FUNDAMENTAL AND TECHNICAL ANALYSIS

TECHNICAL ANALYSIS
Basic assumption

• Market discounts everything

• Price moves in trend
• History repeats itself

Chart composition
Price Fields

Open o First price traded for the period.

o An important consensus as all
interested parties were able to
“sleep on it”.
High o The highest price traded for the
period.
o The point where there were
more sellers than buyers.
Low o The lowest price traded for the
period.
o The point where there were
more buyers that sellers.
Close o The last price traded for the
period. Most often used price for
analysis.
o The relationship of the open and
close prices is considered most
significant by technicians
 Volume • The number of shares traded MOVING AVERAGE
during the period
Basis points (BPS)
Bid • The price a buyer is willing to
pay • Also known as bips
Ask • The price a seller is willing to • Unit of measure to describe percentage
accept changes in value of financial instruments
• One basis point is equivalent to 0.01%
(1/100th of a percent) or 0.0001 in
• decimal form
TRENDS • ▪ Fractional basis point such as 1.5 basis
• General direction of prices on a particular points is equivalent to 0.015% or 0.00015 in
time decimal form

Inflation

• The rate at which prices of goods and

services rise
o Three types of Inflation
▪ Demand-pull
▪ Cost-push
▪ Built-in inflation
Uptrend An uptrend describes the price
movement of a financial asset • The most commonly used inflation indexes
when the overall direction is are the Consumer Price Index and the
Upward. Wholesale Price Index
Downtrend A downtrend is a gradual
reduction in the price or value of • Inflation can be viewed positively or
a stock or commodity, or the negatively depending on the individual
activity of a financial market. A viewpoint and rate of change.
downtrend can be contrasted
with an uptrend. • Those with tangible assets, like property or
Sideways A sideways market, or sideways stocked commodities, may like to see some
drift, occurs when the price of a
inflation as that raises the value of their
security trades within a fairly
assets.
stable range without forming any
distinct trends over some period

On Basis time Stock Bias

▪ Major (long-term) • Irrational preference that affecting investing

▪ Intermediate decisions and subsequent outcomes.
▪ Minor(short-term)
Trend lines Upward or Downward Bias
• It is true that market always respond in • Caused by optimistic or pessimistic attitude
accordance with trend and trends keeps on of a forecaster.
changing after some time. • An optimistic attitude causes an upward bias
• Changes of direction can be analyzed with by using optimistic assumptions in building a
the help of trend lines. model
• Most important tool of technical analysis • And/or he or she has tendency to intuitively
raise the forecast numbers.
 • A pessimistic attitude does just the opposite.
In new product forecasting, there is a
tendency towards over-forecasting because
the sponsors of forecasting are generally
overly enthusiastic about the product.

Moving average

• Most basic trend indicator

• Shows what direction the price is going and
where the levels of support and resistance
may be
• Can serve as both support and resistance
• Simple moving average (SMA) are
calculated by finding the average closing
price of an asset at any given time and then Chart Patters
plotting the points on a price chart.
• The volatility can be adjusted by adjusting
the time frame of the indicator
o When to use
▪ Short term SMAs react faster
to price than longer SMAs
o How to use crossover in trading
▪ Fast MA crosses above slow
MA – Buy signal
▪ Slow MA crosses below fast
MA- sell signal

Exponential Moving Average (EMA)

• A type of moving average that places greater

weight and significance on the most recent
data points.
• Referred to as exponentially weighted
moving average.
Turning points /reversal

• Reversal points
Relative Strength Index (RSI)
• Forming letter m then a bit of upward
• A momentum oscillator that measures the
Downtrend and Volume
speed and change of price movements.
• The RSI oscillates between zero and 100. • Is the number of shares that was traded
• Traditionally the RSI is considered during a specific time span
overbought when above 70 and oversold • A variable term that is totally independent of
when below 30. price.
• Measures the enthusiasm of buyer and seller
• Gives a better understanding of how and why
price move in a direction
Retracement Arcs

• Temporary price reversals that take place • How stock could expand basing on Fibonacci
within a larger trend
• In an uptrend are characterized by a higher
lows and higher highs

Reversals

• Is when the trend changes direction

• The price is likely to continue in that reversal
direction for an extended period
• Often characterized by a pattern that are
contrary such as double tops

Pitch Fork

• Like a trident

Fanlines

• Created by the Fibonacci

• Something like a fan that create diagonal
lines
Reversal patterns

• rounding bottom
• saucer top
• double bottom
• double top
• triple top
• triple bottom
• head and shoulders
• spike bottom
• spike top
Continuation patterns

• rising tops
• falling tops
• flags and pennants

Neutral patterns

• Wedge triangle
• ascending and descending triangle
• broadening formation
 Candlestick Reversal Pattern

• bullish engulfing
• bearish engulfing
• bullish harami
• bearish harami
• doji star
• dark cloud cover
• morning star

Candle stick continuation pattern

• three white soldiers

• three black crows
• bullish engulfing
• bearish engulfing
• bullish harami
• bearish harami
• sushi roll

Candlestick Neutral Pattern

• Sushi Roll
Continuation and Exhaustion Gaps Stochastic

• Exhaustion gap • A momentum indicator developed by George

• Runaway gap Lane that can show you when investor’s
• Breakaway gaps sentiment changes from being bullish to
• Island reversal bearish and from being bearish to bullish.
• It measures price momentum to identify
overbought/oversold conditions, which gives
entry or exit decisions.
• When stoicism forms narrow top, it indicates
weakness bulls and when it forms a narrow
bottom it indicates a weakness bear.
• The range of the stochastic oscillator is
between 0 and 100. The lower reversal zone
is the area of the indicator that is below 20.
• When to use...
o Stochastic can be used with several
interpretations: among them are
divergences, crossovers, and
overbought/oversold. Signals of
stochastic are to be used in
conjunction with trend following
indicator.
o In a strong trending market stochastic
can fail completely. When the %K line
rises above the %D line it is
considered bullish, and when the %K
line falls below the %D line, it is
considered bearish. A buy signal is
generated when either line dips
below and then rises above 20, or a
bearish signal is generated when
either line rises above and then dips
Oscillators below 80.
o Important considerations
• Chart indicator that can assist a trader in
▪ Popular indicator for
determining overbought or oversold
generating overbought and
condition in raging markets
oversold signals
o Important considerations
▪ Developed in 1950s
▪ Most trader use multiple
▪ Tend to vary around some
oscillators to confirm range
mean price level since they
extremes and for determining
rely on an assets price history
the important entry and exit
▪ Measures the momentum of
points
an assets price to determine
RSI
trends and predict reversal
• Popular oscillator that measures the extent of
▪ Measurement above 80
recent price changes to determine
overbought
overbought or oversold conditions in an
▪ Below 20 oversold
instrument price.
Fibonacci

• 13yth century
• Lonardo bonacci
• Method of technical analysis for determining
support and resistance
• 23.6%.38.2, 50,61.8% and 78.6
• Retracement level act as magnet for price

DMI

• Directional movement index

• Developed by Welles Wilder
• 1978
• Reveals instrument trend
• Direction of asset price
• Indicator
o DI+
o DI-
o ADX
• If adex 20-25 strong
o Weak if below 20

• Di+ crosses Di- buy signal

• Di- crosses Di= sell signal