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Basic's of Technical Analysis

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Investment or Trading Psychology and Discipline in Stock Markets . 3. You are Free to share the content “provided” you link back to http://www.com Do not Use this ebook or its contents for any commercial Purpose . 4. 2. Currency etc. Commodities . mail me at manish. Anyone who trades or Invests in any Markets like Stock Markets . Manish Chauhan . Difference between Fundamental and Technical Analysis How to use Support and Resistance How to use Trendlines to find Support and Resistance How to use Oscillators to BUY an SELL Who must Read this Book This book is going to teach you some basic and most important concepts of Technical Analysis .pucsd@gmail.jagoinvestor.Contents 1.com and give proper credits to Author ie. can use these concepts . there is much more than Technical Analysis which you need to understand and Learn like Money Managemenet . . These Concepts in themselves do not guarantee any success . If you have any questions or concerns . Important Points ● ● ● ● Each Chapter has example's to help reader understand the concepts well.

cash books . not a guarantee . price and volume patterns and other indicators derived from price and volume . Even though you have picked up some excellent companies for your long term investments . Fundamental Analysis and Technical Analysis is a personal choice and one may work for you and other may not work for you . There can be a price area where buying is best in terms of risk/reward . Technical Analysis is the study of charts . Decisions taken on basis of TA only increases your risk/reward scenario . Technical Analysis gives us hint on what can happen in future . "Will it be more valuable than what it is now " etc etc " But !! . markets study to find out the future prospects of a company. Fundamental Analysis answers the question "What to buy" ? . That's not the end of the story . understand that it only gives you chances. Let us see an Example in the next Page . It answers the question "Will this company be a good buy for long term" ? . So everything should be taken with crossed fingers . that's not the right approach . It a study of companies Financial statements . Now the biggest challenge and question you have is "When to buy it" ? You should not just go next day and buy the share . Its you who have to find out what fits your personality and if you want to use it or not . .Fundamental Analysis and Technical Analysis There are two important questions which you have to answer when you want to buy shares ? They are "What to buy" and "When to buy" ? You may be familiar with Fundamental Analysis .

but there are good chances for getting better price . Both of them understand that Reliance is truly long term buy . It does not mean it will always happen . On Feb 1 2009 . but there can be cases .150 . Here you can see that Robert has got the stock at 15% lower price . Ajay invests in Reliance on Feb 1 . See the Chart Below . Roberts buys the stock at that time . He buys the stock at Rs 1360 . because share is going up and he feels its a good time to enter other . What did Robert do ? Robert used simple Technical Analysis concepts and entered in the stock with better prices . which means his profits will always be more than Ajay's by that much . and it would be really worth to use basic Technical Analysis .I will give you an example . there is no significant price difference . Reliance is a very good long term Investment (do your own analysis to find out why.where there can be drastic differences . In the above case of Reliance . . After some days Stock starts falling and reaches around Rs 1. but it is :) ) . Ajay and Robert want to invest Rs 1 lac in Reliance for long term .

At that price point . Which point is Support point : Every Low made by the price can be considered as Support Area . is only a less-risky trade . Its only the higher probability that it will bounce back . and lots of buyers come to buy it . Prices can break down from there also . It made a low of Rs 53 (closing price) on 27th Oct 2008 and then bounced up from there . Please understand that Support point is not a place from where it will for sure bounce back . . the general perception is that its a good buy . generally its a range like 98-100 or 560-570 . Prices went up from that point and after reaching Rs 90 . This is a point where Buying has less risk .How to use Support and Resistance Support : Support for a price is a price area where there are lots of buyers ready to buy the stocks rather than sellers . In other words . Hence buyers outnumber sellers and there is a higher possibility that prices will bounce back from that point . but could not break down from that point and again bounced back from there . Support Example 1 : Below chart is for Jaiprakash Associates (click to enlarge) . at support levels demand is thought to be strong enough to prevent the price from declining further . it again started heading down . Also understand that its not exactly a fixed price which should be considered as Support . Now Rs 53 is the support point .. You can clearly see in charts that it reached Rs 53 levels .Understand that buying around Rs 53 . It was a very good "BUY" around Rs 53 . not a "no-risk" trade .

Resistance : Resistance is just opposite of Support .Support Example 2 : Below is a chart of RPL . Here you can see that prices made lows of Rs 70 around Dec 1 . After that you can see how it reversed from that point 2 times in Jan and Feb 2009 . It was a wise decision to sell at those points . and then prices reached thought levels around first week of Mar 09 . Resistance point is the High made by a price . At this point there are enough sellers in the market to prevent it from rising further . 08 . It bounces back from that point . That became a support point . It was a less risk trade around Rs 70 . Lets see examples : Resistance Example 1 : Below is Reliance Charts . All the high's will act as some kind of resistance points . You can see that reliance made a high of Rs 1400 around Dec 2008 . At this price levels there are more sellers than buyers and with high probability prices reverses from this point .

which shows how it broke down its support point and then made further lows . Sell further . Also there are several other factors which should be considered .bazaartrend. but for now lets not touch upon them . Though you will loose some part . It does not mean that you just jump onto market and buy or sell . . find yourself) Important Note : When prices are near Support or Resistance levels . Try to see other charts if you are interested . that would be a better trade . you should be more alert . Lets also look at some important points Break Down : Always remember that when prices dont hold support and break them and fall further .com/index.You can also find many examples like this if you investigate yourself . lets keep it simple for readers . Be patient to see the actual price reversal .php . When support is broken . it tells that buyers are not strong enough and Sellers have taken over them and prices will make new lows . you can look at charts at ichart. Example :Below is the chart of RPL .in or http://www.

and if you dont control your GREED and emotions . use this knowledge . 4. Some Other points to remember : 1. . then no Technical analysis or any thing will help .blogspot. So it will many times happen that you get out at important levels and miss the large movement . put only 1 lac . 2. Use strict Stop losses and use Money management techniques (it means not putting all your money at once . and Resistance once broken becomes Support point for next time . but remember that you are dealing in Markets . All technical Analysis and knowledge are of no help if a person cant control his greed and emotions in Market . thats fine . dont be greedy enough . This is most important point . Many times there are false breakout and breakdown . your failure is guaranteed . else someday you markets will punish you badly . you can always enter after getting out . Everything I talked about in this article can increase your chances of making more money in trading . Support and Resistance points are places where you should be more alert and look for other signals to buy or Sell. if you have 10 lacs . Support once broken becomes Resistance for next time . buy it when it starts rising and there are positive signals . TA and your knowledge will contribute not more than 20% of your success in long run . just dont buy because prices have reached near support .Break Out : When prices dont hold resistance points and break them on upside . prices then indicate that they are going to make new highs .com/2008/07/resistance-becomes-support. Better to buy at that point . See : http://candlestickmania. have good amount of cash with you always ).html 3.

You can see that now prices are again Approaching to this Resistance line . Understand that we are not saying that prices has to necessarily touch the Resistance line and then go back down . or book there profits . What will happen exactly . we join two low prices points and in Downtrend we join two high prices and extend it further . it may provide a good opportunity to sell . Example of trend line while DOWNTREND You can see in the chart how Two high prices were joined and the line acted as Strong Resistance in future . Let us see one example of each of them. These are good price area where either one can go Short (sell) . 3 times prices touched it and broke down again . better not to predict and let market decide .so once prices reach this point . In the Uptrend . it should probably act as Support or resistance point . . Next time when prices approach them . it may again go back much before touching it . the trend line only provides Resistance .How to use Trendlines to find Support and Resistance What is a TrendLine ? A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance.

you can see how prices are again approaching this support area . Let us see a 2 yrs chart of JAIPRAKASH ASSOCIATES . Let us try to make a trend line which acts as support .Resistance line using trendline for shorter time frame .Resistance line using trend line . If you see the chart . most probably this will again hold and it should be a good BUY :) Let us see one more example for Trend lines . At the end . i have connected two low prices and extended it in future .Breakout .How Resistance once broken became Support . you can clearly see how it acted as support area and prices went back up from there .Example of trend line UPTREND Below if the 2 yrs chart of HIND LEVER . . This example will show us following things : .

 there should be some time gap between them to believe in  them . dont put all your money in a single trade .You can see here how i joined two HIGH Points and extended the trendline in future . and how prices reacted to this Resistance line . let your profits run . CLOSE PRICE etc . cut your losses short  and accept it . it depends how you make   them using HIGH PRICE . there is no problem with being wrong . Also you can see a small trendline . ● ● ● ● ● ● ● . Some of the important points to note are : ●  Its more of an art to make a trendline . Once trendlines are broken . More times trendline is touched by the price stronger it becomes . And   stronger is the break out from that trendline . You can make Trendline for any time frame. So . you can see how prices bounced up as this support line held the prices .  Its not necessary for prices to touch trendlines . If trade goes   in your favor . you should not expect   it . it has happened for a   reason :) . which was made joining the low points . Recently Prices broke out of this resistance line and then this same resistance line acted as Support line and prices bounced back from there . Its a wise decision to BUY OR SELL using trendlines . even the best in  Industry fail . take it seriously . Make sure that the two points used to make trendline are not very   near . Trendlines will be of no help unless you control your GREED in   markets . we have seen some examples of Trend lines and how they can act as Resistance or Support lines (as per situation) . Keep adequate   cash for bad times . if it fails.

In the next part (last part) .3. . and I have drawn several trendlines in different time frames .2. I have marked some points with 1.5 . we will see how we can use some of the Indicators from technical Analysis to make decision better . I would recommend a book "How to make money trading with Charts" by Ashwini Gujral . For people interested in learning these things in detail .4. but i have left it ? Conclusion : So we end this Article here . we can see that even by visual inspection we can get some idea about which area is support and resistance area .Practise Question for you Below is a chart . Also . Also tell me if there is any other trendline which could have been made . Let me see who comments correctly on each of them . We saw Importance of Support and Resistance and how to make trendlines and use them . please tell me what are each of them and comments on each point . please do it individually .

it means . RSI SELL signal = when RSI has moved above 70 and starts falling down . Rules When its overbought . I will discuss just 2 oscillators which Investors can use to make better BUY AND SELL decisions . we BUY the share . Let take a time frame of 6 months and see how indicators gave signals of buy and sell . when they are nearing 100 it means stocks are overbought and "expected" to go down now . When its oversold .Downtrend . SS BUY signal = when blue color line crosses down the Red line . we will use both the indicators signal and take BUY or SELL only when both shows same kind of signal .Side ways Movement . OVERBOUGHT = when RSI and SS both are overbought OVERSOLD = when RSI and SS both are oversold .Uptrend . SS SELL signal = when blue color line crosses above the Red line . stocks are in oversold area and fresh buying can come and move the stock up . we SELL the share . Note At any point of time.How to use Oscillators to BUY an SELL What are Oscillators : Oscillators are the indicators which move from overbought to oversold area . generally from 0 to 100 . markets may be in any of 3 state . when they are nearing 0 . . To make signals more stronger . We will see 2 indicators here RSI and Slow Stocastics (SS) (Read what is RSI and What is Slow Stocastic ) . RSI BUY signal = when RSI has moved below 30 and starts moving up .

Hence . If markets are in strong Uptrend or Downtrend . But not SELL when prices are in over bought market . you should avoid selling the stock . This was a Sideways market (but still downward bias was there . you should avoid Buying the stock . like we had for last 6 months . these indicators will generate many false signals . that is the time you should BUY . you can take SELL easily) .Understand that these signals work best in range bound market . In different markets we have to use different strategies . when there is small correction . Indicators can fast move in oversold region . Downtrend Market : In Downtrend . DLF . only SELL when the indicators are in overbought region . you can buy and sell both . Sideways Market : In this market . When market were moving in range of 3100-2600 . Uptrend Market : IN Uptrend . so be careful with BUY . Lets see some examples for last 6 months .


Some Important things to NOTE (very important) Oscillators should not be used in Isolation alone . . but you see that prices have broken the resistance point . and oscillator are in over sold area . they are only helping tools used with other signals . because Oscillators are secondary thing . then its safe to BUY . Also . You should also confirm it with other things like Support and resistance to make your BUY or SELL more stronger . If prices are near support and not breaking it . prices are primary . Never rely just on Oscillators . its tells you that you should not BUY . For example : If prices are near the Overbought .

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