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TECHNICAL
ANALYSIS
PHILOSPHY OR RATIONALE?
There are three premises on which technical approach is based
Market action discounts Prices move in trends History repeats itself
everything
MARKET ACTION DISCOUNTS
EVERYTHING
The technician believes that anything that can possibly
affect the price—fundamentally, politically,
psychologically, or otherwise—is actually reflected in the
price of that market. It follows, therefore, that a study of
price action is all that is required. While this claim may
seem presumptuous, it is hard to disagree with if one takes
the time to consider its true meaning.
All the technician is really claiming is that
price action should reflect shifts in supply and demand.
➢ If demand exceeds supply, prices should rise.
➢ If supply exceeds demand, prices should fall.
PRICE MOVES IN
TRENDS
Trend is absolutely essential to the
technical Approach
Identify the trends in early stages
Techniques used in this approach
are trend following in nature ,identify
and follow existing trends
Price moves in trends . Technical is
predicted on riding an existing trend
until it shows sign of reversing
HISTORY REPETS ITSELF
➢ Much of the body of TA and the study of market action has
to do with the study of human psychology.
➢ Chart patterns have been identified and categorized over
the past 100 years ,reflect certain pictures that appear on
price charts.
➢ These pictures reveal the bullish or bearish psychology of
the market.
➢ Since the patterns have worked well in the past,it is
assumed that they will continue to work well in the future.
➢ History repeats itself is that the key to understanding the
future is just a repetition of the past.
TRENDS
JAPANESE CANDLESTICKS
SUPPORT AND RESISTANCE
Technical Basics
TRENDLINES
FIBONACCI
TRENDS
PRIMARY – Represents the tide
lasting for more than a year and
possible for several years.
SECONDARY – Represents the
waves that make up the tide, usually
lasts three weeks to three months.
MINOR – Behave like ripples on
the waves, Usually lasts less than
three weeks.
THREE PHASES OF MAJOR TREND
Level 3
Distribution
Level 2
Level 1
Accumulation Public Participation
Accumulation phase
Informed buying by the most astute investors. If the
previous trend was down ,then at this point these astute
investors recognize that the market has assimilated all the
so called bad news .
Public participation phase
Most technical trend followers begin to participate occurs
when prices begin to advance rapidly and business news
improves.
Distribution phase
When newspapers begin to print increasingly bullish stories
, when speculative volume and public participation
increase. During this last phase the same informed
investors who began to accumulate near the bear market
bottom begin to distribute before anyone else starts selling.
TRENDS
➢ Volumes must confirm the trend
➢ Volume should expand or
increase in the direction of the
major trend.
➢ In a major uptrend ,volume
would then increase as prices
move higher and diminish as
prices fall.
➢ In a downtrend, volume should
increase as prices drop and
diminish as they rally.
TREND
Trend is absolutely essential to the technical approach to market analysis. All the tools used by a
chartist have the sole purpose of helping to measure the trend of the market for the purpose of
participating in that trend .
• Always trade in the direction of the trend
• Never buck the trend
• The trend is your friend
Trend is simply the direction of the market , which way its moving. Markets don’t move in a
straight line in any direction. Market moves are characterized by series of “zigzags”.
These zigzags resemble a series of successive waves of peaks and troughs . It is the direction of
those peaks and troughs that constitute market trend .whether those peaks and troughs are
moving up,down or sideways tells us the trend of the market.
UPTREND Downtrend Sideways Trend
An uptrend defined Downtrend is just the A sideways trend is
ass a series of opposite , a series of horizontal peaks and
successive higher declining peaks and troughs
peaks and troughs. troughs .
TRENDS
JAPANESE CANDLESTICKS
SPINNING TOPS
➢ Indecision b/n buyers and sellers.
➢ Once spinning top is formed wait for
the next candle to finish for a better
confirmation.
➢ If spinning top is formed in
resistance or support zone there is
no need to wait for the next candle .
➢ Never validate a spinning top if it is
formed in the middle of the trend. It
wont work often.
DOJI
➢ It represents indecision moment.
Buyers and sellers are equally
matched.
➢ If doji formed in a downtrend wait
for the next candle to finish .
➢ If the doji formed near support or
resistance zone no need to wait for
confirmation.
DRAGON FLY DOJI
➢ Long lower shadow , whereas the body is
finished at the top of the candle. It
represents buyers in control.
➢ If dragon fly doji is formed in a downtrend
wait for the next candle to finish as a bull
candle.
➢ If the candle is formed near support it can
be a very high confirmation of a trend
reversal.
➢ Invalid in top
GRAVESTONE DOJI
➢ Gravestone doji just an
opposite to dragon fly doji. It
has long upper shadow in top
and the body is bottom of the
candle.
➢ Gravestone doji need to form in
top.
➢ Invalid in bottom
HAMMER AND HANGING MAN
➢ Both may look alike but the only difference
is that it varies in colour
➢ Hammer is Bull-Green
➢ Hanging man is bear-Red
➢ Wait for a confirmation if the candle is
formed. Next candle to confirm it.
➢ We don’t need confirmation near support
and resistance
INVERTED HAMMER AND SHOOTING STAR
➢ Both are just opposite to the hammer
and hanging man.
➢ Long upper shadow body near the
low, also a small lower shadow too.
➢ Inverted hammer – bottom.
➢ Shooting star- Top.
➢ Always wait for confirmation candle.
BULLISH ENGULFING
➢ 2 candlestick pattern that signals a
strong up move may be coming .
➢ It happens when a bearish candle is
immediately followed by a larger
bullish candle. 2nd candle engulfs the
bearish candle representing buyers
are gaining an upper hand
BEARISH ENGULFING
➢ Occurs when the bullish candle
is immediately followed by a
bearish candle that completely
engulfs .
➢ Represents sellers overpowered
the buyers and strong down
could happen
EVENING STAR & MORNING ATAR
Form near the end of the trend Morning Star
➢ These candles acts as a trend reversal pattern that
can be used to understand the power of the buyer &
sellers once its formed.
➢ 1st candle should be bullish or bearish.
➢ Next candle should be a small body like a spinning
top. Both bullish are bearish.
➢ 3rd candle should be higher than the mid point of
the 1st candle so now this acts as a trend reversal
candle. Evening star
HARAMI (INSIDE BAR)
SUPPORT AND RESISTANCE
✓ The troughs or reaction lows are called support.
✓ Support is a level or area on the chart under the market where buying interest is sufficiently
strong to overcome selling pressure.
✓ As a result decline is halted and prices turn back up again.
✓ Usually a support level is identified beforehand by a previous reaction low.
✓ The longer the period of time that prices trade in support or resistance area , the more
significant that area becomes.
Ex.If prices trade sideways for three weeks in a congestion area before moving higher , that
support area would be more important than if only three days of trading occurred .
✓ Volume is another way to measure the significance of Support & Resistance .If a support
level is formed on heavy volume , this would indicate that a large number of units changed
hands and would mark that support level is more important than if very little trading had
taken place.
SUPPORT & RESISTANCE
TRENDLINES
The basic trendline is one of the simplest of the technical tools and one of the most valuable.
✓ An up trendline is a straight line drawn upward to the right along successive reaction lows .
✓ An down trendline is drawn downward to the right along successive rally peaks .
HOW TO DRAW A TRENDLINE?
➢ Two points are needed to draw the trendline , and a third point to make it valid trendline.
➢ Most valid trendlines rise at an angle approximately 45 degrees.
➢ If the trendline is too steep , it usually indicates that the rate of ascent is not sustainable.
➢ A trendline that is too flat suggests that the uptrend is too weak and probably suspect.
➢ As long as the trendline is not violated it can be used to determine buying and selling area. The
breaking of the trendline is one of the best early warnings of a change in trend.
➢ A trendline that has been in effect for 9 months is of more importance than one that has been
in effect for 9 weeks or 9 days.
➢ The longer it has been intact and the number of times it has been tested.
UP TREND TRENDLINE
DOWNTREND TRENDLINE
FIBNOCCI IN STOCK MARKETS
➢It is believed that the Fibonacci ratios, i.e. 61.8%, 38.2%, and 23.6%, finds its application
in stock charts.
➢ Fibonacci analysis can be applied when there is a noticeable up-move or down-
move in prices.
➢Whenever the stock moves either upwards or downwards sharply, it usually tends to
retrace back before its next move.
➢For example, if the stock has run up from Rs.50 to Rs.100, it is likely to retrace back to
probably Rs.70 before moving Rs.120.
➢ The retracement level forecast’ is a technique that can
identify upto which level retracement can happen.
➢ These retracement levels provide a good opportunity for
the traders to enter new positions in the trend direction.
➢ The Fibonacci ratios, i.e. 61.8%, 38.2%, and 23.6%, help the
trader identify the retracement’s possible extent. The
trader can use these levels to position himself for trade.
FIBNOCCI RETRACEMENT
HEAD AND SHOULDERS
Major
INVERSE HEAD AND SHOULDERS
Reversal
Patterns CUP AND HANDLE
HEAD AND SHOULDERS
A head and shoulder pattern to form ,
following things must happen in order
➢ Market is in uptrend
➢ A left shoulder on heavier volume followed by a corrective dip
➢ A rally into new highs but on lighter volume
➢ A decline that moves below the previous peak and approaches the previous low
➢ A 3rd rally on noticeable light volume that fails to reach the top of the head
➢ A close below the neckline
➢ A return move back to neckline followed by new lows.
IMPORTANCE OF NECKLINE
➢ This forms the support level for price.
➢ The breakout of the neckline is the
confirmation that this is a head and
shoulder pattern is forming .
➢ The neckline and head of the pattern
are used to calculate the profit target.
➢ Neckline generally has a slight upward
slope , sometimes horizontal less often
tilts downward.
➢ Note: The larger timeframes bring in
more profit than smaller TF.
INVERSE HEAD AND SHOULDERS
CUP AND HANDLE
➢ The ‘Cup and Handle’ is a pattern
which forms on the chart when a rising
stock – goes through both price
correction and time correction.
➢ Price correction is when the price of a
stock falls.
➢ Time correction is when the price
moves around the same range for an
extended period of time.
CUP AND HANDLE
RELATIVE STRENGTH INDEX (RSI)
➢ RS=Average of x days up
closes/Average of x days down
closes
➢ 14 days are used in daily
charts,14 weeks are used for
weekly charts.
➢ RSI is plotted on a vertical scale
of 0-100.
➢ Movements above 70 are
considered overbought , below
30 is oversold.
CONTINUATION PATTERN
➢ These pattens usually indicate that the sideways price action on the
chart is nothing more than A PAUSE IN THE PREVAILING TREND.
➢ A continuation pattern, commonly referenced in technical analysis, is a
pattern that forms within a trend that generally signals a trend
continuation. In contrast to reversal patterns, continuation patterns
signal a temporary consolidation in the middle of a trend.
➢ A continuation pattern signals a trend continuation.
➢ Common types of continuation patterns include
Rectangles, Triangles, Flags, and Pennants.
➢ Continuation patterns are not entirely reliable – Trend
reversals and false breakouts can occur.
TRIANGLES
POLE & FLAG
CONTINUATION PATTERN POLE & PENNANT
RECTANGULAR
▪ Triangles are usually continuation pattens , but sometimes act as Reversal patterns.
▪ Although triangles are usually considered intermediate pattens, they may occasionally
appear on long term charts and take on major trend significance.
SYMMETRICAL
TRIANGLES ASCENDING
DESCENDING
SYMMETRICAL TRIANGLE
BULLISH SYMMETRIC
TRIANGLE
BEARISH SYMMETRIC
TRIANGLE
ASCENDING /DESCENDING TRIANGLE
➢ Ascending triangle has arising lower line with a ➢ Descending triangle has Flat bottom line and
flat or horizontal upper line. declining upper line.
➢ This is generally a bullish pattern ➢ This is usually a bearish pattern
DESCENDING TRIANGLE
ASCENDING TRIANGLE
FLAGS AND POLE
➢ The flag usually occurs after a sharp
move and represents a brief pause in
the trend .
➢ The flag should slope against the
trend .
➢ Volume should try up during the
formation and build again on the
breakout.
➢ The flag usually occurs near the
midpoint of the move.
PENNANT AND POLE
➢ The pennant is identified by two
converging trendlines.
➢ Resembles a small symmetrical
triangle , but usually lasts no longer
than 3 weeks.
➢ Volume should be light during its
formation
PENNANT AND POLE
KEYNOTES
➢ Both patterns are relatively short term and should be completed within 1-3
weeks.
➢ In downtrend tend to take even less time to develop , and often last no longer
than 1-2 weeks.
➢ Both patterns are completed on the penetration of the upper trendline in an
uptrend , breaking of the lower trendline would signal of downtrend.
➢ The breaking of those trendlines should take place on heavier volume.
RECTANGLE PATTERN
➢ A rectangle continuation pattern is the most easily identifiable continuation pattern and is identified by
price action that is bounded by parallel support and resistance lines.
➢ Rectangles are also referred to as trading ranges or consolidation zones and can be bullish or bearish.
RECTANGLE PATTERN
PROFIT BOOKING STRATEGY
Indicators :
1. Stan Weinstein 30 week MA, Daily TF, Distance b/t MA to price high % is > 60
2. MACD crossover
FUNDAMENTAL (5-10 years) TECHNICAL KEYNOTES
Good sector /Industry stock Horizontal support resistance check (Weekly,daily line chart)
EPS - Double digit Find out the Pattern (Weekly ,Daily Timeframe)
Study candles near Trendline ,Support,Resistance and pattern for confirmation
PE - <30/<Industry PE Retracement Fibonacci 0.38,0.5,0.618 Watch ,Avoid below 0.76
Find Accumulation(Sideways pattern) 0.5-.618/ 0.618-0.76 Area (FII Favourite
accumulation zone)
PBV - <8 Buy at BO with high volume confirmation
50 % @ BO, 50% @ Retesting or Previous high BO
ROCE,ROE,ROA – >10%/15% Buy at stock above RSI Monthly 50,Weekly 40,Daily 60 for good Momentum
(Double digit)
DEBT TO EQUITY - <1 If weekly RSI >80 wait to consolidate up to 50/60/70 then look for a Continuation
pattern Breakout. Buy at BO confirmation.Sometimes price won’t correct more (20%)
but RSI is coming down means stock is ready to move more upside.
Promoter - > 50 High returns (>60%)within short time period <30 days look for profit booking set up.
FII/DII holding – Add.plus point Profit Booking : Distance b/n 30 WMA to stock is higher than 60%, MACD Crossover
(Daily TF)
Promoter buy back – Add.plus Stock Avg : Reversal zones for Negative stocks (Downtrend to Uptrend
point confirmation)
SCREENER
THANK YOU!
