Technical Analysis Presentation

Technical Analysis 101Technical Analysis 101

Jason ParkOctober 1, 2009Decision Support Analysis

The Potential Rewards

• This chart, from Norman Fosbeck, shows how market timing can benefit your returns. The only problem is that you have to be very good at it.

Alternative Market Strategies (1964 to 1984)Strategy Avg. Annual Gain $10,000 Grows ToBuy and Hold 11.46% 87,500$ Avoid Bear Markets 21.48% 489,700$ Long and Short Major Swings 27.99% 1,391,200$ Long and Short Every 5% Swing 93.18% 5,240,000,000$

Source: Norman Fosbeck

Technical Analysis

•Technical Analysis is a great tool used for forecasting future prices and trends for short term investors.

•Technical analysis is the attempt to forecast stock prices on the basis of market-derived data.

•They are looking for trends and patterns in the data that indicate future price movements.

Chart: OHLC Chart

• This is a bar (open, high, low, close or OHLC) chart of AMAT from July to October 2001.

Source: www.stockcharts.com

Basic Technical Tools

•Trend Lines•Price Patterns•Indicators

Trend Lines

• An Up trend

• A Down trend

• A Trading Range

Source: www.investopedia.com

Head and Shoulders

• This formation is characterized by two small peaks on either side of a larger peak.

• This is a reversal pattern: H&S Bottom

Head

Head

Left Shoulder

Left Shoulder

Right Shoulder

Right Shoulder

Neckline

Neckline

H&S Top

H&S Bottom

Source: www.investopedia.com

Head & Shoulders Example

Sell Signal

Source: www.stockcharts.com

Double Tops and Bottoms

• Similar to the H&S formations, but there is no head.

Target

Double Top

Double Bottom

Target

Source: www.investopedia.com

Double Bottom Example

Source: www.stockcharts.com

Triangles

• Triangles are continuation formations.

• Three flavors:▫ Ascending▫ Descending▫ Symmetrical

Ascending

Descending

Symmetrical

Symmetrical

Source: www.investopedia.com

Resistance Level

Support Level

DJIA Oct 2000 to Oct 2001 Example

What could you have known,and when could you have known it?

Source: www.stockcharts.com

DJIA Oct 2000 to Oct 2001 Example

Double bottom

Nov to Mar Trading range

Descendingtriangles

Source: www.stockcharts.com

Support Level

Technical Indicators• Accumulation/distribution index• Advance decline line • Average Directional Index • Commodity Channel Index • MACD• Parabolic SAR• Relative Strength Index (RSI)• Stochastic oscillator• Trix • Money Flow• On-balance volume• PAC charts

Source: www.investopedia.com

MACD• MACD is the difference between the 12-day and

26-day moving average. A 9-day moving average of this difference is used to generate signals.

• When this signal line goes from negative to positive, a buy signal is generated.

• When the signal line goes from positive to negative, a sell signal is generated.

Source: www.investopedia.com

MACD Example Chart

Sell Signal

Buy Signal

Bearish

BullishDiff. Btw MACD and 9 EMA

Source: www.stockcharts.com

MACD=26EMA-12EMA

Conclusion• There are literally hundreds of indicators and thousands of

trading systems.

• Technical Analysis can help you make timely investment decisions!

• Practice makes perfect.

Any Questions?

H&S Bottom

We are out of the bear market?