London Mastermind Technical Analysis Trader Group

Ray Francis
Technical analysis of shares and financial derivatives.

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Web Sites
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• • • • • • • • • • • • • • •

http://www.moneyextra.com/stocks/ftse100/ http://www.liffe-data.com/equityOptions.aspx
http://bigcharts.marketwatch.com/ http://www.comdirect.co.uk/ Broker Web site http://www.mybroker.com/ http://www.nasdaq.com/ http://www.optionetics.com/ http://www.advfn.com/ https://wwws.ameritradeplus.com/ http://www.bloomberg.com/markets/stocks/wei.html http://www.cboe.com/home/default.asp http://www.chartpatterns.com/ http://www.euronext.com/home/0,3766,1732,00.html http://www.londonstockexchange.com/default.asp http://www.prophet.net/default.jsp http://finance.lycos.com/qc/default.aspx http://finance.yahoo.com/

The Technical Analysis Course Thomas A Meyers ISBN 1-55738-523-8

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http://www.gann.co.uk FreeTraining@WinInvesting.com

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Money Extra

FREE Stuff

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Technical analysis of shares and financial derivatives.

Rules and Regulations This presentation is for education and interest and is not advice
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Technical analysis of shares and financial derivatives.

Acknowledgements to AIQ charting MyTrack MyBroker
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Technical analysis of shares and financial derivatives.

Understanding Graphs

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Reading a Chart Line Graph
Price

Time
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Day or period bars
OHLC
High Close

Open Low

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Day or period bars
OHLC
High Close

Open Low

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Reading a chart Open High Low Close (OHLC)

Dow Jones &Co graph in OHLC

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Day or period bars Candlesticks

Any Specified period

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Reading a Chart Candle stick

Dow Jones &Co graph in HLOC
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Day or period bars Gaps

Something happened after the market close and the next day opening

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Why losses are greater than gains Slippage
The Gain
BUY SELL

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Why losses are greater than gains Slippage
The loss
BUY SELL

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The Market Maker
• Task to maintain a market liquidity • Obliged to offer prices to buy and sell

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Brokers

Nobody cares more about your money than

you
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TECHNICAL ANALYSIS

Chart Patterns

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5 Major Chart Patterns

Wedge & triangles Head & shoulders W

Rounded bottom

Cup & handle

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5 Major Chart patterns (either way up)

W Head & shoulders Cup & handle Wedge & triangles

Rounded top

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Head and Shoulders

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W

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Dow Jones Industrial Average W
1600 points = $8000 400% in 4 months

8800 +1600 = 10400 Target

7200 – 8800 1600 points

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Triangle or Wedge
Descending Triangle

Tar get lin

e

More contact points = greater reliability

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Rounded Bottom

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Cup and Handle !!!

Hard to find but worthwhile
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(IBM) Chart bottom ?

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(IBM) Chart bottom ?

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2
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(IBM) Chart bottom ?

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2

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Why Bull and Bear Markets

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Why Bull and Bear Markets

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Technical analysis Charting
• What to look for • Selecting shares

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The First Step Fast Searching

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Market forces cause rising and falling oscillations

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Why it Works
After each rise the price looks high. Buyers taking profit After the 3rd rally most long term buyers have bought

After the fall the price looks low more buyers return
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Tools of the trade

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Look at bar size RUNNING OUT OF STEAM
Reducing Daily bars

Large daily bars

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Support and Resistance

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The Trend line

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Support and Resistance

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FREE Stuff

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10 DAY MOVING AVERAGE Mid - Price
• Find the average for the last 10 days • Plot it today • Next day do it again
9 8 7 6 5 4 3 2 1 0 15 17 19 21 1 3 5 7 9 11 13 Series1

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Support and Resistance 10 day moving average

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Support and Resistance 10 and 21 day moving average

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Support and Resistance
Caution

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Support and Resistance 10 and 21 day moving average
Cross over

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Golden Cross

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What is MACD?

2 moving averages
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MACD oscillator Trending only not flat

The difference between 2 MA

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Indicators
• The • blow off • bottom
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Look for a Volume spike

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RSI Relative Strength Index

50 NOTE 21 day setting
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Accumulation distribution

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Test technical indicators
• • • • • Test out the indicator Look back at any stock to ensure that: It worked reliably in the past Change the constants up or down to improve Example change 21 day MA to 18 or 28

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FIBONARCCI A naturally occurring number sequence
23.6% 38.2% 50% 61.8% 161.8%, 261.8%, 423.6% 1,2,3,5,8,13,21,55
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FIBONARCCI pattern

61.8% 4 38.2% 3 2 1

5

a b

c

One of the more reliable strategy

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FIBONACCI the law of nature
3 steps up

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FIBONACCI the law of nature
Same Graph up close

61.8% 38.2%

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FIBONACCI 1,2,3,5,8,13,21,55
13 21 34

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Gann
• • • • • A famous trader Many factors 50% 25% 12.5% / 33% 17.5% Some difficult to follow Some methods questionable 50% method very strong

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Graph of Gann in action

50%

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Graph of Gann in action FTSE

50%

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Graph of Gann Angle

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FREE Stuff
• • • • • http://www.gann.co.uk Free training course You can learn more Do not believe the profits claimed Keep your money

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How to avoid owning a falling portfolio

Let us say you find £10,000

Are you happy now

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Buying and taking profits?
Half and half

What is natural Getting rid of those bad stocks

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Buy 10 Different Stocks
• 5 up stocks • 5 down

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Buy 10 Different Stocks
• 5 new • 5 down

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Buy 10 Different Stocks
• 3 up • 2 down • 5 down

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Buy 10 Different Stocks
• 3 new • 7 down

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Buy 10 Different Stocks
• 1 up • 2 down • 7 down

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Buy 10 Different Stocks
• 1 new • 9 down

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Random walk and probability

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Random Walk

Logical path

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Stop loss not too close (logical)
• If you use a close stop loss you will fail • The natural market fluctuation backtracks

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Targets for a Stop Loss

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The Long and the Short of it
• What is going short • What is going long

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Selling Short
• What is going short • IS IT LEGAL?

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What to look for
• • • • • • A stock with a small spread. (Well Traded) A good trade pattern or changing trend A good indicator to confirm trend Cross over of moving average Cross over of a trend line No line of resistance in the way
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Day Trading
Typical decision time 5 to 8 seconds

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What is a Future
• It is a contract to deliver the underlying • On the FT100 a basket of all shares in the correct proportion to equal the value of the FTSE.

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Index Futures
• • • • • • Dow Mini = $5 per point per contract Average move each day 170 high to low If you could pin the top and bottom $850 Trading 10 contracts = $8500 Account size needed $20,000 Potential 30% a day ( + or - )
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What if the future gains too fast Arbitrage
Future Index

Sell Buy Close out

Typically 35 seconds

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Dow 2 minutes ( Before Announcement)

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Dow 1 minute ( to Announcement)

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Dow I minute ( After 8 Minuets)

Drop from 8440 to 8388 52 points 52 points at $5 = 260

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Dow I minute ( After 15 Minuets)
100 points = $500 8 in minutes

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Next day at 10:00:30sec
Drop 30 points in 30 seconds

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Next day at 10:01
Recovery of 40 points in 30 seconds

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FREE stuff * mybroker.com

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Options

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Down on the farm

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What is this strange thing? A Call Option

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Options. The covered Call

The safest strategy to use,

But How Safe?
Warren Buffett

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The covered Call
BUY Stock certificate 1000 share Barclays Bank 1000 x £5 = £5000 Sell 1 Call Option contract To Supply 1000 Barclays shares at £5 1000 X 35p = £350

•True cost of trade =465p •X1000 = £4650

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•1 Happy Bunny

Price up
• • • • • • The Call is exercised You keep the premium £350 You get £5000 and keep the call premium 35p X 1000 = 350 Total £5350 from £4650 14% in a few weeks
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Price the same £5
• • • • The Call is worthless You keep the premium You still have the stock and £350 Next action DO IT AGAIN

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Stock Price at 450p
• 1) Buy 1000 shares at 500p • 2) Sell 1 call say 35p (6 weeks?) • True cost of trade = 465p • Loss £150 • Simple share purchase = £350 loss
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Check out an option table

FREE Stuff
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The Cunning Plan
• 1- Have money • 2- Exchange money for positions • 3- Close the positions back to more money

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Buying shares at a discount

• What is a Put
• The right but not the obligation to sell at the agreed price within the period.

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Selling Time
• Time decay.
Option Price 15 10 5 0

Sell a 50 call for 15
Stock Price 60

50

3 month

2 month

1 month

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Put Contract

Contract
The right to sell 1000 shares in BP For 500p each expiring 17 June 2004

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Buying shares at a discount
• • • • • • • If you want 1000 Barclays ( trading at £5 ) Sell a £5 put for 30 p (x 1000 = £300) If the price drops below £5 at or near expiry You buy at £5 and keep the 30p Outlay £4700 If the price stays high you have no shares But, you do have the £300
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Free Stuff
• • • • • Optionetics www.optionetics.co.uk You can learn a little for free. You can pay for more Do not believe massive profits promised

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Danger

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Conditions and Tactics

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Back to Basics

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Trade with the trend (up or down ) Money management ( Diversity ) Stop loss ( Position and execution ) Run profits Any single risk < 2% of account

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Know your risks
• Trading is dangerous • If you are failing • Look at the conditions • Paper trade to find out what is wrong • Or you may blow out your account
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A good trader
• • • • Will stalk and wait for the opportunity You do not have to trade a bad chance There are plenty of good chances All you have to do is be ready

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1 Professional trader
Claims to have a 53% hit record However she is very profitable as her gains are 3 times greater than losses

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So you gained without a stop loss
• Many times you can recover
Buy

WITH LUCK

Sell

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Stop Loss
BUY£9800 It’s turning £8000 10 9 8 7 6 5 It’s turning £4000 4 3 2 1
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Look out for Splits

It’s turning £7000

MARCONI No money left

Well… It is not that often is it?

Enron Marconi British Rail British Telecom

Psion Microsoft Bookham Technology

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Sooner or later the LUCK runs out

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Gain v Loss %
• 10,000 - 50% = 5000 • Recovery 5,000 + 50% = 7500 • 10,000 + 50% = 15000 • Compounding 15,000 - 50% = 7500 Fixed 10,000 – 50% = 5,000 loss Fixed 10,000 + 50% = 5,000 gain = 10,000 left

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• • • •

Plan each trade Know and place a stop loss Have a target Place a tight stop under it when the target is reached

Success

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Technical Analysis provides greater probability
• Some indicators are said to be 90% reliable? • Subjective????

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What account do you need
• • • • • • Low charges Phone and internet Ability to trade both long and short Ability to trade Options Support stop loss Comdirect
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Trading check list
• • • • Plan each trade and trade the plan Consider profit v loss ratio >2.5:1 Select correct entry point and stop loss Re-position stop losses under rising prices

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Free Stuff
Darren Winters FreeTraining@WinInvesting.com • You can learn a little for free. • You can pay for more • Do not believe massive profits promised

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The Book

The Technical Analysis Course Thomas A Meyers ISBN 1-55738-523-8
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Interesting shares
Oxford Instruments

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Interesting shares
Scottish and Newcastle

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Interesting shares
Abbey National

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Interesting shares
IBM

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London Mastermind
Ray Francis

Ray Francis

Th, th, th That’s all folks

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