Understanding Chart Patterns, Trends, and Indicators for Stock Market Forecasting, Schemes and Mind Maps of Japanese

Download Understanding Chart Patterns, Trends, and Indicators for Stock Market Forecasting and more Schemes and Mind Maps Japanese in PDF only on Docsity! Technical Analysis Introduction  Technical Analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.  Technicians (also known as quantitative analysts or chartists) usually look at price, volume and psychological indicators over time.  They are looking for trends and patterns in the data that indicate future price movements. Chart Type  Charting Stocks • Bar Charts and Japanese Candlestick Charts • Point and Figure Charts • Line Chart  Major Chart Patterns  Price-based Indicators Basic Technical Tools  Trend  Candle stick  Trend Lines  Moving Averages  Price Patterns  Indicators Support & Resistance  Support and resistance lines indicate likely end of trends.  Resistance results from the inability to surpass prior high.  Support results from the inability to break prior low.  If support has broken than that level become the resistance, and vice-versa. Support Resistance Breakout Up Trend It describes the price movement of a stock when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend. UpTrend Higher Highs – HH Higher Lows - HL HH HH HH HL HL HL Down Trend Describes the price movement of a stock when the overall direction is downward. A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend. Lower High – LH Lower Low - LL LL LL LL LL LH LH LH Sideways Trend It Describes the horizontal price movement that occurs when the forces of supply and demand are nearly equal. A sideways trend is often regarded as a period of consolidation before the price continues in the direction of the previous move.  Equal Highs  Equal Lows Trend Lines Showing Sideways Trend Candlestick Patterns • Bullish Engulfing Pattern • Bearish Engulfing Pattern • Dark Cloud Cover • Doji • Evening Star • Morning Star • Hammer • Hanging Man • Harami • Inverted Hammer • Piercing Line Pattern • Shooting Star  Candlestick Charts is with multiple candlesticks forming reversal and continuation patterns. The open and close are very close together, creating a very small body  It represent indecision between the bulls and the bears. Doji Long-Legged Doji  A long-legged Doji is the same as Doji, except the upper and lower shadows are much longer than the regular Doji formation. The Hammer candlestick formation is a significant bullish reversal candlestick pattern that mainly occur at the bottom of downtrends.  It has a long lower shadow twice the length of the upper body. Hammer Classic Example of Hammer 1-Container Corp of India - 24/11/15 EY >  Classic Example of Inverted Hammer \/ , , =, Classic Example of Hanging Man Choice Nort cial Exeellen FRoa Cae eC E@r ZeUET) F7 ST 4900 4800 4700 4600 4500 4400 4300 4200 4100 4T 3900 3800 3700 3600 3500 3300 3200 3100 a 2900 2800 2700 [CE 5 C= = Oc 7 A = = Pra Shooting Star (jj Y  The Shooting Star candlestick formation is a significant bearish reversal candlestick pattern that mainly occur at the top of uptrends. There is a long upper shadow, generally defined as at least twice the length of the real body. Shooting Star Dien eer) lle pn We 1 ee dle | S ca an a a LP matt Dray rs ste) TLR ATP ROA AAT ARUTOUHOOROOYORYOUOOGTORWONOGOEYOOWONFOOTOTHOEMORNOATOAROTE POAUA ATA ORT AVOCA OO EOGEOOOTHO0 | h Engulfing Patterns pecan ek cr Nic merits co ce or ce ce or oe ce oo oo a 7 or cae) Car ort oe ora " oe TL ih es aap f | | eS | es i ; a  Morning Star Evening Star  An evening star is a bearish candlestick pattern consisting of three candles.  The first candle is a large white bullish candlestick located with an uptrend.  The middle one is a small bodied candle(bullish or bearish) that close above the first candle.  The last candle is a large bearish candle that open below the second candle and closes near the first candle’s center. Evening Star Classic Example of Evening Star sh Choice ave  Bullish Harami  A candlestick chart pattern in which a large candlestick is followed by a smaller candlestick whose body is located within the vertical range of the larger body.  In terms of candlestick colors, the bullish harami is a downtrend of negative-colored (RED) candlesticks engulfing a small positive (GREEN) candlestick, giving a sign of a reversal of the downward trend. Bullish Harami Penn es 21-Sep-15 beter) | Ue eee SO l (ony) ier! ERS) om | Yel iE i Exu) (igs , ' a =. l } ; aoa a ‘ A if f Tem) i i | 73.00 Ene) ead Volume ik Cele E Er] as | ae aa I  Piercing Pattern  The Piercing Pattern is a bullish candlestick reversal pattern, There are two components of a Piercing Pattern formation: • Bearish Candle(day 1) • Bullish Candle (day 2)  Piercing pattern will often end a minor downtrend. Green candle will close above the midpoint and opening of the bearish candle ,i.e. more than halfway up the Red candle. = Cloud Cover Choice Nurturing Finoneial Excellent i-Larsen & Toubro Limited - 24/11/15 re eo eo ea ea ea 1660 on oO 1620 i 1600 1380 o = im a ee a | ior an a 1540 ta my re) a a ie ee te oe nm si ne a eo is Le s ay [> eS a c Cr ae et a ee eee) i CE es ee Pra Trend Lines  There are three basic kinds of trends: • An Up trend where price are generally increasing. • A Down trend where price are generally decreasing. • A Trading Range. Simple Moving Averages  Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels.  Moving averages can be used to quickly identify whether a stock is moving in an uptrend or a downtrend depending on the direction of the moving average. when a moving average is heading upward and the price is above it, the stock is in uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.  Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Conti… Moving Averages Crossover  The other signal of a trend reversal is when one moving average crosses through another. For example, if the 50-day moving average crosses above the 200-day moving average, it is a positive sign that the price will start to increase. Positive Crossover Negative Crossover Negative Crossover Head and Shoulder  This formation is characterized by two small peaks on either side of a larger peak.  This is a reversal pattern, meaning that it signifies a change in the trend. Head Head Left Shoulder Left Shoulder Right Shoulder Right Shoulder Neckline Neckline H&S Top H&S Bottom Example of Head & Shoulder Sell Signal Minimum Target Price Based on measurement rule Sell Signal Minimum Target Price Based on measurement rule aN Choice Example of Double Top rs FE J hae Mu] Ld) | Double Top Reversal he \ { iia on ee an ar aa  Triangles  Triangles are continuation formations.  Three types: • Ascending • Descending • Symmetrical  Typically, price should give break out near the apex, and typically breakout would be in the direction of the prior trend. Ascending Descending Symmetrical Symmetrical Ascending Triangles Choice eee) a La i Sal ed 4 We ed aH Ht, gaia ", Ie ea Por | hl ria bo Ue th Sc en ee eae cs ee er = Broadening Formation  These formations are like reverse triangles.  These formations usually signal a reversal of the trend. Broadening Tops Broadening Bottoms Technical Indicators  There are, literally, hundreds of technical indicators used to generate buy and sell signals.  We will look at few of the major indicators: • Moving Average Convergence/Divergence (MACD) • Relative Strength Index (RSI) • Bollinger Bands MACD  MACD was developed by Gerald Appel as a way to keep track of a moving average crossover system.  The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge.  Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals.  When the signal line goes from negative to positive, a buy signal is generated.  When the signal line goes from positive to negative, a sell signal is generated.  MACD is best used in choppy (trendless) markets, and is subject to whipsaws (in and out rapidly with little or no profit). RSI  A technical analysis tool that is banded between two extreme values and built with the results from a trend indicator for discovering short term overbought and over sold conditions. As the value of the oscillator approach the upper extreme value, the stock seem to be over bought and as it approaches to lower extreme level, it seems to be over sold. Example of RSI Choice i i rr. ( i 4, Tr eT eer ee ae er Ps . i A V ) | ve [ON -Tecse)[e] Overbought eile ‘ hop a i. I a i" i wl in ou wf CE ee ey > 7 J 17 2 A 2 § 11 24 O 2% N 13 3050 ca 2900 2850 a) Bollinger Band  Bollinger bands were created by John Bollinger (former FNN technical analyst, and regular guest on CNBC).  Bollinger Bands are based on a moving average of the closing price.  They are two standard deviations above and below the moving average.  A buy signal is given when the stock price closes below the lower band, and a sell signal is given when the stock price closes above the upper band.  When the bands contract, that is a signal that a big move is expecting, but it is impossible to say if it will be up or down.