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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

slide3
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.
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 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 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

slide60
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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