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Disclaimer
This presentation is being provided solely for informational purposes. Afghanistan Global Commodity Exchange does not warrant the accuracy or completeness of any information provided in this presentation and such information is provided without any correctness or condition of any kind. Neither Afghanistan Global Commodity Exchange nor any other person associated with the creation of this presentation or its contents shall be liable or responsible to any person for any harm, loss or damage that may arise in connection with the use of this presentation, including without limitation, any indirect, third party, or consequential damages.
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3. RESEARCH & DEVELOPMENT DEPARTMENT,AGCXL.ALL RIGHTS RESERVED
Flow of Presentation
What is Technical Analysis?
Basis of Technical Charts
Chart Analysis
Support & Resistance Levels
Leading vs. Lagging Indicators
Strengths of Technical Analysis
Weaknesses of Technical Analysis
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4. What is Technical Analysis?
Forecasting of future financial price movements based on past price movements
Weather Forecasting-does not result in absolute predictions about the future
Helps investors anticipate what is “likely” to happen to prices over time
Uses a wide variety of charts
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5. Basis of Technical Analysis
Charles Dow propagated the Dow Theory
Laid the foundation for modern technical analysis
Pieced together from the writings of Charles Dow over several years
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6. Basis of Technical Analysis
Price Discounts Everything
Price reflects all information
Represents the fair value
Reflects the sum knowledge of all participants, including traders, investors, etc.
Utilizes the price to interpret the nature of the market
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7. Basis of Technical Analysis
Price Movements are not Totally Random
Prices trend but sometimes prices do not trend too
Possible to identify a trend, invest or trade
Possible to identify both short and long-trends
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8. Basis of Technical Analysis
What is more important than why
Fundamentalists are concerned with why the price is what it is
Technicians are concerned with
What is the current price?
What is the history of the price movements?
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Chart Analysis
Supports technical analysis
Prices
Open-Price at which the market opens at
High-Highest Price attained
Low- Lowest Price reached
Close-Price at which the market closes at
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Chart Analysis
Line Chart-Uses only the Closing Prices
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Chart Analysis
Bar Chart - Open, High, Low and Closing Prices
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Chart Analysis
Japanese Candlesticks
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Support & Resistance
Represents key levels where demand and supply meet
Prices are driven by excessive demand and supply
Demand is synonymous with bulls & buying
Supply is synonymous with bears & selling
If the levels are broken, the relationship between demand and supply has changed
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Support & Resistance
Support
Price level at which demand is strong enough to prevent it from declining further
Normally lies below the current price
As price declines towards support, buyers become more inclined to buy and sellers become less inclined to sell
When price reaches support level, demand will overcome supply, preventing prices from further decline
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Support & Resistance
Resistance
Price level at which selling is strong enough to prevent the prices from rising further
Normally lies above the current price
As price rises towards resistance, sellers become more inclined to sell and buyers become less inclined to buy
When price reaches resistance level, supply will overcome demand , preventing prices from further rise
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Support & Resistance
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Leading Indicators
Leading indicators are designed to lead price movements
Represent a form of price momentum over a fixed look-back period
Some of the more popular leading indicators include Relative Strength Index (RSI)
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18. RESEARCH & DEVELOPMENT DEPARTMENT,AGCXL.ALL RIGHTS RESERVED
Leading Indicators
Momentum Oscillators
Momentum measures the rate-of-change of a security's price
As the price of a security rises, price momentum increases
Once this rise begins to slow, momentum will also slow
As a security begins to trade flat, momentum starts to actually decline from previous high levels
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Leading Indicators
Benefits of Leading Indicators
Early signaling for entry and exit is the main benefit
Leading indicators generate more signals and allow more opportunities to trade
Leading indicators are best used in trending markets
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Leading Indicators
Drawbacks of Leading Indicators
With early signals comes the prospect of higher returns and with higher returns comes the reality of greater risk
More signals and earlier signals mean that the chances of false signals and whipsaws increase
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Lagging Indicators
Follow the price action and are commonly referred to as trend-following indicators
Trend-following indicators work best when markets or securities develop strong trends
These indicators are not effective in trading or sideways markets
Some popular trend-following indicators include moving averages (exponential, simple) and MACD.
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Lagging Indicators
Benefits of Lagging Indicators
Ability to catch a move and remain in a move
Indicators can be enormously profitable and easy to use
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Lagging Indicators
Drawbacks of Lagging Indicators
Lost when a security moves in a trending range
Signals tend to be late
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24. Strengths of Technical Analysis
Focus on Price
Sense to focus on price movements
Price movements usually precede fundamental developments
Technicians are automatically focusing on the future
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25. Strengths of Technical Analysis
Supply, Demand and Price Action
Use the OHLC when analyzing the price actions
OHLC reflects forces of demand and supply
Higher prices reflect increased demand and lower prices reflect increased supply
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26. Strengths of Technical Analysis
Support/Resistance
Identify support and resistance levels
Prices move within a confined range for an extended period which means supply and demand are deadlocked
If prices moves out of the range, it means either supply or demand has changed
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27. Strengths of Technical Analysis
Pictorial Price History
Reactions prior to and after important events.
Past and present volatility.
Historical volume or trading levels.
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28. Strengths of Technical Analysis
Assist with Entry Point
Help with timing a proper entry
Fundamental analysis decides what to buy and technical decides when to buy
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29. Weaknesses of Technical Analysis
Analyst Bias
Subjective and personal biases can be reflected
Important to be aware of such biases
If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis
If the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt
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30. Weaknesses of Technical Analysis
Open to Interpretation
Different technicians will paint different scenarios or patterns
Both will come up with logical support to support their notion
Technical analysis is more like an art than a science
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31. Weaknesses of Technical Analysis
Always Another Level
Always another important level close at hand
Accused of sitting on the fence and failing to spot the developing trend
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32. Weaknesses of Technical Analysis
Trader’s Remorse
Not all technical signals and patterns work
Each Asset class will have its own idiosyncrasies
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