technicalindicators-130202115926-phpapp02.pdf

Trading

1. Technical Analysis
TECHNICAL INDICATORS
Presented by:AshwaniKumarHarit

2. “Don’t try to buy at the bottom and sell at the top. It can’t be
done except by liars.”
“Don’t try to buy at the bottom and sell at the top. It can’t be
done except by liars.”
-Bernard Baruch

3. Technical Indicators: Definition
•Technical indicators are mathematical representations of
market patterns andbehavior
•Theindicators are formed by plugging information such
as price and volume into a mathematical formula.
•Technical indicators are mathematical representations of
market patterns andbehavior
•Theindicators are formed by plugging information such
as price and volume into a mathematical formula.

4. Why indicators
•Overbought:A technical condition that occurs when there has
been a lot ofbuyingand the price of the stock is considered
too high and susceptible to a decline.
Oversold:A technical condition that occurs when there has
been a lot ofsellingand the price of the stock is considered
too low and a rally in prices is anticipated.
•Overbought:A technical condition that occurs when there has
been a lot ofbuyingand the price of the stock is considered
too high and susceptible to a decline.
Oversold:A technical condition that occurs when there has
been a lot ofsellingand the price of the stock is considered
too low and a rally in prices is anticipated.

5. Importance
Essentiallytraders use technical indicators for two things:
•To generate buy and sellsignals
•To confirm price movement
Essentiallytraders use technical indicators for two things:
•To generate buy and sellsignals
•To confirm price movement

6. TypesofIndicators
Thereare two main types of indicators:
•Leading
•lagging
Thereare two main types of indicators:
•Leading
•lagging

7. LeadingIndicators
•Aleading indicatorprecedes price movement, and is often
used to generate buy and sell signals.
•Leadingindicators are affected more heavily by recent price
changes and tend to generate more signals and allow more
opportunities to trade than lagging indicators.
•Sincethe indicators produce more buy and sell signals, they
also produce more false signals.
•When leading indicators are right, they allow you to get into a
trade early and make more money, but when they're wrong
you tend to lose money because you're in and out of trades
more frequently.
•Aleading indicatorprecedes price movement, and is often
used to generate buy and sell signals.
•Leadingindicators are affected more heavily by recent price
changes and tend to generate more signals and allow more
opportunities to trade than lagging indicators.
•Sincethe indicators produce more buy and sell signals, they
also produce more false signals.
•When leading indicators are right, they allow you to get into a
trade early and make more money, but when they're wrong
you tend to lose money because you're in and out of trades
more frequently.

8. LeadingIndicators
Someof the more commonleading indicatorsare:
•RelativeStrengthIndex (RSI)
•Parabolic SAR
•Stochastic
•Williams %R
Someof the more commonleading indicatorsare:
•RelativeStrengthIndex (RSI)
•Parabolic SAR
•Stochastic
•Williams %R

9. LaggingIndicators
•Alagging indicatoris a confirmation tool because it follows
price movement.
•Ithappens "after the fact".
•Change of trend
•Alagging indicatoris a confirmation tool because it follows
price movement.
•Ithappens "after the fact".
•Change of trend

10. LaggingIndicators
Twoof the more commonlagging indicatorsare:
•MACD
•MovingAverages
Twoof the more commonlagging indicatorsare:
•MACD
•MovingAverages

11. Other Indicators
•Bollinger Band
•Ichimoku
•Bollinger Band
•Ichimoku

12. RSI-Introduction
•Developed by J. Welles Wilder and introduced in his book–
New Concepts in Technical Trading System
•It is a momentum oscillator that measures the speed and
change of price movements
•RSI oscillates between zero and 100
•Traditionally, and according to Wilder, RSI is considered
overbought when above 70 and oversold when below 30
•The default look-back period for RSI is 14, but 9 and 7 are also
popular
•Developed by J. Welles Wilder and introduced in his book–
New Concepts in Technical Trading System
•It is a momentum oscillator that measures the speed and
change of price movements
•RSI oscillates between zero and 100
•Traditionally, and according to Wilder, RSI is considered
overbought when above 70 and oversold when below 30
•The default look-back period for RSI is 14, but 9 and 7 are also
popular

13. RSI-Introduction
•80 and 20 can also be used to indicate overbought and
oversold levels but gives slightly less accurate results than
70-30
•If the market is trending, then signals in the direction of the
trend are likely to be more reliable
•For example if prices are in an up trend, a safer trade entry may be
obtained by waiting for prices to pullback giving an oversold signal and
then turn up again
•80 and 20 can also be used to indicate overbought and
oversold levels but gives slightly less accurate results than
70-30
•If the market is trending, then signals in the direction of the
trend are likely to be more reliable
•For example if prices are in an up trend, a safer trade entry may be
obtained by waiting for prices to pullback giving an oversold signal and
then turn up again

14. RSI–How to generate buy and sell signals
•If the RSI is above 70 and you are looking for the market to
form a top, then the RSI crossing back below 70 can be used
as a sell signal
•The same is true for market bottoms, buying after the RSI has
moved back above 30
•These signals are best used in non-trending markets
•If the RSI is above 70 and you are looking for the market to
form a top, then the RSI crossing back below 70 can be used
as a sell signal
•The same is true for market bottoms, buying after the RSI has
moved back above 30
•These signals are best used in non-trending markets

15. RSI-Bullish and Bearish Divergence
•Divergence between the RSI and the price indicates that an up
or down move is weakening
•Bearish Divergenceoccurs when prices are making higher
highs but the RSI is making lower highs.
•This is a sign that the up move is weakening
•Bullish Divergenceoccurs when prices are making lower lows
but the RSI is making higher lows
•This is a sign that the down move is weakening
•Divergence between the RSI and the price indicates that an up
or down move is weakening
•Bearish Divergenceoccurs when prices are making higher
highs but the RSI is making lower highs.
•This is a sign that the up move is weakening
•Bullish Divergenceoccurs when prices are making lower lows
but the RSI is making higher lows
•This is a sign that the down move is weakening

16. RSI–Divergence Confirmation
•RSI is an indicator not the confirmation
•It is important to note that although Divergences indicate a
weakening trend they do not in themselves indicate that the
trend has reversed
•The confirmation or signal that the trend has reversed must
come from price action, for example a trend line break
•RSI is an indicator not the confirmation
•It is important to note that although Divergences indicate a
weakening trend they do not in themselves indicate that the
trend has reversed
•The confirmation or signal that the trend has reversed must
come from price action, for example a trend line break

17. RSI

18. RSI-Divergence

19. RSI-Trade Confirmation

20. Contd…

21. Parabolic SAR

22. Parabolic SAR-Introduction
•Parabolic Time Price is a system that always has a position in
the market, either long or short
•One can close out the current position and enter a reverse
position when the price crosses the current Stop And Reverse
(SAR) point
•The SAR points resemble a parabolic curve as they begin to
tighten and close in on prices once prices begin to trend
•Parabolic Time Price is usually charted with a bar analysis so
that the stop and reverse points are easily identified
•Parabolic Time Price is a system that always has a position in
the market, either long or short
•One can close out the current position and enter a reverse
position when the price crosses the current Stop And Reverse
(SAR) point
•The SAR points resemble a parabolic curve as they begin to
tighten and close in on prices once prices begin to trend
•Parabolic Time Price is usually charted with a bar analysis so
that the stop and reverse points are easily identified

23. Parabolic SAR-Depiction
•If you are long, the SAR points will be below the prices and the
signal to go short will be when prices cross the current SAR
point from above
•If you are long, the SAR points will be below the prices and the
signal to go short will be when prices cross the current SAR
point from above

25. Parabolic SAR-Depiction
•If you are short, the SAR points will be above the prices and
the signal to go long will be when prices cross the current SAR
point from below
•If you are short, the SAR points will be above the prices and
the signal to go long will be when prices cross the current SAR
point from below

27. Uesof Parabolic
•Signals to stop out of the current position and enter a reverse
position are when prices cross the current SAR point
•For example if the SAR points are below prices you would be
long with an order to close out the current long position and
enter a short position at that period’s SAR point
•Signals to stop out of the current position and enter a reverse
position are when prices cross the current SAR point
•For example if the SAR points are below prices you would be
long with an order to close out the current long position and
enter a short position at that period’s SAR point

28. Entry and Exit Technique
•One would take only long trades when the trend is up and
only short trades when the trend is down

29. Where to place a stop loss
•Afteratradehasbeenenteredusinganothermethodor
technique,theSARpointsofParabolicTimePriceareusedto
trailastopontheposition
•Afteratradehasbeenenteredusinganothermethodor
technique,theSARpointsofParabolicTimePriceareusedto
trailastopontheposition

30. Stop Loss by using SAR

31. Stochastic
•Fast Stochastic
•Slow Stochastic
•Fast Stochastic
•Slow Stochastic

32. Stochastic
•Stochasticsare oscillators developed by George Lane
•Are based on the following observation
•As prices increase-closing prices tend to be closer to the upper
end of the price range
•As prices decrease-closing prices tend to be closer to the lower
end of the price range
•Stochasticsare oscillators developed by George Lane
•Are based on the following observation
•As prices increase-closing prices tend to be closer to the upper
end of the price range
•As prices decrease-closing prices tend to be closer to the lower
end of the price range

33. Stochastic
•Stochastic consist of two lines, %K and %D
•The %K line measures, as a percentage, where the current
close is, in relation to the lowest low over the observation
period.
•This is shown on a scale of 0 to 100, where 0 is the observation
period low, and 100 is the observation period high.
•The %D line is a Simple Moving Average of the %K
•Stochastic consist of two lines, %K and %D
•The %K line measures, as a percentage, where the current
close is, in relation to the lowest low over the observation
period.
•This is shown on a scale of 0 to 100, where 0 is the observation
period low, and 100 is the observation period high.
•The %D line is a Simple Moving Average of the %K

34. Stochastic
•SlowStochasticsare the more commonly used of the two
Stochastic types
•SlowStochasticsare based on FastStochasticsbut provide a
slower, smoother response to price movements
•SlowStochasticsare smoother and are less likely to give false
signals
•SlowStochasticsare the more commonly used of the two
Stochastic types
•SlowStochasticsare based on FastStochasticsbut provide a
slower, smoother response to price movements
•SlowStochasticsare smoother and are less likely to give false
signals

35. Uses ofStochastics
•Indicate overbought and oversold conditions
•Anoverboughtoroversoldmarketisonewherethepriceshave
risenorfallentoofarandarethereforelikelytoretrace.Ifthe%D
lineisabove80%thenthecloseisnearthetopendoftherangeof
theobservationperiod,whileareadingbelow20%meansthatthe
closeisnearthebottomendoftherangeoftheobservationperiod.
•Generallytheareaabove80isconsideredoverbought,whilethe
areabelow20isoversold.Thespecifiedoverbought/oversold
rangesvary.Othercommonlyusedrangesinclude75-25,70-30and
85-15.
•Overboughtandoversoldsignalsaremostreliableinanon-trending
marketwherepricesaremakingaseriesofequalhighsandlows.If
themarketistrending,thensignalsinthedirectionofthetrendare
likelytobemorereliable.
•Indicate overbought and oversold conditions
•Anoverboughtoroversoldmarketisonewherethepriceshave
risenorfallentoofarandarethereforelikelytoretrace.Ifthe%D
lineisabove80%thenthecloseisnearthetopendoftherangeof
theobservationperiod,whileareadingbelow20%meansthatthe
closeisnearthebottomendoftherangeoftheobservationperiod.
•Generallytheareaabove80isconsideredoverbought,whilethe
areabelow20isoversold.Thespecifiedoverbought/oversold
rangesvary.Othercommonlyusedrangesinclude75-25,70-30and
85-15.
•Overboughtandoversoldsignalsaremostreliableinanon-trending
marketwherepricesaremakingaseriesofequalhighsandlows.If
themarketistrending,thensignalsinthedirectionofthetrendare
likelytobemorereliable.

36. Stochastic: Overbought and Oversold

37. Stochastic:Overbought and Oversold

38. Stochastic:Generate buy and sell signals
•For a buy or sell signal the following conditions must be met in
order
•The %K and %D lines move above 80 or below 20
•The %K and %D lines cross
•For a buy or sell signal the following conditions must be met in
order
•The %K and %D lines move above 80 or below 20
•The %K and %D lines cross

39. •Bearish Divergence occurs when prices are making higher highs but the
Stochasticsare making lower highs. This is a sign that the up move is weakening.
•Bullish Divergence occurs when prices are making lower lows but the
Stochasticsare making higher lows. This is a sign that the down move is
weakening

40. Stochastic:Negative Divergence

41. Wiliams% R
•Developed by Larry Williams
•Williams %R is a momentum indicator that works much like
the Stochastic Oscillator
•It is especially popular for measuring overbought and oversold
levels
•Shows the relationship of the close relative to the high-low
range over a set period of time
•Developed by Larry Williams
•Williams %R is a momentum indicator that works much like
the Stochastic Oscillator
•It is especially popular for measuring overbought and oversold
levels
•Shows the relationship of the close relative to the high-low
range over a set period of time

42. Wiliams% R: Scale
•The scale ranges from 0 to-100
•Readings from 0 to-20 considered overbought
•Readings from-80 to-100 considered oversold
•The nearer the close is to the top of the range, the nearer to
zero (higher) the indicator will be
•The nearer the close is to the bottom of the range, the nearer
to-100 (lower) the indicator will be
•The scale ranges from 0 to-100
•Readings from 0 to-20 considered overbought
•Readings from-80 to-100 considered oversold
•The nearer the close is to the top of the range, the nearer to
zero (higher) the indicator will be
•The nearer the close is to the bottom of the range, the nearer
to-100 (lower) the indicator will be

43. Wiliams% R: Uses
•Identify the underlying trend and then look for trading
opportunities in the direction of the trend
•In an up trend, traders may look to oversold readings to
establish long positions
•In a downtrend, traders may look to overbought readings to
establish short positions
•Identify the underlying trend and then look for trading
opportunities in the direction of the trend
•In an up trend, traders may look to oversold readings to
establish long positions
•In a downtrend, traders may look to overbought readings to
establish short positions

45. Divergence

46. LaggingIndicators
•MACD
•MovingAverages

47. MACD:Moving Average Convergence Divergence
•Developed by GeraldAppel
•26 and 12-week cycles in the stock market
•MACD is a type of oscillator that can measuremarket
momentumas well as follow or indicate the newtrend
•Developed by GeraldAppel
•26 and 12-week cycles in the stock market
•MACD is a type of oscillator that can measuremarket
momentumas well as follow or indicate the newtrend

48. What is MACD
•MACD consists of two lines
•MACD Line
•Signal Line
•The MACD Line measures the difference between a short
Moving Average and a long Moving Average
•The Signal Line is a Moving Average of the MACD Line
•MACD oscillates above and below a zero line without upper
and lower boundaries
•MACD consists of two lines
•MACD Line
•Signal Line
•The MACD Line measures the difference between a short
Moving Average and a long Moving Average
•The Signal Line is a Moving Average of the MACD Line
•MACD oscillates above and below a zero line without upper
and lower boundaries

49. MACD: Use
•To Generate buy and sell signals
•Signals are generated when the MACD Line and the Signal Line
cross
•A buy signal occurs when the MACD Line crosses from below
to above the Signal Line, the further below the zero line that
this occurs the stronger the signal
•A sell signal occurs when the MACD Line crosses from above
to below the Signal Line, the further above the zero line that
this occurs the stronger the signal
•To Generate buy and sell signals
•Signals are generated when the MACD Line and the Signal Line
cross
•A buy signal occurs when the MACD Line crosses from below
to above the Signal Line, the further below the zero line that
this occurs the stronger the signal
•A sell signal occurs when the MACD Line crosses from above
to below the Signal Line, the further above the zero line that
this occurs the stronger the signal

50. Buy/Sell signals using MACD

51. Indicating trend direction with MACD
•If a trend is gaining momentum then the difference between
the short and long moving average will increase
•This means that if both MACD lines are above (below) zero
and the MACD Line is above (below) the Signal Line, then the
trend is up (down)

52. Divergence with MACD
•Divergence between the MACD and the price indicates that an
up or down move is weakening
•Bearish Divergence occurs when prices are making higher
highs but the MACD is making lower highs. This is a sign that
the up move is weakening
•Bullish Divergence occurs when prices are making lower lows
but the MACD is making higher lows. This is a sign that the
down move is weakening
•Divergence between the MACD and the price indicates that an
up or down move is weakening
•Bearish Divergence occurs when prices are making higher
highs but the MACD is making lower highs. This is a sign that
the up move is weakening
•Bullish Divergence occurs when prices are making lower lows
but the MACD is making higher lows. This is a sign that the
down move is weakening

53. Negative Divergence with MACD

54. Parameters for MACD
•Short averaging period: (default 12)
•Long averaging period: (default 26)
•Signal line averaging period: (default 9)
•You may wish to change the parameters to match another
cycle period you have observed
•Short averaging period: (default 12)
•Long averaging period: (default 26)
•Signal line averaging period: (default 9)
•You may wish to change the parameters to match another
cycle period you have observed

55. OTHER INDICATORS
•Bollinger Band
•Ichimoku

56. BOLLINGER BAND
•Developed by John Bollinger, Bollinger Bands
•charted by calculating a simple moving average of price,
then creating two bands a specified number of standard
deviations above and below the moving average
•Generally +/-2 standard deviation
•Bollinger Bands gives best results with a bar chart, so that the
proximity of the bands to the prices can be easily observed
•Developed by John Bollinger, Bollinger Bands
•charted by calculating a simple moving average of price,
then creating two bands a specified number of standard
deviations above and below the moving average
•Generally +/-2 standard deviation
•Bollinger Bands gives best results with a bar chart, so that the
proximity of the bands to the prices can be easily observed

57. BOLLINGER BAND: Use
•Identify overbought and oversold markets
•An overbought or oversold market is one where the prices
have risen or fallen too far and are therefore likely to retrace
•Prices near the lower band signal an oversold market and
prices near the upper band signal an overbought market
•Overbought and oversold signals are most reliable in a non-
trending market where prices are making a series of equal
highs and lows
•Identify overbought and oversold markets
•An overbought or oversold market is one where the prices
have risen or fallen too far and are therefore likely to retrace
•Prices near the lower band signal an oversold market and
prices near the upper band signal an overbought market
•Overbought and oversold signals are most reliable in a non-
trending market where prices are making a series of equal
highs and lows

58. Overbought/Oversold

59. Signal in a trendy market
•If the market is trending, then signals in the direction of the
trend are likely to be more reliable
•For example if prices are in an up trend, a safer trade entry
may be obtained by waiting for prices to pullback giving an
oversold signal and then turn up again
•If the market is trending, then signals in the direction of the
trend are likely to be more reliable
•For example if prices are in an up trend, a safer trade entry
may be obtained by waiting for prices to pullback giving an
oversold signal and then turn up again

60. A typical Bollinger Band

61. Used in combination with an oscillator to generate
buy or sell signals
•IfweuseBollingerBandsincombinationwithanoscillator
suchasRelativeStrengthIndex(RSI),buyandsellsignals
aregeneratedwhentheBollingerBandssignalan
overbought/oversoldmarketatthesametimetheoscillator
signalsadivergence
•IfweuseBollingerBandsincombinationwithanoscillator
suchasRelativeStrengthIndex(RSI),buyandsellsignals
aregeneratedwhentheBollingerBandssignalan
overbought/oversoldmarketatthesametimetheoscillator
signalsadivergence

62. Negative Divergence with Bollinger Band

63. Thebandsoftennarrowjustbeforeasharppricemove.Aperiodoflow
volatilityoftenprecedesasharpmoveinprices;lowvolatilitywillcausethe
bandstonarrow

64. Signal potential tops and bottoms
•A top that breaks above the upper band followed by another
that is between the bands signals a potential top in the market
•A bottom that breaks below the lower band followed by
another that is between the bands signals a potential bottom
•A top that breaks above the upper band followed by another
that is between the bands signals a potential top in the market
•A bottom that breaks below the lower band followed by
another that is between the bands signals a potential bottom

65. Signals

66. Parameters for Bollinger Band
•The length of the moving average is usually 20 days or less i.e.
a simple moving average in the middle of the Bollinger band
•Bollingerusedafigureof2standarddeviationsinhiswork,
whichwasinstocktrading
•The length of the moving average is usually 20 days or less i.e.
a simple moving average in the middle of the Bollinger band
•Bollingerusedafigureof2standarddeviationsinhiswork,
whichwasinstocktrading

67. Signals

68. ICHIMOKU

69. Introduction
•TheIchimokuKinkoHyoJapanese charting technique was
developed before World War II with the aim of portraying-in
a snapshot-where the price was heading and when was the
right time to enter or exit t
•The wordIchimokucan be translated to mean "a glance" or
"one look".Kinkotranslates into "equilibrium" or "balance",
with respect to price and time, andHyois the Japanese word
for "chart". Thus,IchimokuKinkoHyosimply means "a glance
at an equilibrium chart"
•Invented by a Japanese journalist with a pen name of
"IchimokuSanjin", meaning "a glance of a mountain man“
•TheIchimokuKinkoHyoJapanese charting technique was
developed before World War II with the aim of portraying-in
a snapshot-where the price was heading and when was the
right time to enter or exit t
•The wordIchimokucan be translated to mean "a glance" or
"one look".Kinkotranslates into "equilibrium" or "balance",
with respect to price and time, andHyois the Japanese word
for "chart". Thus,IchimokuKinkoHyosimply means "a glance
at an equilibrium chart"
•Invented by a Japanese journalist with a pen name of
"IchimokuSanjin", meaning "a glance of a mountain man“

70. The Chart

71. Calculation
•TheIchimokuchart consists of five lines
•Tenkan-Sen= Conversion Line = (Highest High + Lowest Low) /
2, for the past 9 periods
•Kijun-Sen= Base Line = (Highest High + Lowest Low) / 2, for
the past 26 periods
•ChikouSpan= Lagging Span = Today's closing price plotted 26
periods behind
•SenkouSpan A= Leading Span A = (Tenkan-Sen+Kijun-Sen) /
2, plotted 26 periods ahead
•SenkouSpan B= Leading Span B = (Highest High + Lowest
Low) / 2, for the past 52 periods, plotted 26 periods ahead
•Kumo= Cloud = Area betweenSenkouSpan A and B
•TheIchimokuchart consists of five lines
•Tenkan-Sen= Conversion Line = (Highest High + Lowest Low) /
2, for the past 9 periods
•Kijun-Sen= Base Line = (Highest High + Lowest Low) / 2, for
the past 26 periods
•ChikouSpan= Lagging Span = Today's closing price plotted 26
periods behind
•SenkouSpan A= Leading Span A = (Tenkan-Sen+Kijun-Sen) /
2, plotted 26 periods ahead
•SenkouSpan B= Leading Span B = (Highest High + Lowest
Low) / 2, for the past 52 periods, plotted 26 periods ahead
•Kumo= Cloud = Area betweenSenkouSpan A and B

72. Signals
•Ichimokuuses three key time periods for its input parameters:
9, 26, and 52.
•A bullish signal is issued when theTenkan-Sen(orange line)
crosses theKijun-Sen(purple line) from below
•A bearish signal is issued when theTenkan-Sencrosses the
Kijun-Senfrom above.
•If there was a bullish crossover signal and the price, at that
time, was trading above theKumo(or cloud), this would be
considered a very strong buy signal
•Ichimokuuses three key time periods for its input parameters:
9, 26, and 52.
•A bullish signal is issued when theTenkan-Sen(orange line)
crosses theKijun-Sen(purple line) from below
•A bearish signal is issued when theTenkan-Sencrosses the
Kijun-Senfrom above.
•If there was a bullish crossover signal and the price, at that
time, was trading above theKumo(or cloud), this would be
considered a very strong buy signal

73. Feature
•Another striking feature of theIchimokucharting technique is
the identification of support and resistance levels
•These levels can be predicted by the presence of theKumo
•TheKumocan also be used to help identify the prevailing
trend of the market
•If the price is above theKumo, the prevailing trend is said to
be up
•And if the price is below theKumo, the prevailing trend is said
to be down.
•Another striking feature of theIchimokucharting technique is
the identification of support and resistance levels
•These levels can be predicted by the presence of theKumo
•TheKumocan also be used to help identify the prevailing
trend of the market
•If the price is above theKumo, the prevailing trend is said to
be up
•And if the price is below theKumo, the prevailing trend is said
to be down.

74. Support Level

75. Resistance Level

76. Buy/Sell Signals

77. Buy/Sell Signals

78. Buy/Sell Signals

79. PIVOTS

80. HAPPY TRADING
ASHWANI KUMAR HARIT
9818688537
[email protected]
[email protected]
HAPPY TRADING
ASHWANI KUMAR HARIT
9818688537
[email protected]
[email protected]