Technical Analysis

GT
Dow Jones Theory
• Market has three movements
• All going at the same time
• Narrow Movement – day to day (daily fluctuations)
• Short Swing – two weeks to a month or more (secondary
movements)
• Main Movement – at least four years (primary trends)
Point and Figure Chart
Bullish Indicators
Bearish Indicators
Reversal Patterns
Uncertain Patterns
Support and Resistance
Head and Shoulders – L&T
Inverse Head and Shoulders
Cup and Handle
Double Top
Double Bottom
Flag
Pennant
Symmetrical Triangle
Ascending Triangle
Descending Triangle
Wedge
Rounding Bottom
Triple Top
Triple Bottom
 Moving Average
Moving Average
27.5

27

26.5

26

25.5

25

24.5

24

23.5

23
1 2 3 4 5 6 7 8 9 10

Closing Price Moving Average

Moving Average Signals
Buy Signal Sell Signal

Stock price line rises through the moving average line Stock price line falls through the moving average line
when the graph of the moving average line is when the graph of the moving average line is
flattening out flattening out

Stock price line falls below the moving average line Stock price line rises above the moving average line
which is rising which is falling

Stock price line, which is above the moving average Stock price line, which is below the moving average
line, falls but begins to rise again before reaching the line, rises but begins to fall again before reaching the
moving average line moving average line
MACD - Moving average conversion divergence

• Compares a short-term moving average (say 50-days

moving average) with a long-term moving average (say
200-day moving average)
• If the short-term moving average is consistently higher
than the long-term moving average, it is a bullish signal
• If the short-term moving average is consistently lower
than the long-term moving average, it is a bearish signal
Reliance Industries MACD, Nov 2017
RSI - Relative Strength Index
• The Relative Strength Index - RSI is a momentum indicator that measures the magnitude
of recent price changes to analyze overbought or oversold conditions. It is primarily used
to attempt to identify overbought or oversold conditions in the trading of an asset.
• RSI = 100 – [100 / (1 + RS)]
• Where RS = Average gain of up periods during the specified time frame / Average loss of
down periods during the specified time frame
• The RSI provides a relative evaluation of the strength of a security's recent price
performance, thus making it a momentum indicator. RSI values range from 0 to 100. The
default time frame for comparing up periods to down periods is 14, as in 14 trading days.
• Traditional interpretation and usage of the RSI is that RSI values of 70 or above indicate
that a security is becoming overbought or overvalued, and therefore, may be primed for
a trend reversal or corrective pullback in price. An RSI reading of 30 or below is
commonly interpreted as indicating an oversold or undervalued condition that may signal
a trend change or corrective price reversal to the upside.
Elliott Wave Theory
• Elliott proposed that market cycles resulted from investors' reactions to
outside influences, or predominant psychology of the masses at the time.
He found that the upward and downward swings of the mass psychology
always showed up in the same repetitive patterns, which were then divided
further into patterns he termed "waves."
• Elliott's theory is somewhat based on the Dow theory in that stock prices
move in waves. Because of the "fractal" nature of markets, however, Elliott
was able to break down and analyze them in much greater detail. Fractals
are mathematical structures, which on an ever-smaller scale infinitely
repeat themselves. Elliott discovered stock trading patterns were
structured in the same way. He then began to look at how these repeating
patterns could be used as predictive indicators of future market moves.
The Elliott Wave Theory is interpreted as follows:
• Every action is followed by a reaction.
• Five waves move in the direction of the main trend, followed by
three corrective waves (a 5-3 move).
• A 5-3 move completes a cycle.
• This 5-3 move then becomes two subdivisions of the next higher 5-3
wave.
• The underlying 5-3 pattern remains constant, though the time span of
each may vary.