2023 – Technical Analysis of

Financial Markets
Module 1: Introduction to Technical
Analysis, Charting Techniques, and
Arithmetic Scale vs. Ratio Scale

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Icebreaker
1) Find a partner in the class and ask him/her the following
questions:
• What is your name?
• What is your academic/professional background?
• Why are you taking this course?
• What kind of experience do you have in stock trading?
• What is your top trading/investment strategy for the next 12
months?
2) Report to the class what you have found

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Quick Bio of Tim Fong
• Academic background in math, actuarial science and financial engineering
• 20+ years experience in derivatives trading, risk analytics, financial risk
management and pension investments
• Currently VP, Quantitative Risk at Coast Capital Savings Federal Credit
Union
• Former Managing Director in financial risk at the Office of the
Superintendent of Financial Institutions Canada
• Teaching at the University of Toronto’s School of Continuing Studies
responsible for financial trading and investing courses
• Experienced and passionate trading coach and mentor (through private
one-on-one sessions)
• Recipient of the school’s “Excellence in Teaching Award” in 2008 and 2021
• Recipient of the Queen Elizabeth II Diamond Jubilee Medal for significant
contribution to Canada through personal and professional achievements in
2013

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Finance Courses Taught by Tim
• Certificate in Financial Trading & Option Strategies
– Technical Analysis of the Financial Markets (SCS2023)
– Value-investing Strategies and Fundamental Analysis
(SCS2652)
– Option Trading and Strategies (SCS2191)
– Advanced Technical Analysis and Algo Trading
Strategies Workshop (SCS3331)
• Bitcoin and Cryptocurrency Investing Workshop (SCS3437)
• Sustainable Investing (SCS3951)

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 Course Plan
Module Titles
Current Focus: Module 1 – Introduction to Technical Analysis, Charting
Techniques, and Arithmetic Scale vs. Ratio Scale
Module 2 – Dow Theory and Trend Analysis
Module 3 – Pattern Recognition and Financial Statistics
Module 4 – Quantitative Indicators I
Module 5 – Quantitative Indicators II
Module 6 – Lightning Round, Candlestick Chart Analysis, and Point and Figure
Chart Analysis
Module 7 – Breadth Analysis, Volume Analysis, Sentiment Analysis, Sector
Analysis, and Sensitivity Analysis
Module 8 – Performance Measurement, Risk Management Strategies, and Money
Management Techniques
Module 9 – Lessons Learned from Trading Exercises and Special Topics: Ichimoku
Charts and Financial Psychology 5
 Topics for this Module

• 1.1 Course Overview

– Quote of the week
• 1.2 Introduction to Technical Analysis
• 1.3 Charting Techniques
• 1.4 Arithmetic Scale vs. Ratio Scale

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Module 1 – Section 1

Course Overview

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Course Overview
• Weekly lesson plan
• Textbook for the course: Technical Analysis Explained by Martin J.
Pring, 5th Edition
• Reference book: Technical Analysis of Financial Markets by John
Murphy
• Evaluation
• Certificate in Financial Trading and Option Strategies
• Technical Analysis Course as part of the Certificate Program in
Derivatives Market Strategies at CSI
• Access to internet and Microsoft Excel
• Trading exercises
• Refer to [Link] and the calendar for
general information on registration, grading and other school polices

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Activities Throughout the Course
• Trading Exercise

• Breakout Group Social

• Tim Fong’s “Lightning Round”

• Q&A Session – with shareable Word document where learners can ask
questions anonymously

• Critique of YouTube Videos

• Drawing the Yearbook for this Class in terms of key lessons learned

• Virtual Campfire (in the last class)

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 Stock Trader’s Mindset

Option Trading Strategies

(Leverage and Risk Mgmt)

Technical Analysis
(Short Term Forecasting)

Fundamental Analysis & Value-

Algorithmic Trading
Investing Strategies
(Automatic Execution)
(Long Term Forecasting)

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Types of Trader
• Day Traders:
– Intraday
– Use simple technical analysis including
support/resistance and patterns
• Swing Traders:
– 1 day to 1 month
– Use technical analysis including oscillators
• Position Trader:
– 1 month to 1 year
– Use technical analysis and fundamental analysis

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Two Key Questions for You
• Have you heard of the 90/90/90 rule?

• What are the differences between an institutional trader vs.

a retail trader?

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Market Knowledge
• What is the meaning of “bullish”? How about the meaning
of “bearish”?

• Why do traders need so many screens? What are the

typical “4 Screens” they need?

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Introductory Example

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A Few Comments on the Introductory Example
“A picture is worth thousands words.”
1) What is the name of the company?
2) What is the company’s symbol?
3) What is the time frame of chart?
4) What kind of chart is that?
5) What kind of prices does the middle/blue curve bounded by the upper
and lower grey curves represent?
6) Where do you get the chart from?
7) As a general observant (without any prior technical analysis
background), what are the top 3 observations?

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Free Charting Platforms
1. StockCharts
– Easy to use
– Plenty of education resources
– Will be used for the course
– Click here for [Link]

2. TradingView
– More sophisticated in general
– More quantitative indicators available
– Can conduct backtesting
– Click here for [Link]

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 Group Exercise 1

• Without knowing the subject matter, what are your key

observations on the previous chart?

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Example of a Quantitative Indicator – Parabolic
SAR

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The $995 Question
• If a stock moves up from point A to point B, what
would the trajectory or path look like in reality?
Draw it on a piece of paper.

stock price

time

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Quote of the week
“If you don’t bet, you can’t win.
If you lose all your chips, you can’t bet.”
– Larry Hite

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 Learning Outcomes for this Course

• By the end of the course, you will be able to figure out what
and when to buy/sell in the context of profit maximization
and risk minimization by:
– Plotting various types of charts (for free)
– Drawing trendlines
– Recognizing trading patterns
– Using signals generated by quantitative indicators
– Analyzing volume, breadth and sentiment of the markets
– Applying risk management and money management techniques
– Measuring and monitoring the trading performance

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 Module 1 – Section 2

Introduction to Technical
Analysis

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What is technical analysis?
• The process of making prediction about the future by
analyzing historical market action.
• Market action includes the four primary sources of market
data are 1) price, 2) time, 3) volume (or open interest for
derivative contracts) and 4) breadth.

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Three Key Assumptions
1. All market influences are discounted (or reflected)
in prices.
– Focus on price action
2. History repeats itself.
– That explains why chart patterns are important
3. Prices move in trends.
– information is first disseminated from informed
professionals or insiders to aggressive investors, and
then to the general investing public. In addition,
technicians claim that processing new information
takes time.

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 Group Exercise 2

• “Buy on rumors, sell on news” is a classic wisdom or phrase

in financial trading.

• Can you explain the above wisdom using the basic

principles underlying technical analysis?

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Fundamental vs. Technical Analysis

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Benefits of Technical Analysis
1. Adaptability to any trading medium and time dimension
2. Forecasting price movements as TA uses market price as
leading indicator
3. Improvement in market timing in terms of entry and exit
points

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 Module 1 – Section 3

Charting Techniques

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Charting Techniques
• Bar Chart
• Line Chart
• Candlestick Chart
• Point and Figure Chart (will be covered in Lecture #6)

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Benefits of Using Charts
1. Summarize a lot of information in a concise way
2. Help identify price patterns, trends and breakouts
3. Allow the market action to be analyzed objectively
(without emotion)

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Construction of Bar Charts

• Most commonly used price

chart
• Also known as open, high,
low, close (OHLC) chart
• Volume is usually found at
the bottom of most bar
charts
• Volume represents the total
number of shares traded on
a given day
• Volume is used for
confirmation of a breakout

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Construction of Line Charts

• Only closing prices are

shown
• There is obviously more
information on a bar chart
• The closing price is the most
important among OHLC
prices because these
positions are held overnight
or over a weekend.

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Construction of Candlestick Charts

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Construction of Candlestick Charts (cont’d)

• Used by Japanese farmers

to monitor crop prices
around 1600s
• Body tells you something
about the direction and
magnitude of the price
change
• Shadow tells you something
about the intra-day volatility
• Candlestick charts make
certain patterns more
recognizable

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 Group Exercise 3

If you see the above candlestick pattern,

1. Is this a bar chart or candlestick chart?
2. Is this a bullish or bearish signal?
3. Can you explain the market psychology behind this?
4. If the vertical line of the Gravestone Doji is two times long,
does that make this pattern stronger or weaker?

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 Module 1 – Section 4

Arithmetic Scale vs. Ratio Scale

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Arithmetic Scale vs. Ratio Scale
• Arithmetic Scale (Linear Scale)
– Show identical distances for identical point/price moves
– Example: the space between 2 to 4 is the same as that between 20
and 22
– Problem: 100% from 2 to 4 but only 10% return from 20 to 22 (visual
distortion)
– Application: short-term charts (<=1 yr)

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Arithmetic Scale vs. Ratio Scale (cont’d)
• Ratio Scale (Log Scale)
– Show identical distances for identical percentage moves
– Example: the space between 2 to 4 is the same as that between 4
and 8
– Application: long-term charts (> 1 yr)

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Example - Arithmetic Scale

equal distance = equal price change

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Example - Log Scale

equal distance = equal percentage change

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Any questions?

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Thank You
Thank you for choosing the University of Toronto
School of Continuing Studies

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