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Conquering Technical Analysis Webinar. Presenter: Shaun van den Berg : Head of Client Education at PSG Online. Wednesday, 13 February 2013. Agenda. What is Technical Analysis? Simple vs Complex Charts Chart Setups Psychology of Trading The Trading Plan

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Conquering technical analysis webinar
Conquering Technical Analysis Webinar

Presenter: Shaun van den Berg

: Head of Client Education at PSG Online

Wednesday, 13 February 2013


Agenda
Agenda

  • What is Technical Analysis?

  • Simple vs Complex Charts

  • Chart Setups

  • Psychology of Trading

  • The Trading Plan

  • The Stockbroker Report

  • Summary

  • Conclusion

Presenter: Shaun van den Berg


What is Technical Analysis?

Presenter: Shaun van den Berg


Introduction
Introduction

Two broad categories used to analyse shares to make investment decisions:

  • Fundamental analysis:

    • Characteristics of a company

    • Estimate its value

  • Technical analysis:

    • Does not care about the "value" of a company.

    • Technicians (also called chartists) only interested in price movements.


Shopping mall analogy
Shopping Mall Analogy

  • Fundamental Analyst

    • Goes into each store

    • Studies the product

    • Decides whether to buy

  • Technical Analyst

    • Sits on a bench in the mall

    • Watches people go into the stores.

    • Disregards intrinsic value of the products in the store

    • Decision based on the patterns or activity of people going into each store.

Presenter: Shaun van den Berg

Source: www.investopedia.com


What is technical analysis
What is Technical Analysis?

  • Method to evaluate securities

    • Shares, indices, futures, commodities, exchange rates, etc.

  • Analyse market activity (historical performance)

    • Past prices

    • Volume

  • Use charts and other tools

  • Identify patterns

  • Future activity – Direction/ trend

Presenter: Shaun van den Berg


Price action
Price Action

  • Study of supply & demand

  • Attempts to determine:

    • What direction or trend - Continue into future

  • Attempts to understand:

    • The emotions in the market by studying the market itself, as opposed to its components

  • Some chartists use technical indicators & oscillators

  • Others rely on chart patterns.

  • Most use some combination of the two.


Basic assumptions
Basic Assumptions

  • The market discounts everything (Priced in)

    • Price discounts everything (Reflects all information).

    • Broader economic factors (GDP, inflation, interest rates)

    • Company's fundamentals (Financial information relative to price)

    • Market psychology (Greed, Fear & Expectations)

  • Price moves in trends (The trend is your friend)

    • Price movements are not totally random

    • Once a trend is established, future price movement is more likely to be in the same direction than to be against it.

    • Most technical trading strategies are based on this assumption.

  • History tends to repeat itself (Market sentiment)

    • The "What" is more important than the "Why."

    • Market players react consistently to similar market stimuli over time.

    • Emotional aspect of the market (Bullish or Bearish)


Simple versus complex charts
Simple versus Complex Charts

Presenter: Shaun van den Berg


Chart analysis
Chart Analysis

  • Step #1: What is the Overall Trend?

    • Identify the overall trend – use trend lines, moving averages or peak/trough analysis.

      • As long as the price remains above its up trend line, selected moving averages or previous lows, the trend will be considered bullish.

      • As long as the price remains below its down trend line, selected moving averages or previous highs, the trend will be considered bearish.


Trending trading ranges
Trending & Trading Ranges

Trending

Trading Range

Trending

Trading Range

Trending

Trading Range

Trending

Trading Range


Trend analysis
Trend Analysis

Three types of trend:

  • Uptrends

  • Downtrends

  • Sideways/Horizontal or Neutral Trends


Example of a up trend sab
Example of a Up Trend (SAB)

Higher Highs

Higher Lows


Key critical support levels
Key & Critical Support Levels

Key

  • Early warning

  • Something is not right

  • Protect profits

  • Raise your stops

  • Critical level – Beginning of new trend

Critical


Example of a down trend tkg
Example of a Down Trend (TKG)

Lower Highs

Lower Lows


Key critical resistance levels
Key & Critical Resistance Levels

Critical

  • Early warning – Move is pausing

  • Move is coming to an end

  • Protect profits (if short)

  • Tighten your stops (if short)

  • Critical level – Move up is complete

Key


Trend lines sab
Trend Lines (SAB)

Resistance Trend line

Support Trend line



Chart analysis1
Chart Analysis

  • Step # 2: Where is Support?

    • Congestion (trading range) or previous lows below the current price mark support levels.

      • A break below support would be considered bearish (Open short positions / Sell).

  • Step # 3: Where is Resistance?

    • Areas of congestion and previous highs above the current price mark the resistance levels.

      • A break above resistance would be considered bullish (Open long positions / Buy).


Example of a sideways trend ang
Example of a Sideways Trend (ANG)

Resistance

Support

2006

2013


Chart analysis2
Chart Analysis

  • Step # 4: Where is Momentum?

    • Momentum is usually measured with an oscillator such as the MACD indicator.

      • If MACD is above its 9-day EMA (exponential moving average) or positive, then momentum will be considered bullish, or at least improving.

      • If MACD is below its 9-day EMA or negative, then momentum will be considered bearish, or at least deteriorating.



Chart analysis3
Chart Analysis

  • Step # 5: Where is Buying/Selling Pressure?

    • For shares and indices with volume figures available, an indicator that uses volume is used to measure buying or selling pressure.

      • When Chaikin’s Money Flow (CMF) is trading above zero, buying pressure is dominant.

      • Selling pressure is dominant when the CMF indicator moves below zero.


Chaikin s money flow cmf
Chaikin’s Money Flow (CMF)



Chart analysis4
Chart Analysis

  • Step # 6: Where is Relative Strength?

    • The Relative Strength indicator is a line formed by dividing one data stream (share) by another (usually a benchmark).

      • For shares it is usually the share price divided by the JSE Overall Index.

    • The plot of this line over a period of time will tell us if the share is:

      • Market outperforming (rising)

      • Market under performing (falling), or

      • Market performing (moving sideways) relative to the JSE Overall Index.


Relative strength
Relative Strength

Data 1 = BHP Billiton

Data 2 = JSE Over Index



Chart setups
Chart Setups

Presenter: Shaun van den Berg


Chart setups1
Chart Setups

  • Chart setups are situations where all or most of the chart conditions are "right" for a long or short entry.

    • "Right" conditions, depending on the setup, may or may not include other indicators.

  • Technical indicators support price & volume action

    • Indicate or support what the action is, but

    • Do not dictate what to do, or

    • When to do it


Chart setups2
Chart Setups

  • Many setups are a result of self-fulfilling prophecies

    • Traders see the same chart patterns & price action.

  • Early identification & perhaps even an early entry is important

  • Understand all influences & indicators & interpretation.

  • Only experience will get you to

    • Understand how they work,

    • When to use them, and

    • Trust chart setups.

  • Back-test, Paper trade (Simulator) & Start small.

    • Pick a trade candidate,

    • Plan your trade

    • Execute your plan.


Chart setups observations
Chart Setups: Observations

  • The stronger the primary trend the more confidence you should have.

  • Watch for big changes in volume as price approaches targets.

  • Increased volume should accompany any breakout.

  • Big volume spikes start & end a rally regardless of time frame.

  • Play around with various charts but always use more than one time period using the support-resistance levels of one to tell you where your limits are in the other.

  • Above every resistance level & below every support level lie plenty of orders to buy or sell once price breaks one way or the other.

    • This is what accounts for major volume increases on a breakout or breakdown.


Chart setups observations1
Chart Setups: Observations

  • All stop-losses should be set to allow a 2% - 3% loss & no more.

  • Smart money tends to put on trades when markets are quiet; amateurs tend to jump on the news.

  • Buy the rumour, sell on the news.

  • Buyers wait for pullbacks & sellers wait for resistance

  • Technical indicators show what is going on with price

    • They DO NOT dictate what you should do.

  • Technical indicators are either:

    • Momentum type - showing you strength of the trend,

    • Overbought and Oversold type - showing you weakness at support/resistance.


Chart setups3
Chart Setups

Ascending Triangle

Descending Triangle

Symmetrical Triangle


Ascending triangle
Ascending Triangle

  • Bullish chart pattern - easily recognizable - distinct shape created by two trend lines.

  • One trend line is drawn horizontally - level that has historically prevented the price heading higher (i.e. resistance)

  • Second trend line connects a series of increasing troughs or higher lows/ supports.

  • Enter a long position when the price breaks above the top resistance.


Ascending triangle rules
Ascending Triangle - Rules

  • The more mature in time the pattern is the stronger it is.

  • Trade the primary trend.

  • Set buy limits just above the highs of horizontal resistance.

  • Increased volume must accompany the breakout.



Ascending triangle2
Ascending Triangle

Open: 28300c

High: 28892c

Low: 28300c

Close: 28892c

Resistance @ 28500c

Entry Price: 28510c

  • Mature

  • Bullish

  • Broken resistance

  • Increased volume


Descending triangle
Descending Triangle

  • A bearish chart pattern

  • One trend line connects a series of lower highs

  • Second trend line - strong level of support.

  • Watch for a move below support - suggests downward momentum is building.

  • Once the breakdown occurs - enter a short position


Descending triangle rule
Descending Triangle – Rule

  • The more mature in time the pattern is the stronger it is.

  • Trade the primary trend.

  • Set sell limit just below the lows of horizontal support.

  • Increased volume must accompany the breakout.


Descending triangle1
Descending Triangle


Descending triangle2
Descending Triangle

Open: 39770c

High: 40096c

Low: 38851c

Close: 39190c

Support @ 39320c

Entry Price: 39315c

  • Mature

  • Bearish

  • Broken support

  • Increased volume


Symmetrical triangle
Symmetrical Triangle

  • Easily recognisable chart pattern

  • Distinct shape created by two converging trend lines.

  • Draw two trend lines that connect a series of sequentially lower peaks & a series of sequentially higher troughs.

  • Both trend lines act as barriers that prevent the price from heading higher or lower.

  • Once the price breaks above or below one of these levels, a sharp movement often follows.


Symmetrical triangle1
Symmetrical Triangle


Symmetrical triangle rules
Symmetrical Triangle - Rules

  • Can break either way – Up or down

  • Stick with the primary trend.

  • Set buy limit just above the high of descending trend line resistance.

  • Increased volume must accompany the breakout.


Symmetrical triangle2
Symmetrical Triangle

Open: 15900c

High: 16700c

Low: 15701c

Close: 16700c

Resistance @ 15883c

Entry Price @ 15890c

  • Mature

  • Bullish

  • Broken resistance

  • Increased volume


Psychology of trading
Psychology of Trading

  • The definition of a successful trader is someone who feels good about themselves and enjoys playing the game.

Presenter: Shaun van den Berg


Psychology of trading1
Psychology of Trading

  • You must win the battle within yourself first, before you can win in the markets.

  • Trader’s mental & emotional state

  • Approach your trading with the right mind-set & attitude.

  • Train the mind to a level of mental fitness & toughness

    • Make decisions with a clear & unclouded mind.

    • Keep emotions under control (Discipline)

  • Visualise yourself as a successful trader

    • Become that person - Less likely to allow your emotions to make mistakes / inconsistent


Psychology of trading2
Psychology of Trading

Source: Goal Mapping by Brian Mayne


Psychology of trading3
Psychology of Trading

  • Control your emotions

    • Spend time every day, working on the discipline of trading (Keep a trading journal)

    • Do not take losses personally

    • Negative personal evaluations (What did I do right?)

    • Self-image as a winning trader

    • Treat trading like a business

  • Back-test a system - Confidence

    • Find system that suits your personally

    • Back-test/ Paper trade / Start small (Real-time)

    • Appropriate money to trade system

    • Go for it!


The trading plan
The Trading Plan

Presenter: Shaun van den Berg


The trading plan1
The Trading Plan

  • What market(s) do you want to trade?

    • JSE Top 40 shares

    • JSE Mid caps (next 60)

  • What instruments do you want to trade?

    • CFD & SSF for equities

    • ALSI & ALMI for indices

  • What timeframes do you want to trade?

    • Intra-day for ALSI / ALMI

    • Swing trades (2-5 days) for SSF (Shorts)

    • Position trading (weeks) for CFDs (Longs)

  • Describe what strategies you want to trade.

    • Breakouts from continuation chart patterns

    • Overbought / Oversold levels


The trading plan2
The Trading Plan

  • What are the entry rules of the strategies?

    • Long positions – breakout above resistance

    • Short positions – breakout below support

  • What are the exit rules of the strategy?

    • Target prices established by chart patterns

    • Previous key support & resistance levels

    • Retracement levels / Stop loss

  • When do you trade & when do you not trade?

    • Done the homework / prepared

    • No preparation / tired / late / impulsive

  • What money management approach are you using?

    • Risk/ Reward ratio: 1:2 at least

    • Position sizing (Risk 2% of capital per trade)

    • Stop loss levels from support/ resistance


The stockbroker report
The Stockbroker Report

Presenter: Shaun van den Berg


The stockbroker
The Stockbroker

Presenter: Shaun van den Berg


Open trade ideas
Open Trade Ideas

Presenter: Shaun van den Berg


Trade ideas summary
Trade Ideas Summary

  • Methodology

    • Top 100 list (Scan / Manual)

  • Risk Management

    • Risk/ Reward ratio – at least 1:2 times

  • Trade Ideas (CFD & SSF)

    • Trend analysis: Moving Averages/ Trend lines / Support & Resistance

    • Price & volume action

    • Support & Resistance levels

    • Stochastic indicator - Overbought / Oversold levels

    • Entry & Exits / Stops

Presenter: Shaun van den Berg


Webinar summary
Webinar Summary

  • What is Technical Analysis

    • Price & volume action

  • Simple vs Complex Charts

    • 6 Steps - Process

  • Chart Setups

    • Continuation Patterns

    • Trading Rules

  • Psychology of Trading

    • Attitude & Mindset

    • Control Emotions

  • The Trading Plan

    • 8 Questions: Preparation - Confidence


Conclusion
Conclusion

  • Next Webinar: Fundamentals for Value Investing

    • Lunch (13h00–14h00): Wed, 20 February 2013 (Full)

    • Evening (18h00–19h00): Thurs, 21 February 2013 (95%)

  • Next Traders Forum

    • PTA: Tues, 26 February 2013 (18h00 – 20h00)

    • JHB: Tues, 12 March 2013 (18h00 – 20h00)

    • DBN: Wed, 17 April 2013 (18h00 – 20h00)

  • Good Luck

  • Happy Trading!

Presenter: Shaun van den Berg


Travis Robson

[email protected]

(011) 996 5204

Shaun van den Berg

[email protected]

(011) 996 5254

Presenter: Shaun van den Berg


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