Introduction To Technical Analysis

Introduction to
Technical Analysis
© StockzGateWay.com 2008. All Rights Reserved.

What to Expect?
• Not even T of Technical Analysis 

(3 Hours is too less a time to expect anything
w.r.t Technical Analysis, there’s too much out
there…)
• Expect just an introduction to what is technical
analysis
• Get yourself convinced by end of the
presentation that technical analysis is good
enough to buy and sell stocks

What Is Technical Analysis
in two words?

Price & volume

What wiki says?
Technical analysis is a security

analysis discipline for forecasting the
future direction of prices through the
study of past market data, primarily
price and volume.

Different Kind of Charts used:
• Line charts
• Bar charts
• Candlestics

Line Charts

Bar Charts

Candlesticks

An Example…

How to use Candle Sticks?

Is That all?? No 

Dow Theory
• Market Discounts everything
• The 3 Trends
-> Primary Trends
-> Secondary Trends
-> Minor Trends

Primary Trends and Secondary Trends

Continued…
• Primary Trends : They run for years
• Secondary Trends : Few weeks to months

1/3 , 50% , 2/3 retracements
• Minor Trends : Day to day moments which are of

not importance to dow theory.

Continued…
• The Bull market

-> Accumulation
-> Public Participation phase
-> Excess
• The Bear Market

-> Distribution
-> Public Participation phase
-> Panic

Continued…
• The 2 Averages must confirm

-> Industrial Average
-> Rail Average
• Volumes goes with the trend

Continued…
• A trend be assumed to continue in effect until

such time as its reversal has been definitely
signaled

Some Examples…

Support and Resistance

Role Reversals
• Support becomes Resistance and vise versa

Real world Example…

Chart Patterns
• Reversal Patterns
Ex: Head and Shoulders, Rounding tops and
bottoms, Triangles, Rectangles, Double and
triple tops and bottoms, diamonds, wedges etc
• Continuation Patterns
Pennants and flags etc

Head and Shoulders

Double tops and bottoms

Triangles

Flags and Pennants

Some Examples…

Bullish Flag

Falling wedge

Right Angles Triangle

Head and Shoulders breakout

Head and Shoulder formation

Triangular Consolidation breakout

Averages
• Simple moving average (20 DMA, 50 DMA,

100DMA)
• Exponential moving average(20 EMA, 50 EMA)
• Triangular moving average
• Volume adjusted moving average
• Weighted moving average

Simple Moving Average
DAY PRICE SUM OF 3 DAYS 3rd COLUMN / 3
1 10
2 11
3 12 33 11
4 13 36 12
5 14 39 13
6 15 42 14
7 16 45 15
8 17 48 16
9 18 51 17
10 19 54 18

Exponential Moving Average
• Exponential Percentage = 2
----------------------------
Time Periods + 1
Ex: for 3 day EMA,
E % = 2/(3 + 1)
E % = 2/4 = 0.5

3 DAY EMA
A B C D E
DAY PRICE PRICE * 0.5 YESTERDAY E * 0.5 C+D
1 10 10.000
2 11 5.5 5 10.500
3 12 6 5.25 11.250
4 13 6.5 5.625 12.125
5 14 7 6.062 13.062
6 15 7.5 6.531 14.031
7 16 8 7.015 15.015

Moving Averages as Support

Use of major moving average as support

Indicators
• Leading Indicators Ex: RSI, CCI, Stochastic, etc
• Lagging Indicators Ex: MACD, moving averages

etc

Bollinger Bands
• Shown in 3 bands
• Middle Band = SMA

• Upper Band = Middle band + 2 Standard
Deviations
• Lower Band = Middle band – 2 Standard
Deviations

RSI
• Relative Strength Index
• Usage
-> Tops and Bottoms (70 and 30)
-> Chart Formations
->Support and Resistance
-> Divergance

Calculation
• 100 - (100 / (1 + (U/D)))
U -> Upward Price Change

D -> Downward Price Change
Ex : 3 day RSI

Continued…
A B C D E
Closing Price Upward Price Change Smoothed B Down word Price Change Smoothed D
10
11 1 0
9 0 2
13 4 1.66 0 0.66
10 0 1.33 3 1.33
14 4 2.66 0 1
C E F G H I = RSI
C E C/F F+1 100/G 100 - H
1.66 0.66 2.51 3.51 28.5 71.5
1.33 1.33 1 2 50 50
2.66 1 2.66 3.66 27.3 72.7

Some Examples…

MACD
• Moving Average Convergence and Divergence
• Calculation
12 EMA – 16 EMA
• Usage
-> Crossovers
-> Overbought/Oversold
-> Divergence

Examples…

Other Technical Indicators
• Absolute Breadth Index

• Accumulation/Distribution Line
• Advance/Decline Line and Ratio
• Arms Index (TRIN)
• AROON
• Chalkin Oscillator
• CCI
• KST
• OBV (There are 1000s of indicators )

Pivot Points
• PP = (H + L + C) / 3
• R1 = (2*PP) - L
• R2 = PP + (H - L)
• R3 = H + 2*(PP-L)
• S1 = (2*PP) - H
• S2 = PP - (H - L)
• S3 = L - 2*(H - PP)

Other Important Things not Discussed
• Elliott Wave Theory

• Fibonacci Studies
• Gann angles

Q&A

Thank You

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Introduction to

© StockzGateWay.com 2008. All Rights Reserved.

• Not even T of Technical Analysis 

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

Technical analysis is a security

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

• Market Discounts everything

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

• Secondary Trends : Few weeks to months

• Minor Trends : Day to day moments which are of

© StockzGateWay.com 2008. All Rights Reserved.

• The Bull market

• The Bear Market

© StockzGateWay.com 2008. All Rights Reserved.

• The 2 Averages must confirm

• Volumes goes with the trend

© StockzGateWay.com 2008. All Rights Reserved.

• A trend be assumed to continue in effect until

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

• Support becomes Resistance and vise versa

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

• Simple moving average (20 DMA, 50 DMA,

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

Ex: for 3 day EMA,

© StockzGateWay.com 2008. All Rights Reserved.

DAY PRICE PRICE * 0.5 YESTERDAY E * 0.5 C+D

4 13 6.5 5.625 12.125

6 15 7.5 6.531 14.031

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

© StockzGateWay.com 2008. All Rights Reserved.

• Leading Indicators Ex: RSI, CCI, Stochastic, etc

• Lagging Indicators Ex: MACD, moving averages

© StockzGateWay.com 2008. All Rights Reserved.

• Middle Band = SMA

© StockzGateWay.com 2008. All Rights Reserved.

• Relative Strength Index