StockBangaldesh TA Course

Basic Course on

Technical Analysis

StockBangladesh.com

Rafiqul Hasan Siddiqui

Bangladesh Foreign Trade Institute

The basic trading

strategy is try to

systematize

–"cut losses" and

–"let profits run".

Bull market

A bull market tends to be associated

with increasing investors confidence,

motivating investors to buy in

anticipation of future price increases

and future capital gains.

Bear market

A bear market is a steady drop in

the stock market over a period of

time.

Types of Trading Analysis

When the objective of the analysis is to

determine what stock to buy and at what price,

there are two basic methodologies:

•Fundamental Analysis

•Technical Analysis

Fundamental analysis

• Fundamental analysis is a way of looking at the

market through economic, social and political

forces that affect supply and demand.

• Fundamental analysis involves analyzing the

characteristics of a company in order to estimate its

value.

Technical Analysis

• Technicians are only interested in the price movements in the market.

• Technical analysis just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future.

Technical Analysis Versus Fundamental

Analysis

• Fundamental analysis maintains that markets maymisprice a security in the short run but that the"correct" price will eventually be reached. Profitscan be made by trading the mispriced security andthen waiting for the market to recognize its"mistake" and reprice the security.

• Technical analysis maintains that all informationis reflected already in the stock price, sofundamental analysis is a waste of time. Trends'are your friend' and sentiment changes predateand predict trend changes. Investors' emotionalresponses to price movements lead torecognizable price chart patterns. Technicalanalysis does not care what the 'value' of a stockis. Their price predictions are only extrapolationsfrom historical price patterns.

Technical Analysis

Fundamental Analysis

Stock Market Volatility is your friend

Versus

The Power of Compounding is your

friend

Technical Analysis


Day Trading

Versus

Longer term investing with mutual fund

managers like Peter Lynch or John Bogle

Technical Analysis


Make money out of movement from the

market, with each movement often

measured in pennies

Versus

Make money out of your stake in

companies and how their products or

services sell

Technical Analysis


How investors see traders

Versus

How traders see investors

Technical Analysis


This may yield a get rich quickly

scheme, when you work on your own

terms, using rapid reflexes and lightning

fingers, but when you can go broke just

as quickly if you don’t know what you’re

doing. Market timing rules your

methods.

Versus

This is the path taken to grow rich more

slowly, relatively speaking, but

depending on how your portfolio is set

up, it can actually be quicker than you

think. It often involves buy and hold and

longer term investing strategies.

Principles of Technical Analysis

1. Price Discounts Everythingall relevant information is already reflected by prices

2. Price Moves In Trendsmarkets trend up, down, or sideways (flat)

3. Price Movements Are Historically Repetitiveinvestors collectively repeat the behavior of the investors that preceded them

TA=Charts

Types of Charts1. Line Chart

2. Bar Chart

3. Volume Bar Chart

4. Equi-Volume Chart

5. Candlestick Chart

Line Chart

Bar Chart

“Zero-Based” Volume Bar Chart

“Relative Adjusted” Volume Bar Chart

Equi-Volume Chart

Equi-Volume Chart

Candle Volume Chart

Candle Volume Chart

Point and Figure Charts

Japanese Candlestick

Candlestick Patterns

• Bullish Patterns

• Bearish Patterns

• Reversal Pattern

Bullish Patterns1. Long white (empty) line

2. Hammer

3. Piercing line

4. Bullish engulfing lines

5. Morning star

6. Bullish doji star

Long white (empty) line

Hammer

Piercing line

Bullish engulfing lines

Morning star

Bullish doji star

Bearish Patterns1. Long black (filled-in) line

2. Hanging Man

3. Dark Cloud Cover

4. Bearish Engulfing Lines

5. Evening Star

6. Doji Star

7. Shooting Star

Long black (filled-in) line

Hanging Man

Dark Cloud Cover

Bearish Engulfing Lines

Evening Star

Doji Star

Shooting Star

Reversal Pattern1. Long-Legged Doji

2. Dragon-Fly Doji

3. Gravestone Doji

4. Star

5. Doji Star

Long-Legged Doji

Dragon-Fly Doji

Gravestone Doji

Star

Doji Star

Neutral Patterns

1. Spinning Tops

2. Doji

3. Harami

4. Harami Cross

Spinning Tops

Doji

Harami

Harami Cross

Reversal Pattern

Reversal Pattern

Overlays

Overlays are generally superimposed over the main price chart.

– Resistance

– Support

– Breakout

– Trend line

– Channel

– Moving average

– Bollinger bands

– Pivot point

Price-based indicators

These indicators are generally shown below or above the main price chart.– Accumulation/distribution index– Advance decline line – Average Directional Index– Commodity Channel Index – MACD - moving average convergence/divergence– Parabolic SAR – Relative Strength Index (RSI) – Stochastic oscillator – Trix

Volume based indicators

• Money Flow

• On-balance volume

• PAC charts

Thank you

Technical Analysis

CLASS -- II

Rajib bin Ahmed

National Bank Ltd.

Support & Resistance

• Support defines that level where buyers are strong enough to keep price from falling further.

• Resistance defines that level where sellers are too strong to allow price to rise further



• Support and resistance are created because price has memory.

• When price pushes above resistance, it becomes a new support level.

• Support and resistance come in all varieties and strengths.

• Support and resistance exist in all time frames

Role Reversal


Trends

Bullish

Bearish

Neutral

Trend Direction

Trend

Bullish Trend lines

Bearish Trend

Trend Timeline

• Hourly

• Daily

• Weekly

• Monthly

• Yearly

Technical Analysis Tools for Trends

• Trendline

• Moving Avg.

Drawing Trendline

• Connect Highs to Highs, Lows to Lows

• Draw through congestion areas

• Ignore tails or spikes

Drawing Trend lines

Strength of a trend

Trends are stronger……..

The longer the trendline

The more contacts between prices and the trendline

When volume expands in the direction of the trend

Strength of a trend

Strength of a trend

Trading Rule

Protective Stop

1. Once you are long the market place a stop loss order just below the trendline

2. Move your stop up as trend progresses

Protective Stop

Break In Trendline

• Steep trendlines (over 45 degrees) precede sharp breaks

• A pullback to the trendline after a break is often a good shorting opportunity

Break in Trend

Trade on Trend Breaks

Channel

• A line running parallel to a trend line

• Drawn through tops of rallies and bottoms of declines

Channel

Channel

• Marks maximum power of bulls & bears

• The wider the channel the stronger the trend

Types of Channel

Trading Rule for Channel

• Go long in lower quarter of channel

• Take profits in upper quarter

Trading Rules

Moving Avg.

Simple

Weighted

Exponential

SMA

Linear or Weighted Moving Avg. -WMA

SMA gives equal weight to each price point

WMA gives more emphasis to the latest data

EMAAn exponential moving average multiplies a percentage of the most recent price by the previous period's average price

EMA

Moving average trend reversals are formed in two main ways:

when the price moves through a moving average and

when it moves through moving average crossovers.

,

moving averages are used to identify support and resistance levels

When To Use

• Works well in trending market

• Loses money in whipsaw market

Whipsaw Market

Thank you

Technical Analysis CourseBy StockBangladesh.com

Rajib Bin Ahmed

Software Developer

Bollinger Bands

• Bollinger bands are used to measure a market’s volatility .

• When a stock is making major price movements , Bollinger bands will be farther away (expand) from the stock’s price chart.

• When a stock is moving steadily with minor price movements, the Bollinger bands will be closer to (contract upon) the stock’s price chart .

Bollinger Bands

• A simple moving average in the middle.

• An upper band (SMA plus 2 standard deviations)

• A lower band (SMA minus 2 standard deviations)

Simple moving average in the middle

Upper band

Lower band

Bollinger Bands

Bollinger Bounce

Bollinger Bounce

Bollinger Bounce

Bollinger Squeeze

Bollinger Squeeze

Bollinger Squeeze

Double Bottom Buy

Use

• Bollinger Bands can help generate buy and sell signals, they are not designed to determine the future direction of a security

Use

• To identify periods of high and low volatility.

• To identify periods when prices are at extreme, and possibly unsustainable, levels.

Moving Average Convergence Divergence (MACD)

• Moving Average

• Convergence

• Divergence

MACD

MACD =

shorter term moving average

-

longer term moving average

MACD

• Faster moving average

• Slower moving average

• Histogram

MACD (12, 26, 9)

• The first number (commonly 12) represents the number of days used to calculate the faster moving average or EMA(12).

MACD (12, 26, 9)

• The second number (commonly 26) represents the number of days used to calculate the slower moving average or EMA(26).

MACD (12, 26, 9)

• The third number (commonly 9) represents the number of days used to calculate the “trigger line” using EMA(9).

EMA(12) - EMA(26)

• A green line is calculated with the EMA using the first number of the MACD (commonly 12) minus the EMA using the second number (commonly 26).

EMA(12) - EMA(26).

EMA(12) - EMA(26)

EMA(9)

• The red line (the MACD Signal Line or Trigger Line) is calculated using the EMA using the third number (commonly 9).

EMA(9)

EMA(9)

Histogram

• Difference between the fast and slow moving average.

Histogram

Divergence

Convergence

MACD Crossover

MACD Centerline Crossover

MACD Crossover

Stochastics

• Stochastics plots the current close in relation to the price range over the length set for this indicator and gives this a percentage value.

• Stochastics is an oscillator that measures overbought and oversold conditions in the market.

• Stochastics are scaled from 0 to 100.

Types of Stochastic Oscillators

• Fast

• Slow

• Full

Fast Stochastics:

Example

%K(fast)

%D(fast)

Fast Stochastics:

Slow Stochastics

%K(slow)

%D(slow)

Slow Stochastics

Use

• Readings below 20 are considered oversold

• Readings above 80 are considered overbought

Use

• Buy and sell signals can also be given when %K crosses above or below %D

Use

Use

Use

• Requires a double dip below 80 and the second dip results in the sell signal .

• For a buy signal, wait for a positive divergence to develop after the indicator moves below 20

Relative Strength Index (RSI)

• Identifies overbought and oversold conditions in the market.

• Scaled from 0 to 100.

• Readings below 30 indicate oversold

• Readings over 70 indicate overbought.

Calculation

Overbought/Oversold

Centerline Crossover

Use

Use

Use

Average True Range

• The Average True Range (ATR) determines a security’s volatility over a given period.

• The average true range is the (moving) average of the true range for a given period

The true range is the greatest of the

following:• Difference between the current maximum and

minimum (high and low).

• Difference between the previous closing price and the current maximum.

• Difference between the previous closing price and the current minimum.

True Range

Calculation

• The first TR value in a series is simply the High minus the Low, and the first 14-day ATR is the average of the daily ATR values for the last 14 days.

CalculationSecond and subsequent 14-day ATR :

• Multiply the previous 14-day ATR by 13.

• Add the most recent day's TR value.

• Divide by 14.

Example

Use

Use

• ATR cannot predict direction or duration, simply activity levels.

• Low levels indicate quiet trading (small ranges)

• High levels indicate violent trading (large ranges).

Money Flow Index (MFI)

• Money flow in technical analysis

is price multiplied by volume technical analysis.

• Indicates the rate at which money is invested into a security and then withdrawn from it.

Calculation

The typical price for each day is the average of high, low and close,

Calculation

Money flow is the product of typical price and the volume on that day .

Calculation• Positive money flow is the total for those days

where the typical price is higher than the previous day's typical price .

• Negative money flow where below .

Calculation

• money flow index ranging from 0 to 100

Calculation

Use

• Readings above 80 on the scale are considered overbought (bearish).

• Readings below 20 on the scale are considered oversold (bullish).

• A divergence between price and MFI often signals an imminent reversal of the trend.

Divergence

Less Overbought & Oversold Signal

On Balance Volume (OBV)

• This was one of the first and most popular indicators to measure positive and negative volume flow .

• OBV is based on a cumulative total volume.

Calculation

• OBV is calculated by adding the day's volume to a running cumulative total when the security's price closes up, and subtracts the volume when it closes down.

Calculation

• If today the closing price is greater than yesterday's closing price, then the new :

OBV = Yesterday's OBV + Today's Volume

Calculation

• If today the closing price is less than yesterday's closing price, then the new:

OBV = Yesterday's OBV - Today's Volume

Calculation

• If today the closing price is equal to yesterday's closing price, then the new:

OBV = Yesterday's OBV

Calculation

Divergence

• If the price is likewise rising, then the OBV can serve as a confirmation of the price uptrend. In such a case, the rising price is the result of an increased demand for the security, which is a requirement of a healthy uptrend.

Divergence

• If prices are moving higher while the volume line is dropping, a negative divergence is present. This divergence suggests that the uptrend is not healthy and should be taken as a warning signal that the trend will not persist.

Example

Example

Example

Thank you

Technical Analysis CourseBy StockBangladesh.com

Rajib Bin Ahmed

Software Developer

Accumulation/Distribution Line

• Assess the cumulative flow of money into and out of a security.

• Focus on the price action for a given period (day, week, month).

Accumulation/Distribution Line Vs OBV

• OBV uses the change in closing price from one period to the next to value the volume as positive or negative.

• Focused on the price action for a given period (day, week, month)

Benefits

• Monitor General Money Flow - The A/D line can be used as a gauge for the general flow of money. If the A/D line is moving higher, this signals that there is buying pressure that is starting to prevail. On the flip side, if the A/D line is moving downward, this signals

that increased selling pressure is beginning to gain a foothold.

Confirmation - You can also use the A/D line to confirm the strength, and possibly the longevity, of a current move.

Drawbacks

• Trading Gaps - The A/D line does not take trading gaps into consideration.

• Minor Changes - Sometimes it can be difficult to detect minor changes in volume flows.

Close Location Value

Looks at the location of the close and compares it to the range for a given period (one day, week or month). The CLV will have a value from +1 to -1:

• A value of zero would mean that the price closed halfway between the high and low of the range.

• A value of +1 means the close is equal to the high of the range.

• A value of -1 means the close is equal to the low of the range.

Calculation

CLV = ([(C-L) - (H - C)] / (H - L))

Where:

C = the closing priceH = the high of the price rangeL = the low of the price range

Close Location Value

• If the stock closes on the high, the top of the range, then the value would be plus one.

• If the stock closes above the midpoint of the high-low range, but below the high, then the value would be between zero and one.

• If the stock closes exactly halfway between the high and the low, then the value would be zero.

• If the stock closes below the midpoint of the high-low range, but above the low, then the value would be negative.

• If the stock closes on the low, the absolute bottom of the range, then the value would be minus one.

Accumulation/Distribution Line

The CLV is then multiplied by the corresponding period's volume, and the total will form the A/D line

Signals

Signals

Bullish Signals

Bearish Signals

Bollinger Band Width

• Bollinger Band Width, which represents the expanding and contracting of the bands based on recent volatility.

• Bollinger Band Width is the distance between the two bands.

Calculation

Commodity Channel Index (CCI)

• Commodity Channel Index (CCI) was designed to identify cyclical turns in commodities.

• Lambert recommended using 1/3 of a complete cycle (low to low or high to high) as a time frame for the CCI.

Calculation

• Open up the stock's yearly chart.

• Locate two highs or two lows on the chart.

• Take note of the time interval between these two highs or lows (cycle length).

• Divide that time interval by three to get the optimal time interval to use in the calculation (1/3 of the cycle).

Calculation

• Typical Price, TP = (HIGH + LOW +CLOSE)/3

• SMA(TP, N) = SUM[TP, N]/N

• D = TP — SMA(TP, N)

• SMA(D, N) = SUM[D, N]/N

• M = SMA(D, N) * 0,015

• CCI = M/D

Where:SMA — Simple Moving Average

N — number of periods, used for calculation.

Signal

• CCI can be used to identify overbought and oversold levels

• Divergences can be applied to increase the robustness of signals.

Signal

Signal

Ultimate Oscillator

• The Ultimate Oscillator combines a stock's price action during three different time frames into one bounded oscillator.

• Values range from 0 to 100 with 50 as the center line.

• Oversold territory exists below 30 and overbought territory extends from 70 to 100.

Ultimate Oscillator

• Three time frames can be specified by the user.

• Typically values of 7-periods, 14-periods and 28-periods are used.

Calculation

• True Low (TL)

TL = the lower of today's low or yesterday's close.

• Buying Pressure (BP)

BP = Today's close - Today's TL.

• True Range (TR)

Calculation

• Calculate BPSum1, BPSum2, and BPSum3 by adding up all of the BPs for each of the three specified time frames.

• Calculate TRSum1, TRSum2, and TRSum3 by adding up all of the TR's for each of the three specified time frames.

Calculation

• The Raw Ultimate Oscillator (RawUO) is equal to:

4 * (BPSum1 / TRSum1) + 2 * (BPSum2 / TRSum2) + (BPSum3 / TRSum3)

• The Final Ultimate Oscillator is equal to:

( RawUO / (4 + 2 + 1) ) * 100

Signal

• A bearish divergence appeared well before the top and persisted until the stock reversed.

• Extreme values are rare for the Ultimate Oscillator.

• Crosses above and below the center line (50) are relatively common.

TRIX

• TRIX is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security's closing price.

• Used to anticipate turning points in a trend through its divergence with the security price.

• TRIX is designed to filter out stock movements that are insignificant to the larger trend of the stock.

Calculation

For a 15-day period:1. Calculate the 15-day exponential moving average of

the closing price.2. Calculate the 15-day exponential moving average of

the moving average calculated in step #1.3. Calculate the 15-day exponential moving average of

the moving average calculated in step #2. 4. Finally, calculate the 1-day percent change of the

moving average calculated in step #3.

Signal

• A positive TRIX is thus akin to a positive trending price, allowing the indicator to act as a buy signal whenever it crosses up above the zero line.

• Crossing below the zero line suggests the price is tending to close down at the end of each period, which can be a sell signal.

Signal Line

• A buy signal is triggered when TRIX crosses above its signal line.

• A sell signal is triggered when TRIX crosses below its signal line.

Advantages of TRIX

• It filters out market noise using the triple exponential average calculation.

• TRIX is best used in conjunction with another market-timing indicator - this minimizes false indications.

Using two different time spans

StochRSI

• StochRSI is an oscillator that measures the level of RSI relative to its range, over a set period of time.

• The indicator uses RSI as the foundation and applies to it the formula behind Stochastics.

• The result is an oscillator that fluctuates between 0 and 1.

Calculation

Calculation

Calculation

Signals

• Overbought and Oversold Crossovers

• Centerline Crossovers

• Positive and Negative Divergences

Example

Momentum

• The Momentum Technical Indicator measures the amount that a security’s price has changed over a given time span.

• Momentum is calculated as a ratio of today’s price to the price several (N) periods ago.

Calculation

MOMENTUM = CLOSE(i)/CLOSE(i-N)*100

Where: CLOSE(i) — is the closing price of the current bar;CLOSE(i-N) — is the closing bar price N periods ago.

Momentum

Signals

• Zero-line crossings

• Using Trendlines

• Extreme Values

Zero-line crossings

• Crossing above the zero line could be a buy signal if the price trend is up and a crossing below the zero line, a sell signal, if the price trend is down.

Using Trendlines

• The trendlines on the momentum chart are broken sooner than those on the price chart. The value of the momentum indicator is that it turns sooner than the market itself, making it a leading indicator.

Extreme Values

• One of the benefits of oscillator analysis is being able to determine when markets are in extreme areas. At extreme positive values, momentum implies an overbought position; at extreme negative values, an oversold position

Envelopes

• An envelope is comprised of two moving averages. One moving average is shifted upward and the second moving average is shifted downward. The envelope is plotted around a price plot or indicator.

Calculation

• Calculate SMA(n)

Using 5% as an example the calculation

Top band = Moving Average + (Moving

Average x 5 ÷ 100)

Bottom band = Moving Average - (Moving

Average x 5 ÷ 100)

Interpretation

• Envelopes define the upper and the lower margins of the price range

• Signal to sell appears when the price reaches the upper margin of the band

• Signal to buy appears when the price reaches the lower margin.

Williams’ Percent

• Williams’ Percent Range Technical Indicator (%R) is a dynamic technical indicator, which determines whether the market is overbought/oversold. Williams’ %R is very similar to the Stochastic Oscillator.

Calculation

• %R = (HIGH(i-n)-CLOSE)/(HIGH(i-n)-LOW(i-n))*100

Where:CLOSE — is today’s closing price;HIGH(i-n) — is the highest high over a number (n) of previous periods;LOW(i-n) — is the lowest low over a number (n) of previous periods.

Signal

• Indicator values ranging between 80 and 100% indicate that the market is oversold.

• Indicator values ranging between 0 and 20% indicate that the market is overbought.

Example

Signal

• An interesting phenomenon of the Williams Percent Range indicator is its uncanny ability to anticipate a reversal in the underlying security’s price.

Thank you

Technical Analysis

CLASS – V

Mahbub Hasan MBA-Finance, CFA L1

Assistant Director, FIU, AMLD, Bangladesh Bank

Leading v Lagging Indicators

• A leading indicator gives a buy signal before the new trend or reversal occurs.

• A lagging indicator gives a signal after the trend has started and basically informs you about the onset of a trend

2 categories of Indicators

• Oscillators are leading indicators.

• Trend indicators are lagging indicators.

Oscilltors

• RSI

• Stochastics

• Ultimate Oscillator

Etc……..

Oscillator…….

They signal trend change.

Usually when an oscillator remains in the overbought or oversold levels for a long period of time, that means there is a strong trend occurring

Oscillator…….

Conflicting indication

Lagging Indicators

• Trend Following indicators

MACD

SMA

EMA

etc.....

Momentum

• Lagging and leading indicator

Classical Charting

• Trend Lines

• Support/Resistance

• Channel

• Continuation Patterns

• Reversal Patterns

• Gaps & Spikes

• Moving Averages

Chart Patterns

Head & Shoulder

Cup & Handle

Double Tops & Bottoms

Triangles

Flag & Pennant

Wedge

Rounding Bottom

To profit from ascending & descending triangle

• Watch For:

An ascending or descending pattern forming over three to four weeks.

• SET Target Price:

Entry price plus the pattern’s height for an upward breakout.

Entry price minus the pattern’s height for a downward breakout.

To Profit from Symmetrical Triangles

Watch:

Sideways movement, a period of rest, before the breakout.

Price of the asset traveling between two converging trendlines.

Breakout ¾ of the way to the apex.

Target Price:

Entry price plus the pattern’s height for an upward breakout.

Entry price minus the pattern’s height for a downward breakout.

Head & Shoulder

To Profit…….

Sell as soon as the price moves below the

neckline after the descent from the right shoulder

Buy as soon as the price moves above the

neckline after the ascent from the right shoulder

To Profit from the Double Bottom Pattern

Purchase When:

The price exceeds the middle-peak price.

Watch For:

A price increase of 10% to 20% from the first trough to the middle peak.

Two equal lows, not to differ by more than 3% or 4%.

To Profit from the Double Top

Sell when - The price drops below the middle-trough price

Watch:

A price decrease of 10% to 20% from the first peak to the middle

trough.

Two equal highs, not to differ by more than 3% or 4%

Profit from 3 bottom

Purchase When:

The price exceeds the resistance established by the prior peaks.

Watch For:

A series of three identical troughs at the end of a prolonged downtrend.

Target Price:

Entry price plus the pattern’s height

Profit from 3 Tops

Purchase When:The price falls below the support that formed from the prior troughs.

Watch For:A series of three peaks at relatively the same level.

Target Price:Entry price minus the pattern’s height .

Fibonacci Studies

• Fibonacci Numbers

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 610, etc.

4 popular Fibonacci studies:

Fibonacci Arcs

Fibonacci Fans

Fibonacci Retracements

Fibonacci Time zone

Interpretation

Anticipating changes in trends as prices

near the lines created by the Fibonacci

studies

Fibonacci Arcs

Interpretation of Fibonacci Arc

anticipating support and resistance as

Prices approach the arcs

Fibonacci Fan Linesdisplayed by drawing a trend line between two extreme points

Calculation


Price will retrace a large portion of an original move

and

Find support or resistance at the key Fibonacci levels

before it continues in the original direction

Fibonacci Retracement - levels

Typical Retracements

GAPS

Gaps

Gaps

Pivot

• Pivot point (P) = (H + L + C) / 3

• First resistance level (R1) = (2 * P) - L

• First support level (S1) = (2 * P) - H

• Second resistance level (R2) = P + (R1 - S1)

• Second support level (S2) = P - (R1 - S1)

Usage of pivot

Money Management

• Select a risk-reward ratio for yourself

• Determine the risk & reward of your decision to buy, sell or hold a stock

• Compare the previous two risk-reward to make a final decision

Money Management…

• Select a time period

• Select desired number of technical indicators

Money Management….

• Get the statistics of those indicators for current stock

• From that you shall get the probability of successful predication of an indicator for current stock

• This will determine risk-reward of your decision based on an indicator

Thank you

Technical Analysis

CLASS – VI

Mahbub Hasan MBA-Finance, CFA L1

Assistant Director, FIU, AMLD, Bangladesh Bank

Pivot ponts

• Pivot point (P) = (H + L + C) / 3

• First resistance level (R1) = (2 * P) - L

• First support level (S1) = (2 * P) - H

• Second resistance level (R2) = P + (R1 - S1)

• Second support level (S2) = P - (R1 - S1)

Pivot points

Andrew’s Pitchfork

uses 3 parallel trendlines to identify possible levels of support and resistance.

The trendlines are created by placing three points at the end of identified trends. e.g. usually placing the points in three consecutive peaks or troughs.

Once the points have been placed, a straight line is drawn from the first point that intersects the midpoint of the other two.

Andrew’s Pitchfork

• Also known as median line studies

Pitchfork

Pitchfork

Pitchfork

Elliott Wave

Five wave pattern (dominant trend)Impulse Pattern

Dominant trend can be in either direction

Three types of dominant trend

Elliott Wave

counter-trend waves will usually retrace against the trending waves by 38.2, 50 and 61.8 percent

Three wave pattern (corrective trend)Corrective Pattern

Wave 1

Rarely obvious at its inception

Fundamental news is almost universally negative

Sentiment surveys are decidedly bearish

Volume might increase a bit as prices rise, but not by enough toalert many technical analysts

Wave 2

Wave two corrects wave one

Bearish sentiment quickly builds

Volume isn't lower during wave 2 than during wave 1

Can never extend beyond the starting point of wave one

Prices usually do not retrace more than 61.8% of the wave 1 gains

Wave 3

usually the largest and most powerful wave in a trend

fundamental analysts start to raise earnings estimates

prices rise quickly, corrections are short-lived and shallow

as wave3 starts, the news is probably still bearish, and most market players remain negative

by wave 3's midpoint, the crowd will often join the new bullish trend

wave three often extends wave one by a ratio of 1.618:1

Wave 4

typically clearly corrective

prices may meander sideways for an extended period

wave 4 typically retraces less than 38.2% of wave 3

volume is well below than that of wave 3

a good place to buy a pull back

the most distinguishing feature of fourth waves is that they often prove very difficult to count

Wave 5

the final leg in the direction of the dominant trend

everyone is bullish

this is when many average investors finally buy in

volume is lower than that of wave 3

many momentum indicators start to show divergences

Types of Corrective Pattern

• Simple Correction (Zig-Zag)

• Complex Corrections (Flat, Irregular, Triangle)

Simple Zig-Zag

Fibonacci Ratios inside a Zig-Zag Correction

• Wave B

Usually 50% of Wave A

Should not exceed 75% of Wave A

• Wave C

either 1 x Wave A

or 1.62 x Wave A

or 2.62 x Wave A

Complex Corrections

• Flat

• Irregular

• Triangle

Complex Correction

Triangle Correction

Alteration Rule

If Wave 2 is a simple correction,

expect Wave 4 to be a complex correction

If Wave 2 is a complex correction,

expect Wave 4 to be a simple correction

Wave A

typically harder to identify

the fundamental news is usually still positive

increased volume

rising volatility

Wave B

Prices reverse higher, which many see as a resumption of the now long-gone bull market

the peak may be seen as the right shoulder of a head and shoulders reversal pattern

volume during wave B < volume during wave A

fundamentals are probably no longer improving

Wave C

typically at least as large as wave A

often extends to 1.618 times wave A or beyond

volume picks up

Chaikin Volatility

• Calculate 10 days EMA of (High-Low)

– EMA[H-L, 10]

• Calculate % change in EMA during 10days

– (EMA-EMA[10 days ago])/EMA(10days ago)

Chaikin

Chaikin Volatility

• An increase in volatility => bottom is near

• An decrease in volatility => top is near

Fibonacci

Fibonacci Expansion

Fibonacci Rally

Fibonacci – Morning gap

Fibonacci – 2nd High/Low

Fib Time Zone

Market Psychology

• Contrarian View of Trading

• Loss Aversion

• Loss v gain

Market Psychology

• Contrarian View of Trading

– Negative Vol Index

– Mutual Fund Cash Position

– Brokerage firm Credit Balance

– MFR = Mu Fund Cash / Total Asset

– MFR < 5% => Market Bullish, firms investing cash

– MFR>13% => Mkt Bearish, firms holding cash

Loss Aversion

Psychologically losses are 2times more

powerful than similar amount of gain

Sentiment Indicator

• Put-Call Ratio

• Commercial Activities

• Media

• Mutual Fund Cash position

• Debit Balance of Brokerage Houses

Trading SystemBasic Components

1. Market and timeframe

2. Entry: trigger that initiates your buy or sell signal.

3. Stop Loss: level at which you will cut your losses in the event of the trade going against you.

4. Profit Target: level at which you will exit the trade to take profits.


Market: ForEx Market

Stock Market- DSE/CSE, Insurance/Bank,

Bond Market

Options Market

Futures Market

Timeframe: Daily, Weekly, Monthly, Quarterly, Annual


Entry i.e. Trigger: Trigger from Indicators

Trigger from Chart Analysis

Trigger from Candlestick


Stop Loss:= Trigger Price +/- n% of Trigger Price

If trigger is buy@100 Tk.

Stop Loss = 100 – 5 = 95 Tk.

If trigger is sell@100 Tk.

Stop Loss = 100 + 5 = 105 Tk.


Profit Target: = Trigger Price +/- n% of Trigger Price

If trigger is buy@100 Tk.

Profit Target = 100 + 25 = 125 Tk.

If trigger is sell@100 Tk.

Profit Target = 100 - 25 = 105 Tk.


Market: ForEx Market

Stock Market- DSE/CSE, Insurance/Bank,

Bond Market

Options Market

Futures Market

Timeframe: Daily, Weekly, Monthly, Quarterly, Annual

Developing a Trading system

• Develop your own style of trading

• Build your own technical toolbox

Technical Tasks

Analyzing following 4:

1. Price

2. Vol

3. Time

4. Sentiment

Technical Toolbox

Areas of Technical Analysis:

4 areas:

Price Analysis

Vol. Analysis

Time/period Analysis

Sentiment Analysis

Price Analysis

Trend Identification• Trendlines , channels• Smoothing, Moving averages

Patterns• Triangles , flags , gaps• Candlesticks

Momentum• Single line oscillators (RSI, Momentum)• Multiple line oscillators (Stochastics)• Directional Movement, Parabolics• Bollinger Bands , Percent Bands

Relative levels• Benchmarking• Log scaling• Spreads and Ratios

Volume Analysis

• Analysis of • Liquidity

• Participation

• Breadth

Volume Analysis

• Participation: OBV, Cumulative Volume

• Liquidity: No. Shares Issued, Turnover

• Breadth: Sector Analysis, Adv.-Decline

Time Analysis

• Cycles

• Timeframe

• Extent

Time Analysis

• Cycles

Seasonal, Economic, Political

• Timeframe

Short, Medium, Long

Cyclical vs. Secular

• Extent

Length of trend

Trend Correction

Sentiment Analysis

• Speculation

• Consensus

• Anecdotal

Sentiment Analysis

• Speculation

IPO

Margin Level

Mutual Fund Cash Level

Apparent effects of good & bad news

• Consensus

• Anecdotal

Sentiment Analysis

• Speculation

• Consensus

% of bullish newsletter, % of bearish

Apparent Public Opinion

• Anecdotal

Superbowl, Magazine Covers

Combination Tools

• Indicators that covers more than one area, such as:

time & price, price & volume, price & sentiment etc.

Combination Tools

• time & price:

Market Profile (shows time spent at each price during the day,

forms a value area on the chart)

MESA (maximum entropy spectral analysis, finds cycles in the data and projects them forward)

Combination Tools

• price & volume:– Money Flow

• price times volume summed per trade

• used as a supply/demand indicator

– Equivolume bars

• have width in proportion to volume

• used to allocate significance to price bars

Combination Tools

• price & sentiment:

Elliott Wave

wave structure follows public emotions, can identify ebb and flow of trading activity

Developing a Trading system

• Be Objective

– Why am I in this trade?

– Why do Iike/dislike my position?

How to remain objective?

• Know what you are going to do before you do it.

• Write down your trading rules/system.

• Ignore absolute return, concentrate on Reward/Risk.

• Know your risk tolerance.

Risk management

• What’s Risk?

• It’s DEFINABLE PROBABILITY OF FAILURE

Risk management

• Risk Tolerance – 90% trader don’t know it

• Risk to Reward Ratio

Risk mgmt

• Risk tolerance

• Depends on your capital

Risk mgmt

• Proper Stop Loss

• Don’t use popular %

Risk Mgmt

• Risk-Reward Ratio

Most famous measure is Sharpe Ratio.

Sharpe Ratio

= (Stock’s Return – Risk Free Rate)/Std Div of Stock’s Return

Risk Mgmt

• Absolute return shouldn’t be used while ranking stocks

• Stocks should be ranked in terms of risk-reward ratio

Money Management

• Select a risk-reward ratio for yourself

• Determine the risk & reward of your decision to buy, sell or hold a stock

• Compare the previous two risk-reward to make a final decision

Money Management…

• Select a time period

• Select desired number of technical indicators

Money Management….

• Get the statistics of those indicators for current stock

• From that you shall get the probability of successful predication of an indicator for current stock

• This will determine risk-reward of your decision based on an indicator

TA Course: Class VII

Amibroker

• How to install amibroker ?

• Setting up database for amibroker.

• Importing data into amibroker .

How to install amibroker











Setting up database

Setting up database

Setting up database

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Setting the wizard

Updating Data Daily

• Go To http://www.stockbangladesh.com/download_stock_data.php (Download section) daily after 4 PM.

• Click on “Download last trading day data all together in a file”. It will open http://www.stockbangladesh.com/download_last_day_data.php page.

Using Amibroker

Using Amibroker

Using Amibroker

Using Amibroker

Working with chart sheets and Templates





Using Amibroker

Creating your own indicators

There are two ways to create your own indicators:

1) Using drag-and-drop interface.

2) By writing own formula.

How to insert a new indicator?

How to remove the indicator plot from the pane.

Writing your own formula





Bar Replay

Bar Replay

Fibonacci Trading

1, 2, 3, 5, 8, 13, 21, 34, 55

1+2=3

2+3=5

3+5=8

5+8=13

Fibonacci Retracements Pattern

• Fibonacci retracements often occur at three levels 38.2%, 50%, and 61.8%.

Fibonacci Retracements Pattern

Stock Bangladesh portfolio




Thank you

Technical Analysis

Debabrata Kumar Sarker

IDLC Finance Ltd.

Technical Analysis

Technicians are only interested in the price movements in the market.

Technical analysis just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in

the future.

Principles of Technical Analysis.

1. Price Discounts Everything

2. Price Moves In Trends

3. Price Movements Are Historically Repetitive

Tools of Technical Analysis

- Volume

Japanese Candlesticks

Indicators

Bands (Risk Measurement)

Chart Pattern

Volume

Volume

Volume has two major premises:

When prices rise or fall, an increase in

volume is strong confirmation that the rise or

fall in price is real and that the price movement

had strength.

When prices rise or fall and there is a

decrease in volume, then this is interpreted as

being a weak price move, because the price

move had very little strength and interest from

traders.

Volume Spikes



Candlestick PatternsBullish Patterns

Bearish Patterns

Reversal Pattern

Bullish Patterns

1. Long white (empty) line

2. Hammer

3. Piercing line

4. Bullish engulfing lines

5. Morning star

6. Bullish doji star

Long white (empty) line

Hammer

Piercing line

Bullish engulfing lines

Morning star

Bullish doji star

Bearish Patterns

1. Long black (filled-in) line

2. Hanging Man

3. Dark Cloud Cover

4. Bearish Engulfing Lines

5. Evening Star

6. Doji Star

7. Shooting Star

Long black (filled-in) line

Hanging Man

Dark Cloud Cover

Bearish Engulfing Lines

Evening Star

Doji Star

Shooting Star

Reversal Pattern

1. Long-Legged Doji

2. Dragon-Fly Doji

3. Gravestone Doji

4. Star

5. Doji Star

Long-Legged Doji

Dragon-Fly Doji

Gravestone Doji

Star

Doji Star

Neutral Patterns

1. Spinning Tops

2. Doji

3. Harami

4. Harami Cross

Spinning Tops

Harami

Harami Cross

Reversal Pattern

Reversal Pattern

Indicators

A leading indicator gives a buy signal before the new trend or reversal occurs.

A lagging indicator gives a signal after the trend has started and basically informs you about the onset

of a trend

Oscillators are leading indicators.

Trend indicators are lagging indicators.

RSI

Money Flow Index

Williams % R

Accumulation Distribution Line

Trend Following indicators

SMA

EMA

MACD

RSI

The Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to previous prices

RSI

- Generate buy and sell signals

- Show overbought and oversold

conditions

- Confirm price movement

RSI Buy Signal

Buy when the RSI crosses above the oversold line (30).

RSI Sell Signal

Sell when the RSI crosses below the overbought line (70).

Money Flow Index (MFI)

The Money Flow Index (MFI) uses price

and volume and the concept of

accumulation Distribution to create an

overbought and oversold indicator that

is helpful in confirming trends in

prices and warning of potential

reversals in prices.

Interpreting the MFl

Below 20 is considered oversold; look for buying opportunities.

Above 80 is in overbought territory; look for sell signals.

Money Flow Index Divergences

If price is rising, and the volume on up days is greater than the volume on down days, then this is confirming of the price rise.

Likewise, if price is falling and the volume on down days is greater than the volume on up days, then the recent downward trend in stock prices is confirmed.


In contrast, if prices rise, yet the volume on the up days is less than the volume transacted on down days, then money is secretly pouring out of the stock; this is a bearish divergence.

And similarly, when prices fall, but the volume on the down days is less than the volume on up days, then money is flowing back into the stock, a bullish divergence


Williams %R

Williams %R is an overbought and oversold technical indicator that can give easy to interpret buy and sell signals.

Williams %R

Williams %R Buy Signal

When the Williams %R indicator is below the

oversold line (20) and it rises to cross over the 20

line, then buy.

Williams %R Sell Signal

Sell when the Williams %R indicator is above the

overbought line (80) and then falls below the 80

line.

Williams %R

Accumulation Distribution

Accumulation Distribution uses volume to confirm price trends or warn of weak movements that could result in a price reversal.

Accumulation: Volume is considered to be accumulated when the day's close is higher than the previous day's closing price. Thus the term "accumulation day"

Distribution: Volume is distributed when the day's close is lower than the previous day's closing price. Many traders use the term "distribution day"

Simple Moving Average

The Simple Moving Average (SMA) is used

mainly to identify trend direction, but is

commonly used to generate buy and sell

signals. The SMA is an average, or in

statistical speak - the mean.

Exponential Moving Average

The Exponential Moving Average (EMA) weighs current prices more heavily than past prices. This gives the Exponential Moving Average the advantage of being quicker to respond to price fluctuations than a Simple Moving Average. However, that can also be viewed as a disadvantage because the EMA is more prone to whipsaws

MACD

The MACD indicator is one of the most popular technical analysis tools.

MACD: The 12-period Exponential Moving Average (EMA) minus the 26-period EMA.

MACD Signal Line: A 9-period EMA of the MACD.

MACD Histogram: The MACD minus the MACD Signal Line.

MACD Moving Average Crossovers

MACD Buy Signal

A buy signal is generated when the MACD

(blue line) crosses above the MACD Signal

Line (red line).

MACD Sell Signal

Similarly, when the MACD crosses below the

MACD Signal Line a sell signal is generated

Risk Measurement

Bollinger Bands

Bollinger bands are used to measure a market’s volatility .

When a stock is making major price movements , Bollinger bands will be farther away (expand)

from the stock’s price chart.

When a stock is moving steadily with minor price movements, the Bollinger bands will be closer to

(contract upon) the stock’s price chart .

Bollinger BandsA simple moving average in the middle.

An upper band (SMA plus 2 standard deviations)

A lower band (SMA minus 2 standard deviations)

Bollinger Bands

Bollinger Squeeze

Bollinger Squeeze

Charting

Chart Pattern

Elliot Wave

Fibonacci Studies

Regression Channel

Support/Resistance

Elliott Wave

Elliott Wave theory states that prices move in

waves. These waves occur in a repeating

pattern of a (1) move up, (2) then a partial

retracement down, (3) another move up, (4) a

retracement, (5) then finally a last move up.

Then, there is a (A) full retracement, followed by

a (B) partial retracement upward, then (C) a full

move downward. This repeats on a macro and

micro time frame.

Fibonacci

Fibonacci tools utilize special ratios that naturally occur in nature to help predict points of support or resistance. Fibonacci numbers are 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, etc. The sequence occurs by adding the previous two numbers (i.e. 1+1=2, 2+3=5) The main ratio used is .618, this is found by dividing one Fibonacci number into the next in sequence Fibonacci number (55/89=0.618). The logic most often used by Fibonacci based traders is that since Fibonacci numbers occur in nature and the stock, futures, and currency markets are creations of nature - humans. Therefore, the Fibonacci sequence should apply to the financial markets.


Fibonacci Arcs

Fibonacci Fans

Fibonacci Time Extensions

Fibonacci

Linear Regression Channel

Linear Regression Line: A line that best fits all the data

points of interest.

Upper Channel Line: A line that runs parallel to the Linear

Regression Line and is usually one to two standard

deviations above the Linear Regression Line.

Lower Channel Line: This line runs parallel to the Linear

Regression Line and is usually one to two standard

deviations below the Linear Regression Line.

Support Level

& Resistance Level

THANK YOU

Documents

StockBangaldesh TA Course