technical_analysis_-_copy

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Momentum indicators

� Simple Moving Average

� MACD� RSI

� Bollinger Brands

� Support and Resistance



Simple Moving Average

� Moving average shows the average value of a security priceover a period of time

� For eg, to find a 50 day moving average u would add up theclosing prices of the last 50 days and divide by 50

� Moving averages are always used in conjunction with MACDand EMA

� Moving Averages are used to identify the direction of a trendand smooth out price volume functions

� Commonly used averages, 20,30,50,100 and 200 day moving

averages� Typically, when a stock price moves below its moving average

it is a bad sign because the stock is moving on a negativetrend. The opposite is true for stocks that exceed their movingaverage - in this case, hold on for the ride.

� EMA is based on more weights to closer dates



Moving Average convergence and

divergence-MACD� A trend-following momentum indicator that shows

the relationship between two moving averages of

prices.

� The MACD is calculated by subtracting the 26-

day exponential moving average (EMA) from the 12-

day EMA.

� A nine-day EMA of the MACD, called the "signalline", is then plotted on top of the MACD,

functioning as a trigger for buy and sell signals.



MACD Condt«

� Crossovers - when the MACD falls below the signalline, it is a bearish signal, which indicates that it maybe time to sell.

� Conversely, when the MACD rises above the signalline, the indicator gives a bullish signal, whichsuggests that the price of the asset is likely toexperience upward momentum.

� Many traders wait for a confirmed cross above thesignal line before entering into a position toavoid getting "faked out" or entering into a positiontoo early



Relative Strength Index-RSI

� Relative Strength Index (RSI), which is a

comparison between the days that a stock finishes

up and the days it finishes down. This indicator is

a big tool in momentum trading.

� RSI = 100 - [100/(1 + RS)] where: RS = (Avg. of

n-day up closes)/(Avg. of n-day down closes) n=

days (most analysts use 9 - 15 day RSI)



RSI contd..

� The RSI ranges from 0 to 100. At around the 70 level,

a stock is considered overbought and you should

consider selling. However in a bull market somebelieve that 80 is a better level to indicate an

overbought stock since stocks often trade at higher

valuations during bull markets.

� Likewise, if the RSI approaches 30, a stock isconsidered oversold and you should consider buying.

Again, make the adjustment to 20 in a bear market.



Bollinger bands� The Bollinger band indicator uses three lines: the upper, the

lower and the simple moving average (SMA) that is betweenthe two. The upper/lower bands are plotted two standarddeviations away from a SMA.

� Standard deviation is a measure of volatility; therefore,Bollinger bands adjust themselves to market conditions. Whenthe markets become more volatile, the bands widen, and theycontract during less volatile periods. The closer the pricesmove to the upper band, the more overbought the stock is. Thecloser the prices move to the lower band, the more oversold

the stock is.� A high BB Width often indicates a slowing trend , and low

low BB Width often indicates a forming trend� Bandwidth =(Upper band-Lower band)/middle band *100



Support and Resistance

� Support and resistance are price levels at which

movement should stop and reverse direction.

Think of support/resistance (S/R) as levels that

act as a floor or a ceiling to future pricemovements.

� PIV for intraday support and resistance

� PIVG for long term support and Resistance� ITE can also be used



The double top is a major reversal pattern that forms after an extended uptrend.

As its name implies, the pattern is made up of two consecutive peaks that are

roughly equal, with a moderate trough in between.



The double bottom is a major reversal pattern that forms after an extended

downtrend. As its name implies, the pattern is made up of two consecutive

troughs that are roughly equal, with a moderate peak in between



A Head and Shoulders reversal pattern forms after an uptrend, and its

completion marks a trend reversal. The pattern contains three successive

peaks with the middle peak (head) being the highest and the two outside

peaks (shoulders) being low and roughly equal. The reaction lows of eachpeak can be connected to form support, or a neckline.



The Cup with Handle is a bullish continuation pattern that marks a

consolidation period followed by a breakout

As its name implies, there are two parts to the pattern: the cup and thehandle. The cup forms after an advance and looks like a bowl or rounding

bottom. As the cup is completed, a trading range develops on the right

hand side and the handle is formed. A subsequent breakout from the

handle's trading range signals a continuation of the prior advance.

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