Tech Analysis by John Murphy

PRICE
1. basic rules:
a. Markets action discounts everything
b. Price moves in trends
c. History repeats
d. Market has 3 trends
e. Trend has 3 phases : accumulation, public participation, distribution
f. dsfsd
2. Technical analysis in futures is a much purer form of price analysis
3. Fan principal:

4. Triangle pattern :
● continuation pattern
● generally breaks between 66% to 75% (⅔ to ¾ ) if the horizontal length of the
triangle
● After breakout, the triangle line broken forms support/resistance.
● Volume diminishes as triangle gets narrow and picks up at breakout
● One should check if vol is heavier on the upside fluctuations or downside.
This could give an idea about the probable direction of breakout
 ● Ascending triangle : bullish
● Descending triangle : bearish
● Symmetrical triangle : neutral, but generally the trend continues and reversals
are less likely
● Ascending triangle can appear as a bullish reversal pattern too
● Descending triangle can appear as a bearish reversal pattern too
● A triangle that forms in less than a month is probably a pennant. Triangles
takes around 1-3 months.
5. Rectangular pattern : duration : 1-3 month(20-60 candles),
6. Flag and pennants :
● Last for max 3-4 weeks
● brief pause in dynamic move. Situations where market has moved faster than
expected and hence pauses to catch some breath
● Preceded by a sharp straight line move
● Very reliable
● Rarely produce a reversal
● Volume decreases during the flag and pennant formation,preceded and
followed by volume burst
● Occurs near the midpoint of the move
● Flag’s direction is usually opposite of the pole trend suggesting some
relaxation before catching the trend again.
● Move after the break of flag will be around the length of flag pole before it
7. Wedge formation:
1-3 months, intermediate time frame
Have a noticable slant, usually in the opposite direction to trend
Rarely they do occur at reversals
8.
9. Continitation head and shoulder
VOLUME
1. Price is most important and primary. Volumne and open Interest comes next and are
secondary.
2. Volume is the quantity traded during the period
3. OI is the total num of outstanding or unliquidated contracts at the end of the day
4. Volume confirms the price if it increases on an uptrend and decreases on price dips.
5. Volume should be heavy when price is trending and low on retracements to believe
a trend to be strong
6. Volume preceeds price
7. On Balance volume (OBV) :

Thus OBV doesnt do justice on high variation days and sideways trade days as it
assigns polarity on basis closing.
8. James sibbet demand index - leading market indicator -uses OI
9. Herrick payoff index: uses OI
10. Lazlo money flow indicator: real time OBV
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12.

13.
14. Seeing OI by commercials is important
15. Long time frame charts : anyone neglecting long term charts is missing valuable info
16. Weekly n monthly reversal pg 213 of book (doc)
17. Log chart trendlines pg222
18. Study charts samples on pg 216-222
19. Double/triple cross over of moving averages : 4-9-18 day avg (also 5-10-20 day)
(S,M,L)...used mainly of futures : when S cross the M, it could be a signal to cover all
open positions going against the crossover, if M crosses L its a signal to enter new
position in the direction given by crossover. S is the most sensitive line while L is the
most stable line.
20. Moving average envelope : moving average with % deviation lines. Price crossing
the upper line signals overbought market and vice versa.

21. Bollinger bands: same as envelope technique with 20 day MA, just uses 2
standard deviations instead of percentage variation
22. Fibbonaci numbered moving averages have been seen to perform good
23. Oscillators perform well in sideways market and Moving average in trending market.
ADX helps in knowing when its trending or consolidating.
24. 4 week rule : donchain channnel
25. Oscilators are more useful at trend ending scenarios
 26. Trends on momentum chart are broken sooner than the price chart
27. Commodity channel index (CCI) : ratio of CMP to Moving average (20) scaled to
mean absolute deviation
28. Relative strength index (RSI) :

Range 0-100, general duration is 14 and 9 days, generic boundaries are 70 and 30,
80-20 are also popular boundary limits.
29. Read failure swings and divergence in RSI
30. Stochastic: help ful in smoothing out extreme signal from oscillators like RSI
a. %K = (CMP-n day low)/(n day high - n day low)..i.e.what % of the range the
price is trading now
b. %D = m day MA of %K
c. %Dn = o day MA of %D
Generic values of n,m,o are 14,3,3
D is fast stochastic
Dn is slow stochastic
31. Give less attention to oscillators in early period of trend and importance rises as the
trend matures because at early stages oscillators moves a lot of even small changes
in the price action.
32. MACD : moving average convergence divergence:
a. difference between n day EMA(slow) and m day EMA(fast)=MACD line
b. Exponentially smoothed MA for l observations of MACD=signal line
c. l,m,n are generally taken as 9,12,26
d. Histograms are plotted for diff between the MACD line and signal line.
Trendlines could be drawn on histograms too.
e. When macd crosses above signal its a buy signal and vice versa
33. Candle stick patterns:
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35.
36. Iron Condor
37. Butterflies
38.Ratio Strangle
39.Jade Lizard strategy
40.Relative Strength Index (RSI), moving averages, Fibonacci and Elliot Waves
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42.Options oracle tool open source
43.