Brain Teasers

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# Brain Teasers - PowerPoint PPT Presentation

Brain Teasers. You have 8 red and 16 blue socks. There’s no light in your room, so you have to choose your socks in the dark. What’s the minimum # of socks you need to choose to ensure you have at least a matching pair. Answer. Three

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## PowerPoint Slideshow about 'Brain Teasers' - ernie

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Presentation Transcript
Brain Teasers
• You have 8 red and 16 blue socks. There’s no light in your room, so you have to choose your socks in the dark. What’s the minimum # of socks you need to choose to ensure you have at least a matching pair.
• Three
• Two socks can be different, but a third must match one of the first two

What is Technical Analysis (TA)
• What determines the price of ____?
• Fundamental vs. Technical Analysis
• Fundamentals = Valuations
• Technicals = Market Action
• TA is probabilistic
• Says that this is “likely” to happen
Assumptions
• Prices SOMETIMES move in trends
• “Markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandom behavior. The goal is to identify those periods” –Shcwager
• History repeats itself
• Because of market psychology
• Market efficiency
Charting Patterns
• Visualize price movements
• Can be simple “eyeballing intuition” or looking for specific patterns
• Many charts use Candlesticks
Eyeballing
• Breaks support/resistance
• Target = High/low point -/+ neckline
• The more level the neck, the more reliable the pattern
Double Top/Bottom
• Have to keep tight stops in case support/resistance is broken
Hook Reversal
• Most reliable after strong trends
RSI
• Momentum indicator
• Shows breakouts or trend reversals
• RSI=Avg closes up / Avg closes down
• 14,16,9,25 day lookback
MACD
• Momentum indicator
• Lagging indicator
• MACD = difference b/w fast and slow moving averages
• Generally 12, 26 period EMA’s
• Signal line
• 9 period EMA
• Can turn into leading indicator
• Works best when used with another indicator
Bollinger Bands
• Price/Volatility levels over time
• Consists of 3 bands
• Usually 20 bar SMA, 2 std devs
• Gives a relative level of high/low
• Most effective is range trading during low vol periods
• Options implications too
When to use TA
• “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” – Buffet
• Entry/Exit prices