Technical Analysis

Introduction
Study of past price movements of an individual share or market as a whole
- Buying, selling, rumours and information is going to be factored into the price of a
share as people act on that information
- Cant predict future, nothing can
- Provide us the ability to convert a table of data into an easy to interpret line graph

Chart Types
Line
- Most common
- Plots series of points to graph price movements
- General guide
- Might not track all fluctuations in shares price
over that period

Bar Chart
- Takes information from day’s trading and plots
on a single bar
- Can do weekly or even 1 minute bar charts

Candle Stick
- Constructed using same information as a
bar chart
- Rectangle is used to represent the area
between open and close
- Body is left blank or green if it closed
higher for that specific time period (bullish
candle)
- Red if closed lower (bearish candele)

Defining an Uptrend
- Each subsequent high is higher than previous
- Each subsequent low is higher than previous
- Need to have both
- If you don’t, no uptrend, but doesn’t mean it’s a downtrend either

Defining a downtrend
- Lower lows and lower highs

*Idea is to purchase stocks in an

uptrend, wait for after a downtrend
Markets are not as simple as this. Periods where the market is in neither an uptrend or a
downtrend.

Recognising a change in trend

- Identify when one days high is lower than the
previous days high
- Market becomes neutral
- We then have a lower low then L3, downtrend

Resistance Lines
Draw a line that connects all of the highs
- At this level, the market resists going higher
because there are sellers who enter the
market to sell more shares when the share
trades at this price
- Weight of cumulative selling prevents price
from rising
- Price breaks through suggests selling at this
price is complete
- Can be supportive of the stock, indicative of good news
- Resulting in sellers changing their selling point
- “Buy signal”

Selling Point
Draw a line that connects the lows of the range
- Price drops are supported by level of buyers or buying emerges of sufficient volume
to prevent price from falling through
- If breaks through, may indicate buyer is no longer present at this price, sellers may
be more aggressive
- “Sell signal”

Volume
- Rising volume at time of break or support is generally regarded as further
confirmation that the break is legitimate
Could be a number of reasons
- Higher volume suggests more sophisticated and knowledgeable investors might be
establishing positions
- More individuals are discovering factors that make this investment attractive
Chart Patterns
Rising Triangle
- Flat resistance line suggest enough selling to
absorb the buying at the same price
- Support level sloping upwards, suggests buyers
are becoming progressively more aggressive
- Willing to pay higher prices
- Why? Technical analysis doesn’t concern
himself with why (probably should though)
- Prices should go higher once broken the
resistance
- Add rising volume, another validation

Moving Average
- Average of closing prices for the last ‘n’ days, rolled forward one day
- Larger the number the smoother the moving average, less false signals
- Shorter term, can get into a trend earlier and exit closer to the top but many false
signals, may lose more trades
Common trade
- Buy when stock breaks above MA, sell when price falls below (during a trend)
- Can keep you in the uptrend for longer
- Can keep you out of the market during a down trend