This is very useful for traders and academicians

1. Technical Analysis
Presented by
Dr.K.PRABHAKARAN MBA,M.Phil.,PGDMM,Ph.D.
Faculty-Finance,
RVS Faculty of Management,Coimbatore &
SEBI Financial Education Resource Person
Visiting Faculty- BSE Institute Ltd

2. Technical Analysis
 Technical analysis is the attempt to
forecast stock prices on the basis of
market-derived data.
 Technical analysts essentially search for
bullish (positive) and bearish (negative)
signals about stock prices or market
direction.

3. Technical Analysis
 The technical analyst deal with only three
pieces of data: price, trading volume, and open
interest.
 Technical analysts believe that the historical
performance of stocks and markets are
indications of future performance.

4. Types of Charts
 Line Chart
 Candlestick Chart
 Bar Charts

5. Line Chart

6. Line chart
Stock
Price
Declining
Trend
Channel
Peak
Buy Point
Trough
Rising Trend Channel
Flat Trend Channel
Sell Point
Declining
Trend
Channel Trough
Buy Point

7. Trend Lines
 There are three basic
kinds of trends:
 An Up trend where prices
are generally increasing.
 A Down trend where
prices are generally
decreasing.
 A Trading Range.

8. Support and Resistance
 Support level is a price level where the price tends to find
support as it is going down

9. Support and Resistance
 Resistance Level is a price level where the price tends to
find resistance as it is going up

10. Importance of Support and
Resistance
 Support and resistance analysis is an important part of
trends because it can be used to make trading
decisions and identify when a trend is reversing

11. Head and Shoulders
 This formation is
characterized by two
small peaks on either
side of a larger peak.
 This is a reversal pattern,
meaning that it signifies
a change in the trend.
H&S Top
Head
H&S Bottom
Head
Left Shoulder
Left Shoulder
Right Shoulder
Right Shoulder
Neckline
Neckline

12. Head & Shoulders Example
Sell Signal
Minimum Target Price
Based on measurement rule

13. Double Tops and Bottoms
 These formations are
similar to the H&S
formations, but there is
no head.
 These are reversal
patterns with the same
measuring implications
as the H&S.
Double Top
Target
Target
Double Bottom

14. Double Bottom Example

15. Rounded Tops & Bottoms
 Rounding formations are
characterized by a slow
reversal of trend.
Rounding
Bottom
Rounding Top

16. 16
2.CANDLESTICK CHART
High
Upper Shadow
Open
Lower Shadow
Low
Bullish Bearish
Body
Close

17. 17
Candle Stick Charting
 Green is an example of a
bullish pattern, the stock
opened at (or near) its
low and closed near its
high
 Red is an example of a
bearish pattern. The
stock opened at (or near)
its high and dropped
substantially to close near
its low

18. 18
Candle Stick Charting
 Top example is called a
hammer and is a
bullish pattern only if it
occurs after the stock
price has dropped for
several days.
 Bottom is an example
of a Doji.

20. Japanese Candlesticks(Example)

21. 21
3.Bar Chart

22. Bar Chart
 This is a bar (open, high, low, close )

23. Example
Double bottom Gap, should get
filled
Nov to Mar
Trading range Descending
triangles

24. Technical Indicators
 There are hundreds of technical indicators used to
generate buy and sell signals.
 We will look at just a few Indicators
 Moving Average
 Moving Average Convergence/Divergence
(MACD)
 Relative Strength Index (RSI)
 Bollinger Bands
 Pivot Point
 Money Flow Index

25. 25
Moving Average
 Calculated by applying a percentage of today's
closing price to yesterday's moving average
value.
 The most commonly used moving averages are
of 10,20, 30, 50, 100 and 200 days.
 For example: a 10-day simple moving average
is calculated by adding the closing prices for
the last 10 days and dividing the total by 10.

26. Moving Average
 The Moving Average Technical Indicator shows
the mean instrument price value for a certain
period of time.
 There are four different types of moving
averages:
 Simple moving averages
 Exponential moving averages
 Smoothed moving averages
 Linear Weighted moving averages

27. Exponential Moving Average
 The exponential moving average is a type of moving
average that gives more weight to recent prices in an
attempt to make it more responsive to new information.
Formula:

28. Exponential Moving Average

29. Example for EMA

30. Moving Average
Convergence/Divergence (MACD)
 MACD was developed by Gerald Appel as a
way to keep track of a moving average
crossover system.
 Appel defined MACD as the difference
between a 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.

31. Moving Averages Convergence
Divergence

32. MACD Example Chart

33. Relative Strength Index (RSI)
 RSI was developed by Welles Wilder as an
oscillator to measure overbought/oversold
levels.
 RSI is a measure of the ratio of average price
changes on up days to average price changes
on down days.
 The most important thing to understand about
RSI is that a level above 70 indicates a stock
is overbought, and a level below 30 indicates
that it is oversold (it can range from 0 to 100).

34. Relative Strength Index (RSI)
 The relative strength index (RSI) is one of the most
used tools in Technical analysis. RSI helps to signal
the overbought and oversold conditions in a security.
Formula:
100
RSI = 100  --------
1 + RS
Average Gain
First RS = -----------------
Average Loss
Average Gain = Total Gains / n
Average Loss = Total Loss / n

35. RSI Example Chart
Overbought Oversold

36. RSI Example

37. Bollinger Bands
 Bollinger bands were created by John Bollinger
(former FNN technical analyst, and regular guest on
CNBC).
 Bollinger Bands are based on a moving average of
the closing price.
 They are two standard deviations above and below
the moving average.
 A buy signal is given when the stock price closes
below the lower band, and a sell signal is given
when the stock price closes above the upper band.
 When the bands contract, that is a signal that a big
move is coming, but it is impossible to say if it will
be up or down.

38. Bollinger Bands

40. MONEY FLOW INDEX (MFI)
 Money flow index was discovered by Created
by Gene Quong and Avrum Soudack.
 Money flow is positive when the typical price
rises. This is due to buying pressure. A ratio of
positive and negative money flow is then
plugged into an RSI formula to create an
oscillator that moves between zero and one
hundred.

41. FORMULA

42. MFI EXAMPLE
MONEY FLOW INDEX
0
10
20
30
40
50
60
70
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
YEAR
MFI
MFI

43. Pivot Point
 A technical indicator derived by calculating the
numerical average of particular share high, low
and closing prices. The pivot point is used as a
predictive indicator.
 If the following day’s market price falls
below the pivot point, it may be used as a new
support level.
 Support and resistance are price levels at
which movements should stop and reverse
direction.

44. Formula for Pivot Point
Pivot Point (P) = (High + Low + Close) / 3
Support level 1(S1) = ((2*pivot point) – high))
Resistant level 1(R1) = ((2*pivot point) – low))
Support level 2(S2) = ((pivot point) – (R1-S1))
Resistant level 2(R2) = ((pivot point) + (R1-S1))