Thought For The Day

Tell me and I will forget; Show me and I may remember; Involve me and I will understand. Confucius 450 B.C.E.

Technical Analysis Review OC Traders Group June 2, 2012 Bob Daniels All the usual disclaimers apply to this presentation. Besides, I can safely presume my audience knows a lot more, and has a lot more experience, with trading than I do.

TA REVIEW • Trend • Support • Resistance One other key component is price momentum – not being covered now.

TA REVIEW Technical Analysis involves many different indicators.

TA REVIEW The most influential indicator – and perhaps the most important – is derived from price.

TA REVIEW Through price, you can recognize: • trends • resistance levels • support levels • price patterns, and • candle patterns. Candle – price momentum By doing this you improve your odds of having a higher probability trade.

TA REVIEW HOW MANY DIFFERENT DIRECTIONS ARE THERE?

TA REVIEW HOW MANY DIFFERENT DIRECTIONS ARE THERE? Up a lot Up a little Sideways Down a little Down a lot

TA REVIEW Defining the trend enables you to follow the prevailing direction of a stock’s price movement.

TA REVIEW Defining the trend enables you to follow the prevailing direction of a stock’s price movement. Puts the probabilities in your favor.

TA REVIEW A trend is determined by analyzing the price action on a chart.

What is the direction of the trend?

Lower highs and lower lows The secret is to work from the right hand of the chart to the left when analyzing hi’s and lo’s. – current to past, so to speak. Lower highs and lower lows

The more points the line touches the better

Some times it’s helpful to draw a channel

t So, the trend is down…. But is it really?

t 6 months, daily

t 1 year, daily

A lot of “noise” with daily 1 year, daily

Weekly is better…if going out 2-5 years, switch to monthly 1 year wkly

1 year wkly 1 year wkly 23.6% Fib 38.2% Fib 50.0% Fib 61.8% Fib Weekly is better…if going out 2-5 years, switch to monthly 61.8% Fib 78.6% Fib 1 year wkly 1 year wkly

1 year wkly 6 month daily 23.6% Fib 38.2% Fib 50.0% Fib 61.8% Fib Weekly is better…if going out 2-5 years, switch to monthly 50.0% Fib 1 year wkly 61.8% Fib 6 month daily

TA REVIEW So here is the point of the chart/trend line examples:

You have to define what your time line is for your trade. TA REVIEW So here is the point of the chart/trend line examples: You have to define what your time line is for your trade.

TA REVIEW • Short term – days to weeks • Intermediate term – weeks to months • Long term – months to one year (or more) Short term – 2 days to 4 wks Intermediate term – 4 wks to 1 year Long term – one year on

TA REVIEW What constitutes a Support & Resistance level?

TA REVIEW What constitutes a Support & Resistance level? Price levels that are created by the buying (demand) and selling (supply) pressures

TA REVIEW These levels are not absolute. Think of them as more of a price zone.

Horizontal levels show critical trading points Old Resistance becomes New Support – and visa versa Horizontal levels show critical trading points 6 months, daily

Can be used to estimate price target – IF – Resistance is broken 6 months, daily

Does adding a trend line help? QUESTION: Does a support level always have to be horizontal? Does adding a trend line help? 6 months, daily

TA REVIEW Question: Does the support level always have to be horizontal to be valid?

Support level is a not horizontal QUESTION: Does a support level always have to be horizontal? Chart is EC – Ecopetrol S.A. AmericanDepositoryShares. Went on up to the 65.00 level in 4.5 months Support level is a not horizontal This is a typical price pattern – double bottom

TA REVIEW Fibonacci tool – can help in identifying hidden price support levels…

TA REVIEW Fibonacci tool – can help in identifying hidden price support levels… …and potential resistance levels, and even targets.

Imagine this is the current day How far could the price retrace? 38.2% 50.0% 61.8% Dow theory: retracements like at one-third, one-half, or two thirds…close to Fibonacci’s 38%, 50% and 62%

S R 38.2% 50.0% 61.8% Dow theory: retracements like at one-third, one-half, or two thirds…close to Fibonacci’s 38%, 50% and 62% – To see support, draw from low to high

Fibonacci used to evaluate potential resistance To see resistance, draw from high to low Lets’ blow this up a little more. Fibonacci used to evaluate potential resistance

S R To see resistance, draw from high to low. ….didn’t “stop” at high point, so I could read the % and price data. Most valuable in the short term technique. OBVIOUSLY, you can do just the opposite for a bullish target on a pull back/correction

Drawing tools in TOS platform

Drawing tools in TOS platform

TA REVIEW If there’s time, let’s do Trend, Support & Resistance analysis on a couple of stocks from the audience.

In closing, here’s a few points to consider TA REVIEW In closing, here’s a few points to consider when doing technical analysis

Decision making matrix

Decision making matrix • Trend – “it’s your friend” 50% weight

Decision making matrix • Trend – “it’s your friend” 50% weight • Support & Resistance 30% weight

Decision making matrix • Trend – “it’s your friend” 50% weight • Support & Resistance 30% weight • Momentum (candles) 15% weight Candles are real time momentum indicators – not lagging. Shows what is going on today, now.

Decision making matrix • Trend – “it’s your friend” 50% weight • Support & Resistance 30% weight • Momentum (candles) 15% weight • Volume 5% weight

– WRITE THIS DOWN –

– WRITE THIS DOWN – I look at the chart and I trade what I see…

– WRITE THIS DOWN – I look at the chart and I trade what I see… …not what I think!

– WRITE THIS DOWN – I look at the chart and I trade what I see… …not what I think! …not what I feel!

– WRITE THIS DOWN – I look at the chart and I trade what I see… …not what I think! …not what I feel! …not what I image I know about the future!

TA REVIEW It’s always a challenge to present meaningful information to those in the room who have way more experience than I do.

TA REVIEW For those of you who stayed awake – I thank you. For those of you who fell asleep – I don’t blame you.