Technical analysis

Price charts :
Charting represents a key activity in technical
analysis. Graphical representation is the very basis
of technical analysis.
The price chart is the basic tool used by the technical
analyst to study the share price movement.
The oldest charting procedure was known as the
point and figure ( P & F ) charting.

A share may be traded in the market on

each trading day important prices are :
High price
Low price
Opening price
Closing price

Charts :
The charts are :
Line chart
Bar chart
Japanese candlestick chart

1. Line chart
It is the simplest price chart, the closing prices of a
share are plotted on the XY graph.
All these points would be connected by a straight
line which would indicate the trend of the market
as shown in the figure

Chart Types - Line Charts

Most basic of all charts

Just a line that connects

the closing prices over a
time frame

Days

Bar chart :
It is perhaps the most popular chart used by technical
analysis.
A bar is formed by joining the highest and the lowest price
of a particular day by a vertical line.
The top of the bar represents the highest price of the
day.
The bottom of the bar represents the lowest price of the
day.
A small hash on the left side of the bar represents the
opening price of the day.
A small horizontal hash on the right side of the bar
represents the closing price of the day.

Chart Types Bar Chart

Vertical line represents highs/lows of the day
Horizontal line represents closing price
Red = down
Blue/Black = up

Daily High
Closing Price
Daily Low

Price Gap

1200
1000
800
600

open

400
200
0

41501

41502

41503

41504

41505

41506

Japanese candle stick :

To draw a Japanese candlestick chart all the four
prices are required high, low, open , closing
prices.

The highest price and the lowest price of a day

are joined by a vertical bar.
The opening and closing price of the day which
would fall between the highest and the lowest
prices would be represented by a rectangle.
So that the price bar chart looks like a
candlestick.

70
60
50
40
Close

30
20
10
0

37377

37408

37438

37469

37500

There are three types of candlestick are

White candle stick

Black candle stick
Doji candle stick

White candlestick :
A white candlestick is used to represent a
situation where the closing price of the day is
higher than the opening price
A white candlestick indicates a Bullish trend.

Black candlestick :
A Black candlestick is used when the closing
price of the day is lower than the opening price.
Black candlestick indicates a Bearish trend.

Doji candlestick :

A doji candlestick is one when the closing price

and the opening price of the day are the same.

Trends are your Friends

Trend: general direction of stock
Uptrend: higher highs, higher lows

Sometimes, trends difficult to

see

Trendlines

Simply put, a line

drawn on a chart
to represent the
overall trend

Upward trendline,
connecting the
lows, represents
support

Trend and Trend

Reversals :
Trend is the direction of movement of share prices
in the market.
When the prices move upwards, it is a raising trend
or uptrend.
When the prices moves downwards, we have a
falling trend or downtrend.

Share prices seldom move in a straight line. The

main trend is interrupted by short term counter
movements known as secondary reactions. The
result is a Zigzag movement giving raise to
alternating tops and bottoms.

The formations of higher bottoms and higher tops

indicates a raising trend, while the formation of
lower tops and lower bottoms indicates a falling
trend.

The change in the direction of trend is referred to

as trend reversal
A share that exhibits a raising trend may
start to move narrowly or fall after sometime.
This change in the direction of
movement represents a trend reversal.

The reversal from a raising trend to a falling trend

is marked by the formation of a lower top and a
lower bottom and vice versa.

A technical analyst
tries to identify the trend
reversals at an early stage so as to trade profitably
in the market.
when the trend reverses and begins to raise the
technical analyst would recommend purchase of the
share.
When the trend begins to fall, sale is indicated.

During a flat trend the investor should stay away from

the market.

Chart Patterns :
These patterns are used by the technical analysts
to identify trend reversal and predict the future
movement of prices.
The chart patterns are classified as :

Support and Resistance pattern

Reversal patterns
Continuation patterns

Support and Resistance :

Support and Resistance are price levels at which the

downtrend or uptrend in price movements is reversed.

Support :
Support occurs when price is falling but
bounces back or reverses direction every time it reaches
a particular level.
When all these low points are connected by a
horizontal line, it forms the support line
Support level is the price level at which
sufficient buying pressure is exerted to halt the fall in
prices.

Chart Analysis : Support

Price at which BUYERS > SELLERS consistently.
Buyers who missed out on the first dip will be
pressured to buy if price continues to respect the
support.

Resistance :

Resistance occurs when the share price move

upwards.
The price may bounce back every time it
reaches a particular level.
A horizontal line joining these tops forms the
resistance level.
Thus, resistance level is the price level
where sufficient selling pressure is exerted to halt
the ongoing rise in the price of a share.

Chart Analysis : Resistance

Price at which SELLERS overwhelm BUYERS
consistently.
When a stock makes a new high and then
retraces, sellers who missed out @ the
previous peak will feel pressured to sell when
price climbs back to that level.

If the scrip were to break the support level and

move downwards, it has bearish implications
signaling the possibility of a further fall in prices.
Similarly, if the scrip were to penetrate
the resistance level it would be indicative of a
bullish trend or a further rise in prices.
Once a support level is violated, it would reverse
roles and become a resistance level which is
violated becomes the new support level for any
future downward movement in price.

Reversal Patterns :

Price movements exhibit uptrend and

downtrends. The trends

Resistance Breakouts
When price breaks out above resistance,
it becomes a new support level. ***
IMPORTANT ***
Breakout signifies clear dominance of
BUYERS. (good time to buy)
This is a BULLISH BUY signal.

My favorite trade setup.

TGT Resistance Breakout

BREAKOUT!!

RESISTANCE BECOMES
SUPPORT

AMZN Example of Supports

AMZN retraces
from a monstrous
rally to $60

AMZN stops tanking

at $60. NOT A
COINCIDENCE.

GOOG Support Psychology

$510. MANNNN, I should
have bought GOOG

$$$$$!!

GOOG skyrockets from

AWESOME earnings,
but should I buy it????

OK. Im not
gonna miss
out again.
BUY @
$452

CAUTION:
Supports can
breakdown.

Support Breakdowns
SELL if support breaks down, because it signifies
that BUYERS no longer overpower SELLERS.
Breakdowns are a BEARISH SELL signal.

You should have sold

here, at the BREAK
DOWN.

Finally! $138. I
better sell this time.

TM Resistance Psychology

Should I sell?? Na,

Ill take my chances.

I should have sold

when TM was $138!!

SHLD Breakout Trade

Thank you