares and derivatives Trending or trading underlying* Volatility and trading range* (H-L: daily, weekly or monthly)
Timing: Short term trading: Buying and selling frequently Entry: Short term trend align with medium- and long term trend, low on price. Exit: Short term price or trend. Used for either or: Hedge*, Speculate or capital conversion

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Help: Online courses

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Help: Downloads

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Market info: Market movements

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Speculation

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Hedging

Average daily trading range: H-L R2.00

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Average weekly trading range: H-L R5.00

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Average monthly trading range: H-L R12.00

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Chart options

Line chart: High, low or close Bar chart or OHLC Candlesticks Log in Tools: Price charts: Interactive charts Select a chart Select a chart option from the OHLC dropdown menu Select a time frame: Daily, weekly or monthly

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Line chart
High Low Close: Most important

Select a chart Select high or low or close from the OHLC dropdown menu

Upward trend: Higher highs, lows and closing prices. Downward trend: Lower highs, lows and closing prices.

Look whether exceeding previous highs or lows, especially extreme highs and lows.

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Bar Charts or OHLC (open, high, low, close)


Open High Low Close

Indicate trend continuation or reversal.

Position of close: + close above open and close near high - close below open and close near low Change in average trading range

ATR instrument and intent specific stop loss placement


Gaps

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Bar Chart Formation


Change in range: Spikes:

Upward trend: Close closer to high Downward trend: Close closer to low
Key reversal day:

Top key reversal day:


open

above previous close high

higher close

near low or lower.

Bottom key reversal day:


open lower close

below previous close low near high or higher

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Bar Chart Formation


Uncommon gaps: Exhaustion gaps:

Occurs towards the end of a trend Usually with low volume Indicates very strong selling or buying pressure Might or might not be filled
Break-away gaps:

Beginning of new trend Followed by bigger trading range, as a result of increased volatility & volume Unlikely to be filled
Run-away gaps:

In an existing trend Trend continuation Might or might not be filled

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Japanese Candlesticks
Body: Difference between O and C Shadows: H and L Open, close, high and low.

Indicate change or continuation in direction

Body colour: + Blue candlestick: buying pressure > selling pressure and close > open - Red candlestick: selling pressure > buying pressure and open > close Long bodies indicate strength Long shadows indicate uncertainty and can result in a change in direction.

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Reversal signals
Changes in:

Colour Length of the bar or trading range:

Length of the body Length of the shadows

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Bottom reversal patterns


Engulfing white or Bullish engulfing: Strongest bottom reversal signal. After a downtrend Can result in a trend change. Red candle body followed by a blue candle body. Blue candle body engulfs previous red candle body: Blue candle opens at or below previous close of red candle. Blue candle closes at or above previous open of red candle. Short or no shadows. The more previous candle bodies the blue candle body engulfs, the stronger the signal.

Bottom reversal pattern Engulfing white

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Bottom reversal pattern Engulfing white

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Bottom reversal patterns


Piercing Pattern: Weaker than Engulfing white. Red candle body followed by a blue candle body. Blue candle opens at or below previous low of red candle. Blue candle closes at least halfway up the body of previous red candle , between half way and the opening price of the previous red candle. Small or no wicks In a falling market If blue candle doesnt close at least half way in the previous red body, seen as a bearish continuation pattern, depending on close e.g. in-neck line, on-neck line or thrusting pattern.

Bottom reversal pattern Piercing pattern

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Piercing pattern

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Bottom reversal patterns


Bullish counter attack Weaker signal. Red candle body followed by a blue candle body. Blue candle opens below previous close of red candle. Blue candle closes at close of previous red candle.

Bottom reversal pattern Bullish counter attack

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Bottom reversal pattern Bullish counter attack

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Bottom reversal pattern


Hammer Small body at the upper end of the trading range lower shadow at least twice the length of the body (umbrella line) small or no upper shadow. The longer the lower shadow, the stronger the degree of failure. Bullish emerges during a downtrend A signal that the downtrend should end Body can be White/hollow/ empty/ blue or black/filled/ red Power line: White/ hollow/ empty/ blue hammer

Bottom reversal pattern Hammer

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Bottom reversal pattern Hammer

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Bottom reversal pattern


Inverted Hammer Upper shadow at least twice the length of the body no or a small lower shadow. Bullish emergence after a decline. Small body at the lower end of the range Body black/blue or white/red

Bottom reversal pattern Inverted Hammer

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Bottom reversal pattern Inverted Hammer

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Bottom reversal pattern


Tweezer bottoms Lowest lows of 2 or more candles, the same.

Bottom reversal pattern Tweezer bottoms

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Bottom reversal pattern Tweezer bottoms

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Top reversal patterns


Engulfing black or Bearish engulfing Blue candle followed by red candle: Red candle opens at or above previous close of blue candle. Red candle closes at or below previous open of blue candle. After an uptrend Strongest top reversal signal. Can result in a trend change. Short or no shadows. The more previous candle bodies the red candle body engulfs, the stronger the signal.

Top reversal pattern Engulfing Black

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Top reversal pattern Engulfing Black

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Top reversal pattern


Dark cloud cover Blue candle followed by red candle:

Red candle opens at or above previous close of blue candle. Red candle closes at least halfway down the previous body of the blue candle
, between half way and the previous blue candles opening price.

After an uptrend

Top reversal pattern Dark cloud cover

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Top reversal pattern Dark cloud cover

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Top reversal pattern


Bearish counter attack Blue candle followed by red candle:

Red candle opens above previous close of blue candle. Red candle closes at previous close of blue candle.

Top reversal pattern Bearish counter attack

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Top reversal pattern Bearish counter attack

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Top reversal pattern


Shooting star Bullish failure after a rally The longer the upper shadow, the stronger the degree of failure. Small body at the lower end of the range upper shadow at least 2 x body length small or no top Body black/blue or white/red

Top reversal pattern Shooting Star

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Top reversal pattern Shooting Star

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Top reversal pattern


Hanging man Body White/blue or black/red Lower shadow at least 2 - 3 x body length (umbrella line) no / small upper shadow Body at the upper end of the trading range Bearish emergence After an extended rally, preferably an all time high. Needs confirmation: next candle to open and or close beneath hanging mans body.

Top reversal pattern Hanging Man

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Top reversal pattern Hanging Man

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Top reversal pattern


Tweezer tops Highest high out of 2 or more candles the same.

Top reversal pattern Tweezer Tops

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Top reversal pattern Tweezer Tops

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Compilation of a strategy: Timing


Trending indicator: to establish the: Long term trend Medium term trend Short term trend

Up Down Sideways

For entry and exit answers Trading indicator: To establish price movement

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MAC-D: Moving Average Convergence Divergence


Select the graph Select MACD from one of the stats drop down menus Period selection is extremely important. Long term trend SMA 12 and 200+ daily (just change red 26 to 200) or 12 and 26 monthly Medium term trend SMA 12 and 90 daily (just change red 26 to 90) or 12 and 26 weekly Short term trend SMA 12 and 26 daily(default) Very short term trend SMA 3 and 8 daily

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MAC-D: Moving Average Convergence Divergence


Interpretation: Investors: MACD 12 and 200 up through 0, beginning of an upward trend. MACD 12 and 200 down through 0, beginning of a downward trend. MACD 12 & 26 monthly or weekly crossovers Traders: Crossovers: Black line or MACD up through blue line or signal line, beginning of an upward trend, end of a downward trend, over sold position. Black line or MACD down through blue line or signal line, beginning of a downward trend, end of an upward trend, over bought position.

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Trading Indicator
Price movement Leading indicator

Entry Re-entry Exit Re-exit Adding

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Stochastic
Momentum oscillator High-low range over x number of days and the relationship of the close to the low over that period. %K: Difference between last close and lowest low over a period %D: High-low ratio oscillator

Buy: %D Stochastic breaks up through %K or red up through blue. Sell: %D Stochastic breaks down through %K or red down through blue.

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Stochastic
Select graph Select Stochastic from dropdown stats window Not necessary to change parameters. Interpretation: Buying opportunity going up if red line goes up through blue line. Opportunity to get out of derivative position making money going down or in to make money going up. Selling opportunity if red line goes down through blue line, sign that price is coming down not necessarily trend. Opportunity to get out of derivative position making money going up or in to make money going down. Trade in the direction of the trend.

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A step by step approach


International Indices: DJ-IND

Long term trend Medium term trend Short term trend Price movement Compare DJ-IND with DJ-TRAN

DJ-IND
ALSH Sector
Share

Index: ALSH long-, medium-, short term trend and price movement Sectors: Relative strength against index to find outperformers or underperformers and long-, medium- , short term trend and price movement. Shares: Relative strength against sector to find outperformers or underperformers, as well as long-, medium-, short term trend, as well as price movement.

OR Selection based on how much & how fast it moves. Timing: MAC-D and Stochastic Long-, medium and short term

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Strategy Summary
DJ-IND trend & price movement ALSH Index trend & price movement Sector selection: Outperforming index using RS Shares selection: Outperforming sector using RS Sector Timing: Graph option e.g. candlestick chart Trending indicator: e.g. MAC-D for trend Trading Indicator: e.g. Stochastic for entry, re-entry, exit , re-exit or adding to position
Share

DJ-IND
ALSH

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Summary
Measure under- and out performance. Select or choose between two instruments. Compare two instruments. RS above 1: 1st outperformed 2nd RS going up the page: 1st increasingly performing better in comparison to 2nd

Relative Strength

MAC-D

Trend following momentum indicator Relationship between 2 MAs of a price Buy: MACD (black line) up through MA (blue line) Sell: MACD (black line) down through MA (blue line) Long term trend: monthly default parameters (12 & 26) or hourly Medium term: weekly default parameters (12 & 26) or 30 minute chart Short term: daily default parameters (12 & 26) or 15 minute chart Very short term trend: daily data and change 12 & 26 to 3 & 8 or 5 minute chart Intraday: Use default parameters: Long term trend

Stochastic

Upward movement: closed near high Downward movement: closed near low Buy: %D Stochastic (red line) breaks up through %K Stochastic (blue line) Sell: %D Stochastic (red line) breaks down through %K Stochastic (blue line)

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Summary

Engulfing white Piercing pattern Bullish Counter Attack Hammer Inverted hammer Tweezer bottoms Engulfing black Dark cloud cover Bearish counter attack Shooting star Hanging man Tweezer top

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Disclaimer
SBG Securities (Pty) Ltd Presentations Disclaimer for Mariette Kotze Presentation This document and any associated verbal presentation has been prepared and presented by Mariette Kotze and is not an official confirmation of terms, does not represent an express or implied offer, nor does it create any liability or obligation on SBG Securities (Proprietary) Limited (SBG Sec.), registration number 1972/008305/07. Any rates, levels and prices quoted herein or verbally presented are indicative only and although reflective of market conditions prevailing at the relevant time do not constitute an offer to transact at such levels and are supplied for illustrative purposes only. Any transaction or agreement to perform certain services that may be concluded pursuant to this document and/or any associated verbal presentation shall be in terms of and confirmed by the signing of appropriate documentation, on terms to be agreed between the relevant parties. SBG Securities (Proprietary) Limited, or an associated company, may have effected or may effect transactions for its own account in any securities or other investments outlined in this document and any associated verbal presentation or any investment related to such an investment. Prospective investors should obtain independent advice in respect of any product detailed in this document and/or associated verbal presentation, as SBG Securities (Proprietary) Limited provides no opinion or advice including investment, tax or legal advice and makes no representation or warranty about the suitability of a product for a particular client or circumstance. Transactions described in this document and any associated verbal presentation may give rise to substantial risk and are not suitable for all investors. SBG Securities (Proprietary) Limited will only provide investment advice if specifically agreed to by SBG Securities (Proprietary) Limited in appropriate documentation, signed by SBG Securities (Proprietary) Limited. This information is to be used at your own risk, and SBG Securities (Proprietary) Limited makes no representation with regards to the correctness of the information herein. By accepting this document, you agree to be bound by the foregoing limitations. SBG Securities (Proprietary) Limited is a subsidiary of the Standard Bank Group Limited, an authorised user of the JSE Limited and an authorised Financial Services Provider.

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Copy Right
The material supplied by Mariette Kotze to SBG Securities (Pty) Ltd. is protected by law and may not be copied, reproduced, printed or otherwise distributed, whether in part or in full. The context of the content may not be construed in any way. The material is intended for personal or private use only.

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