1. Investment Management
Technical Analysis
Unit 4

2. V.Prabakaran, Ap/MBA - Technical Analysis
Trends of the Market
Types of Trends
Uptrends
Downtrends
Sideways/Horizontal Trends
Trend Lengths
Long-term(major) : lasting longer than a year
Intermediate : last between one and three months
short(near)-term : Anything less than a month
Trend lines
It adds a line to a chart to represent the trend in the market or a stock. Used in the identification of trend reversals.
V.Prabakaran, Ap/MBA - Technical Analysis

3. V.Prabakaran, Ap/MBA - Technical Analysis
Cont…
Volume and Chart Patterns
It is used to confirm chart patterns
If volume is not there to confirm the pivotal moments of a chart pattern, the quality of a signal formed by the pattern is weakened.
Volume Precedes Price
Volume is closely monitored by technicians and chartists to form ideas on upcoming reversals.
If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end.
V.Prabakaran, Ap/MBA - Technical Analysis

4. V.Prabakaran, Ap/MBA - Technical Analysis
Cont…
Support and Resistance Level
A support level is a price level through which a stock or market seldom falls. Doesn’t allow stock/market to fall below a particular level
Resistance is the price level that a stock or market surpasses. Doesn’t allow stock/market to rise above a particular level
V.Prabakaran, Ap/MBA - Technical Analysis

5. V.Prabakaran, Ap/MBA - Technical Analysis
V.Prabakaran, Ap/MBA - Technical Analysis

6. V.Prabakaran, Ap/MBA - Technical Analysis
Types of Charts
Line Chart
It represents the closing prices over a set period. It do not provide visual information of the trading range for the individual points.
V.Prabakaran, Ap/MBA - Technical Analysis

7. V.Prabakaran, Ap/MBA - Technical Analysis
Line Chart
V.Prabakaran, Ap/MBA - Technical Analysis

8. How Technical Analysts Use this?
V.Prabakaran, Ap/MBA - Technical Analysis

9. V.Prabakaran, Ap/MBA - Technical Analysis
Cont…
Bar Charts
It has meanings familiar to a technical analyst. Vertical dimensions represent price, horizontal dimension indicate the time involved by the chart as a whole.
V.Prabakaran, Ap/MBA - Technical Analysis

10. V.Prabakaran, Ap/MBA - Technical Analysis
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V.Prabakaran, Ap/MBA - Technical Analysis

11. V.Prabakaran, Ap/MBA - Technical Analysis
Bar Chart
V.Prabakaran, Ap/MBA - Technical Analysis

12. V.Prabakaran, Ap/MBA - Technical Analysis
How to read?
V.Prabakaran, Ap/MBA - Technical Analysis

13. V.Prabakaran, Ap/MBA - Technical Analysis
Cont…
Candlestick Charts
Similar to bar chart, but it is visually constructed. Difference come in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close.
V.Prabakaran, Ap/MBA - Technical Analysis

14. V.Prabakaran, Ap/MBA - Technical Analysis
How to Read?
V.Prabakaran, Ap/MBA - Technical Analysis

15. V.Prabakaran, Ap/MBA - Technical Analysis
How to read?
V.Prabakaran, Ap/MBA - Technical Analysis

16. V.Prabakaran, Ap/MBA - Technical Analysis
Cont…
Up Day, Higher Close: typically results from expectations of higher prices (greed) out weighing expectations of lower prices (fear). The length of the candlestick body shown indicates especially strong buying.
Down Day, Lower Close: expectations of lower prices (fear) are stronger than those of higher prices (greed). As with the first candlestick, a longer candlestick body infers greater urgency of investors to sell their shares.
Down Day, Higher Close: a rare candlestick, this one begins with an opening gap up in price from the previous day's closing price but closes down for the day. A gap is defined as a price range where no trading takes place and is the result of a significant change in demand (gap up) or supply (gap down) before trading begins for the day. In this case, heavy buying at the beginning of the day reversed but still closed higher than the previous day. This is a bearish sign when it occurs well into an upward price move.
Up Day, Lower Close: another rare candlestick, this one begins with an opening gap down in price from the previous day's closing price but closes up for the day. This price action can be considered bullish during a downward price move since initial strong selling in the day becomes exhausted and buyers push the price higher at close.
V.Prabakaran, Ap/MBA - Technical Analysis

17. V.Prabakaran, Ap/MBA - Technical Analysis
V.Prabakaran, Ap/MBA - Technical Analysis

18. V.Prabakaran, Ap/MBA - Technical Analysis
Cont…
Point and Figure Chart
Question the usefulness of time and volume. If only significant price changes are important, then one need only capture the significant price changes in a stock, no matter how long it takes the stock to register this change.
V.Prabakaran, Ap/MBA - Technical Analysis

19. V.Prabakaran, Ap/MBA - Technical Analysis
How to Read?
V.Prabakaran, Ap/MBA - Technical Analysis

20. V.Prabakaran, Ap/MBA - Technical Analysis
Market Indicators
Like a technical indicator, a market indicator is a series of data points derived from a formula.
In this case, however, the formula for market indicators is applied to the price data for multiple securities within the market, instead of just one security.
Price data can come from open, high, low or close points for the securities, their volume, or both.
This data is entered into the indicator formula and the data point is produced.
V.Prabakaran, Ap/MBA - Technical Analysis

21. V.Prabakaran, Ap/MBA - Technical Analysis
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Unlike technical indicators, market indicators are not charted above or below the chart.
Market indicators are what is being charted, and as such have their own ticker symbols.
There are often many symbols that apply the market indicator formula simply to different markets.
For example, the $BPSPX and $BPNDX track the Bullish Percent Index for the S&P 500 and the NASDAQ 100 respectively.
V.Prabakaran, Ap/MBA - Technical Analysis

22. Few popular market indicators
Arms Index (TRIN) - A breadth indicator derived from the AD Ratio and AD Volume Ratio.
Advance-Decline Line - A cumulative breadth indicator derived from Net Advances.
Advance-Decline Volume Line - A cumulative breadth indicator derived from Net Advancing Volume.
Bullish Percent Index - A breadth indicator derived from the percentage of stocks on PnF buy signals.
High-Low Index - A breadth indicator that shows new highs as a percentage of new highs plus new lows.
McClellan Oscillator - A MACD type oscillator of Net Advances.
V.Prabakaran, Ap/MBA - Technical Analysis

23. V.Prabakaran, Ap/MBA - Technical Analysis
Cont…
McClellan Summation Index - A cumulative indicator based on the McClellan Oscillator.
Net New Highs - A breadth indicator showing the difference between new highs and new lows. Percentage, cumulative and smoothed versions can be used.
Percent Above Moving Average - A breadth oscillator that measure the percentage of stocks above a specific moving average.
Record High Percent - A 10-day moving average of the High-Low Index, which is a breadth indicator.
Volatility Index (VIX) - A indicator of implied volatility designed to measure fear and complacency.
V.Prabakaran, Ap/MBA - Technical Analysis

24. V.Prabakaran, Ap/MBA - Technical Analysis
How it works?
Market indicators are used in technical analysis to forecast market trends. Market indicators are ratios and formulas that explain current gains and losses in stocks and indexes, and furthermore, indicate if an index such as the S&P 500 will experience short-term or long-term gains or losses.
For example, the market breadth index is a commonly used market indicator that measures the number of rising stocks versus the number of declining stocks. An index of greater than 1.0 suggests a future rise in market indices. An index of less than 1.0 suggests that market indices will fall.
V.Prabakaran, Ap/MBA - Technical Analysis

25. V.Prabakaran, Ap/MBA - Technical Analysis
Thanks…
V.Prabakaran, Ap/MBA - Technical Analysis