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My presentation on technical analysis.
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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?
