1. Conquering Technical Analysis Webinar Wednesday, 13 February 2013 Presenter: Shaun van den Berg : Head of Client Education at PSG Online : Head of Client Education at PSG Online

2. What is Technical Analysis? Simple vs Complex Charts Chart Setups Psychology of Trading The Trading Plan The Stockbroker Report Summary ConclusionAgenda Presenter: Shaun van den Berg

3. What is Technical Analysis? Presenter: Shaun van den Berg

4. Two broad categories used to analyse shares to make investment decisions: Fundamental analysis: –Characteristics of a company –Estimate its value Technical analysis: –Does not care about the "value" of a company. –Technicians (also called chartists) only interested in price movements.Introduction

5. Fundamental Analyst –Goes into each store –Studies the product –Decides whether to buy Technical Analyst –Sits on a bench in the mall –Watches people go into the stores. –Disregards intrinsic value of the products in the store –Decision based on the patterns or activity of people going into each store. Shopping Mall Analogy Source: www.investopedia.comwww.investopedia.com Presenter: Shaun van den Berg

6. Method to evaluate securities –Shares, indices, futures, commodities, exchange rates, etc. Analyse market activity ( historical performance) –Past prices –Volume Use charts and other tools Identify patterns Future activity – Direction/ trend What is Technical Analysis? Presenter: Shaun van den Berg

7. Study of supply & demand Attempts to determine: –What direction or trend - Continue into future Attempts to understand: –The emotions in the market by studying the market itself, as opposed to its components Some chartists use technical indicators & oscillators Others rely on chart patterns. Most use some combination of the two. Price Action

8. The market discounts everything (Priced in) –Price discounts everything (Reflects all information). –Broader economic factors (GDP, inflation, interest rates) –Company's fundamentals (Financial information relative to price) –Market psychology (Greed, Fear & Expectations) Price moves in trends (The trend is your friend) –Price movements are not totally random –Once a trend is established, future price movement is more likely to be in the same direction than to be against it. –Most technical trading strategies are based on this assumption. History tends to repeat itself (Market sentiment) –The "What" is more important than the "Why." –Market players react consistently to similar market stimuli over time. –Emotional aspect of the market (Bullish or Bearish) Basic Assumptions

9. Simple versus Complex Charts Presenter: Shaun van den Berg

10. Step #1: What is the Overall Trend? –Identify the overall trend – use trend lines, moving averages or peak/trough analysis. As long as the price remains above its up trend line, selected moving averages or previous lows, the trend will be considered bullish. As long as the price remains below its down trend line, selected moving averages or previous highs, the trend will be considered bearish. Chart Analysis

11. Trending & Trading Ranges Trading Range Trending

12. Three types of trend: –Uptrends –Downtrends –Sideways/Horizontal or Neutral Trends Trend Analysis

13. Example of a Up Trend (SAB) Higher Highs Higher Lows

14. Key & Critical Support Levels Key Critical Early warning Something is not right Protect profits Raise your stops Critical level – Beginning of new trend

15. Example of a Down Trend (TKG) Lower Highs Lower Lows

16. Key & Critical Resistance Levels Key Critical Early warning – Move is pausing Move is coming to an end Protect profits (if short) Tighten your stops (if short) Critical level – Move up is complete

17. Trend Lines (SAB) Resistance Trend line Support Trend line

18. Moving Average Crossovers

19. Step # 2: Where is Support? –Congestion (trading range) or previous lows below the current price mark support levels. A break below support would be considered bearish (Open short positions / Sell). Step # 3: Where is Resistance? –Areas of congestion and previous highs above the current price mark the resistance levels. A break above resistance would be considered bullish (Open long positions / Buy). Chart Analysis

20. Example of a Sideways Trend (ANG) Resistance Support 20062013

21. Step # 4: Where is Momentum? –Momentum is usually measured with an oscillator such as the MACD indicator. If MACD is above its 9-day EMA (exponential moving average) or positive, then momentum will be considered bullish, or at least improving. If MACD is below its 9-day EMA or negative, then momentum will be considered bearish, or at least deteriorating. Chart Analysis

22. MACD Indicator

23. Step # 5: Where is Buying/Selling Pressure? –For shares and indices with volume figures available, an indicator that uses volume is used to measure buying or selling pressure. When Chaikin’s Money Flow (CMF) is trading above zero, buying pressure is dominant. Selling pressure is dominant when the CMF indicator moves below zero. Chart Analysis

24. Chaikin’s Money Flow (CMF)

25. Volume Price Trend (VPT)

26. Step # 6: Where is Relative Strength? –The Relative Strength indicator is a line formed by dividing one data stream (share) by another (usually a benchmark). For shares it is usually the share price divided by the JSE Overall Index. –The plot of this line over a period of time will tell us if the share is: Market outperforming (rising) Market under performing (falling), or Market performing (moving sideways) relative to the JSE Overall Index. Chart Analysis

27. Relative Strength Data 1 = BHP Billiton Data 2 = JSE Over Index

28. Synthesise Steps

29. Chart Setups Presenter: Shaun van den Berg

30. Chart setups are situations where all or most of the chart conditions are "right" for a long or short entry. –"Right" conditions, depending on the setup, may or may not include other indicators. Technical indicators support price & volume action –Indicate or support what the action is, but –Do not dictate what to do, or –When to do it Chart Setups

31. Many setups are a result of self-fulfilling prophecies –Traders see the same chart patterns & price action. Early identification & perhaps even an early entry is important Understand all influences & indicators & interpretation. Only experience will get you to –Understand how they work, –When to use them, and –Trust chart setups. Back-test, Paper trade (Simulator) & Start small. –Pick a trade candidate, –Plan your trade –Execute your plan. Chart Setups

32. The stronger the primary trend the more confidence you should have. Watch for big changes in volume as price approaches targets. Increased volume should accompany any breakout. Big volume spikes start & end a rally regardless of time frame. Play around with various charts but always use more than one time period using the support-resistance levels of one to tell you where your limits are in the other. Above every resistance level & below every support level lie plenty of orders to buy or sell once price breaks one way or the other. –This is what accounts for major volume increases on a breakout or breakdown. Chart Setups: Observations

33. All stop-losses should be set to allow a 2% - 3% loss & no more. Smart money tends to put on trades when markets are quiet; amateurs tend to jump on the news. Buy the rumour, sell on the news. Buyers wait for pullbacks & sellers wait for resistance Technical indicators show what is going on with price –They DO NOT dictate what you should do. Technical indicators are either: –Momentum type - showing you strength of the trend, –Overbought and Oversold type - showing you weakness at support/resistance. Chart Setups: Observations

34. Ascending Triangle Descending Triangle Symmetrical Triangle Chart Setups

35. Bullish chart pattern - easily recognizable - distinct shape created by two trend lines. One trend line is drawn horizontally - level that has historically prevented the price heading higher (i.e. resistance) Second trend line connects a series of increasing troughs or higher lows/ supports. Enter a long position when the price breaks above the top resistance. Ascending Triangle

36. The more mature in time the pattern is the stronger it is. Trade the primary trend. Set buy limits just above the highs of horizontal resistance. Increased volume must accompany the breakout. Ascending Triangle - Rules

37. Ascending Triangle

38. Mature Bullish Broken resistance Increased volume Open: 28300c High: 28892c Low: 28300c Close: 28892c Resistance @ 28500c Entry Price: 28510c

39. A bearish chart pattern One trend line connects a series of lower highs Second trend line - strong level of support. Watch for a move below support - suggests downward momentum is building. Once the breakdown occurs - enter a short position Descending Triangle

40. The more mature in time the pattern is the stronger it is. Trade the primary trend. Set sell limit just below the lows of horizontal support. Increased volume must accompany the breakout. Descending Triangle – Rule

41. Descending Triangle

42. Support @ 39320c Open: 39770c High: 40096c Low: 38851c Close: 39190c Entry Price: 39315c Mature Bearish Broken support Increased volume

43. Easily recognisable chart pattern Distinct shape created by two converging trend lines. Draw two trend lines that connect a series of sequentially lower peaks & a series of sequentially higher troughs. Both trend lines act as barriers that prevent the price from heading higher or lower. Once the price breaks above or below one of these levels, a sharp movement often follows. Symmetrical Triangle

45. Can break either way – Up or down Stick with the primary trend. Set buy limit just above the high of descending trend line resistance. Increased volume must accompany the breakout. Symmetrical Triangle - Rules

46. Symmetrical Triangle Open: 15900c High: 16700c Low: 15701c Close: 16700c Resistance @ 15883c Entry Price @ 15890c Mature Bullish Broken resistance Increased volume

47. Psychology of Trading Presenter: Shaun van den Berg The definition of a successful trader is someone who feels good about themselves and enjoys playing the game The definition of a successful trader is someone who feels good about themselves and enjoys playing the game.

48. You must win the battle within yourself first, before you can win in the markets. Trader’s mental & emotional state Approach your trading with the right mind-set & attitude. Train the mind to a level of mental fitness & toughness –Make decisions with a clear & unclouded mind. –Keep emotions under control (Discipline) Visualise yourself as a successful trader –Become that person - Less likely to allow your emotions to make mistakes / inconsistent Psychology of Trading

49. Source: Goal Mapping by Brian Mayne

50. Control your emotions –Spend time every day, working on the discipline of trading (Keep a trading journal) –Do not take losses personally –Negative personal evaluations (What did I do right?) –Self-image as a winning trader –Treat trading like a business Back-test a system - Confidence –Find system that suits your personally –Back-test/ Paper trade / Start small (Real-time) –Appropriate money to trade system –Go for it! Psychology of Trading

51. The Trading Plan Presenter: Shaun van den Berg

52. 1.What market(s) do you want to trade? –JSE Top 40 shares –JSE Mid caps (next 60) 2.What instruments do you want to trade? –CFD & SSF for equities –ALSI & ALMI for indices 3.What timeframes do you want to trade? –Intra-day for ALSI / ALMI –Swing trades (2-5 days) for SSF (Shorts) –Position trading (weeks) for CFDs (Longs) 4.Describe what strategies you want to trade. –Breakouts from continuation chart patterns –Overbought / Oversold levels The Trading Plan

53. 5.What are the entry rules of the strategies? –Long positions – breakout above resistance –Short positions – breakout below support 6.What are the exit rules of the strategy? –Target prices established by chart patterns –Previous key support & resistance levels –Retracement levels / Stop loss 7.When do you trade & when do you not trade? –Done the homework / prepared –No preparation / tired / late / impulsive 8.What money management approach are you using? –Risk/ Reward ratio: 1:2 at least –Position sizing (Risk 2% of capital per trade) –Stop loss levels from support/ resistance The Trading Plan

54. The Stockbroker Report Presenter: Shaun van den Berg

55. The Stockbroker Presenter: Shaun van den Berg

56. Open Trade Ideas Presenter: Shaun van den Berg

57. Methodology –Top 100 list (Scan / Manual) Risk Management –Risk/ Reward ratio – at least 1:2 times Trade Ideas (CFD & SSF) –Trend analysis: Moving Averages/ Trend lines / Support & Resistance –Price & volume action –Support & Resistance levels –Stochastic indicator - Overbought / Oversold levels –Entry & Exits / Stops Trade Ideas Summary Presenter: Shaun van den Berg

58. What is Technical Analysis –Price & volume action Simple vs Complex Charts –6 Steps - Process Chart Setups –Continuation Patterns –Trading Rules Psychology of Trading –Attitude & Mindset –Control Emotions The Trading Plan –8 Questions: Preparation - Confidence Webinar Summary

59. Next Webinar: Fundamentals for Value Investing –Lunch (13h00–14h00): Wed, 20 February 2013 (Full) –Evening (18h00–19h00): Thurs, 21 February 2013 (95%) Next Traders Forum –PTA: Tues, 26 February 2013 (18h00 – 20h00) –JHB: Tues, 12 March 2013 (18h00 – 20h00) –DBN: Wed, 17 April 2013 (18h00 – 20h00) Good Luck Happy Trading!Conclusion Presenter: Shaun van den Berg

60. Contact us Travis Robson Travis.robson@psgonline.co.za (011) 996 5204 Shaun van den Berg Shaunvdb@psgonline.co.za (011) 996 5254 Presenter: Shaun van den Berg