1. Technical Analysis
Parvesh Aghi

2. TECHNICAL ANALYSIS
Technical analysis is the art and science of putting stock information on a chart in the form of various kinds of bars and detecting different patterns and indicators to assess the market direction .

3. TECHNICAL ANALYSIS
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume.

4. TECHNICAL ANALYSIS
It uses little or no information about the actual business behind the stock.  

5. TECHNICAL ANALYSIS
Technical analysis studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future

6. ASSUMPTIONS Market price of stock is based on its supply and demand
Stock prices moves in trends which continue
For a period of time
Technical Analysis relies on chart analysis
Rather than information in the financial
statements

7. Principles of Technical Analysis
Technical Analysis is built on some fundamental
assumptions in regards to the fashion in which
a market operates :  1.     Price discounts everything.  2.     Prices usually always move in trends .  3.     History repeats itself over time! 

8. Price discounts everything
The chartists believe that the prices of the market reflect all the possible causes such as fundamental, political, psychological etc. Therefore the study of prices and volume is all that is required.

9. Prices usually always move in trends
In technical analysis, price movements are believed to follow trends. The whole purpose of charting the prices of a market is to identify the trend in the early stages of its formation. 
This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend , than to be against it

10. History repeats itself over time!
Technical analysts uses chart patterns to analyze subsequent market movements to understand trends
Chart patterns for example, have been identified and characterized over the past hundred years to reflect certain pictures. These pictures appear on the price charts and reveal bullish or bearish psychology of the market.
Since these patterns have worked well in the past it is assumed to work well in the future as well. Future is just the repetition of the past

11. Technical Analysis meaning
Technical analysis is the study of a stock, or the market
as a whole, strictly by using the price and volume
history of a stock. It analyses the data generated by
market activity, such as past prices and volume to
predict the future
Technical analysts do not try to measure a
security's intrinsic value, but instead use charts and
other tools to identify patterns that can predict future
activity.
Technical analysis looks at the price movement of a
security and uses this data to predict its future price
movements.

12. Difference between the two
At the basic level, a technical analyst approaches
a security from the charts, while a fundamental analysis
involves delving into the financial statements.
By looking at the balance sheet, cash flow
statement and income statement, a fundamental analyst
tries to determine a company's real value.
In financial terms, an analyst attempts to measure a
company's intrinsic value. In this approach, investment
decisions are made on the basis of current price .
if the price of a stock trades below its intrinsic value,
it's a good investment.

13. Technical traders, on the other hand, believe there
is no reason to analyze a company's fundamentals
because these are all accounted for in the security's price.
Technicians are of the opinion that all the information
they need about a stock can be found in its charts.
Technical analysts firmly beleive that the historical
performance of stocks and markets are
indications of future performance. 
In contrast to fundamental analysts ,Technical analysts are not
concerned whether a stock is  undervalued - the only thing that
matters is a security's past trading data and what information this
data can provide about where the security might move in
the future. 

14. What is Dow Theory?
Dow Theory is a trading approach developed by Charles Dow who is also known as the father of Technical Analysis.
It is still the basis of technical analysis of financial markets.
The basic idea of Dow Theory is that market price action reflects all available information and the market price movement is comprised of three main trends.

15. The 6 tenets of Dow Theory
Market moves in summation of three trends
Market trends have three phases
All news is discounted in the stock market
Averages must confirm
Volumes confirm trends 
Trends continue, unless definitive reversals come about

16. The market has three trends
Primary trend is the major trend for the market. It indicates how the market moves in the long-term. A primary trend could span many years. 
Secondary trends are considered to be corrections to a primary trend. This is like an opposite movement to the primary trend. For example, if the primary trend is upward (bullish), the secondary trend(s) is downward. These trends could last anywhere between a few weeks to a few months.  
Minor trends are fluctuations to the market movement on a daily basis. These trends last for less than three weeks and go against the movement of the secondary trend.

17. Bajaj Finance 5 year chart

18. The Long-term trend is over a year, the Medium-term trend is one to three months, and short-term is less than a month
If you are a long-term investor all you should worry about is the Long-term trend
On the contrary if you trade regularly the Medium-term trend might be more critical.

19. Trends have three phases
The theory says that there are three phases to each primary trend:
accumulation phase,
public participation phase and
panic phase.
The beginning of a primary upward (or downward) trend in a bull (or bear) market is known as the accumulation phase.

23. Indices confirm each other
A trend in the market cannot be verified by a single index.
All indices should reflect the same opinion.
For example, in case of a bullish trend in India, the Nifty, Sensex, Nifty Midcap, Nifty Smallcap and other indices should move in the upward direction.
Similarly, for a bearish trend, all indices should move in a downward direction.

24. Trends are confirmed by volume
The trend in the market should be supported by trading volumes.
For instance, in an upward trend, the volume rises with increase in price and falls with decrease in price.
And in a downward trend, the volume increases with fall in price and decreases with price rise.

25. Trends continue until definitive signals indicate otherwise
The theory says that market trends exist despite any noise in the market.
That is, during an upward trend, a temporary trend reversal is possible but the market continues to move in the upward direction.
In addition, the status quo remains until a clear reversal happens in the market.

26. Conclusion
Even though it is more than a hundred years old, the Dow Theory is still relevant in the current trading market.
This is because by understanding Dow Theory, traders can benefit from spotting and exploiting trends in the market.

27. TECHNICAL CONCEPTS TREND SUPPORT & RESISTANCE VOLUME
CHARTS & CHART PATTERNS
MOVING AVERAGES

28. TREND One of the most important concepts in technical
analysis is that of trend
A trend is really nothing more than the general direction
in which a security or market is headed.
Take a look at the chart

29. Types of Trend There are three types of trend: Uptrend Downtrend
Sideways/Range bound Trend
As the names imply, when each successive peak and 
trough is higher, it's referred to as an upward trend.
If the peaks and troughs are getting lower, it's a
downtrend.

30. It isn't hard to see that the trend in Figure  is up.
However, it's not always this easy to see a trend:

31. There are lots of ups and downs in this chart, but there
isn't a clear indication of which direction this security is headed. 

32. For example, an uptrend is indicated by higher highs and higher lows
For example, an uptrend is indicated by higher highs and higher lows. By connecting the lows together, we get an upward sloping trend line. When the trend line is sloping upwards, we have an uptrend.

33. A downtrend is indicated by lower highs and lower lows
A downtrend is indicated by lower highs and lower lows. By connecting these points together, we can draw a downward sloping trend line. And when the trend line is sloping downwards, we have a downtrend.

34. The Importance of Trend
It is important to be able to understand and identify
trends so that you can trade with rather than against
them.
Two important sayings in technical analysis are
"the trend is your friend" and "don't buck the trend,"
illustrating how important trend analysis is for
technical traders. 
Trends tell us validity of chart patterns,  overall price
action and give us an idea of support & resistance

35. SUPPORT AND RESISTANCE
Support and resistance identify areas of supply and
demand. But what exactly is supply and demand?
Supply is an area on a chart where sellers are
likely going to overwhelm buyers causing the stock to
go down. On a chart, we call this resistance.
Demand is an area on a chart where buyers are likely
going to overwhelm sellers causing the stock to go
up. On a chart, we call this support.
Knowing this, it only makes sense to buy at support
and sell at resistance!

36. As you can see in Figure , support is the price level through which a stock or market seldom falls (illustrated by the green line). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red line). 

37. Role Reversal Once a resistance or support level is broken,
its role is reversed. If the price falls below a support
level, that level will become resistance.
If the price rises above a resistance level, it will often
become support.
As the price moves past a level of support or resistance,
it is thought that supply and demand has shifted,
causing the breached level to reverse its role
For a true reversal to occur, however, it is important
that the price make a strong move through either the
support or resistance.

38.  If the price goes up through resistance by a good way, then that resistance level becomes a support level when the price comes back down. Here’s an illustration of that.

39. And in the same way, when you have a downtrend, often the support which gets penetrated becomes a resistance next time the price rises, as you can see here.

40. Volume To this point, we've only discussed the price of a security.
While price is the primary item of concern in
technical analysis, volume is also extremely important. 
What is Volume?  Volume is simply the number of shares or contracts
that trade over a given period of time, usually a day.
The higher the volume, the more active the security.
To determine the movement of the volume
(up or down), chartists look at the volume bars that can
usually be found at the bottom of any chart.
Volume bars illustrate how many shares have
traded per period and show trends in the same way that prices do.  

41. VOLUME

43. Why Volume is Important
Volume is an important aspect of technical analysis because
it is used to confirm trends and chart patterns.
Any price movement up or down with relatively high
volume is seen as a stronger, more relevant move than a
similar move with weak volume.
Therefore, if you are looking at a large price movement,
you should also examine the volume to see whether it tells
the same story. 
Say, for example, that a stock jumps 5% in one trading day
after being in a long downtrend. Is this a sign of a trend reversal?
This is where volume helps traders.

44. If volume is high during the day relative to the average
daily volume, it is a sign that the reversal is probably for real.
On the other hand, if the volume is below average,
there may not be enough conviction to support a true trend reversal.
Volume should move with the trend. If prices are moving
in an upward trend, volume should increase (and vice versa).
If the previous relationship between volume and price
movements starts to deteriorate, it is usually a sign of
weakness in the trend

45. Volume should move with the trend. If prices are
moving in an upward trend, volume should increase (and vice versa).
For example, if the stock is in an uptrend but the up trading
days are marked with lower volume, it is a sign that the trend
is starting to lose its legs and may soon end. 
When volume tells a different story, it is a case of 
divergence, which refers to a contradiction between two
different indicators.
The simplest example of divergence
is a clear upward trend on declining volume.

46. Divergence – price and volume

47. MOVING AVERAGES Moving averages smooth the price data to form a trend
following indicator. They do not predict price direction,
but rather define the current direction with a lag.
Moving averages lag because they are based on past
prices. Despite this lag, moving averages help smooth
price action and filter out the noise.  
The two most popular types of moving averages are the
 Simple Moving Average (SMA) and the Exponential
Moving Average (EMA). These moving averages can be
used to identify the direction of the trend or define
potential support and resistance levels.

48. Simple Moving Average
A simple moving average is formed by computing the average
price of a security over a specific number of periods. 
Most moving averages are based on closing prices.
A 5-day simple moving average is the five day sum of closing
prices divided by five.
As its name implies, a moving average is an average that moves.
old data is dropped as new data comes available.
This causes the average to move along the time scale.

49. SMA CALCULATION Example of a 5-day moving average evolving over
three days.
Daily Closing Prices : 10 ,11,12, 13, 14, 15 , 16
First Day of 5 Day SMA : ( ) / 5= 12
Second Day of 5 day SMA : ( ) / 5 = 13
Third Day of 5 day SMA : ( ) / 5 = 14
The first day of the moving average simply covers the last five
days. The second day of the moving average drops the first data
point (10) and adds the new data point (15). The third day of the
moving average continues by dropping the first data point (11)
and adding the new data point (16). 

50. Simple Moving Average Example
The above chart shows 3 examples of simple moving averages.
Obviously, the closer the time span gets to 0 days, the closer
it represents the actual price chart, and the faster it responds to
price trends. The opposite is also true, the greater the number
of days used to calculate the SMA the less quickly it responds
to the current price trend.

51. Many individuals argue that the usefulness of this type of average
is limited because each point in the
data series has the same impact on the result
regardless of where it occurs in the sequence.
The critics argue that the most recent data is more
important and, therefore, it should also have a higher weighting.
This type of criticism has been one of the main factors
leading to the invention of other forms of moving averages. 

52. Exponential Moving Average
With simple averages the calculation is, well, simple. The simplicity
of the calculation can sometimes cause a bit of a flaw to the SMA.
The flaw is due to spikes in the price of a security.. 
For example, if you were to calculate the 4 day SMA of stock XYZ
where its closing prices were, 2.90, 2.95, 3.00 and 2.95 the 
SMA would work just fine and smooth the price out to 2.95.
Great, that sounds and looks about right.
In comes trouble, in our second example stock XYZ has a huge news
event on day 2. Its closing prices over this 4 day span are 2.90, 4.95,
3.25, See the large spike on day 2? That would cause the 4 day
 SMA to average the price out to 3.56, which is a bit high.
The exponential moving average to the rescue! With the EMA the
calculation is a bit more complex in that it weighs the different
closing prices within the moving average range. 

53. the market is what is most important to pay attention to.
The EMA gives more weight to prices near the end of the range and less to those
prices in the beginning of the range. This gives more influence to the current
market activities of the stock. Which as you know, what is happening now in
the market is what is most important to pay attention to.
As you can see , a 30-period EMA rises and falls faster than a 30-period SMA.
This slight difference doesn’t seem like much, but it is an important factor to be aware of
since it can affect returns. 

54. Major Uses of Moving Averages
Moving averages are used to identify current trends
and trend reversals as well as to set up support and resistance
Levels.
Moving averages can be used to quickly identify whether a
security is moving in an uptrend or a downtrend
depending on the direction of the moving average.
When a moving average is heading upward and the price is
above it, the security is in an uptrend. Conversely, a downward
sloping moving average with the price below can be used to
signal a downtrend. 

55. Maruti Suzuki – 30 EMA

56. Another method of determining momentum is to look at
the order of a pair of moving averages. When a
short-term average is above a longer-term average,
the trend is up.
On the other hand, a long-term average above a
shorter-term average signals a downward movement in
the trend. 
Moving average trend reversals are formed in two
main ways: when the price moves through a moving
average and when it moves through moving
average crossovers

57. Maruti Suzuki

58. Airtel

59. The first common signal is when the price moves
through an important moving average. For example,
when the price of a security that was in an uptrend
falls below a 50-period moving average
The other signal of a trend reversal is when one
moving average crosses through another
For example, as you can see in Figure , if the 10-day
moving average crosses above the 50-day moving
average, it is a positive sign that the price will start to
increase. 

60. Price Crossing Moving Average
Trend reverses once the price breaks above
The 30 DMA

61. Moving Average Crossover
Notice the short term average crossing
above the long term average signals
beginning of an uptrend

62. Moving averages acts support/ resistance.

63. If the periods used in the calculation are relatively short,
for example 10 and 30, this could signal a short-term trend reversal.
On the other hand, when two averages with relatively long
time frames cross over (50 and 200, for example),
this is used to suggest a long-term shift in trend. 
Another major way moving averages are used is to identify
support and resistance levels
It is not uncommon to see a stock that has been falling stop its
decline and reverse direction once it hits the support of a
major moving average. A move through a major moving
average is often used as a signal by technical traders that
the trend is reversing.

64. For example, if the price breaks through the 200-day
moving average in a downward direction, it is a signal
that the uptrend is reversing. 
Moving averages are a powerful tool for analyzing
the trend in a security.
They provide useful support and resistance points
and are very easy to use.

65. The most common time frames that are used when
Creating moving averages are the 200-day, 100-day,
50-day, 20-day and 10-day.
The 200-day average is thought to be a good measure
of a trading year, a 100-day average of a half a year,
a 50-day average of a quarter of a year, a 20-day
average of a month and 10-day average of two weeks
Moving averages help technical traders smooth out
some of the noise that is found in day-to-day
price movements, giving traders a clearer view of
the price trend.

66. Chart Properties
There are several things that you should be aware of when looking at a chart, as these factors can affect the information that is provided.
They include the
Time scale,
The Price scale and
The Price point properties used. 

67. The Time Scale
The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually. The shorter the time frame, the more detailed the chart. Each data point can represent the closing price of the period or show the open, the high, the low and the close depending on the chart used.

68. Intraday charts plot price movement within the period of one day.
This means that the time scale could be as short as five minutes or could cover the whole trading day from the opening bell to the closing bell.  Daily charts are comprised of a series of price movements in which each price point on the chart is a full day’s trading condensed into one point.

69. Again, each point on the graph can be simply the closing price or can entail the open, high, low and close for the stock over the day.

70. These data points are spread out over weekly, monthly and even yearly time scales to monitor both short-term and intermediate trends in price movement.  Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in the movement of a stock's price. Each data point in these graphs will be a condensed version of what happened over the specified period.

71. So for a weekly chart, each data point will be a representation of the price movement of the week.
For example, if you are looking at a chart of weekly data spread over a five-year period and each data point is the closing price for the week, the price that is plotted will be the closing price on the last trading day of the week, which is usually a Friday. 

72. The Price Scale and Price Point Properties
The price scale is on the right-hand side of the chart. It shows a stock's current price and compares it to past data points. This may seem like a simple concept in that the price scale goes from lower prices to higher prices as you move along the scale from the bottom to the top.

73. The problem, however, is in the structure of the scale itself.
 A scale can either be constructed in a linear (arithmetic) or logarithmic way, and both of these options are available on most charting services. 
If a price scale is constructed using a linear scale, the space between each price point (10, 20, 30, 40) is separated by an equal amount.

74. A price move from 10 to 20 on a linear scale is the same distance on the chart as a move from 40 to 50.
In other words, the price scale measures moves in absolute terms and does not show the effects of percent change.
10-20 = 100% move
40-50 = 25% move

76. If a price scale is in logarithmic terms, then the distance between points will be equal in terms of percent change.
A price change from 10 to 20 is a 100% increase in the price while a move from 40 to 50 is only a 25% change, even though they are represented by the same distance on a linear scale.
On a logarithmic scale, the distance of the 100% price change from 10 to 20 will not be the same as the 25% change from 40 to 50

77. In this case, the move from 10 to 20 is represented by a larger space one the chart, while the move from 40 to 50, is represented by a smaller space because, percentage-wise, it indicates a smaller move.
In Figure 2, the logarithmic price scale on the right leaves the same amount of space between 10 and 20 as it does between 20 and 40 because these both represent 100% increases. 

78. Types of charts
There are four main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels.
The chart types are:
Line chart,
Bar chart,
Candlestick chart,
Point and Figure chart.

79. In the following sections, we will focus on the S&P 500 Index during the period of January 2006 through May 2006.
Notice how the data used to create the charts is the same, but the way the data is plotted and shown in the charts is different. 

80. Line Chart 
The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time.
The line is formed by connecting the closing prices over the time frame.
Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices.

81. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts. 

82. S&P 500 Index - January 2006 through May 2006

83. Bar Charts
The bar chart expands on the line chart by adding several more key pieces of information to each data point.
The chart is made up of a series of vertical lines that represent each data point.
This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash.

84. Bar

85. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar.
Conversely, the close is represented by the dash on the right.
Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value.

86. A bar that is colored red signals that the stock has gone down in value over that period.
When this is the case, the dash on the right (close) is lower than the dash on the left (open). 

87. S&P 500 Index - January 2006 through May 2006

88. Candlestick Charts 
The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close.

89. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period.

90. Candle sticks
Bullish candle Bearish candle

93. DOJI ( DJ)
A doji is a name for a session in which the candlestick for a security has an open and close that are virtually equal.
 It depicts indecision and can often mean impending weakness in an uptrend
It clearly indicates that the bulls and the bears are at an equilibrium, a state of indecision.
The Doji, appearing at the end of an extended trend, has significant implications. The trend may be ending. 

94. Hammer
The Hammer candlestick formation is viewed as a bullish reversal candlestick pattern that mainly occurs at the bottom of downtrends.
The Hammer formation is created when the open, high, and close are roughly the same price.

95. Hammer
Also, there is a long lower shadow, twice the length as the real body.
When the high and the close are the same, a bullish Hammer candlestick is formed and it is considered a stronger formation because the bulls were able to reject the bears completely plus the bulls were able to push price even more past the opening price.
In contrast, when the open and high are the same, this Hammer formation is considered less bullish, but nevertheless bullish.

96. Shooting Star
A shooting star is a bearish candlestick with a long upper shadow, little or no lower shadow, and a small real body near the low of the day.
It appears after an uptrend. Said differently, a shooting star is a type of candlestick that forms when a security opens, advances significantly, but then closes the day near the open again.

97. Candlestick colour
A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with.
There are two color constructs for days up and one for days that the price falls.
When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear.

98. Candlestick colour
If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site.
If the stock's price has closed above the previous day’s close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day.  

99. S&P 500 Index - January 2006 through May 2006

100. Point and Figure Charts
The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, which can distort traders' views of the price trends. These types of charts also try to neutralize the skewing effect that time has on chart analysis.

102. When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends.
There are also numbers and letters in the chart; these represent months, and give investors an idea of the date.

103. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents.
On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock.

104. The other critical point of a point and figure chart is the reversal criteria.
This is usually set at three but it can also be set according to the chartist's discretion.
The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa.

105. When the price trend has moved from one trend to another, it shifts to the right, signaling a trend change. 

106. Conclusion
Charts are one of the most fundamental aspects of technical analysis.
It is important that you clearly understand what is being shown on a chart and the information that it provides.
Now that we have an idea of how charts are constructed, we can move on to the different types of chart patterns. 

107. Is the Market trending or Trading ?
The Big question
Is the Market trending or Trading ?

108. Market movements can be characterized by two
distinct types of phases
In one phase , the market shows trending movements
either up or down
Trending movements have a direction bias over a
period of time.
In the second phase , the market shows no consistent
directional bias and moves between two levels

109. These two different phases of the market require the
use of different types of technical indicators :
Trending Markets need the use of trend following
indicators , such as the moving averages , MACD
(Moving Average Convergence Divergence ) etc.
Trading range markets , on the other hand need the
use of oscillators like the RSI ,stochastic etc. which
decide the methodology a trader need to follow

110. ADX : Answering the big question
The ADX fills this need for identifying whether market is in the trending or trading phase .
The concept of trends is central to the idea of ADX . The ADX can keep you out of a whipsawing market , or keep you in long enough during the trending market to make huge profits.
ADX defines the degree ----or strength ----of the directional movement and not its direction.

112. ADX
The average directional index (ADX) is a trend indicator used to measure the strength and momentum of an existing trend.
This indicator's main focus is not on the direction of the trend but with the momentum.  The ADX is a combination of two price movement measure, the positive directional indicator (+DI) and the negative directional indicator (-DI).

113. Directional Movements ( DM’s)
Directional movement is defined as the difference between the extreme of the current period that falls outside the range of the previous period.
In terms of a daily chart, price action above yesterday's high is positive directional movement (+DM), while anything below yesterday's low is negative directional movement (-DM). This analysis can be applied to monthly, weekly, daily, or intraday data.

116. The Directional Indicators ( DI)
DI”s were developed from DM’s . By dividing the directional movements + DM and –DM by market range since no trend is determined in day , so DI’s calculated are over number of days , 14 days Average
The +DI measures the strength of the upward trend while the –DI measures the strength of the downward trend.
These two measures are also plotted along with the ADX line. 

117. Calculation  The calculation for the ADX is considerably complex and entails several calculations that go beyond the scope of this tutorial. But, below is the general formulation of the index. 

118. The ADX along with the +DI and –DI are plotted between a bounded range of zero and 100. The standard time period used in this indicator is 14 periods. 

119. Directional Indicators
The positive directional indicator, or +DI, equals 100 times the exponential moving average (EMA) of +DM divided by the average true range over a given number of time periods.
Welles usually used 14 periods. The negative directional indicator, or -DI, equals 100 times the exponential moving average of -DM divided by the average true range (ATR).
The ADX indicator itself equals 100 times the exponential moving average of the absolute value of (+DI minus -DI) divided by (+DI plus -DI).

120. When the ADX is above 40 the trend is considered to have a lot of directional strength either up or down depending on the current direction of the trend.
Extreme readings to the upside are considered to be quite rare compared to low readings. When the ADX indicator is below 20 the trend is considered to be weak or non-trending.  The strength in a trend is considered to weaken or strengthen when these lines (40 and 20) are crossed by the ADX.

121. When the ADX has had a strong move above 40 but fails to remain above, it is suggested that the trend is weakening and will reverse.
When the ADX moves above 20 it is a sign that a new trend in the security is starting. 

122. ADX Interpretations 1
ADX less than 20 is interpreted as weak trend or consolidation
Indicating the use of oscillators 2
ADX rising from 15 to 25 from the lowers levels means the trend is strengthening
Use trend following indicators 3
ADX above 30 is interpreted as strong trend
Use trend following Indicators 4
ADX at an extremely high level of 40 or above is interpreted as a market is in a strong trend with consolidation expected any time
Start booking profits if the ADX makes a top or flattens out. 5
ADX declining below 30 is interpreted as a consolidation after a trending move
Use Oscillators or credit spreads to trade these consolidations.

125. It is important to remember that in regard to this trend indicator the ADX does not care about the direction of the trend it only is concerned with the strength of it.
When the ADX is high there is strength in a trend. When it is low it signals little to no trending in the security. When there are shifts in the ADX it is a signal of a new trend or trend reversal. 

126. DI’s Interpretations
The two measures used to compute the ADX are also used to signal weakening in trends and the starting of new trends. Signals are formed when the two lines, the +D and –D, crossover each other.
A buy signal is formed when the +D, which measures the upward trend, crosses above the –D, which measures the downward trend. A sell signal is formed when the –D crosses above the +D. These crossovers signal a shift from an upward trend to a downward trend or visa versa. 

127. DI’s Interpretations
This trend indicator is extremely popular and useful as it combines both aspects of trend strength with the ADX and the direction of trends with the +DI/-DI lines. Is another useful indicator for any technical trader. 

128. ADX is used to quantify trend strength. 
ADX calculations are based on a moving average of price range expansion over a given period of time.
The default setting is 14 bars, although other time periods can be used. 
ADX can be used on any trading vehicle such as stocks, mutual funds, exchange-traded funds and futures.

129. MACD
The moving average convergence divergence (MACD) is one of the most well known and used indicators in technical analysis.
This indicator is comprised of two exponential moving averages, which help to measure momentum in the security.
The MACD is simply the difference between these two moving averages plotted against a centerline.

131. MACD
The centerline is the point at which the two moving averages are equal.
Along with the MACD and the centerline, an exponential moving average of the MACD itself is plotted on the chart.
The idea behind this momentum indicator is to measure short-term momentum compared to longer term momentum to help signal the current direction of momentum. 

132. MACD= shorter term moving average - longer term moving average

133. MACD
When the MACD is positive, it signals that the shorter term moving average is above the longer term moving average and suggests upward momentum.
The opposite holds true when the MACD is negative - this signals that the shorter term is below the longer and suggest downward momentum.

134. MACD
When the MACD line crosses over the centerline, it signals a crossing in the moving averages.
The most common moving average values used in the calculation are the 26-day and 12-day exponential moving averages.
The signal line is commonly created by using a nine-day exponential moving average of the MACD values.

135. MACD
These values can be adjusted to meet the needs of the technician and the security.
For more volatile securities, shorter term averages are used while less volatile securities should have longer averages. 

136. MACD
Another aspect to the MACD indicator that is often found on charts is the MACD histogram.
The histogram is plotted on the centerline and represented by bars.
Each bar is the difference between the MACD and the signal line or, in most cases, the nine-day exponential moving average.
The higher the bars are in either direction, the more momentum behind the direction in which the bars point.

138. As you can see in Figure 2, one of the most common buy signals is generated when the MACD crosses above the signal line (blue dotted line), while sell signals often occur when the MACD crosses below the signal

139. ICICI Bank

140. Range-Bound Trading

141. What is Range-Bound Trading?
Range-bound trading is a trading strategy that seeks to identify and capitalize on stocks trading in price channels.
After finding major support and resistance levels and connecting them with horizontal trendlines, a trader can buy a security at the lower trendline support (bottom of the channel) and sell it at the upper trendline resistance (top of the channel).

142. What is Range-Bound Trading?

143. Key Take Aways
A range-bound trading strategy refers to a method in which traders buy at the support trendline and sell at the resistance trendline level for a given stock or option.
Traders place stop-loss points just above the upper and lower trendlines to avoid having heavy losses from high-volume breakouts.
Typically, traders use range-bound trading in conjunction with other indicators, such as volume, in order to increase their odds of success.

144. Trading Range Strategies
Support and Resistance: If a security is in a well-established trading range, traders can buy when the price approaches support and sell when it reaches resistance.
Technical indicators, such as the relative strength index (RSI), stochastic oscillator, can be used to confirm overbought and oversold conditions when price oscillates within a trading range.

145. Relative Strength Index
The relative strength index (RSI) is another one of the most used and well-known momentum indicators in technical analysis.
RSI helps to signal overbought and oversold conditions in a security. The indicator is plotted in a range between zero and 100.
A reading above 70 is used to suggest that a security is overbought, while a reading below 30 is used to suggest that it is oversold.

146. This indicator helps traders to identify whether a security’s price has been unreasonably pushed to current levels and whether a reversal may be on the way. 

148. The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to meet the needs of the user.
If the trading period is adjusted to use fewer days, the RSI will be more volatile and will be used for shorter term trades.

149. The on-balance volume (OBV) indicator is a well-known technical indicator that reflect movements in volume. It is also one of the simplest volume indicators to compute and understand.  The OBV is calculated by taking the total volume for the trading period and assigning it a positive or negative value depending on whether the price is up or down during the trading period.

150. When price is up during the trading period, the volume is assigned a positive value, while a negative value is assigned when the price is down for the period. The positive or negative volume total for the period is then added to a total that is accumulated from the start of the measure.  It is important to focus on the trend in the OBV - this is more important than the actual value of the OBV measure.

151. This measure expands on the basic volume measure by combining volume and price movement.

152. STOCHASTIC OSCILLATOR
The stochastic oscillator is one of the most recognized momentum indicators used in technical analysis.
The idea behind this indicator is that in an uptrend, the price should be closing near the highs of the trading range, signaling upward momentum in the security.
In downtrends, the price should be closing near the lows of the trading range, signaling downward momentum. 

153. The stochastic oscillator is plotted within a range of zero and 100 and signals overbought conditions above 80 and oversold conditions below 20.
The stochastic oscillator contains two lines. The first line is the %K, which is essentially the raw measure used to formulate the idea of momentum behind the oscillator.
The second line is the %D, which is simply a moving average of the %K. The %D line is considered to be the more important of the two lines as it is seen to produce better signals. The stochastic oscillator generally uses the past 14 trading periods in its calculation but can be adjusted to meet the needs of the user.

156. Pivot points
As the name suggests, a pivot point is any point where a market reverses direction.
This may be a point where a falling market begins to rally, or the point where a rising market begins to fall.
Of course, identifying a past pivot point is only useful if it helps in identifying future pivot points.
In fact, this is precisely what many traders attempt to do through the use of Fibonacci retracements.

157. Pivot points
A pivot point is a price level of significance in technical analysis of a financial market that is used by traders as a predictive indicator of market movement.
A pivot point is calculated as an average of significant prices (high, low, close) from the performance of a market in the prior trading period. If the market in the following period trades above the pivot point it is usually evaluated as a bullish sentiment, whereas trading below the pivot point is seen as bearish.

158. Pivot points
Monthly pivot point chart of the Dow Jones Industrials Average for the first 8 months of 2009, showing sets of first and second levels of resistance (green) and support (red).
The pivot point levels are highlighted in yellow. Trading below the pivot point, particularly at the beginning of a trading period sets a bearish market sentiment and often results in further price decline, while trading above it, bullish price action may continue for some time.

159. Pivot points
It is customary to calculate additional levels of support and resistance, below and above the pivot point, respectively, by subtracting or adding price differentials calculated from previous trading ranges of the market.
A pivot point and the associated support and resistance levels are often turning points for the direction of price movement in a market. In an up-trending market, the pivot point and the resistance levels may represent a ceiling level in price above which the uptrend is no longer sustainable and a reversal may occur. In a declining market, a pivot point and the support levels may represent a low price level of stability or a resistance to further decline.

160. Pivot points
Several methods exist for calculating the pivot point (P) of a market. Most commonly, it is the arithmetic average of the high (H), low (L), and closing (C) prices of the market in the prior trading period:
P = (H + L + C) / 3.Sometimes, the average also includes the previous period's or the current period's opening price (O):
P = (O + H + L + C) / 4.In other cases, traders like to emphasize the closing price, P = (H + L + C + C) / 4, or the current periods opening price, P = (H + L + O + O) / 4.

161. THE ANATOMY OF A BAR
A bar is the most basic component of a chart . The bar contains very useful information provided the trader picks it up early enough. The normal bar on a chart consists of the open , high , low and close prices

162. BAR
The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar.
Conversely, the close is represented by the dash on the right.
Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value.

163. BAR CHART
A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open). 

164. BAR The open belongs to the amateurs
The high of any bar belongs to the bulls and depicts how much force they had
The low shows the maximum power of bears
The closing action is set up by the professional investors.

165. BAR
Since most major movements in the market are determined by the professionals , it pays to follow them.
Just waiting till the last one hour can sometimes helps you to avoid taking false trades , that you might otherwise get into.

166. Types of Trading
There are three types of trading , differentiated mainly by the time frame involved
SWING TRADING
POSITION TRADING
DAY TRADING

167. SWING TRADING
SWING TRADING :Swing trading is the method which allows trading of a tradable swings, up and down . The length of time the trade is held could be from 3 to 4 days , to a couple of weeks.

168. DAY TRADING
DAY TRADING : Day traders trade within the course of a day . They generally do not carry overnight positions . Day trading , in particular , remains one of the most difficult from of trading to master.

169. Difference
Day trading is simply trading where your long or short position is entered as well as exited during the same day, regardless of the outcome.
On the other hand, swing trading is longer term, and takes into account market swings. The positions can last for days, weeks, or even months.

170. POSITION TRADING
POSITION TRADING :Position trading is used by traders who tend to hold trades over multiple swings , not ending their trades on intermittent corrections . They could be holding trades any where from a couple of weeks to many months

171. Chart Patterns
Chart patterns signal to traders that the price of a security is likely to move in one direction or another when the pattern is complete. A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements.
Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals. 

172. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself.
The theory behind chart patters is based on this assumption.
The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock.

173. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these patterns to identify trading opportunities. 

174. While there are general ideas and components to every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed.
This creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often seen as more of an art than a science.

175. TWO BASIC TYPES OF STOCK CHART PATTERNS
There are two types of patterns
Continuation chart patterns
Reversal chart patterns
A reversal pattern signals that a prior trend will reverse upon completion of the pattern.
A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete.

176. TYPES OF CHART PATTERNS
CONTINUATION CHART PATTERNS
FLAGS AND PENNANTS
TRIANGLES
CUP WITH HANDLE
REVERSAL STOCK CHART PATTERNS
HEAD AND SHOULDERS
DOUBLE TOPS
DOUBLE AND TRIPPLE BOTTOMS

177. Head and Shoulders- Reversal Chart
This is one of the most popular and reliable chart patterns in technical analysis.
 Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend.
As you can see in Figure , there are two versions of the head and shoulders chart pattern.

178. Head and shoulders is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end.
Inverse Head and shoulders is the lesser known of the two, but is used to signal a reversal in a downtrend. 

179. B`earish reversal chart pattern

180. Bullish version 

181. Figure 1: Head and shoulders top is shown on the left
Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right.

182. Price Target= Neckline- (Head- Neckline)

184. Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline.
Also, each individual head and shoulder is comprised of a high and a low.
For example, in the head and shoulders top image shown on the left side in Figure 1, the left shoulder is made up of a high followed by a low.

185. In this pattern, the neckline is a level of support or resistance.
Remember that an upward trend is a period of successive rising highs and rising lows.
The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows with low volumes.

186. Volume and Head and Shoulders Read more at: https://commodity
When the confirmation line of a Head & Shoulders pattern breaks to the downside, a large amount of volume should occur as well. The chart below of General Electric (GE) shows a sharp increase in volume when the confirmation line of the Head & Shoulders pattern was broken

187. Cup and Handle- Continuation
A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed. 

188. As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by an upward trend.
The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price.
Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue.

189. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year. 

191. INVERTED CUP & HANDLE

192. Double Tops and Bottoms-Reversal
This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used.
These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse.

193. Double Tops and Bottoms-Reversal
The pattern is created when a price movement tests support or resistance levels twice and is unable to break through.
This pattern is often used to signal intermediate and long-term trend reversals. 

194. Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shown on the right.

195. Double Tops and Bottoms-Reversal
In the case of the double top pattern in Figure , the price movement has twice tried to move above a certain price level.
After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower.

196. Double Tops and Bottoms-Reversal
In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend and heads upward

197. Triangles- Continuation of a trend
Triangles are important stock chart patterns. They offer very good probability for continuation of a trend when the price breaks from this pattern.
This type of continuation chart pattern can be found on any time frame and so is usable in any type of stock trading.
Day traders can find it on intraday live stock charts of stock market index or any other ticker they want to day trade.

198. ASCENDING TRIANGLES
This version of a chart pattern is considered bullish. It has very good reliability if it is found in an uptrend . As you can see in the illustration, there is horizontal resistance at highs and a rising support line at lows.

199. DESCENDING TRIANGLES
This version of a pattern is considered bearish. It has very good reliability if it is found in a downtrend. The resistance is a declining downtrend line, and support is at the horizontal level

200. Triangles 
Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.

202. The symmetrical triangle in Figure 4 is a pattern in which two trendlines converge toward each other.
This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping.
This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout. 

203. Flags and pennants-Continuation
Flags and pennants are very solid chart patterns.
They signal very good trading opportunities.
This type of patterns is quite well known and widely used.
It can be used in intra-day trading and intra-day charts, swing and position traders are using this chart pattern on daily and weekly charts too.

204. Flags and pennants-Continuation
They’re known as continuation stock chart patterns.
You can find them after a strong trend move.
These patterns represent consolidation and little sideways movement.
When the price breaks from the pattern, then the trend resumes again
There are bullish and bearish versions of this pennants and also of flags pattern

205. BULLISH VERSION OF THIS CHART PATTERN
The bullish version has lower lows and lower highs against
the previous main trend direction. Trend lines for highs and lows are parallel.

206. BEARISH FLAG CHART PATTERN
The bearish type of pattern is based on higher highs and higher lows against the major trend.

207. PENNANT CHART PATTERN
Pennants have another design. Trend lines are not parallel, but they’re going to meet at one point. Pennants pattern is smaller in size and also needs less time to develop.
Pennant:  a narrow, tapering flag commonly flown by ships at sea

208. Flag and Pennant 
These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks.

210. Flag and Pennant 
As you can see in Figure 5, there is little difference between a pennant and a flag.
The main difference between these price movements can be seen in the middle section of the chart pattern.
In a pennant, the middle section is characterized by converging trendlines, much like what is seen in a symmetrical triangle.

211. Flag and Pennant 
The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines.
In both cases, the trend is expected to continue when the price moves above the upper trendline. 

212. Triple Tops and Bottoms- reversal
Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis.
These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion.
These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend. 

213. Triple Tops and Bottoms- reversal

214. Triple Tops and Bottoms- reversal
Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns.
After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon. 

215. Gaps 
A gap in a chart is an empty space between a trading period and the following trading period. This occurs when there is a large difference in prices between two sequential trading periods.
For example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods.
Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts.

216. Gaps
Gaps generally show that something of significance has happened in the security, such as a better-than-expected earnings announcement.  There are three main types of gaps, breakaway, runaway (measuring) and exhaustion.
A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend.

217. Yawning Gap
A yawning gap on charts have been left post-election results. A jump from Nifty 3650 to 4350 was a huge 20% gap-up opening on the day Congress-led UPA Government was re-elected on Centre. This gap needs to be filled up on charts sooner or later. Half the gap has been already filled from Nifty 4350 to 4000 levels, remaining from 3650 to 4000 still pending.

218. Rounding Bottom
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend.
This pattern is traditionally thought to last anywhere from several months to several years. 

219. Rounding Bottom

220. Rounding Bottom

221. Rounding Bottom
A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and handle, makes it a difficult pattern to trade.  We have finished our look at some of the more popular chart patterns. You should now be able to recognize each chart pattern as well the signal it can form for chartists.