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Technical Analysis and Trading. James Lieow February 2010. Course Objectives. This course aims to bring up to speed individuals who are new to, or only have basic knowledge of, Technical Analysis(TA) or trading

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Technical Analysis and Trading


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    1. Technical Analysis and Trading James Lieow February 2010

    2. Course Objectives • This course aims to bring up to speed individuals who are new to, or only have basic knowledge of, Technical Analysis(TA) or trading • At the end of the course, students should be able to use TA to help them start trading, or increase the profitability of their trading

    3. Course Outline • Disclaimer • Why Technical Analysis (TA) • Trade Orders • Chart Types • The Trend • Retracements • Trend Lines, Support & Resistance • Chart Scale • Chart Patterns • Overlays • Indicators • Putting It All Together • Frequently Asked Questions • Final Note

    4. Disclaimer The information, statistical data and opinions contained herein are of the author’s own, and have been obtained from sources which he/she believes to be reliable, but it does not represent that they are accurate or complete, and they should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. The securities mentioned in this report may not be suitable for all types of investors. ALL investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Read any and all prospectuses carefully before making any investment decisions. As you know, a recommendation, which you are free to accept or reject, is not a guarantee for the successful performance of an investment and we are expressly prohibited from guaranteeing accounts against losses arising from market conditions. NTU-IIC and its members will not be held liable in any manner for any losses arising directly or indirectly from investment decisions undertaken based on the information/statistical data/opinions expressed.

    5. Why Technical Analysis (TA) • You believe that humans are irrational despite most people denying that they are • You believe that we collectively act the same way most of the time, like sheep (or insert animal of your choice) • You believe that charts, for some inexplicable reason, hold the key to the future direction of an instrument’s price (sure you aren’t irrational?) • You believe that the first three points will remain true for a very long time, even as everyone says “This time it’s different!” • TA is versatile – it can be used to analyse price movement of most investable instruments

    6. Trade Orders • Limit buy order • You set the maximum price you are willing to pay • Trade is done when market price is <= the price you set

    7. Trade Orders • Limit sell order • You set the minimum price you are willing to sell at • Trade is done when market price is >= the price you set

    8. Trade Orders • Market buy order • Buy the quantity you want immediately, at the best available price

    9. Trade Orders • Market sell order • Sell the quantity you want immediately, at the best available price

    10. Trade Orders • Buy stop order • Also known as a “stop loss” • Executes a market buy order if price rises above the stop price

    11. Trade Orders • Sell stop order • Also known as a “stop loss” • Executes a market sell order if price falls below the stop price

    12. Trade Orders • Buy stop limit order • Also known as a “stop loss” • Executes a limit buy order at the stop limit price if market price rises above the stop price

    13. Trade Orders • Sell stop limit order • Also known as a “stop loss” • Executes a limit sell order at the stop limit price if market price falls below the stop price

    14. Trade Orders • Buy trailing stop order • Also known as a “stop loss” • Places a limit buy order at a set distance to the market price and lowers it by the trailing step as the market price lowers

    15. Trade Orders • Sell trailing stop order • Also known as a “stop loss” • Places a limit sell order at a set distance to the market price and raises it by the trailing step as the market price rises

    16. Chart Types • Candlestick • Colour represents whether price went up or down • Shows the Open, High, Low, Closing price of the time period

    17. Chart Types • Bar OHLC • Shows the Open, High, Low, Closing price of the time period

    18. Chart Types • Bar HLC • Shows the High, Low, Closing price of the time period

    19. Chart Types • Line Chart • Connects only the closing price of the time periods together

    20. The Trend • How do we identify the trend? • First, select the time period • Observe if swing highs and lows are getting higher or lower • Higher highs, higher lows = Uptrend • Lower highs, lower lows = Downtrend

    21. Uptrend

    22. Downtrend

    23. Retracements • Price does not simply go straight up or down • Often needs to take a breather between large price moves • Often gives people who want to get in/out a chance to • May have a Fibonacci relationship: 38.2%, 50%, 61.8%

    24. Trend Lines • Shows areas of support and resistance • Support – shows an area that prices find hard to fall below • Resistance – shows an area that prices find hard to rise above • How to draw trend lines? • Play connect the dots!

    25. Trend Lines

    26. Trend Lines • Notice that price respected the lines? • What happened when the price went below the lower line?

    27. Chart Scale • Arithmetic scale – also known as the normal scale, distance and price scale linearly • Logarithmic or semi-logarithmic scale – distance scales according to percentage change in price • Most of the time it does not matter which scale is used • Changing the scale used may make it easier to fit trend lines

    28. Practice Time • Let’s practice drawing trend lines for the charts in your handouts • Also take this time to go for a break

    29. Chart Patterns • How did chart patterns come about? • Some people saw that often, when price moved a certain way, it would produce a measured move • So we can now leech on their work to predict price movements when we see the patterns that they spotted

    30. Chart Patterns • Double Top • Double Bottom • Triple Top • Triple Bottom • Head & Shoulders • Inverted Head & Shoulders • Ascending Triangle • Descending Triangle • Symmetrical Triangle • Rising Wedge • Falling Wedge • Channels • Bull Flag • Bear Flag • Rounded Top • Rounded Bottom

    31. Double Bottom

    32. Inverted Head & Shoulders

    33. Bull Flag

    34. Bear Flag

    35. Rounded Top Forming?

    36. Practice Time • Let’s practice recognising patterns for the charts in your handouts • Also take this time to go for a break

    37. Overlays • Usually placed on top of price • Can be used to show support or resistance • Can also be used as entry and exit signals • Commonly used: • Moving averages (20/50/200) • Bollinger Bands (20,2.0)

    38. Simple Moving Averages

    39. Exponential Moving Averages