1. Technical Analysis - Basic Level RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

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. RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

3. Flow of Presentation What is Technical Analysis? Basis of Technical Charts Chart Analysis Support & Resistance Levels Leading Vs Lagging Indicators Strengths of Technical Analysis Weaknesses of Technical Analysis RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

4. What is Technical Analysis? Forecasting of future financial price movements based on past price movements Weather Forecasting-does not result in absolute predictions about the future Helps investors anticipate what is “likely” to happen to prices over time Uses a wide variety of charts RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

5. Basis of Technical Analysis Charles Dow propagated the Dow Theory Laid the foundation for modern technical analysis Pieced together from the writings of Charles Dow over several years RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

6. Basis of Technical Analysis Price Discounts Everything  Price reflects all information  Represents the fair value  Reflects the sum knowledge of all participants, including traders, investors, etc.  Utilizes the price to interpret the nature of the market RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

7. Basis of Technical Analysis Price Movements are not Totally Random  Prices trend but sometimes prices do not trend too  Possible to identify a trend, invest or trade  Possible to identify both short and long- trends RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

8. Basis of Technical Analysis What is more important than why  Fundamentalists are concerned with why the price is what it is  Technicians are concerned with  What is the current price  What is the history of the price movements? RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

9. Chart Analysis Supports technical analysis Prices  Open-Price at which the market opens at  High-Highest Price attained  Low- Lowest Price reached  Close-Price at which the market closes at RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

10. Chart Analysis Line Chart-Uses only the Closing Prices RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

11. Chart Analysis Bar Chart - Open, High, Low and Closing Prices RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

12. Chart Analysis Japanese Candlesticks RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

13. Support & Resistance Represents key levels where demand and supply meet Prices are driven by excessive demand and supply Demand is synonymous with bulls & buying Supply is synonymous with bears & selling If the levels are broken, the relationship between demand and supply has changed RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

14. Support & Resistance Support Price level at which demand is strong enough to prevent it from declining further Normally lies below the current price As price declines towards support, buyers become more inclined to buy and sellers become less inclined to sell When price reaches support level, demand will overcome supply, preventing prices from further decline RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

15. Support & Resistance Resistance Price level at which selling is strong enough to prevent the prices from rising further Normally lies above the current price As price rises towards resistance, sellers become more inclined to sell and buyers become less inclined to buy When price reaches resistance level, supply will overcome demand, preventing prices from further rise RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

16. Support & Resistance RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

17. Leading Indicators Leading indicators are designed to lead price movements Represent a form of price momentum over a fixed look-back period Some of the more popular leading indicators include Relative Strength Index (RSI) RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

18. Leading Indicators Momentum Oscillators  Momentum measures the rate-of-change of a security's price  As the price of a security rises, price momentum increases  Once this rise begins to slow, momentum will also slow  As a security begins to trade flat, momentum starts to actually decline from previous high levels RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

19. Leading Indicators Benefits of Leading Indicators  Early signaling for entry and exit is the main benefit  Leading indicators generate more signals and allow more opportunities to trade  Leading indicators are best used in trending markets RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

20. Leading Indicators Drawbacks of Leading Indicators  With early signals comes the prospect of higher returns and with higher returns comes the reality of greater risk  More signals and earlier signals mean that the chances of false signals and whipsaws increase RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

21. Lagging Indicators Follow the price action and are commonly referred to as trend-following indicators Trend-following indicators work best when markets or securities develop strong trends These indicators are not effective in trading or sideways markets Some popular trend-following indicators include moving averages (exponential, simple) and MACD. RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

22. Lagging Indicators Benefits of Lagging Indicators  Ability to catch a move and remain in a move  Indicators can be enormously profitable and easy to use RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

23. Lagging Indicators Drawbacks of Lagging Indicators  Lost when a security moves in a trending range  Signals tend to be late RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

24. Strengths of Technical Analysis Focus on Price  Sense to focus on price movements  Price movements usually precede fundamental developments  Technicians are automatically focusing on the future RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

25. Strengths of Technical Analysis Supply, Demand and Price Action  Use the OHLC when analyzing the price actions  OHLC reflects forces of demand and supply  Higher prices reflect increased demand and lower prices reflect increased supply RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

26. Strengths of Technical Analysis Support/Resistance  Identify support and resistance levels  Prices move within a confined range for an extended period which means supply and demand are deadlocked  If prices moves out of the range, it means either supply or demand has changed RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

27. Strengths of Technical Analysis Pictorial Price History  Reactions prior to and after important events.  Past and present volatility.  Historical volume or trading levels. RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

28. Strengths of Technical Analysis Assist with Entry Point  Help with timing a proper entry  Fundamental analysis decides what to buy and technical decides when to buy RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

29. Weaknesses of Technical Analysis Analyst Bias  Subjective and personal biases can be reflected  Important to be aware of such biases  If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis  If the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

30. Weaknesses of Technical Analysis Open to Interpretation  Different technicians will paint different scenarios or patterns  Both will come up with logical support to support their notion  Technical analysis is more like an art than a science RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

31. Weaknesses of Technical Analysis Always Another Level  Always another important level close at hand  Accused of sitting on the fence and failing to spot the developing trend RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

32. Weaknesses of Technical Analysis Trader’s Remorse  Not all technical signals and patterns work  Each Asset class will have its own idiosyncrasies RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED

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