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Basics of Technical Analysis From J PDF
Basics of Technical Analysis From J PDF
Basic's of Technical
Analysis
Smart Investor
http://www.jagoinvestor.com
Email :
manish.pucsd@gmail.com
Contents
1.
2.
3.
4.
Important Points
Each Chapter has example's to help reader understand the concepts well.
You are Free to share the content provided you link back to
http://www.jagoinvestor.com and give proper credits to Author ie. Manish
Chauhan .
If you have any questions or concerns , mail me at manish.pucsd@gmail.com
Do not Use this ebook or its contents for any commercial Purpose .
Here you can see that Robert has got the stock at 15% lower price , which means his
profits will always be more than Ajay's by that much . What did Robert do ? Robert
used simple Technical Analysis concepts and entered in the stock with better prices ,
It does not mean it will always happen , but there are good chances for getting better
price .
In the above case of Reliance , there is no significant price difference , but there can
be cases ,where there can be drastic differences , and it would be really worth to use
basic Technical Analysis .
Support Example 2 : Below is a chart of RPL . Here you can see that
prices made lows of Rs 70 around Dec 1 , 08 . That became a support point , and then
prices reached thought levels around first week of Mar 09 , It bounces back from that
point , It was a less risk trade around Rs 70 .
Resistance : Resistance is just opposite of Support , At this price levels there are
more sellers than buyers and with high probability prices reverses from this point . At
this point there are enough sellers in the market to prevent it from rising further .
Resistance point is the High made by a price . All the high's will act as some kind of
resistance points .
Lets see examples :
Resistance Example 1 : Below is Reliance Charts , You can see that reliance made a
high of Rs 1400 around Dec 2008 , After that you can see how it reversed from that
point 2 times in Jan and Feb 2009 . It was a wise decision to sell at those points
You can also find many examples like this if you investigate yourself . Try to see
other charts if you are interested , you can look at charts at ichart.in or
http://www.bazaartrend.com/index.php , find yourself)
Important Note : When prices are near Support or Resistance levels , you should
be more alert . It does not mean that you just jump onto market and buy or sell , Be
patient to see the actual price reversal , Though you will loose some part , that would
be a better trade . Also there are several other factors which should be considered ,
but for now lets not touch upon them . lets keep it simple for readers .
Lets also look at some important points
Break Down : Always remember that when prices dont hold support and break
them and fall further , it tells that buyers are not strong enough and Sellers have taken
over them and prices will make new lows , When support is broken , Sell further .
Example :Below is the chart of RPL , which shows how it broke down its support
point and then made further lows .
Break Out : When prices dont hold resistance points and break them on upside ,
prices then indicate that they are going to make new highs . Better to buy at that point
.
3. Many times there are false breakout and breakdown , So it will many times happen that
you get out at important levels and miss the large movement , thats fine , you can always
enter after getting out .
4. This is most important point , Everything I talked about in this article can increase your
chances of making more money in trading , but remember that you are dealing in Markets ,
and if you dont control your GREED and emotions , your failure is guaranteed . Use strict
Stop losses and use Money management techniques (it means not putting all your money at
once , if you have 10 lacs , put only 1 lac , dont be greedy enough , else someday you
markets will punish you badly , then no Technical analysis or any thing will help . have
good amount of cash with you always ).
All technical Analysis and knowledge are of no help if a person cant control his greed
and emotions in Market . TA and your knowledge will contribute not more than 20%
of your success in long run .
You can see in the chart how Two high prices were joined and the line acted as Strong
Resistance in future , 3 times prices touched it and broke down again , These are
good price area where either one can go Short (sell) , or book there profits . You can
see that now prices are again Approaching to this Resistance line ,so once prices
reach this point , it may provide a good opportunity to sell .
What will happen exactly , better not to predict and let market decide .
Understand that we are not saying that prices has to necessarily touch the Resistance
line and then go back down , the trend line only provides Resistance , it may again go
back much before touching it .
If you see the chart , i have connected two low prices and extended it in future , you
can clearly see how it acted as support area and prices went back up from there , At
the end , you can see how prices are again approaching this support area , most
probably this will again hold and it should be a good BUY :)
Let us see one more example for Trend lines . This example will show us following
things :
- Resistance line using trend line .
- Breakout
- How Resistance once broken became Support
- Resistance line using trendline for shorter time frame .
Let us see a 2 yrs chart of JAIPRAKASH ASSOCIATES
You can see here how i joined two HIGH Points and extended the trendline in future ,
and how prices reacted to this Resistance line . Recently Prices broke out of this
resistance line and then this same resistance line acted as Support line and prices
bounced back from there .
Also you can see a small trendline , which was made joining the low points . you can
see how prices bounced up as this support line held the prices . So , we have seen
some examples of Trend lines and how they can act as Resistance or Support lines (as
per situation) .
Itsmoreofanarttomakeatrendline,itdependshowyoumake
themusingHIGHPRICE,CLOSEPRICEetc.
YoucanmakeTrendlineforanytimeframe.
Itsnotnecessaryforpricestotouchtrendlines,youshouldnotexpect
it.
ItsawisedecisiontoBUYORSELLusingtrendlines.Iftradegoes
inyourfavor,letyourprofitsrun,ifitfails,cutyourlossesshort
andacceptit.thereisnoproblemwithbeingwrong.eventhebestin
Industryfail.
TrendlineswillbeofnohelpunlessyoucontrolyourGREEDin
markets.dontputallyourmoneyinasingletrade.Keepadequate
cashforbadtimes.
Oncetrendlinesarebroken,takeitseriously,ithashappenedfora
reason:).
Makesurethatthetwopointsusedtomaketrendlinearenotvery
near,thereshouldbesometimegapbetweenthemtobelievein
them.
Moretimestrendlineistouchedbythepricestrongeritbecomes,And
strongeristhebreakoutfromthattrendline.
Conclusion :
So we end this Article here , We saw Importance of Support and Resistance and how
to make trendlines and use them . In the next part (last part) , we will see how we can
use some of the Indicators from technical Analysis to make decision better .
Also , we can see that even by visual inspection we can get some idea about which
area is support and resistance area .
For people interested in learning these things in detail , I would recommend a book
"How to make money trading with Charts" by Ashwini Gujral .
Rules
When its overbought , we SELL the share .
When its oversold , we BUY the share .
SS BUY signal = when blue color line crosses down the Red line .
SS SELL signal = when blue color line crosses above the Red line .
RSI BUY signal = when RSI has moved below 30 and starts moving up .
RSI SELL signal = when RSI has moved above 70 and starts falling down .
To make signals more stronger , we will use both the indicators signal and take BUY
or SELL only when both shows same kind of signal .
OVERBOUGHT = when RSI and SS both are overbought
OVERSOLD = when RSI and SS both are oversold .
Note
At any point of time, markets may be in any of 3 state .
- Uptrend
- Downtrend
- Side ways Movement
Understand that these signals work best in range bound market , like we had for last 6
months . When market were moving in range of 3100-2600 . If markets are in strong
Uptrend or Downtrend , these indicators will generate many false signals .
Hence , In different markets we have to use different strategies .
Uptrend Market : IN Uptrend , you should avoid selling the stock , when there is
small correction , Indicators can fast move in oversold region , that is the time you
should BUY . But not SELL when prices are in over bought market .
Downtrend Market : In Downtrend , you should avoid Buying the stock , only SELL
when the indicators are in overbought region .
Sideways Market : In this market , you can buy and sell both .
Lets see some examples for last 6 months . This was a Sideways market (but still
downward bias was there , so be careful with BUY , you can take SELL easily) .
DLF
ICICI BANK
RELIANCE CAPITAL
Thanks
Thanks for reading the ebook . I hope you have learned some thing which can
help you . To read more articles like these visit http://www.jagoinvestor.com
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