COMPRIHENSI

VE GUIDE TO
TECHNICAL
ANALYSIS
 TECHNIQUES OF MARKET
ANALYSIS.

FUNDAMENTAL ANALYSIS.
TECHNICAL ANALYSIS.
QUANTITATIVE ANALYSIS
WHAT IS TECHNICAL ANALYSIS ?

 Technical analysis is a research technique to

identify trading opportunities in market through
study of historical price movement on chart.
HISTORY ALWAYS
REPEATS ITSELF.
PEOPLE MOVE MARKETS
 Overtime, patterns are formed within charts and
each pattern conveys a message. The job of a
technical analyst is to identify these patterns and
identify trading opportunities.
What can we expect from technical
analysis.

Trades - TA is best used to identify short term trades.

Return per trade- SMALL AND CONSISTENT

PROFIT.
Holding Period – TRADES CAN LAST BETWEEN FEW
MINUTES TO FEW WEEKS.
Application of TA.
 The greatest feature of TA is that you can apply it on
:-
1. WORKS IN ALL MARKETS – INDIAN,GLOBAL, CRYPTO.

2. WORKS ON ANY ASSET CLASS.- EQUITY ,

COMMODITIES , FOREX, FIXED INCOME.

Example :- Think about learning how to drive a car.

Once you learn how to drive a car, you can literally drive
any type of car.
Assumption in Technical Analysis
1) Markets discount everything-
2) The ‘how’ is more important than
‘why’
3) Price moves in trend.
4) History tends to repeat itself.
The Chart Types.
 1. Line chart.
The line chart is the most
basic chart type and it uses
only CLOSING PRICE
To form the chart.
2.CANDLESTICK CHART.
 The candlesticks originated from Japan. The
earliest use of candlesticks dates back to the 18th
century by a Japanese rice merchant named
Homma Munehisa.
FORMATION OF CANDLESTICKS

4 DATA NEEDED FOR FORMING A CANDLE.

1.OPEN PRICE
2.CLOSE PRICE
3.HIGH PRICE
4.LOW PRICE
BULLISH CANDLE

Open = 62
High = 70
Low = 58
Close = 67

BEARISH CANDLE
Open = 456
High = 470
Low = 420
Close = 435
TYPES OF CANDLESTICKS:
ONLY TWO TYPES OF CANDLES OTHERS ARE ONLY WASTE OF TIME

 1. MOMENTUM CANDLE 2. TRADING CANDLE / RANGE CANDLE

A NOTE ON TIME FRAMES.
The Support and Resistance

 Thesupport and resistance (S&R) are specific price

points on a chart which are expected to attract
maximum amount of either buying or selling.
 These levels exist due to the influx of buyers and sellers
at key junctures.
 Support and resistance levels can be drawn using a
variety of technical indicators such as Moving averages,
horizontal levels, trendlines  , etc.
 1. What is a support level?
 Support is a zone where the price tends to find a cushion as it falls. In general, the
price is more likely to “rebound” from this level rather than pierce through it.
However, once the price breaks down from this level, it is likely to continue falling
until meeting another support.
 EXAMPLE OF SUPPORT.
2. What is a resistance level?
 It is a zone where the price tends to find resistance as it rises. In general, the price is
more likely to “bounce back down” from this level. However, once the price pushes
above this level it is likely to continue rising until it meets another resistance.
 EXAMPLE OF RESISTANCE
  Role reversal/Change of polarity:
 A resistance level  after a successful breakout turns into support and
a support level after a breakdown turns into resistance. This is known
as "Change of Polarity" and the zone is called a "Flip zone".

Support becomes resistance after breakdown and resistance becomes

support after breakout.
 Flipping of support and resistance.
Sample trade setups in support & resistance
 1. Buying the resistance breakout.
If after being rejected several times by the resistance, the price finally manages to
break out. The right course of action can be to wait for a successful retest of this
level, before going long. This is done in order to avoid fake breakouts/bull traps.
 2. Selling the support breakdown
 Ifafter being rejected several times by the support, the price finally manages to
break down. The right course of action can be to wait for a successful retest of
this level, before going short. This is done in order to avoid bear traps.
Playing in between support & Resistance.
 BUY THE SUPPORT AND SELL THE RESISTANCE
 TREND ANALYSIS
What Is a Trend?
 A trend is the overall direction of a market 
  In TA , trends are identified by trendlines.
 Price swing highs and swing lows.
  IDENTIFY UPTREND IN MARKET.
 An uptrend is an overall move higher in price, created by higher highs and
higher lows.
 As long as the price is making these higher swing lows and higher swing
highs, the uptrend is considered intact.
  IDENTIFY OF DOWNTREND IN MARKET
 A downtrend is an overall move lower in price, created by lowers lows
and lower high.
 As long as the price is making these lower swing lows and lower swing
highs, the downtrend is considered intact.
  SIDEWAYS MARKET
 A sideways trend is the horizontal price movement that occurs when the forces
of supply and demand are nearly equal.
  the price moves in a narrow band, neither going upward nor downward.
 Sideways market indicates ACCUMULATION and DISTIBUTION phase of
institutional traders.
INTRODUCTION
TO TECHNICAL
INDICATORS
 Technical indicators are TOOLS used by a
trader for analysing market movements.

 Technical indicators are heuristic or pattern-

based signals produced by the price,
volume, and/or open interest of a security or
contract used by traders who follow
technical analysis. By analyzing historical
data, technical analysts use indicators to
predict future price movements.
Categories of Technical Indicator
 MOVING AVERAGES
 A Moving Average (MA) is a technical indicator that averages a
ASSETS price over a period of time.

 The indicator is described as “moving” because the

introduction of new figures will replace old data points and
‘move’ the line on the chart.

 Moving average can be used to identify support and resistance.

 Moving average is a trend-following indicator.

 Historical price data is needed to plot moving average on chart.

EXAMPLE:
 The exponential moving average
The EMA give higher weightage to
recent prices.
 COMBINATION OF MOVING AVERAGES.

 50 DAY AND 200 DAY EMA

Moving average crossover system
 The single moving average system generates far too many trading
signals in a sideways market.
 Instead of the usual single moving average in a MA crossover system,
the trader combines two moving averages.
 1st MA is a fast- moving average like – 50 day.
 2nd MA ia a slow- moving average like -200 day.
 The entry and exit rules for the crossover
system is as stated below:

 Rule 1) – Buy (fresh long) when the short term moving averages

turns greater(CROSSOVER) than the long term moving average.

 Rule 2) – Exit the long position (square off) when the short term

moving average turns lesser(CROSSBELOW) than the longer-term

moving average.
50 EMA AND 200 EMA
CROSSOVER SYSTEM
 Some of the popular combinations for a swing trader would
be:

 9 day EMA with 21 days EMA – use this for short term trades ( upto few trading session)

 25 day EMA with 50 days EMA – use this to identify medium-term trade (upto few weeks)

 50 day EMA with 100 Day EMA – use this to identify trades that lasts upto few months

 100 day EMA with 200 days EMA – use this to identify long term trades (investment

opportunities), some of them can even last for over a year or more.
 PROPERTIES OF MOVING AVERAGE:

 CUSTOMIZABLE ACCORDING TO TRADERS PREFERANCE.

 TIMEFRAME HAVE GREATER SIGNIFICANCE ON MA.

 WORKS WELL IN ONLY TRENDING MARKET.

 The RSI is considered a momentum indicator which
means that it’s used to determine the speed and
strength of price movement and whether the underlying
momentum is strengthening or weakening.
  RSI indicator oscillates between 0 and 100.
 Trader identify OVERBOUGHT and OVERSOLD ZONE
through RSI.
 An asset is usually considered overbought when the RSI is
above 70% and oversold when it is below 30%.
  Trading Divergence in RSI and PRICE

Divergence means the difference

between price and RSI movement.

 TWO TYPES OF DIVERGENCE:

1. BULLISH DIVERGENCE.

 A bullish divergence is identified when the RSI

formed higher lows as the price formed lower lows.
2. BEARISH DIVERGENCE
 A bearish divergence is identified when the RSI formed lower
highs as the price formed higher highs.
  Limitations of the RSI
 the indicator displays momentum, it can stay overbought or oversold for a long time when an asset has
significant momentum in either direction.

 Using RSI alone can generate false signals.

 A stock which is in a continuous uptrend (remember the uptrend can last from few days to few years)
the RSI will remain stuck in the overbought region for a long time, and this is because the RSI is upper
bound to 100. It cannot go beyond 100

 A stock that is in a continuous downtrend, the RSI will be stuck in the oversold region since it is lower
bound to 0. It cannot go beyond 0. In this case, the trader will be looking at buying opportunities, but
the stock will be going down lower.
  What is MACD?
  MACD is all about the convergence and divergence of the
two moving averages. Convergence occurs when the two
moving averages move towards each other, and divergence
occurs when the moving averages move away.

 This technical indicator is a tool that’s used to identify

moving averages that are indicating a new trend, whether it’s
bullish or bearish.
 Calculation and formation of MACD.
 With a MACD chart, you will usually see three numbers that are used for its settings.

• The first is the number of periods that are used to calculate the faster-moving average.

• The second is the number of periods that are used in the slower moving average.

• And the third is the number of bars that are used to calculate the moving average of the difference between the faster
and slower moving averages.
 MACD LINE
 The MACD Line is the difference (or distance) between two moving averages. These
two moving averages are usually exponential moving averages (EMAs).

 SIGNAL LINE
 The Signal Line is the moving average of the MACD Line.
 The purpose of the Signal Line is to smooth out the sensitivity of the
MACD Line.

 HISTOGRAM
 The Histogram which is a graphical representation of the distance
between the MACD Line and Signal Line.
 MACD CROSSOVER SETUP.