1. Technical Analysis -Advance Level
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2. Disclaimer
This presentation is being provided solely for informational purposes. Mercantile Exchange Nepal Limited does not warrant the accuracy or completeness of any information provided in this presentation and such information is provided without any correctness or condition of any kind. Neither Mercantile Exchange Nepal Limited nor any other person associated with the creation of this presentation or its contents shall be liable or responsible to any person for any harm, loss or damage that may arise in connection with the use of this presentation, including without limitation, any indirect, third party, or consequential damages.
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3. Flow of Presentation Technical Indicator Japanese Candlesticks
Technical Indicators
Conclusion
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4. Technical Indicators
A technical indicator is a series of data points that are derived by applying a formula to the price data of a security
Price data includes any combination of the open, high, low or close over a period of time
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5. Technical Indicators
A technical indicator offers a different perspective from which to analyze the price action.
Some, such as moving averages, are derived from simple formulas and the mechanics are relatively easy to understand
Others, such as Stochastics, have complex formulas and require more study to fully understand and appreciate
Technical indicators can provide unique perspective on the strength and direction of the underlying price action
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6. Technical Indicators Why Use Indicators?
An indicator can act as an alert to study price action a little more closely
Indicators can be used to confirm other technical analysis tools
Some investors and traders use indicators to predict the direction of future prices
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7. Technical Indicators Tips for Using Indicators Indicators indicate
Signals should be taken in context with other technical analysis tools
Learning how to read indicators is more of an art than a science
Hundreds of indicators in use today
Choose carefully and moderately 
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8. Japanese Candlesticks
Candlestick charting first appeared sometime after 1850
Credit goes to legendary rice trader named Homma from the town of Sakata
Original ideas were modified and refined over many years of trading eventually resulting in the system of candlestick charting that we use today
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9. Japanese Candlesticks
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10. Candlesticks Pattern, WHY??
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11. Major Candlesticks Pattern
Doji
Bulls and Bears are at an equilibrium
A state of indecision
Always take notice
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12. Major Candlesticks Pattern
Gravestone Doji
Open and the close occur at the  low of the day
Top of a up- trend
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13. Major Candlesticks Pattern
Dragonfly Doji
Open and the close occur at the  top of the day
Bottom of a down- trend
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14. Major Candlesticks Pattern
Bullish Engulfing Pattern
End of a downtrend
Buying pressure
Beginning of an up - trend
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15. Major Candlesticks Pattern
Bearish Engulfing Pattern
Opposite to the bullish pattern
End of an up – trending market
Selling pressure
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16. Major Candlesticks Pattern
Dark Cloud Cover
Two – day bearish pattern
End of an upturn
Closes below the 50% level
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17. Major Candlesticks Pattern
Piercing Pattern
End of a declining market
Price opens lower than the previous day
Closes above the 50% level
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18. Major Candlesticks Pattern
Hammer
Long lower shadows and small real bodies
Patter at the bottom of the down-trend is Hammer
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19. Major Candlesticks Pattern
Hanging-man
Long lower shadows and small real bodies
Pattern at the top of the up-trend is Hanging Man
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20. Major Candlesticks Pattern
Morning Star
Bottom reversal signal
Beginning of an up - trend
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21. Major Candlesticks Pattern
Evening Star
Opposite of the Morning Star
Top reversal signal
Beginning of a down - trend
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22. Major Candlesticks Pattern
Shooting Star
Warning that the top is near
Bottom of a trend is a bullish signal (inverted hammer)
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23. Moving Averages Simple Moving Averages Exponential Moving Averages
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24. Moving Averages Simple Moving Averages
Average Value of a commodity over a set period
Emphasizes the direction trend
Upward trend is when a shorter duration MA (for e.g., 15 days) crosses over the longer duration MA (for e.g., 50 days)
Downward trend is when a longer duration MA (for e.g., 50 days) crosses over the shorter duration MA (for e.g., 15 days)
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25. Moving Averages Simple Moving Averages
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26. Moving Averages Exponential Moving Averages
Similar to Simple Moving Averages
Except more weight is given to the latest data
12- and 26-day EMA’s are the most popular
Example of EMA
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27. Moving Averages Exponential Moving Averages
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28. Pivot Points Predictive indicator of market movement
Uses the previous time frame prices to calculate the next time frame’s pivot points
Calculation used for Pivot Points
Resistance 3 = H + 2*(P-L)
Resistance 2 = P + (Res1-Sup1)
Resistance 1= 2 * P - L
Pivot Point = ( H + C + L ) / 3
Support 1 = 2 * P - H
Support 2 = P - (Res1-Sup1)
Support 3 = L - 2*(H-P)
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29. Example of Pivot Points
Gold Prices on 31st March 2011
Open
High
Low
Close R2 R1
Pivot S1 S2
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30. Example of Pivot Points
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31. Relative Strength Index
Developed by J. Welles Wilder
Measures the magnitude of gains against the magnitude of losses over a period
Range 0-100
Formula= /(1+RS)
where, RS=Average Gain / Average Loss
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32. Relative Strength Index
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33. Relative Strength Index
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34. Bollinger Bands Created by John Bollinger in 1980s
Determines the overbought and oversold zones
Consists of three curves
Upper Band-Middle Band+2 S.D.
Middle Band-20 Days SMA
Lower Band-Middle Band-2 S.D.
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35. Bollinger Bands
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36. Fibonacci Discovered by Leonardo Pisano
Series numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, and so on
Fibonacci Retracement Levels (Golden Mean)
0.236, 0.382, 0.500, 0.618, 0.764
Fibonacci Extension Levels
0, 0.382, 0.618, 1.000, 1.382, 1.618
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37. Fibonacci Retracement
Works best when the market is trending
Used to determine support and resistance level
General consensus is the market always reverses from one of the support/resistance levels
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38. Fibonacci Retracement
Uptrend
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39. Fibonacci Retracement
Uptrend
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40. Fibonacci Retracement
Downtrend
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41. Fibonacci Retracement
Downtrend
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42. Fibonacci with Trend Lines
Useful on trending market i.e. Uptrend or Downtrend
Example of silver
Want to take a long position but don’t know when
Draw the trend line from 24th August till 22nd October
Draw the Fibonacci levels taking a swing low price of USD 22.79(coinciding with one of the lowest trend levels of 22nd October) and swing high price of USD
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43. Fibonacci with Trend Lines
Silver Prices found support at 61.8 level i.e. USD (coinciding with the trend line as well) on 16th November
Take a Long position at this level
Silver Prices broke the swing high level on 4th December
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44. Fibonacci with Japanese Candlesticks
Tracking the development of exhaustive candlesticks
Indicates a continuation of a trend
Example of Gold
Draw the Fibonacci levels taking a swing low price of USD 1156 on 27th July and Swing high price of USD on 14th October
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45. Fibonacci with Japanese Candlesticks
Gold prices found support at 23.6 Fib Level on 21st October
Formation of a Dragonfly Doji after a bearish candle the preceding day
Dragonfly Doji indicates the beginning of a bullish trend
Take a long position at this level
Gold Prices break the swing high level on 5th November
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46. MACD Developed by Gerald Appel in late 1970s
Acronym for Moving Average Convergence Divergence
Identify a new trend
Calculation
MACD: (12 Day EMA-26 Day EMA)
Signal Line: 9 Day EMA
MACD Histogram: MACD-Signal Line
Rules for Trading
When MACD>Signal Line=Bullish Market
When MACD<Signal Line=Bearish Market
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47. MACD
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48. Conclusion Technical Indicators work in tandem with each other
Weigh the pros and cons of each indicator before reaping the results
The best strategy forward is using technical and fundamental factors simultaneously
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