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Technical Analysis Presentation

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Introduction

Basic of Financial Market What is Research F & O Strategies

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Financial Market

It is a mechanism that allows people to buy and sell financial securities .

Types of Financial Market Capital Market (Primary and

secondary) Commodity market Money Market (Short term Debt) Foreign Exchange market

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Financial Instrument

FD Govt. Security Equity Mutual Fund Commodity Real estate Bond Currency

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Research

Fundamental Analysis

Political Factors

Demand & Supply

Macro Economic Issues

Environmental Conditions

Global Events & Markets

International Price Movements

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Research

Technical Analysis

Intra Day Charts

Prices & Volumes

Open Interest

Historical Data- Monthly & Weekly

Indicators: Candlesticks, Trend lines & Moving average

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Basic Assumption & Chart

Price moves in trend History tends to repeat it self The market discounting everything Charts Line chart Bar chart Candle Stick Point and Figure chart

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Technical Indicator

Trend line Support Resistance Pivot Moving average

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Different types of Pattern

Doji candle stick pattern The Bullish and Bearish Engulfing The Hammer Morning star and Evening star Triangle pattern Double Top and Double bottom Head and Shoulder

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Open Interest

Open Interest detailsChange in OI and priceRollover figures

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Technical Analysis (Versus Fundamental Analysis)

Technical analysis is a method of forecasting price movements by looking at purely market-generated data. A trader who uses technical analysis (sometimes called a technician or chartist) is essentially concerned with two things;

1) what is the current price? 2) What is the history of price

movement?

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Tools Of The Trade

We accomplish these things by: Identifying the short, medium and long-term

trends for market direction. Identifying the levels of support and resistance to

determine where price is likely to change direction.

Identifying price (or Chart) patterns that indicate reversals or the continuation of a trend.

Using technical indicators to reveal useful market forces behind the price to predict future movements and determine good points of entry and exit.

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Technical analysis

Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements.

Like weather forecasting, technical analysis does not result in absolute predictions about the future.

Instead, technical analysis can help investors anticipate what is "likely" to happen to prices over time.

Technical analysis uses a wide variety of charts that show price over time.

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Premise of Technical Analysis

All known Fundamental Information are shown in Price.

All changes in Emotion and Sentiment are shown in Price and Volume action.

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The three basic principles of Technical Analysis

Price Discounts Everything Prices move in trends History repeats itself

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1. Price discounts everything

Technical analysts believe that the current price fully reflects all information.

Because all information is already reflected in the price, it represents the fair value, and should form the basis for analysis.

After all, the market price reflects the sum knowledge of all participants, including traders, and investors

Stock Market Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future.

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2. Prices Move in Trends

Technical analysts or chartists believe that profits can be made by following the trends.

In other words if the price has risen, they expect it to continue rising; if the price has fallen, they expect it to continue falling.

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Prices move in Trends Price may be rising – Market is in an

Uptrend (Bullish)

Prices may be falling – Market is in a Downtrend (Bearish)

Prices may be moving sideways – Non-trending market (Sideways market)

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Up Trend

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Down Trend

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Sideways Trend

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3. History Repeats Itself

This result’s in periodical emerging of the similar price patterns and technical indicators (based on price patterns). These patterns, generated by price movement, often signify what type of movement is to come in the near future.

The goal in technical analysis is to identify and use these price patterns in the current market to predict what will happen in the future by examining and quantifying their regular effects in the past.

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Chart Presentation Styles Bar Chart

Candlestick

Line Chart

Total Return or Comparative

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Basic Tool of Technical Analysis

The Chart A picture of changes in Investor Sentiment and

Emotions over time. Shows where Trader Greed became excessive and

turned to Fear – “Resistance” Shows where Trader Fear became excessive and

turned to Greed – “Support” Shows when Investor Sentiment has changed. –

“Breakouts” above Resistance or below Support Show Investor Commitment – Big Volume Breakout Shows when the Public is jumping in – Up trends Shows when the Pros are bailing out – Down

trends

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Charts Shows Where: Investor

Sentiment: Turned Negative Turned Positive

Pros bailing out Public jumping in Trader Emotion:

Greed turned to Fear

Fear turned to Greed

Resistance

Support

Breakout

BreakDown

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Chart Timeframes Monthly

Weekly

Daily

Intra-day Hourly 10

minute 2

minute,

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Market Participants

Participant Time in Position

Selection Decision Based on:

Timing Decision Based on:

Long Term (LT) Investor

Months to Years Company Fundamentals Fund Manager History

Charts

Intermediate (IT) Trader

Weeks to Months Market Rankings Charts

Short Term (ST) “Swing” Trader

3 – 10 Days Charts Charts

Day Trader Hours Charts Charts

Micro Trader Seconds to Minutes Charts Charts

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Levels of Technicals

Support level – level at which declining share may evoke a substantial increase in price is called support level (price fall below certain level)

Resistance level – the share price is not likely to rise above the level of stock price (price rise above certain level)

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Support & Resistance

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More about trends There are 3 types of trends as per the time factor.

Major Trend – Seen on the Monthly charts (6 months to 3-4 years)

Intermediate Trend – Seen on the Weekly charts (3 weeks to 6 months)

Minor Trend – Seen on the Daily charts (3 days to 3 weeks)

Trend Reversal. When the Index/Stock changes direction from Up Trend to a Sideways Trend or Down Trend or

vice versa.

Support & Resistance.

Once a support/resistance is violated by 3% or 3 consecutive trading sessions it reverses its role, i.e., Support becomes resistance and vice versa.

Chart Patterns.Trendlines - Support lines & Resistance lines

Channels

Rectangles

Head & Shoulders Top & Bottom

Triangles

Cup & Handle

Rounding

Trendline support

Trendline resistance

HLL – Quarterly chart (Channels)

EKC – Rectangle Pattern

RIL – Rectangle Pattern

RIL – Daily chart (Head & Shoulders Top)

Shipping Corp – Head and Shoulders Bottom

Tata Motors – Daily chart (Triangles)

L&T – (Ascending Triangle)

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Triangles

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Tripple Top & Bottom

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Cup and Handle Pattern

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Rounding Pattern

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Wedges

How to use Technical Analysis Volumes

Price increase Volume increase …… Bullish

Price decrease Volume increase…… Bearish

Moving Averages

Short, Medium, and Long Term moving averages

MACD

Moving Average Convergence Divergence

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Volume & Price Relationship

Important part of technical analysis High trade volume is considered as

bullish trend Low trade volume is considered as

bearish trend. High volume with constant rise in

price is consider as more bullish trend.

Trends – stock price behaviour

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Analysis

IndicatorsOscillatorsVolatility

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Element in Strategy Testing

Entry Rate: Entry rate is the actual rate where one can enter a trade on getting a buy/sell signal. One can either consider the Day’s close as the entry rate OR Next day’s opening as the entry rate.

Exit Rate: Exit rate is the actual rate where one can exit a trade on getting a sell/short cover signal. One can either consider the Day’s Close as the exit rate OR Next day’s open as the exit rate.

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Element in Strategy Testing

Entry Stop: It may happen that when one enters a trade using a particular strategy, the stock price may come down immediately. In such a case an Entry Stop loss has to be entered, which if triggered, the trader may exit the position. One needs to monitor such exits also in testing the Strategy. The trader may keep the Entry Stop according to the Risk reward ratio. This may help the trader identify how many times an entry stop is hit when he enters a trade using a particular strategy.

Trailing Stop: If the Trailing stop feature is enabled, it would help the trader to identify as to how many times the Trailing stop is triggered and it made the Trader exit the trade. For eg,if the Entry rate is 800 and the Trailing Stop is Initiated (Initiate Trailing Stop) is kept at 10%,then when the stock reaches 880,the Trailing stop would be initiated and when the Stock fall below 2% from this level (i.e. 880) to 862.4.

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Exit Reasons

Exit Signals: Displays all the exit trades that have been generated by the reversal of the entry trade strategy. For eg: If one enters a long trade when a 8 day EMA crosses the 13 day EMA and when you get a exit signal on reversal (ie 8 day EMA cuts 13 day EMA down),it is displayed as Exit Signal

Entry Stops: Displays all the exit trades that due to hitting of the entry Stops.

Profit Stops: Displays all the Exit Trades that occurred due to hitting of the Target set.

Trail stops: Displays the entire exit Trades that occurred due to hitting of the Trailing Stops.

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Indicators

Moving Averagessimple MAweighted MAexponential MA

MACD MACD-line:

EMAshort-term – EMAlong-term

Oscillators

Momentum Stochastics many more

(RSI, ROC, …)

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Buy Signal

Stock price rises through the Moving Average (M.A.)line when the graph of the M.A. line is flattering out.

Stock price line falls below the M.A. line which is rising

Stock price line which is above the M.A. line, falls but begins to rise again before reaching the M.A. line

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Sales Signal

Stock price line falls through the M.A. line when the graph of the M.A. line is flattering out.

Stock price line rises above the M.A. line which is falling

Stock price line which is below the M.A. line, rises but begins to fall again before reaching the M.A. line

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Moving Averages – Monthly chart

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Moving Averages – Weekly chart

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Tisco MACD (Weekly chart – buy/sell)

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Punj Lloyd MACD – Daily Chart buy/sell)

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Gold Kg – Daily chart – Buy/Sell

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Negative Divergence on AD Line

10:J A S O N

Log IRIS

Source : www.SpiderSoftwareIndia.Com5300

5400

5500

5600

5700

5800

5900

6000

6100

6200

6300

Cr

25.00

50.00

75.00

100

-152000.00

-150000.00

-148000.00

Price

Vol

ADL

NIFTY [N59901] 6143.45, 6144.05, 5970.60, 5988.70, 903835008 -2.17%

Dly

1085744256.0015/09/10 Wed

Op 5795.25Hi 5869.45Lo 5792.20Cl 5860.95

Qt 80.98

AD-150361.00

Negative Divergence : Market was Rising But Ad Line was Falling

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10:J A S O N

Log IRIS

Source : www.SpiderSoftwareIndia.Com5300

5400

5500

5600

5700

5800

5900

6000

6100

6200

6300

Cr

25.00

50.00

75.00

100

13000

13250

13500

13750

14000

Price

Vol

ADvL

NIFTY [N59901] 6143.45, 6144.05, 5970.60, 5988.70, 903835008 -2.17%

Dly

0.0013/10/10 Wed

Op 6091.45Hi 6240.25Lo 6089.75Cl 6233.90

Qt 100.87

AD 13934.65

AD Volume Line

In the Last Screen we have seen that AD Line was not supporting the Market ,But Though Market Made New High Reason is AD Vol Line was Supporting it.

6310:J A S O N

Log IRIS

Source : www.SpiderSoftwareIndia.Com 5400

5500

5600

5700

5800

5900

6000

6100

6200

6300

Cr

25.00

50.00

75.00

100

-2.50

0.00

2.50

-2.50

0.00

2.50

Price

Vol

McOsc(Y,E,19,E,39)

Avg(S,1) Avg(S,20)

NIFTY [N59901] 6143.45, 6144.05, 5970.60, 5988.70, 903835008 -2.17%

Dly

618335360.0015/10/10 Fri

Op 6175.90Hi 6200.60Lo 6050.35Cl 6062.65

Qt 85.98

Mc -2.63

Av -2.63Av -0.64

Base Line Like MACD Zero Line

McOsc Ploted as an Average

McClellan Oscillator

Useful For Traders to Know the Market Strength

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10:A M J J A S O N

Log IRIS

Source : www.SpiderSoftwareIndia.Com 4800

5000

5200

5400

5600

5800

6000

6200

Cr

50.00

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0.00

5.00

-50.00

0.00

-50.00

0.00

Price

Vol

McOsc(Y,E,19,E,39)

McSum(Y,E,19,E,39)

Avg(S,1) Avg(S,20)

NIFTY [N59901] 6143.45, 6144.05, 5970.60, 5988.70, 903835008 -2.17%

Dly

0.0020/09/10 Mon

Op 5885.05Hi 5989.50Lo 5885.05Cl 5980.45

Qt 89.44

Mc 1.49

Mc -28.79

Av -28.79Av -36.25

McClellan Summation Index

Base Line Like MACD Zero Line

McSum Ploted as an Average

Useful to Medium to Long Term Investor to know Market Strength

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This (Arrow Signal) Feature is available for following indicators only.

-> Adaptative moving Avg-> Arron Up Down Indicator-> ATP-> Average-> Avg 2 line 2 input-> Avg OHLCVUT-> Avg Short Long-> Candlestick momentum index-> Chande Mommentum Oscillator-> Chande Vidya Indicator-> Commodity Chanel Index-> Directional Mov Index-> Directional Trend Index-> KST-> Money flow index-> Relative Strenght Index (RSI)-> Rsi Up/Down

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Alternative methods

Fibonacci.Dow Theory.Elliot Wave.Japanese Candlesticks.Gann Theory.