Professional Documents
Culture Documents
COL Technical Analysis (Part 2)
COL Technical Analysis (Part 2)
STOCKBROKERS
Presents
“Technical Analysis – Part 2
Technical Indicators & Market Cycles”
Presented by:
Juan G. Barredo
Vice President
Chief Technical Analyst
CitisecOnline.com Inc.
Outline
• Review of Part 1
• Technical Indicators
– Moving Averages
– MACD
– DMI
– RSI
• Market Cycles
– Bull and Bear
– Elliot Wave
– 4 Market Modes
• Building the plan
Part 1 Review
Looking into Trends
1. Identify your Trend (check support/resistance)
UP – Higher Highs and Higher Lows
DOWN – Lower Highs and Lower Lows
SIDEWAYS (Consolidations) – Not any of the above
Resistance
Reversal of Roles
Resistance now
Support acting as Support
Trends & Trendlines
Up Trendline
Down Trendline
Magnitude & Duration
This principle states:
“It takes time for price to move towards its intended target.”
… any exaggeration must eventually be paid for in time and/or price.
50
(1) Correction in Time 45
40
(Magnitude)
35
30
(2) Correction in Price
Price
25
20
Time
15
(Duration)
Technical Indicators
Technical Indicators
• A technical indicator is a study of price data
derived from various statistical formula
plotted onto a graph
• It serves three basic functions:
– To Alert
– To Confirm Consequential Price Movements
– To Predict
• Drawback:
• Does not work well in Consolidations
• Four indicators:
• Moving Averages
• The MACD
• Directional Movement Indicator (DMI)
• Relative Strength Indicator (RSI)
Moving Averages
• A price-average line plotted
onto a chart in direct reference We use three period
to market price. Moving Averages:
• Its use is of great importance 65-day =1/4 a year
as it illustrates where price (trending MA)
concentrations are, given a set 130-day = ½ a year
period of study. In this light the 260-day = 1 year
MA can act as support or You can also use 32 & 16
resistance. day MAs to decipher
• A 10-day Moving Average will faster (shorter) trends.
be computed as follows: Ave.
Price = (Price of day 1 + day 2 +
day 3 +… price of day 10) / 10
Moving Averages
32-day MA
65-day MA Crossover
Sell
Sell
Buy
Sell
•How to use: Buy above the line or stay long; sell or stay out below it
• Crossover of smaller MAs over/below bigger MAs reinforce the trend
Moving Averages
Lopez Holdings
16-day MA
R
32-day MA S
65-day MA R R
130-day MA R
S
260-day MA
R
S
• MACD
• Signal line
• Zero line
MACD (Moving Average Convergence Divergence)
• The MACD being above or below the Signal Line will
call either a Buy or Sell read:
•MACD crossover above the Signal line = BUY
•MACD crossdown below the Signal Line = SELL
Momentum Momentum
Sell
Positive
Buy Sell
Negative
Buy Buy
Moving Averages
Lopez Holdings
Buy
Sell
RSI (Relative Strength Indicator)
• A momentum-oscillator that swings to and fro an
Overbought or Oversold conditions to highlight
extreme ends of a price move.
• It too comes with three component lines:
RSI
80% Line
20% Line
RSI (Relative Strength Indicator)
A divergence is a
lapse in strength
shown by the RSI
compared with its
Prices.
i.e higher-high in price
compared with a
lower-high in RSI.
This produces bearish
connotations that
could lead to a larger
corrective tug.
Putting it all together
Preparing your plan/checklist
Momentum
Swing or
Trading Bullish Warning
Range Trading
Accumulation Distribution
Swing or Momentum
Range Trading Recovery Bearish Trading
Identify your Market Phase
UP DOWN
Swing Mode Momentum Mode Swing Mode Momentum Mode
Ranges & Gradual Strong Channels & Ranges & Gradual Strong Channels &
Channels Runaway shifts Channels Runaway shifts
- Range Trading - Buy breakouts - Range Trading - Short breakdowns
- Buy Low Sell High - Buy and Hold - Sell Rallies Buy Dips - Short and hold
- ADX slips above 20 - ADX > 30 - ADX slips below 40 - ADX > 30
- DMI + crossovers - DMI + crossovers - DMI + crossdowns - DMI + crossovers
- MACD buy - MACD buy - MACD sell - MACD sell
- RSI below 40 then - RSI > 50 - RSI over 60 then - RSI < 50
rolling up rolling down
- Price > 65-day MA - Price > 16&32-day - Price < 65-day MA - Price < All MA
MA
Identify your Market Phase
Preparing our View and Plan
1. Get a broad look at markets
• Macro – Global Markets (indices, currencies,
commodities, bonds)
• Micro – PSEi, Sectors, standouts and fallouts
2. Determine what phase your are in
3. Pick out your watch list
4. Use classical and Technical Indicators to filter
your choices
5. Prepare your trading plan
• Sort out your target ranges
• Identify your stops
• Measure your risk-reward potential
• Act out on qualified trades
What to do?
38.2%
50.0%
61.8%
What we have learned
1. Technical Analysis
2. Classical Approach
3. Technical Indicators
1. MAs
2. MACD
3. DMI
4. RSI
4. Market Cycles
5. Fostering your market view “Knowledge born from actual
experience is the answer to why
and trading plan one profits; lack of it is the reason
one loses…”
- Gerald M. Loeb