lecture 7 technical analysis
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Lecture 7 Technical Analysis. Economics 98 / 198 Fall 2007. Announcements. Hand in homework by the end of class. Current Events / News. Simulation Discussion. Lecture Content. Today…. Introduction to technical analysis Basics & definitions Stock charts & chart types Moving Averages - PowerPoint PPT PresentationTRANSCRIPT
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Lecture 7
Technical AnalysisEconomics 98 / 198
Fall 2007
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Announcements
• Hand in homework by the end of class
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Current Events / News
Simulation Discussion
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Lecture Content
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Today…• Introduction to technical analysis
– Basics & definitions– Stock charts & chart types– Moving Averages– Trends / Channels– Support & Resistance– Volume
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Technical Analysis? Huh?• Don’t get intimidated when hear “technical
analysis”
• Comes down to your supply and demand– How is this different from fundamental analysis?
• Tries to make sense of market emotions by studying the market actions
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CHART BASICSTechnical Analysis: Introduction to Stock Charts
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Basic Terms• Volatility
• Fluctuations
• 52-week high / low
• Price / trading range
• Open / closing price
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Charts• Maps price performance
• Sheds light on supply and demand
• “investment roadmap”
• Price / volume relationship important
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Chart Types - Line Charts• Most basic of all charts
• Just a line that connects the closing prices over a time frame
• No trading range
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Chart Types – Bar Chart
• Vertical line represents highs/lows of the day
• Horizontal line represents closing price
• Red = down
• Blue/Black = up
Daily High
Daily Low
Closing Price
Price Gap
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Chart Types – Candlestick Charts• Vertical line represents the
trading range• Wide bar represents open
and close• White bar – Up and closes
above opening price• Red Bar – down• Black bar – up, but closes
below the opening price
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Chart Basics – Time Scale• Time Scale
– Dates along bottom of chart (varies from seconds to decades)
– Common Types: intraday, daily, weekly, monthly
– Subtle differences between different time scales
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Chart Basics – Time Scale
Daily Chart Weekly Chart
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Volume
• Amount of shares that trade hands between seller and buyers
• Price movements more significant when volume is above average
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Price and Volume
Average Volume
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Trends are your Friends• Trend: general direction of stock• Uptrend: higher highs, higher lows
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Sometimes, trends difficult to see
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Trendlines
• Simply put, a line drawn on a chart to represent the overall trend
• Upward trendline, connecting the lows, represents support
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Channels
• Two parallel trend lines that act as areas of support and resistance (more later)
• Any break through the channel is a break of the trend, otherwise the price should stay in range
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SUPPORT / RESISTANCETechnical Analysis: Introduction to Stock Charts
By Johns Wu & thebulltrader.com
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Chart Analysis : Support
Price at which BUYERS > SELLERS consistently.
Buyers who missed out on the first dip will be pressured to buy if price continues to respect the support.
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AMZN Example of Supports
AMZN retraces from a monstrous rally to
$60
AMZN stops tanking at $60. NOT A
COINCIDENCE.
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GOOG Support Psychology
GOOG skyrockets from AWESOME earnings, but should I buy it????
$510. MANNNN, I should have bought GOOG
OK. I’m not gonna miss out again.
BUY @ $452
$$$$$!!
CAUTION: Supports can breakdown.
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Support Breakdowns
SELL if support “breaks down”, because it signifies that BUYERS no longer overpower SELLERS.
Breakdowns are a BEARISH SELL signal.
You should have sold here, at the BREAK DOWN.
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Chart Analysis : Resistance
Price at which SELLERS overwhelm BUYERS consistently.
When a stock makes a new high and then retraces, sellers who missed out @ the previous peak will feel pressured to sell when price climbs back to that level.
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TM – Resistance Psychology
I should have sold when TM was $138!!
Finally! $138. I better sell this time.
Should I sell?? Na, I’ll take my chances.
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Resistance Breakouts
When price “breaks out” above resistance, it becomes a new support level. *** IMPORTANT ***
Breakout signifies clear dominance of BUYERS. (good time to buy)
This is a BULLISH BUY signal.
My favorite trade setup.
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TGT Resistance Breakout
RESISTANCE BECOMES SUPPORT
BREAKOUT!!
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SHLD Breakout Trade
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MOVING AVERAGESTechnical Analysis: Introduction to Stock Charts
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Moving Averages (DMA or WMA)• Most popular are 50-day and 200-day• Shows the average price of the last # days and
plots it on a line• Often acts as areas of support and/or resistance
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WIRE – Support @ 10 WMA
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WIRE – Support @ 10 WMA
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CPA – Support at 20 & 50 DMA
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CPA – Support at 20 & 50 DMA
20 DMA and 50 DMA becomes points of
support for this stock
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So…• Charts are fundamental to technical analysis
• Important to understand what is shown on a chart and the information it conveys
• Chart patterns and bases to come…
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TOOLS FOR STOCK CHARTSTechnical Analysis: Introduction to Stock Charts
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Charting on StockCharts.com
Getting comprehensive stock charts
• Type in the company symbol
• Once you’re at the stock page, click on annotate to draw your own trendlines.
• From there, you will get lots of tools for analyzing stock charts
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StockCharts.com
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Annotating in StockCharts
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Using Charts on Investors.com
• Log in using your username and password (you all have one as of now)
• Enter a symbol for the stock and then click on IBD Charts just below it– There are links throughout the website that link
to IBD charts
– Right clicking on the chart will give you important data for that day or week
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Moving averages
Volume
Relative Strength Line
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Homework / Reading
• “Technical Analysis: Introduction”– Investopedia Tutorial– Link is on the download page of the website
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Next Week• We’ll be going over strategies using charts to
buy stocks– Timing market bottoms – Identifying chart bases / patterns– Timing your stock purchases (after you’ve done
your research / stock screens)
• This is going to be the most technical / complicated part so make sure you understand the basics