Technical Analysis
Technical Analysis and Fundamental Analysis
Fundamental Analysis
• A method of measuring a security's intrinsic value by examining related
economic and financial factors.
• The end goal is to arrive at a number that an investor can compare with a
security's current price in order to see whether the security is undervalued or
overvalued.
• Technical Analysis
• A trading discipline employed to evaluate investments and identify trading
opportunities by analyzing statistical trends gathered from trading activity,
such as price movement and volume.
• Focuses on the study of price and volume.
• Often used to generate short-term trading signals from various charting tools.
Types of Charts
1. Candlestick Chart
• Displays the high, low, open and closing (HLOC) prices for each period
designated for the candle. The “body” of each candlestick represents
the opening and closing prices while the candle “wicks” display the high
and low prices for each period.
• The colour of each candle depends on the applied settings, but most
charting packages will use green and red as the default colours. The
green candles reflect that price closed higher than where it opened
(often called a bullish candle), and every candle that is red means the
price closed lower than where it opened (often called a bearish candle).
Top 3 Technical Analysis Charts for Trading (dailyfx.com)
Types of Charts
2. Bar Chart
• A bar chart displays the high, low, open and closing (HLOC) prices for
each period designated for the bar. The vertical line is created by the
high and low price for the bar. The dash to the left of the bar was the
opening price and the dash to the right signals the closing price.
Top 3 Technical Analysis Charts for Trading (dailyfx.com)
Types of Charts
3. Line Chart
• Typically displays closing prices and nothing else. Each closing price is
linked to the previous closing price to make a continuous line that is
easy to follow.
Top 3 Technical Analysis Charts for Trading (dailyfx.com)
Premises of Technical Analysis
1. Market action discounts everything
• Anything that can influence/affect the price of a security is reflected on its
price, thus the need to understand price actions that essentially reflect the
shift in supply and demand
2. Price move in trends
• Prices over a period of time move in a particular direction until it is reversed.
3. History repeats itself
• As price move in trends, recognizable patterns unfold along the way and over
the long run these are repeated
Support and Resistance
• Support’ and ‘resistance’ are terms for two respective levels on a
price chart that appear to limit the market’s range of movement. The
support level is where the price regularly stops falling and bounces
back up, while the resistance level is where the price normally stops
rising and dips back down.
Support and Resistance Levels Explained | IG EN
Support and Resistance
Support and Resistance
Uptrend
Support and Resistance
Downtrend
Support and Resistance
Breakout-Buy signal
Support and Resistance
Breakdown-Sell signal
Continuing Patterns
• A continuation pattern suggests that the price will continue to move
in the same direction after a continuation pattern completes as it did
prior.
• Triangle
• Pennants
• Flags
• Rectangles
Continuation Pattern Definition (investopedia.com)
Continuing Patterns
Triangle
Continuing Patterns
Pennants
Continuing Patterns
Flag
Continuing Patterns
Rectangle
Reversal Patterns
• A price pattern that signals a change in the prevailing trend is known
as a reversal pattern. These patterns signify periods where either the
bulls or the bears have run out of steam.
• The established trend will pause and then head in a new direction as
new energy emerges from the other side (bull or bear).
• Double top/Double bottom
• Head and shoulders/Reverse head and shoulders
Introduction to Technical Analysis Price Patterns
(investopedia.com)
Reversal Patterns
Double top/Double bottom
Reversal Patterns
Head and shoulders/Reverse head and shoulders
Technical Indicators
• Technical indicators are heuristic or pattern-based signals produced
by the price, volume, and/or open interest of a security or contract
used by traders who follow technical analysis.
• Moving Average
• Moving Average Convergence and Divergence (MACD)
Technical Indicator Definition (investopedia.com)
Technical Indicators
Moving Average
• The moving average (MA) is a simple technical analysis tool that
smooths out price data by creating a constantly updated average
price
• Types of Moving Average
1. Simple Moving Average(SMA)
2. Exponential Moving Average(EMA)
Technical Indicators
Moving Average
Technical Indicators
Stochastic
• A stochastic oscillator is a momentum indicator comparing a
particular closing price of a security to a range of its prices over a
certain period of time.
Technical Indicators
Stochastic
Technical Indicators
MACD
• Moving average convergence divergence (MACD) is a trend-
following momentum indicator that shows the relationship between
two moving averages of a security’s price.
Technical Indicators
MACD
Technical Indicators
Bollinger Bands
• A technical analysis tool defined by a set of trendlines plotted
two standard deviations (positively and negatively) away from
a simple moving average (SMA) of a security's price,
Technical Indicators
Bollinger Bands
Technical Indicators
Relative Strength Index (RSI)
• A momentum indicator used in technical analysis that measures the
magnitude of recent price changes to evaluate overbought or
oversold conditions in the price of a stock or other asset.
Technical Indicators
Relative Strength Index (RSI)
Technical Indicators
Awesome Oscillator
• Measures the market momentum with the aim to detect potential
trend direction or trend reversals
Technical Indicators
Awesome Oscillator
