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TA Crash Course

This document provides an introduction to technical analysis, including key concepts like open interest/volume timeframes, support/resistances, indicators, and classical and continuation patterns. It discusses the philosophy of technical analysis and compares technical and fundamental analysis approaches. Specific technical analysis tools are described like candlestick charts, moving averages, MACD, RSI, Fibonacci retracements, and trading divergences. Recommended readings on technical analysis are also provided.

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Jonathan Ng
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209 views

TA Crash Course

This document provides an introduction to technical analysis, including key concepts like open interest/volume timeframes, support/resistances, indicators, and classical and continuation patterns. It discusses the philosophy of technical analysis and compares technical and fundamental analysis approaches. Specific technical analysis tools are described like candlestick charts, moving averages, MACD, RSI, Fibonacci retracements, and trading divergences. Recommended readings on technical analysis are also provided.

Uploaded by

Jonathan Ng
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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Introduction to Technical Analysis

Open Interest/ Volume Timeframes Monthly, weekly, daily Support/ Resistances Indicators RSI, MACD, Moving Average, Fibonacci Classical Reversal Patterns Continuation Patterns Triangles Trading Divergences

Technical Analysis Philosophy


Technical Analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends. John J. Murphy
3 premises on which Technical Analysis is based on: 1. Market action discounts everything. (Insiders trading/ pricing of news events) 2. Price moves in trends. 3. History repeats itself. (Humans always repeat the same mistakes.)

Fundamentalist
Using weather data, production, exports and ending stock numbers to predict supply demand and hence price action. Concerned with reasons for price movements.

Technicalist
Using past price actions, chart patterns and indicators to forecast future prices. Is not concerned with reasons for price to rise or fall.

Open Interest / Volume


Open interest = the total number of derivative contracts such as futures and options that have not been closed out/ net off. Volume = done/matched trades for the day How Open Interest & Volume works
Date 1-Jan 2-Jan 3-Jan 4-Jan Net positions A +1 -1 -5 -1 -4 B -1 C +5 D -5 +1 +5 +5 E O.I 1 6 5 5 5 Volume 1 5 1 5

**Open interest is cumulative but volume is not. Rising open interest in uptrend bullish. (New money is flowing into the market) Falling open interest in uptrend bearish. (Short covering. Uptrend losing momentum)

Weekly MDEX KPOc3

Price peaks usually correspond to volume peaks.

Steady Uptrend Price going up

Rising O.I

Falling O.I

Rising Volume Flat Volume

Candlesticks, BarCharts & Timeframe


CandleStick Representation BarChart Representation

open

close

close

open

Timeframe 1 Weekly Bar = 5 Daily Bars 1 Monthly Bar = 4 Weekly Bars 1 Quarterly Bar = 3 Monthly Candles

Daily MDEX KPOc3


Small noisy fluctuations amid visible trends. Smaller range. Entry of trades & execution

Weekly MDEX KPOc3


Less noisy compared to daily charts. Larger trading range. Short term trend

Monthly MDEX KPOc3


Trend is apparent. Less noise compared to daily and weekly charts. Largest Range.

Supports & Resistances


Supports and Resistances can be slanted or horizontal, formed by connecting at least 2 points. Strength of the support/resistance depends on the number of points it touches and the presence of gaps. Supports can become resistances and vice versa and they usually are very important levels. Daily GBPUSD

Weekly MDEX KPOc3 Supports & Resistances

Support/ Resistance with gap are very strong.

Horizontal support turned resistance

Gap

Trendline support

Gap

Horizontal Resistance turned support.

Daily AUDUSD
FX pairs are usually highly trending especially AUDUSD which is a carry trade currency. AUDUSD rises slowly and falls quickly. More favorable to go short than long.

2 points to draw, 3rd point to validate.

Steep trendlines (> 45 degrees) are usually not sustainable.

Weekly USDJPY 1989 - 2009

Resistance trendline touching 5 points. Very strong resistance line.

Major downtrend resistance

2 points required to draw support False breakout

Breakout

Moving Averages Lagging Indicator


Curving Trendline Identify the start of a trend & tracks the progress of a trend. Lagging indicator Reacts but not anticipate Simple Moving Average (SMA) Average of the previous N periods closing price. Exponential Moving Average (EMA) Aka Weighted moving averages. EMA reduces the lag by applying more weight to recent prices relative to older prices. Uses of Moving Averages Combination of 50, 100, 200EMA (Long term Trend) Combination of 10, 20, 40EMA (Short term trading) 200EMA is the most popular long term trendline that traders use. Serves as a major support/ resistance level.

Trading Daily MDEX KPOc3 with Moving Averages

Sell when 50EMA cuts the 200EMA. CPO = 3200RM??

Uptrend intact

What is wrong here?!

Buy when 50EMA > 100EMA > 200EMA. CPO = 1450 RM

Whipsaws abound in a ranging market.

MACD

Moving Average Convergence Divergence

Lagging Centered Oscillator (MACD = 12EMA 26 EMA of price, 9EMA) MACD > 0 bullish, MACD < 0 bearish MACD lags but histogram leads Weekly HSI Trend reversal confirmed by MACD crossover

MACD crossover MACD line MACD crossover whipsaw MACD histogram = Area between MACD Line & 9EMA. 9 EMA

+ve -ve

MACD histogram crosses over 0.

RSI Relative Strength Index


Index from 0 to 100. Upper (70) and lower (30) band. Ranging oscillator. Momentum indicator. Works best in ranging market. Common settings are RSI 5, 7 and 14. 4H USDJPY

Overbought Regions

Extreme volatility

Oversold Regions

RSI = 9

Fibonacci Retracement
Fibonacci retracement is used for finding support/resistance levels. 38.2% & 50% retracement levels are most common.

Fibonacci Retracement
50% retracement

Classical Reversal Patterns


Island Reversals Head & Shoulders Double Tops/ Bottoms Triple Tops/ Bottoms Bullish/Bearish Engulfing

Island Reversal Formation


Bearish top Weekly HSI Island Reversal Top Bullish bottom

Head & Shoulders Formation


Weekly USDJPY
Head

Left Shoulder

Right Shoulder

Neckline Support turned resistance

[Daily DJIA] Failed Head & Shoulder

Head L. Shoulder R. Shoulder

Neckline

False Breakout!

[Daily DJIA] Inverted Head & Shoulder

Major Trend Reversal

R. Shoulder L. Shoulder Head

[Weekly AUDUSD] Double Bottom Formation

Panic selling, carry trade unwind.

Crucial Support/ Resistance

W-shaped Double Bottom

Higher lows

Weekly EURUSD Double Top Formation


Support

M-shaped Double Top

Weekly EURUSD Triple Bottom Formation

Resistance turned support

Higher Lows

Weekly EURJPY Triple Top Formation

Daily GBPJPY Bullish Engulfing Reversal

Bullish Engulfing Reversal

Bearish Engulfing Formation

What is one observation about engulfing reversals?

Continuation Patterns
Triangles

Triangles
Triangles precede a large move.

Triangle Triangle Ascending Triangle Triangle

Trading Divergences
MACD/RSI Divergences

Daily USDJPY Bearish Divergence

Despite USDJPY making new highs, RSI shows weakness with new lows.

Weekly EURJPY Bullish Divergence

Despite EURJPY making new lows, RSI shows strength with higher lows.

RSI hit extreme levels.

Daily KPOc3

Divergences on Daily KPOc3

Not exactly a divergence

Bearish

Bullish Bearish

No signal on MACD

No signal on MACD

Bullish

Bullish

Bullish

Market Quotes
The futures market will let you have a realistic appreciation of who you are. For momentum trades, work fast, exit fast. There are no old and bold traders around. George Soros: Courageous in situational environment. No news but market moves, price moves first, fundamentals come 2nd. There are insiders Sensitivity unequals to hope. Sensitivity is when you can sense danger, whereas hope is a sign of danger! Quality trades rather than quantity trades.

Trade to win, not trade to win when view is right. At right time and right price, do SIZE!

Recommended Readings

Market Wizards J. D Schwager

How to Trade in Stocks Jesse Livermore

Trading For a Living Dr. Alexander Elder

Technical Analysis of the Financial Market -John J. Murphy

The Complete Turtle Trader Michael W.Covel

Japanese Candlestick Charting Techniques -Steve Nison

Thank you! Any Questions?

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