Technical Analysis

Technical Analysis - Technical Analysis Copyright 1996-2006...

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Copyright © 1996 – 2006 Investment Analytics Slide: 1 Technical Analysis Copyright 1996-2006 Investment Analytics
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Copyright © 1996 – 2006 Investment Analytics Slide: 2 Technical Analysis ¾ Technical Analysis: ± Study of past market action to forecast prices ± Looks for patterns in historical data
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Copyright © 1996 – 2006 Investment Analytics Slide: 3 Technical Analysis Tools ¾ Charting ¾ Gann ¾ Elliot Wave ¾ Cycle Theory ¾ Oscillators & Indicators ¾ Japanese Candlesticks ¾ Market Profile ¾ Computerized Trading Systems
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Copyright © 1996 – 2006 Investment Analytics Slide: 4 Classical Charting ¾ Trend Lines ¾ Support/Resistance ¾ Continuation Patterns ¾ Reversal Patterns ¾ Gaps & Spikes ¾ Moving Averages
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Copyright © 1996 – 2006 Investment Analytics Slide: 5 Trends ¾ Trend Direction Uptrend: Downtrend: higher highs, higher lows lower lows, lower highs ¾ Trend timeframe: 3 Trends: (e.g. weekly, daily, hourly) ¾ Main technical analysis tools: Trend Lines Moving Averages
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Copyright © 1996 – 2006 Investment Analytics Slide: 6 Trendlines ¾ Drawing Trendlines: Connect highs to highs, lows to lows Draw through congestion areas Ignore ‘tails’ or ‘spikes’ ¾ Trends are stronger . . . . The longer the trendline The more contacts between prices and the trendline When volume expands in the direction of the trend
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Copyright © 1996 – 2006 Investment Analytics Slide: 7 Trendline Examples 62 64 66 68 70 72 74 ` R i s n g V o l u m e B A Trend B is more significant than trend A . . . 1. More contact points 2. Longer trendline 3. Rising volume
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Copyright © 1996 – 2006 Investment Analytics Slide: 8 Trading Rules for (UP)Trends ¾ Trade only in the direction of the trend Ignore all signals to short a bull market ¾ Wait for a pullback to the trendline to get long Wait! If no pullback - forget it! ¾ Use a trailing stop to get aboard the trend: As pullback nears trendline, place an order to buy on a stop one tick above previous day’s high ¾ Set protective stop Once you are long the market Place a stop loss order just below the trendline Move your stop up as trend progresses
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Copyright © 1996 – 2006 Investment Analytics Slide: 9 Trading Rule Illustrated 62 64 66 68 70 72 74 ` 1. Pullback approaches trendline at point A 2. Order to buy on a stop, 1 tick above high at A 3. Get stopped in at next day’s open - point B 4. Place an order to sell on a stop at level C A B C
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Copyright © 1996 – 2006 Investment Analytics Slide: 10 Trendlines Breaks ¾ Trendlines provide support & resistance ¾ Steep trendlines (over 45 degrees) precede sharp breaks ¾ A pullback to the trendline after a break is often a good shorting opportunity
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Copyright © 1996 – 2006 Investment Analytics Slide: 11 Trading Trendline Breaks 300.0 310.0 320.0 330.0 340.0 350.0 360.0 370.0 380.0 390.0 400.0 11/25/88 12/16/88 01/06/89 01/27/89 02/17/89 03/10/89 03/31/89 04/21/89 05/12/89 06/02/89 06/23/89 07/14/89 08/04/89 08/25/89 09/15/89 10/06/89 10/27/89 11/17/89 12/08/89 12/29/89 01/19/90 02/09/90 03/02/90 03/23/90 04/13/90 05/04/90 05/25/90 06/15/90 07/06/90 07/27/90 08/17/90 09/07/90 09/28/90 10/19/90 S&P 500 Futures Buying Opportunity Buying Opportunity Selling Opportunity
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This document was uploaded on 11/04/2011 for the course ECON 421 at CUNY York.

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Technical Analysis - Technical Analysis Copyright 1996-2006...

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