A Fidelity Investments Webinar

Trade with the trend:

Understanding price movement

SPECIAL EVENT: MAY 2021

 Charles D. Kirkpatrick II, CMT
Charles D. Kirkpatrick II, CMT, is president of Kirkpatrick & Company, Inc., a technical
analysis research firm that publishes the Market Strategist investment newsletter.
A past instructor in finance at the School of Business Administration, Fort Lewis
College and Adjunct Professor of Finance at Brandeis University International Business
School, he is a two-time winner of the Market Technicians Association’s prestigious
Charles H. Dow Award for research in technical analysis, winner of the MTA Annual
Award in 2008 for “outstanding contributions to the field
of technical analysis,” and winner in 2012 of the Mike Epstein Award from the MTA
Educational Foundation for “long-term sponsorship of Technical Analysis in

About Our Academia.”

He is a Chartered Market Technician, a past member of the board of directors of the

Co-Author Market Technicians Association, past editor of the Journal of Technical Analysis, past
board member and vice-president of the
Market Technicians Association Educational Foundation and a member
of the American Association of Professional Technicians (AAPTA). He co-authored
Technical Analysis: The Complete Source for Financial Market Technicians, the primary
textbook for the CMT program and for university graduate courses on technical
analysis, authored Beat the Market, and most recently, Time the Markets: Using
Technical Analysis to Interpret Economic Data.

He is a graduate of Phillips Exeter Academy, Harvard College (AB) and the Wharton
School (MBA) and lives with his wife in Maine.

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 Defining
Technical Analysis

Charts, Chart
Best Practices
Types, and Chart
for Trend Traders
Construction

Basics of Trend
Analysis

Agenda
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Defining Technical
Analysis
 Fundamental Analysis &Technical Analysis
Two Common Types of Analysis

Fundamental Analysis Technical Analysis

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 Defining Fundamental Analysis

Definition
Fundamental analysts study companies
using measures such as:
• Quality of management
• Labor relations
• Inventory control
• PE ratio and EPS growth rates
• Return on equity and assets

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 Defining Fundamental Analysis

Limits
Fundamental analysis does not help you
with:
• Timing of the investment
• Making the selling decision
• Quantifying the risk vs. reward

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 Defining Technical Analysis

Definition
Technical analysis primarily studies historical
market data. It also:
• Focuses on the supply-and-demand dynamic
expressed via stock prices
• Visualizes shifts in supply-and-demand which can be
seen in chart patterns
• Accounts for the emotional aspects of the marketplace
• Quantifies the capital risk of trading and
investment decisions
• Does not try to predict the future

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 Defining Technical Analysis

Limits
Technical analysis is still not a perfect
investment method and has limits:
• Patterns, trends, and indicators are never precise,
and charts require human interpretation
• Technical traders are susceptible to the same
emotions and cognitive biases as all other investors

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 Defining Technical Analysis

Assumptions
• Prices in freely traded markets are determined by
the economic principles of supply-and-demand
• Price discounts everything
• Prices are nonrandom but not necessarily
predictable
• Prices have direction and tend to travel in
observable trends
• Behavior and history in the marketplace will
repeat itself
• Price patterns summarizing behavior are “fractal”

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Charts, Chart Types,
and Chart Construction
 Charts, Chart Types, & Chart Construction
Overview

Analyze price Easily visualize

behavior the patterns and
trends within data

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 Charts, Chart Types, & Chart Construction
Overview

Line Bar Candlestick Point & Figure

Chart Chart Chart Chart

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 Chart Types

Bar Charts
Visualizes
• Open, High, Low, Close
• Volume for a specific time interval

Advantages
• Most common
• Easy to read
• Provides full range of trading for time interval

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 Chart Types

Candlestick Charts
Visualizes
• Open, High, Low, Close
• Volume for a specific time interval

Advantages
• Gaining popularity
• More visual than a bar chart
• Uses color to show differences between
open and close prices

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 Chart Construction

Reversal Points
When a price is rising, stops, and then
declines, the price at which the rise
halted is a “reversal point.”
• In this situation, the reversal point is called a “peak”
and is important because it is where buyers were
overcome by sellers.
• When a price is declining, stops, and then rises, the
price at which the decline halted is a reversal point
called a “trough.” It is the price at which sellers were
overcome by buyers.
• Reversal points are the foundations of trends, trend
lines, channels, patterns, and support and resistance.

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 The Value of Reversal Points

The longer the trend,

the more important Breakout
the reversal point Breakout
Above
Above
Peak C
Reversal point importance is Breakout
Peak B Peak C
Peak B
determined by the length of Above
Peak A
the trend before and after the Peak A
peak or trough.

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Basics of Trend
Analysis
 The Value of Trends

Technical analysis is based on the

principles of trends

Trends arise from the interaction

of buyers and sellers

Profit is made from a trend in prices

A trend’s direction is described by the relative

location of peaks and troughs

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 Assumptions about Trends

Trends continue rather than reverse

Trends are influenced by the next longer

and the next shorter trend

Trends are fractal, meaning that

although they occur over different time
periods, their behavior is the same

Trends are not mechanical methods that can

easily be programmed and tested on computers

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 Uptrend

An uptrend has
successively higher
peaks and higher
troughs.

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 Downtrend

A downward trend
has successively
lower peaks and
lower troughs.

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 Sideways Trend

A sideways trend
is a period with
no clear direction
in prices.

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 Trend Influence

Keep time frame in

mind while
considering the
importance of a
trend.

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 From Trend to Trend Line

Definition
A trend is a direction; a trend line is an attempt to define and use that
direction.

How do we draw trend lines?

• From peak to peak
• From trough to trough

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 Types of Trend Lines
Overview

Upward Downward Support and

Sloping Sloping Resistance

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 Upward Sloping

A line connecting
trough to higher
trough

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 Downward Sloping

A line connecting
peak to lower peak

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 Support and Resistance

Support
Horizontal line drawn
through troughs at the
same price level

Resistance
Horizontal line
drawn through peaks at
the same price level

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 Profiting from a Trading Range

Green points
are candles that
hit support and
resistance levels
on close.
Red are intraday
and do not close
at support and
resistance.

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 When Support Becomes Resistance

Once the price breaks

through support, that
support becomes
future resistance.
When the price
eventually rallies back
to that level, it hits
selling pressure
and reverses back
down again.

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 When Resistance Becomes Support

When resistance
is penetrated, it
can become
support

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Best Practices
for Trend Traders
 Trend Trading

Best Practices
Determine:
• Strategy and conditions for entering/exiting trade
• Need of confirmation
• Triggers that will cause the entry to be executed
• Specific risk involved

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 Strategies for Trend Investors

UPTREND Entry and Exit Strategies

EXIT Entry strategy
• Consider buying when chart patterns demonstrate a
new trend

Exit strategy
• Consider selling when the trend reverses or
ENTER
appears to have ended

When investors using technical analysis

execute these two strategies successfully,
they may make a profit.

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 Entry Strategy

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 Exit Strategy

The trend line

crosses previous
troughs.
A trigger could
be a breakout
below the rising
trend line.

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 Visit the Fidelity
Learning Center
Learn more about
putting technical
analysis to work
for you

Read: Access the Technical Indicator Guide

Watch: Check out videos that define core

technical concepts

Attend: Register for monthly webinars

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 Thank
Please join us for our
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877-907-4429

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 Important Information

Any screenshots, charts, or company trading symbols mentioned, are provided for illustrative purposes
only and should not be considered an offer to sell, a solicitation of an offer to buy, or a recommendation
for the security.

Investing involves risk, including risk of loss.

Technical analysis focuses on market action – specifically, volume and price. Technical analysis is only one
approach to analyzing stocks. When considering what stocks to buy or sell, you should use the approach
that you're most comfortable with. As with all your investments, you must make your own determination
whether an investment in any particular security or securities is right for you based on your investment
objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.

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