1. Bar Charts Point and Figure Charts Moving Averages
Technical Analysis
Bar Charts
Point and Figure Charts
Moving Averages

2. Bar Chart Information
High
Open
Close
Low
Daily
Weekly
Monthly

3. Chart formations Trends Planes Other top and bottom formations
Key Reversals
Flags, Triangles and Pennants
Gaps

4. Up Trend Connect two or more daily price lows
Preferably 10 days apart
When market closes below an uptrend line, a sell signal is generated
Computer trading vs fundamental
Computers may drive prices lower for a few days
If fundamentals don’t support this, then prices will rally

5. Up Trend
Sell Signal

6. Down Trend Connect two or more daily price highs
Preferably 10 days apart
When market closes above a down- trend line, a buy signal is generated
Computer trading vs fundamental
Computers may drive prices higher for a few days
If fundamentals don’t support this, then prices will decline

7. Down Trend
False Buy
Signal

8. Trend line market signals
Speculators
Buy and sell based on signals
Hedgers – Short
Place on sell signal
May choose to offset on buy signal
Hedgers – Long
Place on buy signal
May choose to offset on sell signal

9. Trend Line reliability
A close above a major down trend or below a major up trend will lead to a significant price move about 75% of the time

10. Resistant Planes
Life-of-contract highs can be very difficult for market to penetrate
Strong Fundamental conditions needed to move market above resistance
Sell signal if market fails to take out resistance
Buy signal if market closes above resistance (particularly 2 closes above)

11. Resistant Planes There are also intermediate resistance planes
These are not as hard to penetrate as life-of-contract highs are

12. Resistance plane
Sell Signal

13. Resistance plane
Buy Signal
Sell Signal

14. Support Planes The mirror image of Resistance Planes
Life-of-contract lows
Buy signal if market fails to penetrate
Sell signal if low is taken out

15. Support Planes
Sell Signal

16. Hedgers and Technical Analysis
If understand trends and support and resistance planes:
Time placement of hedge
Set realistic market targets
Perhaps minimize margin calls

17. Other Bar Chart Formations
Double Top or Double Bottom
Head and Shoulders
Key Reversal
Flags, Triangles and Pennants
Gaps
Common, break away, measuring, exhaustion

18. Double Top (triple top)

19. Head and Shoulders
Head
Shoulder
Shoulder
Neck line

20. Key Reversal Higher high Lower low Close below prior day close
Sell signal
Close above prior day close
Buy signal

21. Flag
Decline
Project =
Decline

22. Triangle or Pennant Buy Signal if market breaks out to the top
Sell signal if market breaks out to the bottom

23. Gaps
Break away
Measuring
Exhaustion
Common

24. Complements to Chart Patterns
Trading Volume
Open Interest
Relative Strength Index (RSI)

25. Trading Volume Barometer of level of intensity in the market
If buy/sell signal occurs on a relatively high volume day, then it is more reliable
High/low volume is relative to past trading and relative to specific contract

26. Guidelines for trading volume
Look at all months being traded for a particular commodity
Interpret volume on limit up/down days very carefully
Usually low prior to holiday, 3 day weekend, or major report

27. Open Interest # of contracts that are outstanding
Have not been offset
No binding relationship between Open Interest and Trading Volume
Day traders create volume, don’t change open interest
Open Interest tends to peak and then decline prior to an uptrend reversal
Less reliable on downtrend reversal

29. Relative Strength Index
Widely used measure of momentum in the market
14 day RSI is the most common
To calculate
Record last 14 day price changes (closes)
Sum the negative changes and positive changes and divide each by 14 to create (D) down average and (U) up average
RSI=U/(U+D) * 100

30. RSI Market Indicator RSI > 70 RSI < 30 Numbers vary by commodity
Market is thought to be over bought
RSI < 30
Market is thought to be over sold
Numbers vary by commodity
Major change in Supply or Demand may keep RSI above 70 or below 30 for an extended period of time

31. RSI example calculations
Close 2.40, 2.38, 2.36, 2.38, 2.36, 2.40, 2.44, 2.42, 2.44, 2.48, 2.56, 2.48, 2.52, 2.50, 2.46 Up
Up sum = 28/14 =2
Down
Down sum = 22/14=1.57
RSI = 2/(2+1.57) * 100 = 56

33. Point and Figure Charts
2 CRITICAL parameters
The cell size
The reversal requirement
Cell size – The value in terms of price increment for each cell
Reversal requirement – Magnitude of price change required for a reversal

34. Point and Figure Charts
There is no time on chart
X use to plot uptrending prices
O use to plot downtrending prices
Only use daily high or low, close doesn’t matter
Buy/Sell signal generated when new Higher/Lower X/O is plotted

36. Moving Averages May be a compliment to bar chart
Single Moving Average 40-day
Help signal turning points in market
May be an alternative to bar chart
Two moving averages employed
Example 3-day and 10-day
Example 9-day and 18-day
Sell signal when shorter cuts longer from top
Buy signal when shorter cuts longer from bottom

37. Buy B and Sell S
Signals using the
4-day & 9-day
Moving Average S S S B S B S B B B B

38. Moving Averages Advantages Disadvantage Provide clear market signals
No guessing as to chart formation
Good if there are trends in the data
Disadvantage
May generate multiple trades
Don’t perform well in choppy (sideways) markets

39. Moving Average Short Hedgers Long Hedgers Speculators
Place on Sell signals
Lift (offset) on Buy signals
Long Hedgers
Place on Buy signals
Lift (offset) on Sell signals
Speculators
Buy and Sell and Offset on all signals

40. Technical Analysis Summary
Technical Analysis does work
It requires Work to make it work
Need to study past technical analysis for several years worth of data on a particularly commodity before trading
For hedgers
Trends and Support/Resistance Planes
Moving Averages