TECHNICAL ANALYSIS



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The Foundation of technical analysis is the Chart.

This technical analysis will be very useful for those who are new to technical analysis in share market. 

The following points will explain how to make use of different types of indicators, support level, resistance level etc.

If proper technical analysis is done then the investment strategies will improve drastically.

This article has all basic terms of technical analysis but this will give you better idea of the share market but if you are interested to know more about technical analysis then

Basics of Technical analysis (1) What Are Charts?

Charts : 1. Line Charts

2. JapaniseCandlestick Chart 

3. Bar Charts

Line charts Displays Stocks closing prices

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CANDLESTICK CHARTS displays stocks open high, low, and closing price. 

These type of charts are the most popular type of all charts.

As shown below the top of each vertical bar represents the highest price of the stock and the bottom of the bar represents the lowest price of the stock it reached on that day. A closing price (last price) is displayed on the right side of the bar. 

The red bar indicates that stock has closed lower then its open price and white bar indicates that the stock has closed above its open price. At the bottom you can see time frame.

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For more learning about candilestic patters visit :

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To more above :

Basics of Technical analysis (2) Meaning of Support and Resistence

Moving Averages

Moving averages are one of the oldest and most popular technical analysis tool.

To brief you moving average is calculated by adding the closing prices of a stock for most recent 15 days and then dividing by 15 the result what you get is the 15 day moving average. 

How to trade on moving average

Suppose If the stock price is above its 25 day moving average, it means that investor's current expectations (the current price of the stock) are higher than their average expectations over the last 25 days, and that investors are becoming increasingly bullish on this stock and result is that the stock price may go up.

Conversely,

if today's price is below then its 25 day moving average, it shows that current expectations are below average expectations over the last 25 days and this may bring stock price lower..

The moving average is used to observe changes in prices. Investors typically buy when a stock price rises above its moving average and sell when the price falls below its moving average.  Simply to say

➢ > 25 days average = Stock price come UP

➢ < 25 days average = Stock Price come DOWN

1. Moving Averages - Used to find trend of the stock, support, resistance

|* SMA |Simple Moving Average is one of the simplest indicators to calculate. It gives the |

| |average price of stock over a specified period of time. Generally Moving Averages are |

| |calculated for the closing prices of the stocks at the end of the day. But you may also |

| |calculate for the High, Low, Close and even on the traded Volumes of the stock. |

| |For example, the 9 period SMA gives the average closing price of the stock for the past 9|

|[pic] |days. It is calculated as follows: |

| |If P1 represents the price on day 1; P2 represents the price on day 2 and so on, then SMA|

| |for period n is calculated as follows: |

|[pic] |SMA (for period n) = ( P1 + P2 + P3 + …… + Pn ) / n |

| |So for example, if the close prices of a stock for 4 consecutive days are as follows: |

| |120, 121, 122 and 123. |

| |Then the SMA (for period 4) = (120 + 121 + 122 +123) / 4 |

| |So SMA (for period 4) becomes 486/4 = 121.5 |

| |How to trade with Moving Averages ? |

| |Moving Averages are particulary useful in identifying the direction of an uptrend or |

| |downtrend of stocks and markets in general. They are based on the previous data and hence|

| |are generally referred to as lagging indicators which help us in locating the trend and |

| |following on in the trend . Since they do not allow you to predict the trend, you have to|

| |use other technical indicators in conjunction with them during trading. |

| |Generally, the most common way to trade with the Moving averages is this - If the price |

| |crosses above the moving average, it means that a buying interest has set in - and thus |

| |indicates a buy signal. Similarly when the price crosses down the moving average, it |

| |means that a selling pressure has set in - thus indicates a sell signal. |

| |Although it helps in indicating the current trend, it does not indicate for how long this|

| |trend would continue or when does the reverse trend begin. So traders should be cautious |

| |about this when using the moving averages for planning trades. It is also important to |

| |consider the volume for the security in question before trading. Sporadic movements with |

| |low volumes can generate erratic signals. |

| |Example : Look at this chart of Reliance capital shown below. The bold yellow line |

| |indicates the price and the thin blue line indicates the 9-day Simple Moving Average of |

| |the Close price of this stock. |

| |Longer and shorter Moving Averages |

| |Moving averages can be configured any period of your choice. The most common ones are 9 |

| |Day, 30 Days, 50 days and the 200 Day Moving averages. The longer the period, smoothing |

| |will be more. Thus in stocks which display a great deal of sharp glitches and breaks, |

| |longer moving averages would make sense, as smoothing would be better. Choosing short |

| |period moving averages in such cases would result in erratic signals. |

| |Short trends are identified by short period MAs - like the 9 day and 15 day MAs. A medium|

| |term trend is given by the 30 - 50 day moving averages. 100 and 200 day moving averages |

| |can indicate the intermediate long term trends. |

| |Trading with Moving average Crossovers |

| |Plotting both long term and short term Moving averages for the same security can lead to |

| |crossovers. This can also indicate some trading signals in some cases. A buy signal is |

| |generally assumed if the short term moving average crosses over the long term moving |

| |average. Similarly a sell signal can be indicated when the short moving average falls |

| |down the long term moving average. |

| |Example: Look at this chart of the stock ABB in the NSE. The bold yellow line signifies |

| |the price movement of the stock. The blue line is the 30 day EMA and the brown line is |

| |the 200 day EMA. |

| |As can be seen from the chart, when the short term MA i.e the 30 day EMA (blue line) |

| |crosses over the long term MA ( 200 day EMA - brown line), then an uptrend is identified |

| |and thus a buy signal is generated. |

| |As indicated earlier, MA can help in identifying trends and can give late trading |

| |signals. When used with other technical indicators, they can be very helpful in |

| |determining trading strategies. |

|* EMA |Exponential Moving Average (EMA) |

| |Exponential Moving Average (EMA) statistically applies exponentially decreasing weighting|

| |factor to the data. Thus EMA results in providing more importance to the recent |

| |variations in the data. So EMA reacts sharply to the recent data when compared to the |

| |SMA. |

| |EMA for the Close price of a security is calculated as follows: |

| |EMAc = (ClosePrice x Factor) + ( EMAp x (1-Factor) ) |

| |where: EMAc = Current EMA |

| |EMAp = Previous EMA |

| |ClosePrice = Current Closing Price |

| |Factor = 2 / (n+1) , where n is the period for which EMA is calculated |

|* TRIX |A triple-smoothed Moving Average of price movements. |

2. Stock Volatility

|* BBW = Bollinger Band Width    |Shows the distance between a stock's Bollinger Bands |

| | |

|A band plotted two standard deviations away from |Bollinger bands are envelops that surround the price bars on a chart. Click here to see an |

|a simple moving average [pic] |example. Bollinger band consists of the middle band, upper band and lower band. Middle band is a |

| |simple moving average (N period), upper band is K times N period standard deviation above the |

|In this example of Bollinger bands, the price of |middle average and lower band K times N period standard deviation below the middle average. For |

|the stock is banded by an upper and lower band |short term trading, the simple moving average is suggested to be 10-days simple moving average, |

|along with a 21-day simple moving average. |20 days for intermediate and 50 days for long-term trading. Standard deviations for short term |

| |trading should be 2 for lower band and 20 for upper band. |

| |Note that bollinger bands do not generate any buy or sell signals. Not all by themselves that is.|

| |They should be used with other technical indicators such as relative strength index (RSI). For |

| |example, if the price touches the upper band and RSI is below 70 then this is an indication that |

| |the trend will continue. If the price touches the lower band and the RSI is above 30 then this is|

| |also an indication of trend continuation. |

| |If you want to see possible trend reversals on the chart with bollinger bands and RSI then it can|

| |be seen IF the price touches the upper band and the RSI is above 70 or if the price touches the |

| |lower band and the RSI is below 30. |

| |For computing bollinger bands, usually close prices are being used. |

| |Bollinger bands have mainly two uses, to identify high and low periods and to identify prices |

| |that are on extreme levels. Contracting bands also give an indication that the market is about to|

| |trend – the first breakout is often a false alarm follower by the move towards the opposite |

| |direction. |

| |Duh...I do agree it might sound complicated...even to me. And you might not fully understand it -|

| |the reason for that is that I don't fully understand it either, so there might be some updates to|

| |this post soon. However, as I learn something every day (even if I'm not posting it here), I |

| |believe in the idea that even if I knowlingly can't always understand something or if I can't |

| |remember some things later, the general understanding of it all is generating itself in my |

| |brain...so even if I don't complitely understand something, I still get SOMETHING from it...and I|

| |hope you do too. And when going back to it afterwards, it will be a lot easier to understand. |

|* CCI  = Commodity Channel Index |Shows : a stock's variation from its 'typical' price. |

|* ATR  = Average True Range |Measures : a stock's volatility. |

| | |

| |It’s a measure of volatility. It’s used as one component in many other technical indicators. |

| |There are different ways to calculate ATR – for example from today’s high to today’s low, from |

| |yesterday’s close to today’s high or low. Usually ATR is a 14-day moving average of the true |

| |ranges. |

| |High ATR values are often visible in market bottoms. Low ATR values are often visible during |

| |extended sideways periods in market tops. |

3. Overbought and Oversold

|RSI = Relative Strength Index |Shows how strongly a stock is moving in its current direction. |

| |RSI Definiton and Calculation |

| |RSI is a popular technical indicator that was developed by Welles Wilder. It is very popular because|

|RSI=/>70 = Over Sold /Bearish |its very simple to interpret this indicator. It is an oscillator indicating the overbought and |

|RSI=/ RED line is SHORT TERM moving average

> BLUE line is LONGTERM moving average.

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When the

Short Term moving average crosses ABOVE> the long term moving - Upward direction, it means BULLISH

and there may be rise in stock price. (See GREEN lines above)

Short Term moving average crosses BELOW< the long term moving - Downward direction, it means BEARISH and there may be Decrease in stock price. (See RED lines above)

RSI = Relative Strength Index (RSI) Result : >70(+BUY=bearish) ................
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