Module 1 :-
What is technical analysis (Basics)
Technical analysis is a trading tool employed to evaluate securities and attempt to forecast their future movement by analyzing statistics
gathered from trading activity, such as price movement and volume. Unlike fundamental analysts who attempt to evaluate a security's
intrinsic value, technical analysts focus on charts of price movement and various analytical tools to evaluate a security's strength or
weakness and forecast future price changes.
Technical analysts believe past trading activity and price changes of a security are better indicators of the security's likely future price
movements than the intrinsic value of the security. Technical analysis was formed out of basic concepts gleaned from Dow Theory, a
theory about trading market movements that came from the early writings of Charles Dow. Two basic assumptions of Dow Theory that
underlie all of technical analysis are 1) market price discounts every factor that may influence a security's price and 2) market price
movements are not purely random but move in identifiable patterns and trends that repeat over time.
History of technical analysis
Difference Between Technical and Fundamental Analysis
Fundamental Analysis Technical Analysis
Calculates stock value using economic Uses price movement of security to predict
Definition
factors, known as fundamentals. future price movements
Data gathered
Financial statements Charts
from
When trader believes they can sell it on for a
Stock bought When price falls below intrinsic value
higher price
Time horizon Long-term approach Short-term approach
Function Investing Trade
Return on Equity (ROE) and Return on
Concepts used Dow Theory, Price Data
Assets (ROA)
iPhone Evaluation AOL from November 2001 through August
([Link] 2002
Example
2/08/apples-crown-jewel-valuing- ([Link]
[Link] ) s#Prices_move_in_trends)
Vision looks backward as well as forward looks backward
Dow Theory
There are six main components to the Dow theory. They are summarized briefly here:
1. The market discounts everything. The Dow theory operates on the efficient markets hypothesis (EMH), which states that asset prices
incorporate all available information. In other words, this approach is the antithesis of behavioral economics. Earnings potential,
competitive advantage, management competence – all of these factors and more are priced into the market, even if not every individual
knows all or any of these details. In more strict readings of this theory, even future events are discounted in the form of risk.
2. There are three kinds of market trends. Markets experience primary trends which last a year or more, such as a bull or bear market.
Within these broader trends, they experience secondary trends, often working against the primary trend, such as a pullback within a bull
market or a rally within a bear market; these secondary trends last from three weeks to three months. Finally, there minor trends lasting
less than three weeks, which are largely noise.
3. Primary trends have three phases. A primary trend will pass through three phases, according to the Dow theory. In a bull market,
these are the accumulation phase, the public participation (or big move) phase, and the excess phase. In a bear market, they are called
the distribution phase, the public participation phase, and the panic (or despair) phase.
4. Indices must confirm each other. In order for a trend to be established, Dow postulated that indices or market averages must confirm
each other. Dow used the two indices he and his partners invented, the Dow Jones Industrial Average (DJIA) and the Dow Jones
Transportation Average (DJTA), on the assumption that if business conditions were in fact healthy – as a rise in the DJIA might suggest
– the railroads would be profiting from moving the freight this business activity required. If asset prices were rising but the railroads
were suffering, the trend would likely not be sustainable. The converse also applies: if railroads are profiting but the market is in a
downturn, there is no clear trend.
5. Volume must confirm the trend. Volume should increase if price is moving in the direction of the primary trend, and decrease if it is
moving against it. Low volume signals a weakness in the trend. For example, in a bull market, volume should increase as the price is
rising, and fall during secondary pullbacks. If, in this example, volume picks up during a pullback, it could be a sign that the trend is
reversing as more market participants turn bearish.
6. Trends persist until a clear reversal occurs. Reversals in primary trends can be confused with secondary trends. Determining whether
an upswing in a bear market is a reversal – the beginning of a bull market – or a short-lived rally to be followed by lower lows is
difficult, and the Dow theory advocates caution, insisting that reversal be confirmed.
Module 2:-
What is Crossover --
A crossover is the point on a stock chart when a security and an indicator intersect. Technical analysts use crossovers to aid
in forecasting the future movements in the price of a stock.
In most technical analysis models, a crossover is a signal to either buy or sell.
What are Moving Averages
A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise”
from random price fluctuations. It is a trend-following, or lagging, indicator because it is based on past prices.
Double crossovers
Triple crossovers
Bollinger bands
Bollinger Bands is a tool invented by John Bollinger in the 1980s as well as a term trademarked by him in 2011.
Bollinger Bands® are not a standalone trading system. They are simply one indicator designed to provide traders with information
regarding price volatility. John Bollinger suggests using them with two or three other non-correlated indicators that provide more direct
market signals. He believes it is crucial to use indicators based on different types of data. Some of his favored technical techniques are
moving average divergence/convergence (MACD), on-balance volume and relative strength index (RSI).
Module 3:-
What is a stop loss
A stop-loss order (also called a stop order or stop market order) is an order whereby the investor instructs the broker to
automatically sell the stock if it drops to a certain price.
why stop loss is important
The advantage of a stop order is you don't have to monitor on a daily basis how a stock is performing. This is especially handy when
you are on vacation or in a situation that prevents you from watching your stocks for an extended period of time.
Stop-loss orders are traditionally thought of as a way to prevent losses thus it's namesake. Another use of this tool, though, is to lock in
profits, in which case it is sometimes referred to as a "trailing stop".
Most importantly, a stop loss allows decision making to be free from any emotional influences. People tend to fall in love with stocks,
believing that if they give a stock another chance, it will come around.
Finally, it's important to realize that stop-loss orders do not guarantee you'll make money in the stock market; you still have to make
intelligent investment decisions. If you don't, you'll lose just as much money as you would without a stop loss, only at a much slower
rate.
Risk Management
In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in
investment decisions. Essentially, risk management occurs any time an investor or fund manager analyzes and attempts to quantify the
potential for losses in an investment and then takes the appropriate action (or inaction) given his investment objectives and risk
tolerance.
Module 4 :- Different types of Charts--
Bar Charts
Candlestick Charts
Line Charts
Point Charts
Multiple Time Frames
Module 5 :- Technical Indicators and oscillators--
MOVING AVERAGES
Here are the types of moving averages on the chart:
Simple Moving Average (SMA)
Exponential Moving Average (EMA)
Smoothed Moving Average (SMMA)
Linear Weighted Moving Average (LWMA)
MACD ( Moving Averages Convergence and Divergence)
To fully understand the MACD indicator, it is first necessary to break down each of the indicator's components.
The Three Major Components
[Link] MACD Line
MACD Line is a result of taking a longer term EMA and subtracting it from a shorter term EMA.
The most commonly used values are 26 days for the longer term EMA and 12 days for the shorter term EMA, but it is the
trader's choice.
[Link] Signal Line
The Signal Line is an EMA of the MACD Line described in Component 1.
The trader can choose what period length EMA to use for the Signal Line however 9 is the most common.
[Link] MACD Histogram
As time advances, the difference between the MACD Line and Signal Line will continually differ. The MACD histogram takes
that difference and plots it into an easily readable histogram. The difference between the two lines oscillates around a Zero
Line.
A general interpretation of MACD is that when MACD is positive and the histogram value is increasing, then
upside momentum is increasing. When MACD is negative and the histogram value is decreasing, then downside momentum
is increasing.
STOCHASTICS (%K & %D)
This is a quote from George Lane, the inventor of the STOCHASTIC indicator:
“Stochastics measures the momentum of price. If you visualize a rocket going up in the air – before it can turn down, it
must slow down. Momentum always changes direction before price.” – George Lane, the developer of the Stochastic
indicator
The Stochastic indicator does not show oversold or overbought prices. It shows momentum.
[Link]
Example 1: A high Stochastic number
When your Stochastic is at a high value, it means that price closed near the top of the range over
a certain time period or number of price candles.
Example 2: A low Stochastic number
Conversely, a low Stochastic value indicates that the momentum to the downside is strong.
The Stochastic signals
Breakout trading:
Strong trends:
Divergences:
Combining the Stochastic with other tools
Moving averages:
Trendline:
RSI (Relative Strength Index)
The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum oscillator that measures the speed and
change of price movements. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought
when above 70 and oversold when below 30.
Divergences
Module 6 :--
Patterns--
what are the Trend continuation patterns
what are the reversal patterns
Flags
wedges
Pennants
Triangles
how to trade triangles
Ascending triangles
Descending triangles
Symmetrical Triangles
Rectangles
Trading Breakouts and Fackouts
Tops
Bottoms
Head and Shoulders