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Technical Analysis

Technical analysis uses charts of past stock prices to identify trends and signals about future price movements. Common chart types include line charts, bar charts, and candlestick charts. An uptrend is defined by higher highs and higher lows, while a downtrend has lower highs and lower lows. Resistance and support lines connect high and low prices to identify levels where sellers or buyers dominate. Breakouts of resistance or support lines may signal changes in trend. Chart patterns like rising triangles also provide clues. Moving averages help identify short-term trends.

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37 views

Technical Analysis

Technical analysis uses charts of past stock prices to identify trends and signals about future price movements. Common chart types include line charts, bar charts, and candlestick charts. An uptrend is defined by higher highs and higher lows, while a downtrend has lower highs and lower lows. Resistance and support lines connect high and low prices to identify levels where sellers or buyers dominate. Breakouts of resistance or support lines may signal changes in trend. Chart patterns like rising triangles also provide clues. Moving averages help identify short-term trends.

Uploaded by

Jackson Hamilton
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Technical Analysis

Introduction
Study of past price movements of an individual share or market as a whole
- Buying, selling, rumours and information is going to be factored into the price of a
share as people act on that information
- Cant predict future, nothing can
- Provide us the ability to convert a table of data into an easy to interpret line graph

Chart Types
Line
- Most common
- Plots series of points to graph price movements
- General guide
- Might not track all fluctuations in shares price
over that period

Bar Chart
- Takes information from day’s trading and plots
on a single bar
- Can do weekly or even 1 minute bar charts

Candle Stick
- Constructed using same information as a
bar chart
- Rectangle is used to represent the area
between open and close
- Body is left blank or green if it closed
higher for that specific time period (bullish
candle)
- Red if closed lower (bearish candele)

Defining an Uptrend
- Each subsequent high is higher than previous
- Each subsequent low is higher than previous
- Need to have both
- If you don’t, no uptrend, but doesn’t mean it’s a downtrend either

Defining a downtrend
- Lower lows and lower highs

*Idea is to purchase stocks in an


uptrend, wait for after a downtrend
Markets are not as simple as this. Periods where the market is in neither an uptrend or a
downtrend.

Recognising a change in trend


- Identify when one days high is lower than the
previous days high
- Market becomes neutral
- We then have a lower low then L3, downtrend

Resistance Lines
Draw a line that connects all of the highs
- At this level, the market resists going higher
because there are sellers who enter the
market to sell more shares when the share
trades at this price
- Weight of cumulative selling prevents price
from rising
- Price breaks through suggests selling at this
price is complete
- Can be supportive of the stock, indicative of good news
- Resulting in sellers changing their selling point
- “Buy signal”

Selling Point
Draw a line that connects the lows of the range
- Price drops are supported by level of buyers or buying emerges of sufficient volume
to prevent price from falling through
- If breaks through, may indicate buyer is no longer present at this price, sellers may
be more aggressive
- “Sell signal”

Volume
- Rising volume at time of break or support is generally regarded as further
confirmation that the break is legitimate
Could be a number of reasons
- Higher volume suggests more sophisticated and knowledgeable investors might be
establishing positions
- More individuals are discovering factors that make this investment attractive
Chart Patterns
Rising Triangle
- Flat resistance line suggest enough selling to
absorb the buying at the same price
- Support level sloping upwards, suggests buyers
are becoming progressively more aggressive
- Willing to pay higher prices
- Why? Technical analysis doesn’t concern
himself with why (probably should though)
- Prices should go higher once broken the
resistance
- Add rising volume, another validation

Moving Average
- Average of closing prices for the last ‘n’ days, rolled forward one day
- Larger the number the smoother the moving average, less false signals
- Shorter term, can get into a trend earlier and exit closer to the top but many false
signals, may lose more trades
Common trade
- Buy when stock breaks above MA, sell when price falls below (during a trend)
- Can keep you in the uptrend for longer
- Can keep you out of the market during a down trend

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