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Thought For The Day
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Tell me and I will forget;
Show me and I may remember; Involve me and I will understand. Confucius 450 B.C.E.
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Technical Analysis Review OC Traders Group June 2, 2012 Bob Daniels
All the usual disclaimers apply to this presentation. Besides, I can safely presume my audience knows a lot more, and has a lot more experience, with trading than I do.
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TA REVIEW • Trend • Support • Resistance
One other key component is price momentum – not being covered now.
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TA REVIEW Technical Analysis involves many different indicators.
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TA REVIEW The most influential indicator – and perhaps the most important – is derived from price.
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TA REVIEW Through price, you can recognize: • trends • resistance levels • support levels • price patterns, and • candle patterns. Candle – price momentum By doing this you improve your odds of having a higher probability trade.
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TA REVIEW HOW MANY DIFFERENT DIRECTIONS ARE THERE?
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TA REVIEW HOW MANY DIFFERENT DIRECTIONS ARE THERE? Up a lot
Up a little Sideways Down a little Down a lot
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TA REVIEW Defining the trend enables you to follow the prevailing direction of a stock’s price movement.
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TA REVIEW Defining the trend enables you to follow the prevailing direction of a stock’s price movement. Puts the probabilities in your favor.
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TA REVIEW A trend is determined by analyzing the price action on a chart.
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What is the direction of the trend?
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Lower highs and lower lows
The secret is to work from the right hand of the chart to the left when analyzing hi’s and lo’s. – current to past, so to speak. Lower highs and lower lows
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The more points the line touches the better
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Some times it’s helpful to draw a channel
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t So, the trend is down…. But is it really?
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t 6 months, daily
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t 1 year, daily
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A lot of “noise” with daily
1 year, daily
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Weekly is better…if going out 2-5 years, switch to monthly
1 year wkly
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1 year wkly 1 year wkly 23.6% Fib 38.2% Fib 50.0% Fib 61.8% Fib
Weekly is better…if going out 2-5 years, switch to monthly 61.8% Fib 78.6% Fib 1 year wkly 1 year wkly
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1 year wkly 6 month daily 23.6% Fib 38.2% Fib 50.0% Fib 61.8% Fib
Weekly is better…if going out 2-5 years, switch to monthly 50.0% Fib 1 year wkly 61.8% Fib 6 month daily
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TA REVIEW So here is the point of the chart/trend line examples:
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You have to define what your time line is for your trade.
TA REVIEW So here is the point of the chart/trend line examples: You have to define what your time line is for your trade.
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TA REVIEW • Short term – days to weeks
• Intermediate term – weeks to months • Long term – months to one year (or more) Short term – 2 days to 4 wks Intermediate term – 4 wks to 1 year Long term – one year on
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TA REVIEW What constitutes a Support & Resistance level?
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TA REVIEW What constitutes a Support & Resistance level?
Price levels that are created by the buying (demand) and selling (supply) pressures
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TA REVIEW These levels are not absolute.
Think of them as more of a price zone.
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Horizontal levels show critical trading points
Old Resistance becomes New Support – and visa versa Horizontal levels show critical trading points 6 months, daily
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Can be used to estimate price target – IF –
Resistance is broken 6 months, daily
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Does adding a trend line help?
QUESTION: Does a support level always have to be horizontal? Does adding a trend line help? 6 months, daily
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TA REVIEW Question: Does the support level always have to be horizontal to be valid?
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Support level is a not horizontal
QUESTION: Does a support level always have to be horizontal? Chart is EC – Ecopetrol S.A. AmericanDepositoryShares. Went on up to the level in 4.5 months Support level is a not horizontal This is a typical price pattern – double bottom
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TA REVIEW Fibonacci tool – can help in identifying hidden price support levels…
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TA REVIEW Fibonacci tool – can help in identifying hidden price support levels… …and potential resistance levels, and even targets.
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Imagine this is the current day
How far could the price retrace? 38.2% 50.0% 61.8% Dow theory: retracements like at one-third, one-half, or two thirds…close to Fibonacci’s 38%, 50% and 62%
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S R 38.2% 50.0% 61.8% Dow theory: retracements like at one-third, one-half, or two thirds…close to Fibonacci’s 38%, 50% and 62% – To see support, draw from low to high
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Fibonacci used to evaluate potential resistance
To see resistance, draw from high to low Lets’ blow this up a little more. Fibonacci used to evaluate potential resistance
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S R To see resistance, draw from high to low. ….didn’t “stop” at high point, so I could read the % and price data. Most valuable in the short term technique. OBVIOUSLY, you can do just the opposite for a bullish target on a pull back/correction
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Drawing tools in TOS platform
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Drawing tools in TOS platform
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TA REVIEW If there’s time, let’s do Trend, Support & Resistance analysis on a couple of stocks from the audience.
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In closing, here’s a few points to consider
TA REVIEW In closing, here’s a few points to consider when doing technical analysis
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Decision making matrix
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Decision making matrix
• Trend – “it’s your friend” 50% weight
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Decision making matrix
• Trend – “it’s your friend” 50% weight • Support & Resistance 30% weight
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Decision making matrix
• Trend – “it’s your friend” 50% weight • Support & Resistance 30% weight • Momentum (candles) 15% weight Candles are real time momentum indicators – not lagging. Shows what is going on today, now.
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Decision making matrix
• Trend – “it’s your friend” 50% weight • Support & Resistance 30% weight • Momentum (candles) 15% weight • Volume 5% weight
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– WRITE THIS DOWN –
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– WRITE THIS DOWN – I look at the chart and I trade what I see…
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– WRITE THIS DOWN – I look at the chart and I trade what I see… …not what I think!
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– WRITE THIS DOWN – I look at the chart and I trade what I see… …not what I think! …not what I feel!
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– WRITE THIS DOWN – I look at the chart and I trade what I see… …not what I think! …not what I feel! …not what I image I know about the future!
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TA REVIEW It’s always a challenge to present meaningful information to those in the room who have way more experience than I do.
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TA REVIEW For those of you who stayed awake – I thank you.
For those of you who fell asleep – I don’t blame you.
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