Presents:
A PRIMER INTO TECHNICAL ANALYSIS
Presented by:
Juanis G. Barredo
VP-Sales & Customer Support
Chief Technical Analyst
COL Financial Group Inc.
OUTLINE
What is Technical Analysis
Spotting and Following Trends
Understanding Corrections & Area Patterns
Technical Indicators
Establishing the Trading Plan
PART 1:
WHAT IS TECHNICAL ANALYSIS
THE NEED FOR TIMING
Invest for
the long
haul?
Trade in the
short to
medium
term?
WHAT IS TECHNICAL ANALYSIS?
Technical Analysis is the study of price movement of any
type of security pictured into a graph or chart, for the purpose of
spotting & following price trends
THE STUDY OF PRICE
Price discounts everything
The market price tells you everything you need to know about
a stocks expectations.
Prices move in trends
An object in motion tends to stay in motion; while an object at
rest tends to stay at rest.
History repeats itself
People will tend to react in similar fashion to certain kinds of
stimuli, grooming repetitive patterns of price activity.
LOOKING AT PRICES THRU GRAPHS
Bar Charts Candlestick Charts
High H High H
Close Close
O O
Open
C Open C
Low L Low L
Open the first price a stocks trades at
High the highest price it reaches in a trading day
Low the lowest price is tags during a trading day
Close the final trading price of the day
LOOKING AT PRICES THRU GRAPHS
Bar Charts Candlestick Charts
Advantage of looking at graphs/charts:
See and analyze information fast
Spot trend movements and changes
Scope out and study many possible instruments
(indices, stocks, bonds, commodities, currencies)
STUDYING VOLUME WITH GRAPHS
Gold
Volume measures the
number of shares or value of
those shares that trade in a day
It can confirm your suspicions
about a trends forcefulness
Volume usually expands along
with a trend
It drowns away when trends are
weak and failing
PART 2:
SPOTTING AND FOLLOWING TRENDS
SUPPORT AND RESISTANCE
Support is a price point underneath a market that shows heaviness
in buying sufficient enough to prevent prices from falling down
Resistance is a price point above a market that shows heaviness
in selling sufficient enough to prevent prices from rising up
Resistance Resistance
Support Support
Trade Idea: Buy near support and Sell close to resistance.
However a break of any of the two should see a corresponding move in the
direction of the break.
IDENTIFYING TRENDS
Trends are durable swings in market condition; they show the
general direction of a securities' price over time
UP TREND DOWN TREND SIDEWAYS TREND
Higher-Highs Lower-Highs Highs and lows are
Higher-Lows Lower-Lows contained consolidations
TRENDLINES
Trendlines - are guidelines that follow a trend that connect
several areas of support or resistance to project buying or selling
action over time
UP TRENDLINES DOWN TRENDLINES SIDEWAYS TRENDS
Up Trendlines are drawn by Down Trendlines are drawn Both Trendlines are drawn by
connecting major lows or by connecting major highs or connecting resistance points and
support areas resistance areas by connecting support points
TRENDLINE PERIODS
State your time period:
Short term
From 3-6 months
Medium Term
6 - 9 months
Long Term
9+ months
(decide your term then
look at data within that
time frame)
TRENDLINES IN ACTION
Strategy:
Buy closer to
pullbacks to support
of an up trendline or a
breach of a down SELL
trendline
Hold as long as
your trendlines do not
break
Sell when your up BUY
trendline breaks
PART 3:
UNDERSTANDING CORRECTIONS &
AREA PATTERNS
MARKETS SELF-CORRECTING ACTION
Remember that it takes time to move a price a certain distance any
exaggeration must be paid for by an adjustment in time or price
50
(1) Consolidation in Time
45
(Magnitude)
40
35
Price
(2) Correction in Price
30
Time 25
(Duration)
DEMONSTRATING CORRECTIONS
Extended prices Corrections in
will be fixed by market price
forces
Consolidations
Prices must follow in time
demand/supply rules
Extravagant swings
eventually have to be
fixed through corrections
Overbought/Oversold
Once prices are well
corrected they can move
again
FIBONACCI RETRACEMENTS
The Golden Ratio of 61.8%
Leonardo Pisano (1200), more
popularly know as Fibonacci
Natural relationship of expansion
and contraction to maintain balance
Fibonacci series of numbers
(0,1,1,2,3,5,8,13, 21,34,55,)
% Down % Up
38.2% 34 61.8%
38.2% 55 61.8%
38.2% 89 61.8%
38.2% 144 61.8%
38.2% 233 61.8%
Phi = 1.618
FIBONACCI RETRACEMENTS
Nickel Asia Euro
AREA PATTERNS
Consolidations are depicted by
sideways moving markets
They enter into a meditative pause to
fix price swing exaggeration by winding
up between support and resistance
These temporary consolidation shifts
are called area patterns
Push out of a consolidation/pattern:
Breakout a condition where prices
shove themselves above a patterns
Resistance commanding a Buy
Breakdown if prices slip below
Support, it commands a Sell
AREA PATTERNS
Shape can unravel clues to its
directional bias. Studying the various
shapes of consolidations can aid in
exposing who is wining the battle
between buyers and sellers
Size can tell us the eventual target to
which a price could go after a breakout
(or breakdown) scenario.
Height of the pattern can project the
minimum size of a push measured from
its breakout point
Length of a pattern can attest to its
durability and forcefulness of its move
TYPES OF AREA PATTERNS
Continuation Patterns
TYPES OF AREA PATTERNS
Reversal Patterns
USING AREA PATTERNS IN GRAPHS
SYMMETRICAL TRIANGLE
Philex
(Prior trend was up so it maintains
an upward bias)
Height: 17.00 13.00 = 4.00
Breakout point: 15.70
Trendline Min Target: 15.70 + 4.00 = 19.70
Volume
USING AREA PATTERNS IN GRAPHS
MULTIPLE PATTERNS
Marcventures
(Ascending Triangle & Wedge)
Both breakouts led to a well
groomed up swing
Improved
Volume
PART 4:
SYSTEMS TRADING:
TECHNICAL INDICATORS
TECHNICAL INDICATORS
A technical indicator is a study of price data
derived from various statistical formula plotted
onto a graph
It serves three basic functions:
To Alert
To Confirm Consequential Price Movements
To Predict
Three most popular indicators:
Moving Averages (MAs)
The MACD
Relative Strength Indicator (RSI)
MOVING AVERAGES
A price-average line plotted We use three period
onto a chart in direct reference to Moving Averages:
market price 65-day =1/4 a year
It can be used to: (trending MA)
Identify trends in various time 130-day = a year
frames
Identify support and resistance
260-day = 1 year
Qualify strength of trends You can also use 32 & 16
day MAs to decipher
faster (shorter) trends.
MOVING AVERAGES
Use:
MetroBank
Use MAs like a
trendline
Buy into pullbacks
into it as long as it
does not break
Sell when your
MAs break
Crossover of
shorter MA or
longer term MA tells
you greater trend 32-day MA
move coming 65-day MA
130-day MA
MACD (MOVING AVERAGE CONVERGENCE DIVERGENCE)
A lagging but effective momentum tool that
uses a crossover system to justify changes in
periodic trends.
It has three component lines:
MACD
Signal line
Zero line
MACD
Use:
JG Summit
A Buy signal is followed
when:
(1) MACD crosses
above Signal line &
(2) MACD is positive
(above 0-line showing a
positive trend)
A Sell or take profits
when MACD crosses
below the Signal line
Sell Sell Sell
Buy Buy Buy
RELATIVE STRENGTH INDEX
A momentum-oscillator that swings from Overbought
and Oversold conditions to highlight extreme ends of a
price move
It can also spot out Bullish or Bearish Divergence
RSI
Overbought (70-80%)
Oversold (30-20%)
RELATIVE STRENGTH INDEX
A Divergence is a lapse in strength shown in the RSI
compared with its Price
i.e in an uptrend, a higher-high in price compared with
a lower-high in RSI shows a lapse in bullish force
Belle Res. Jollibee Foods
Bearish
Divergence
Bullish
Divergence
PART 5:
ESTABLISHING THE TRADING PLAN
WORK ON YOUR TRADE ROUTINE
Creating a Trading Plan
Practice the discipline technically evaluating your
prospect know your upsides and downsides and
plan your action ahead of the trade
1) Look for a Justified Entry
2) Estimate your Targets for Profit Taking
3) Establish your Selling Stops
4) Estimating your Technical Risk-Reward
A JUSTIFIED ENTRY
Breakout Moves Have a good line up in your Tech Indicators:
Check Moving Averages With you?
Above 65, 130, 260?
Check MACD With You?
Buy signal above 0?
Check the RSI With You?
Overbought?
Support Bounce Divergence?
Decision Time
IF 3 or ALL SAY YES THEN GO!
IF ONE SAYS NO BEWARE THE
UNDERTOW.
IF TWO SAY NO YOU SAY NO!
ESTIMATE YOUR TARGETS
Looking for Price Targets
Evaluate what your upsides can be by the following
technical methods:
1) Trendline Projection
2) Range in a Price Channel
3) Height of its current Area Pattern
4) Distance to its next major Resistance / Support
ESTIMATE YOUR TARGETS
B D
C
ESTABLISH YOUR SELLING STOPS
Triggered Exits using Support Stops: Breakdown Conditions
1) Breakdown conditions
2) Trendline (or Moving Average) breaks
3) Trailing stops
Last reaction lows
For runners previous day lows or
8-day MA Up Trendline Break
HOW TO TRAIL STOPS
ESTIMATE YOUR RISK VS REWARD
Evaluate your prospects
A key component in being a successful trader is to determine
your risk versus reward level and use that optimum ratio to
guide your investment decisions.
1) Estimate your upsides and downsides then
pick out Risk-Reward opportunities of 1:3+
2) Remember selling too soon may inhibit your
ratio keep yourself with the trend
3) You now have a trade plan be disciplined
enough to follow it!
RECONFIRM WITH THE TECHGUIDE
KEEP WATCH OF THE TECH SPOTLIGHT
CONGRATULATIONS!
1. Technical Analysis
2. Trend Analysis
3. Corrections/Consolidations
4. Technical Indicators
1. MAs
2. MACD
3. RSI
5. Fostering your market view
Knowledge born from actual
and crafting your trading plan experience is the answer to why
one profits; lack of it is the reason
one loses
- Gerald M. Loeb
