Template desing

Why Technical Analysis?

December 09, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h2 style="text-align: justify;">
A<span style="font-family: "arial" , "helvetica" , sans-serif;">n introduction to technical analysis</span></h2>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"></span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">By visiting this website, there is very good chance that you already use technical analysis in your investment decision-making process. However, it is always worth re-evaluating your tools, by taking a moment to consider the nature of technical analysis and how we might use it.</span></div>
<h2 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">What is Technical Analysis?</span></h2>
<div style="text-align: justify;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhiM5Z3kx1VKFsKooNt0aip1Kw4OsrQ3jYFQCY4C7mawUyMkrRXTiPEXHhAhD6rO7e2hrihlwfSOYw6zyFJtwzQWWkYE9_aFxAHakMLlVTMVZjNoEnlkcRrfOLF7J6-PPiAr3FyuYGgXB0/s1600/What+is+Technical+Analysis.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="900" data-original-width="1600" height="180" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhiM5Z3kx1VKFsKooNt0aip1Kw4OsrQ3jYFQCY4C7mawUyMkrRXTiPEXHhAhD6rO7e2hrihlwfSOYw6zyFJtwzQWWkYE9_aFxAHakMLlVTMVZjNoEnlkcRrfOLF7J6-PPiAr3FyuYGgXB0/s320/What+is+Technical+Analysis.jpg" width="320" /></a><span style="font-family: "arial" , "helvetica" , sans-serif;">Quite simply, technical analysis is the study of<b> investor behavior</b> and its effect on the <b>subsequent price action</b> of financial instruments. The main data that we need to perform our studies are the price histories of the instruments, together with time and volume information. These enable us to form our views, based on objective facts.</span></div>
<h2 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"> </span></h2>
<h2 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Technical Analysis versus Fundamental Analysis</span></h2>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Fundamental Analysis concerns itself with establishing the <b>value</b> of stocks and other instruments. The fundamental analyst will concern himself with complex inter-relationships of financial statements, demand forecasts, quality of management, earnings and growth, etc. He will then make a judgment on the share, commodity, or other financial instruments, often relative to its sector or market peers and form a judgment whether it is over- or under-valued.</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">The majority of stock research from brokers or investment banks will be based on company fundamentals. At Investors Intelligence, while we admire much of this work we take a more pragmatic approach; we monitor and analyst the ways in which investors interpret this mass of fundamental data and how they then behave. This <b>behavior </b>is collectively called <b>sentiment</b>. <b><i>Our view is that investor sentiment is the single most important factor in determining an instrument’s price. </i></b></span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">We believe that <b>technical analysis holds the key to monitoring investor sentiment</b>. Some investors and market “experts” believe that fundamental analysis and technical analysis are mutually exclusive. We disagree. We think they are highly complementary and should work together to tell you <b>what </b>to buy or sell and <b>when</b> to buy or sell. Many successful traders use a combination of fundamental stock selection procedures and technical analysis timing filters with excellent results.</span></div>
<h2 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Brief history</span></h2>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">It is probably reasonable to assume that where commerce has flourished in civilizations so have the traders who have paid close attention to prices and their movements. However, rather than dwell upon the wonders of the Phoenician market for olive oil forwards, or the ancient Japanese and Chinese history of rice trading, our story starts with one Charles Dow, inventor of the first stock market index in 1884.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span> <span style="font-family: "arial" , "helvetica" , sans-serif;">Charles Dow invented point and figure charting after he noticed that by the time important corporate news entered the public domain, the share price had already moved, due not least to insider trading.  Therefore he watched the open outcry ‘curb market’, writing down prices in a notebook, looking for clues to trending market action.  Finding a page of price changes confusing, not surprisingly, he decided to plot price action in graphic form.</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Mr. Dow also wrote a series of articles for the Wall Street Journal in the latter years of the 19th century. This body of work became known as “Dow Theory” and formed the initial basis for what we know as technical analysis today. While we will not dwell on the finer details of Dow Theory in this section, the most important concepts that Mr. Dow recognized were that prices reflect the current balance of <b>supply and demand</b> (i.e. the hopes and fears of investor). And most importantly, an imbalance of supply and demand causes prices to form recognizable <b>trends, </b>up and down.</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Certainly, the concept of studying price action was fairly well established by the early 20th century. By the 1940s to 1950s additional pioneers of technical analysis such as Bill Jiler, Robert Edwares, John Magee, Alexander Wheelan and Abe Cohen were making steady progress, not only in the types of charts used to depict trends, but also techniques for analyzing price action.</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">However, the acceleration in technical research techniques commenced in the late 1970s with the introduction of computers. This made it possible for hypotheses and indicators to be calculated and back tested as to their efficacy.  While this has greatly expanded the body of theoretical work available on price studies, many seasoned chart readers maintain that at least 90 percent of what they need to know about prices is revealed by the price action alone.</span></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
</div>

A n introduction to technical analysis By visiting this website, there is very good chance that you already use technical analysis in ...

Types of chart

December 09, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h2 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Types of chart</span></h2>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"></span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">There are many ways to display price charts. Each has its own benefits, but at the end of the day, it is up to the individual to decide which provides the clearest visual picture and is likely to be of most in identifying trends at an early stage. </span>  </div>
<h3 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Line Charts</span></h3>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">This is the simplest chart format and is generated by using a line to join the data points.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">The most common use for line charts is for indicators that only have a single daily value (rather than high/low) such as momentum or moving averages. </span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><img alt="Types of Chart - Line Chart" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhbme4_4ZAuwJLGD-KPKFPUcwq7zIZyVSoQ8mIDD405nyfowAcmLmuWliiGwHGkPCMsg80gJcAaTd1S8OjX2S94HkK8rpGhSL35N6nb_dLdR_Wb8n1IkYryBxG4FydEp_DIO9GQBzkMhEI/s1600/uni33.jpg" title="Share Market Technical" /></span></div>
</td><td valign="top"><br />
<br />
<br />
<br />
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>The daily line chart is perhaps the simplest of charts available, showing only the closing price of each day.</i></span></td></tr>
</tbody></table>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span> <span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Bar Charts</b></span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">As their name suggests, bar charts use vertical bars to represent price action for that day, drawn from the lowest price to the highest price.</span></div>
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td rowspan="3"><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3cr4ZucYNv9BsT7csApT6lu7kahEfNPsseFLoAbOoLXd3HcCpybbrADuD9afULMIj1eacH56plXCkf9gBLsesEOXEZCXgqG5n_COXwjfQG81kuYbuApyH5CGFvAqrgac_MUIesP6DBnQ/s1600/uni2.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3cr4ZucYNv9BsT7csApT6lu7kahEfNPsseFLoAbOoLXd3HcCpybbrADuD9afULMIj1eacH56plXCkf9gBLsesEOXEZCXgqG5n_COXwjfQG81kuYbuApyH5CGFvAqrgac_MUIesP6DBnQ/s1600/uni2.jpg" /></a></span></div>
</td><td rowspan="3" width="20"></td><td valign="top"><span style="font-family: "arial" , "helvetica" , sans-serif;">High Price</span></td></tr>
<tr><td><span style="font-family: "arial" , "helvetica" , sans-serif;">The left hand “notch” represents the opening price and the right hand “notch” represents the closing price.</span></td></tr>
<tr><td valign="bottom"><span style="font-family: "arial" , "helvetica" , sans-serif;">Low Price</span></td></tr>
</tbody></table>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">One of the advantages of bar charts is that a longer time period can be viewed by changing the scale from daily to weekly or monthly bars.</span></div>
<table border="0" cellpadding="1" cellspacing="1" class="" style="margin-left: 0px; margin-right: 0px; text-align: left; width: 100%px;"><tbody>
<tr><td><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><img alt="Types Of Chart - Bar Chart" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0-I0FEKuTvVqVI85TOOHL-ApOhVQegkYmUtGWtA9i7nY05cPLH0S6ZhfPGlK0E5Zw2IShsPvQ9TkkVuyEZ9mIQTZP6VrYUqDh2V9Yv5uwwCni9Nsp7vg75FSycAwb_icf124Cv2Xoy3I/s1600/uni3.jpg" title="Share Market Technical" /></span></div>
</td><td width="20"></td><td><span style="font-family: "arial" , "helvetica" , sans-serif;">This is a daily “HLC” bar chart: each bar showing the day’s ‘high’, ‘low’ and ‘close’ prices. The period viewed is 6 months from November 2003 to April 2004.</span></td></tr>
<tr><td><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5XqXdfUypzcKvv_M4ACCz_zhP2c8RIM75cJJ0YSqgYSKHp50crDeqQoAhzunqYAX-qVYzBVswr4CeiL-8sTn6wZ2PcLVHQbhS1aYx3qXI75I1eA6OuIMXsnMsO3UchEDso2r7C6Zy_jE/s1600/uni4.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5XqXdfUypzcKvv_M4ACCz_zhP2c8RIM75cJJ0YSqgYSKHp50crDeqQoAhzunqYAX-qVYzBVswr4CeiL-8sTn6wZ2PcLVHQbhS1aYx3qXI75I1eA6OuIMXsnMsO3UchEDso2r7C6Zy_jE/s1600/uni4.jpg" /></a></span></div>
</td><td width="20"></td><td><span style="font-family: "arial" , "helvetica" , sans-serif;">This is a weekly bar chart: each bar showing the weekly high, low and close. The period covered is two years, from April 2002 to April 2004, and shows the movement in the daily chart (bottom right area) in its longer-term context.</span></td></tr>
</tbody></table>
<h3 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Candlestick Charts</span></h3>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Candlestick charts provide a more sophisticated visual representation of bar charts. The opening price is included in the chart and a day’s activity would be represented as follows:</span></div>
<table border="0" cellpadding="1" cellspacing="1" class="" style="margin-left: 0px; margin-right: 0px; text-align: left; width: 100%px;"><tbody>
<tr><td><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><img alt="Candle Stick Chart" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEibf1jfsrBH12oWGaBlRwYWVD6BwMP7fqiCdpkO8HFlTm3fbf79DV8jFD0uAkWXOHHpO13Bu5ap9DeJMDxoEzheYWHv2EywhEGOuheOQD9XG0haku4mElBROxMSRBNFqu8RwlmYfrbI1u8/s1600/uni5.jpg" title="Share Market Technical" /></span></div>
</td><td width="20"></td><td><span style="font-family: "arial" , "helvetica" , sans-serif;">Note: an <b>up</b> day is signified by a white (or empty) box. A <b>down</b> day is represented by a black or shaded box.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">The "box" shows the open to close range.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;">The "wick" displays the full day’s range.</span></td></tr>
</tbody></table>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Candlestick charts are generally plotted over a one-day period but technical analysts also use weekly and monthly candlestick charts to provide a valuable picture of the longer-term price action.</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Candlestick charting is one of the oldest methods of technical analysis, with both Japanese and Chinese both claiming that rice traders were using candlestick charts over 4000 years ago, although this is not proven. Its appeal lies in its ability to give a clear visual representation of the price action during a period, leading to <span style="font-family: "arial" , "helvetica" , sans-serif;">easy-to-recognize</span> pattern recognition.</span></div>
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><img alt="Candlestick Chart" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWhHtou0FCdxkDxiaH_8XThxeTjginGOsTpkIIEN01a4Ppua91F_xvKQDFga-Tz-OkDhmOBT0nF3PSPVyZzJC6XbzKdu0P3MUaCaODg4YitSBmU73Rv5HAFtYiURGyBISTlH7YyRDdwF0/s1600/uni35.jpg" title="Share Market Technical" /></span></div>
</td><td valign="top"><br />
<br />
<br />
<br />
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>The candle chart displays a wealth of price information, with open, high, low and close.</i></span></td></tr>
</tbody></table>
<table border="0" cellpadding="1" cellspacing="1" class="" style="margin-left: 0px; margin-right: 0px; text-align: left; width: 100%px;"><tbody>
<tr><td><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></td><td width="20"></td><td><div align="left">
<span style="font-family: "arial" , "helvetica" , sans-serif;">There is a separate article on candlesticks in this separate post  <a href="http://sharemarkettechnicalanalysis.blogspot.in/2015/11/candlestick-charts.html?zx=94f293cffb50f574">Candlestick Charts</a></span></div>
</td></tr>
</tbody></table>
<h3 style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Point & Figure Charts</span></h3>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Point & figure charts have a devoted following, particularly amongst Wall Street operators. They are unique in several ways:</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span> <span style="font-family: "arial" , "helvetica" , sans-serif;">a) They have no time scale, only registering changes when significant price action occurs.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span> <span style="font-family: "arial" , "helvetica" , sans-serif;">b) P&F charts box scale serves as a "noise reduction" system thereby eliminating minor movements so that the primary trend characteristics are revealed to the user.</span><br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span> <span style="font-family: "arial" , "helvetica" , sans-serif;">c) They quickly filter out the most consistently trending stocks or financial instruments from erratic and trend-less ones.</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">Areas of congestion on the charts define the key areas of supply and demand for a security (commonly known as support and resistance).</span></div>
<div style="text-align: justify;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td><div class="separator" style="clear: both; text-align: center;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><img alt="Poient and Figure" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXFcs1qnX-PoEM-e5uZoff4y6qY7ZRIysk_XZs_S_D-pFwcT17QdYjW8v97xCekHMjCSOLzPaxe56mfM1SyyrkhfZ0FfLqw0OHEu77QfYL8NS1j1JJs98KfoSkWaah1mYn566oXPLHC-0/s1600/uni34.jpg" title="Share Market Technical" /></span></div>
</td><td valign="top"><br />
<br />
<br />
<br />
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif;"><i>The p&f chart differs from the previous two charts in that it displays price data without any time input, giving an accurate depiction of trend.</i></span></td></tr>
</tbody></table>
<div style="text-align: justify;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
</div>

Bar Chart Candlestick Charts Line Chart Point & Figure Charts Types of chart Types of chart

Types of chart There are many ways to display price charts. Each has its own benefits, but at the end of the day, it is up to the indi...

Support and Resistance

December 09, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on"><h2 style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Support and Resistance</span></h2><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Understanding the concepts of support and resistance is vital in developing a disciplined trading strategy. Prices are dynamic, reflecting the continuing change in the balance between supply and demand. By identifying the price levels at which these balances change we can plan not only the price level at which to purchase but also the level at which we can subsequently sell (and vice versa for a short trade). Whilst these levels may be created by the markets subconsciously they represent the collective opinions of the participants in the markets.</span></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Support</b> </span><br /><span style="font-family: "arial" , "helvetica" , sans-serif;">represents the level at which buying pressure is strong enough to absorb and overcome the selling pressure. At price support levels buyers step into the market mopping up the imbalance between supply (sellers) and demand (buyers) and when this happens the price will halt its decline and will potentially rise.</span><br /><span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span> <span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Resistance</b> </span><br /><span style="font-family: "arial" , "helvetica" , sans-serif;">is the opposite of support and is the level at which the volume of selling (supply) outweighs the volume of buying (demand). These mini-levels can change frequently but over time a clear pattern emerges and firm levels become established.</span></div><div style="text-align: justify;"><div class="separator" style="clear: both; text-align: center;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><img alt="Support and Resistance" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjQEyVZK5jBCIscdb-CxEC8FOQ4sOSZDAWLQ8dBKE8Bn9tMXKsr3IkHo9h1-g9hZZBWAC3IqxkR4ns5ddOJJ8ByMpGSq45CvIOeQ7XQXfkhvB3UO5pXxDzs2_WF4NznPA9shMIcYq4SY5c/s1600/unnamed-1.jpg" title="Share Market Technical" /></span></div></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><i>The above chart clearly shows the sideways trading range in Smith & Nephew during 2003. </i></span><br /><span style="font-family: "arial" , "helvetica" , sans-serif;"><i> </i></span></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>The conditions for a change from a sideways trend to an uptrend</b> </span><br /><br /><span style="font-family: "arial" , "helvetica" , sans-serif;">The above scenario describes a sideways trading range. However, market conditions change (it may be due to improvements in the earnings estimates for a stock, a newly released crop report for a commodity or economic data for a currency or bond).</span></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Let’s say, for example, that market conditions improve. This will alter the balance between supply and demand. The bears (the supply or sellers) will be less keen to sell and will generally become less pessimistic. The bulls (the demand or the buyers) will be more keen to add to positions. The next time the price approaches the previous level of resistance, there will be fewer bears than before and prices will push above the previous resistance and, possibly, mark the start of a ‘break out’ into a new trend.</span></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Not all the bulls and bears will have changed their opinion. This is because most investment related news is open to personal interpretation and of course, not all investors may have spotted it in the first place. It is the reaction of the investors who didn’t change their view at the time that will establish a new trend:</span></div><ul style="text-align: justify;"><li><span style="font-family: "arial" , "helvetica" , sans-serif;">Some of the short traders (who have sold stocks) will no doubt have set stop losses above the prior resistance level to close out if the price rises to limit these losses. These ‘limit orders’ will be triggered and they will have to buy stock to satisfy their earlier sales contracts creating more demand and more upward momentum to the price action.</span></li><li><span style="font-family: "arial" , "helvetica" , sans-serif;">Other investors who had previously decided not to participate and remain out of the market will notice that the sideways range has been broken and may decide to now take a position – this will create even more demand and push prices higher still.</span></li></ul><div style="text-align: justify;"><div class="separator" style="clear: both; text-align: center;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><img alt="Support and Resitance" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcKwCi3iQGGcGPQrjDS7BKa-TEU03PLAABLKwEpqS6Vgty1keUBGveiXsNKWRI8CqaexgGL3K8MUFEdpTswVqYLdLTx6b1xgdNfpXseIzy6lTkubmY0pzcgZn9yRwMYSzLh0HJZuXWiSM/s1600/unnamed-2.jpg" title="Share Market Technical" /></span></div></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><i>Looking at the above chart, notice how the resistance at around 430p was broken in October 2003. Also, notice how this level became the new support and that the price has developed a persistent uptrend.</i></span><br /><span style="font-family: "arial" , "helvetica" , sans-serif;"><i> </i></span>  </div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;"><b>Conditions for a new level of Support</b></span><br /><br /><span style="font-family: "arial" , "helvetica" , sans-serif;">This is where it gets interesting. The previous level of resistance will now become a level of support. This is because not everyone got the chance to act immediately that the price broke resistance; some people may have decided to monitor the situation for a while, others may simply have not been watching.</span></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;">They will have seen the price jump ahead strongly after breaking resistance and many will be buyers if the price retraces to this level: the short sellers who put on a position just below resistance (this strategy had worked for them several times before so they may have upped the stakes) will want to cover with a small loss if the price gets back to this level – this exposes market ‘fear’.Traders who had been long but taken profits at resistance will want to re-join the party and purchase as near to where they previously sold as possible – exposing market ‘greed’.</span></div><div style="text-align: justify;"><span style="font-family: "arial" , "helvetica" , sans-serif;">Apart from a new level of support developing from prior resistance as discussed above, there will also be a new level at which the buyers want to take profits i.e. a new resistance level will develop as earlier buyers reach their targets and start to sell. This action is the first stage in the development of successive higher support and higher resistance levels which bring us to the Concept of Trend.</span></div><div class="separator" style="clear: both; text-align: center;"></div></div>

Support and Resistance Support and Resistance

Support and Resistance Understanding the concepts of support and resistance is vital in developing a disciplined trading strategy. Prices ar...

The Concept of Trend

December 09, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h2 style="text-align: justify;">
The Concept of Trend</h2>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Charles Dow is probably best known as the founder of the Dow Jones Industrial Average. However, it was during his time as editor of the Wall Street Journal that he produced a series of articles examining stock market behavior, and it was from these editorials that “Dow Theory” evolved.</div>
<div style="text-align: justify;">
Dow theory provides us with a clear definition of trend. Dow described how prices did not rise or fall in a straight line but moved in a series of zigzags which resembled waves and it was the relative positioning of the peaks and troughs in these waves that defined the trend.</div>
<div style="text-align: justify;">
For a stock to be in an uptrend, it must make successive higher peaks (highs) and higher troughs (lows). For a stock to be in a downtrend, it must make lower peaks (highs) and lower troughs (lows).<br />
<br />
 <b>Uptrend - higher highs and higher lows</b><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsqUWccFE_usyJT65HsqCj-QPwS1JiNlEvXPuMm3fA5nF7nZBCrxK-eoT6_NwcQaHHMFCn61EFILFuv3Ack1uIf3xrXisq5rY0qEPkUYqF9A1MvNfxwIv-2SZzwhPdk2PlvN7hgE8ehkI/s1600/Uptrend+-+higher+highs+and+higher+lows.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="572" data-original-width="796" height="229" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsqUWccFE_usyJT65HsqCj-QPwS1JiNlEvXPuMm3fA5nF7nZBCrxK-eoT6_NwcQaHHMFCn61EFILFuv3Ack1uIf3xrXisq5rY0qEPkUYqF9A1MvNfxwIv-2SZzwhPdk2PlvN7hgE8ehkI/s320/Uptrend+-+higher+highs+and+higher+lows.jpg" width="320" /></a></div>
<b> Down Trend- higher highs and higher lows</b><br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhmEeHZFD1NxjffM-OKkzFdyRz8pi7jZLuQ3-0w4qyEYyXpjIXdj3H66MXqljjw0ucsfH0zfz6-V_RZsPQmpZ6e3g5aGraZEeJPdX5IC1Vt4ftBGSGbxMRbiaYFPjHMZNnogWtKBmxMkk/s1600/Downtrend+-+higher+highs+and+higher+lows.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="580" data-original-width="781" height="237" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjhmEeHZFD1NxjffM-OKkzFdyRz8pi7jZLuQ3-0w4qyEYyXpjIXdj3H66MXqljjw0ucsfH0zfz6-V_RZsPQmpZ6e3g5aGraZEeJPdX5IC1Vt4ftBGSGbxMRbiaYFPjHMZNnogWtKBmxMkk/s320/Downtrend+-+higher+highs+and+higher+lows.jpg" width="320" /></a></div>
<b>Consolidating Price Action - higher highs and higher lows</b><br />
<br />
<b> Consolidating markets</b>As we discussed earlier, P.A.or “price action trading analysis” is the analysis of the price movement of a market over time. From our analysis of price movement we can determine a market’s underlying directional bias or “trend”, or if the market has no trend it is said to be “consolidating”…we can easily determine whether a market is trending or consolidating from simply analyzing its P.A.. We saw how to determine a market’s trend above, to determine if a market is consolidating we just look for an absence of the HH, HL or LH, LL patterns. In the chart below note how the “consolidating price action” is bouncing between a horizontal support and resistance level and is not making HH, HL or LH, LL but is instead going sideways…<br />
<br />
The image example below shows a market moving from a consolidation phase to a trending phase:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhh5Gm8X4cLzqsADZDOQEwA71IxyYkVWeLtcKqmXQuN346-dTOIEb7oYJppm4n4pTIjphXpTV2a7hpz5T6Ji1kThH5HQWIEMDyrRfPaj1fvVfCOrbKFPOhQEt6GGtOk-86A0gsQ9nTIoFI/s1600/Consolidating+Price+Action+-+higher+highs+and+higher+lows.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="551" data-original-width="774" height="227" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhh5Gm8X4cLzqsADZDOQEwA71IxyYkVWeLtcKqmXQuN346-dTOIEb7oYJppm4n4pTIjphXpTV2a7hpz5T6Ji1kThH5HQWIEMDyrRfPaj1fvVfCOrbKFPOhQEt6GGtOk-86A0gsQ9nTIoFI/s320/Consolidating+Price+Action+-+higher+highs+and+higher+lows.jpg" width="320" /></a></div>
<br />
<div style="text-align: justify;">
By identifying these peaks and troughs, we can not only describe the current trend and put it in its historical context but, just as importantly, <i>determine when it is changing</i>. We do this by looking at the patterns formed by the peaks and troughs and this is covered in the next section (Major Reversal Patterns).</div>
<div style="text-align: justify;">
<br /></div>
</div>
<div style="text-align: justify;">
</div>
<table style="height: 610px; margin-left: 0px; margin-right: 0px; text-align: left; width: 653px;"><tbody>
<tr><td><br /></td><td width="20"><br /></td><td><br /></td></tr>
<tr><td><br /></td><td width="20"><br /></td><td><br /></td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
</div>

Down Trend Sideways The Concept of Trend Up Trend The Concept of Trend

The Concept of Trend Charles Dow is probably best known as the founder of the Dow Jones Industrial Average. However, it was during his...

Price Patterns

December 09, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h2 style="text-align: justify;">
The Double Bottom</h2>
<div style="text-align: justify;">
The chart below shows the Italian MIB30 index.</div>
<div style="text-align: justify;">
The red blotches from 2000 to 2002 mark the succession of lower peaks (or highs) and lower troughs (or lows) that provided confirmation that a severe downtrend was in place. Each trough represents a temporary level of <b>support</b> and each peak a level of <b>resistance</b> which suggests that in this case, investors are continually lowering their expectations i.e. they are lowering the levels are which they are prepared to buy (the support level) and consequently the price keeps making lower lows.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBUMExzOwf10YMDlb1uuwwSfujETk-TkuSFy6w6gUqroihv3r0D0UziTh1ZqVIzr8TjrNZusa7e27hh0eoR3J6WcP6u-xzbu2LgMqIdJD-D0TG1FHR9-zath0MDe7O-PkL9NWQw_NqJZE/s1600/The+Triple+bottom.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="307" data-original-width="500" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBUMExzOwf10YMDlb1uuwwSfujETk-TkuSFy6w6gUqroihv3r0D0UziTh1ZqVIzr8TjrNZusa7e27hh0eoR3J6WcP6u-xzbu2LgMqIdJD-D0TG1FHR9-zath0MDe7O-PkL9NWQw_NqJZE/s1600/The+Triple+bottom.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<b>A Glimmer of hope in March 2003</b><br />
<br />
From the above chart, we can first identify a <i>potential</i> change in trend in March 2003 (the blue blotch). At this point, although the index remained in a downtrend, it made a double bottom, or did not make a lower low, i.e. investors were prepared to <b>support</b> the price at the same level as in October 2002 (the previous low) which was a clear signal of an improvement in sentiment.</div>
<div style="text-align: justify;">
This equal low represented a first sign that a change was possible but it was not until mid-2003 that the price broke above the prior high (the last red blob) that we could suggest a change to an uptrend when the previous <b>resistance </b>of late 2002 had been breached.</div>
<div style="text-align: justify;">
The above formation can also be referred to as a “<b>base formation</b>” with the price moving between support (at the lows) and resistance (at most recent highs) in a trading range. Once resistance is broken, we can refer to this as a “<b>base breakout</b>” and look for further comfort when the price manages to find support above the prior resistance (remember the rule: resistance becomes support and vice versa). You can just see this happening in the above chart.</div>
<div style="text-align: justify;">
Of course, it’s always easier to spot a trend change in hindsight ! But if we follow the rules rigorously [and accept what the charts tell us] we will be able to observe and anticipate price trend changes.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwmtl8-Dd7fz6A-xpJSO4TP0eUTxORqj9b5lhI9YB_q5PU2nPBZz_pzPPqZeEMXV5El10OZRS6uoaRT7mPOLghj_SSEF3pibbEetvgbjVlpxMtdPr23w6JpXR8556S7JCcXKwG26t1Q2c/s1600/The+Double+Bottom_2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="153" data-original-width="583" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwmtl8-Dd7fz6A-xpJSO4TP0eUTxORqj9b5lhI9YB_q5PU2nPBZz_pzPPqZeEMXV5El10OZRS6uoaRT7mPOLghj_SSEF3pibbEetvgbjVlpxMtdPr23w6JpXR8556S7JCcXKwG26t1Q2c/s1600/The+Double+Bottom_2.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
The Triple bottom</h2>
<div style="text-align: justify;">
Another rule to remember is that the more times a price finds support at a particular level, the stronger that level of <b>support</b> is (vice versa for <b>resistance</b>).</div>
<div style="text-align: justify;">
Let’s have a look at another example. The chart below shows the US S&P 500 index over five years (weekly bar chart).<br />
<br />
Notice the chart action from mid-2002 to March 2003 around the 800 level. Each time the price bounces from a particular support level, more investors will identify this level and build it into their trading strategy. This is the direct application of human behavioural observation.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGCX54c0QAqPNDn-4Qhh1jow_LSyN9FP5jS3SL4ucCgiGEiGOerWCSjOOIArm84H1sBq_74GP0HQQgmqHTbwXieDiZznCVp6NlO7ACwL6i-LbBdJfKZ9TmOKb0HDXPHFOFM8J1yA589Bk/s1600/The+Triple+bottom.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="307" data-original-width="500" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiGCX54c0QAqPNDn-4Qhh1jow_LSyN9FP5jS3SL4ucCgiGEiGOerWCSjOOIArm84H1sBq_74GP0HQQgmqHTbwXieDiZznCVp6NlO7ACwL6i-LbBdJfKZ9TmOKb0HDXPHFOFM8J1yA589Bk/s1600/The+Triple+bottom.jpg" /></a></div>
<br /></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Notice also that once the index has cleared previous highs or resistance at just below 1000 (the top green line) that this level turns into support (the last blue blotch).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<h3>
<b>The Double top</b></h3>
</div>
<div style="text-align: justify;">
Not surprisingly, the double top formation is the inverse of the double bottom.</div>
<div style="text-align: justify;">
In this case, the price fails to make a new high i.e. investor demand is no longer expanding and reaches equilibrium with supply at the <i>same</i> level rather than a <i>higher</i> level.</div>
<table border="0" style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnt_dEyAhfaUWE7UhSTwk82auvT0agh3BHsZteF0gH9DRT8-kZrHwdanWOfkoOOCx3FYyUPSk52slzKyrDOr8cjbQZMydf0c271SwLANG08rZY-TNdWhKBiUGg27jqxYIQWnB-CvSY-gU/s1600/The+Double+top.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="260" data-original-width="399" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnt_dEyAhfaUWE7UhSTwk82auvT0agh3BHsZteF0gH9DRT8-kZrHwdanWOfkoOOCx3FYyUPSk52slzKyrDOr8cjbQZMydf0c271SwLANG08rZY-TNdWhKBiUGg27jqxYIQWnB-CvSY-gU/s1600/The+Double+top.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Double top formation in Gold Futures in April 2004.</td></tr>
</tbody></table>
</td><td width="20"></td><td><br /></td></tr>
</tbody></table>
<h2 style="text-align: justify;">
Head and shoulders formation</h2>
<div style="text-align: justify;">
Another formation which is widely referred to is the head and shoulders formation. This differs from the double top in that the first evidence of its development is the generation of a lower high rather than an equal high; in other words, sellers are beginning to appear at lower levels than they did previously and the buyers no longer have the same appetite at these higher levels as before.</div>
<div style="text-align: justify;">
The diagram below is an example of the head and shoulders top. The high A is referred to as the first “shoulder” and the high B as the “head”. The most recent lower high C is referred to as the second “shoulder”.  A trend line can be drawn below the recent lows and this is referred to as the "neckline". The change of trend is signalled by a decisive break below the "neckline".<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijMd6j27PdePKf9m9l500UzFxlASZUKzsLtdQDmGgUpzHKMwaUKGFHltSbNMmIlB1PDeA5vy5CARd91nq93AVpQf9U7nJ5yD9lJlryNkmhxX7dziOLAYNEP5elgImKoEhTDyYlYbzOxnQ/s1600/Head+and+shoulders.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="171" data-original-width="347" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijMd6j27PdePKf9m9l500UzFxlASZUKzsLtdQDmGgUpzHKMwaUKGFHltSbNMmIlB1PDeA5vy5CARd91nq93AVpQf9U7nJ5yD9lJlryNkmhxX7dziOLAYNEP5elgImKoEhTDyYlYbzOxnQ/s1600/Head+and+shoulders.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
Bullish Reversals</h2>
<div style="text-align: justify;">
The previous examples use the relative positioning of peaks and troughs (Dow theory) to determine changes in trend and these can take weeks or months to develop. The V reversal is a much more dramatic event and unlike double bottoms, there is no higher low to alert us to a potential signal and generally we cannot identify this signal until the day after the reversal.</div>
<div style="text-align: justify;">
Before a bullish reversal, prices will begin to accelerate downwards. This action suggests that there is fast becoming a bearish consensus i.e. the vast majority of investors are bearish and the price drops faster and faster as the few remaining bulls throw in the towel and liquidate their long positions – this phenomenon is also known as “capitulation”.</div>
<div style="text-align: justify;">
Analysts who are alert will flag this chart and comment that it is looking “overextended” or oversold. Momentum indicators define this oversold status further (covered later in this tutorial).</div>
<div style="text-align: justify;">
The reversal signal culminates when the price makes a new low but then reverses up sharply the same day and actually closes higher than the previous day; this is also known as “a key day reversal”.</div>
<div style="text-align: justify;">
Let’s try and look a little closer at what is happening to investor sentiment during a bullish reversal. As discussed above, we know that immediately prior to the reversal, investors have capitulated i.e. the last few bulls have vanished into thin air and that virtually everyone is now bearish. However, the majority of those who want to sell will already have sold on the way down so, eventually, the supply will dry up. All it takes now is for one short trader to take some profits (buy back) or a few bulls to do a bit of bargain hunting and we have an imbalance i.e. the supply (the bears or sellers) have dried up and we have an increase in demand (bulls or buyers). This will create a reversal and the sudden up-move will trigger other short sellers to close out positions and further bargain hunters to step in causing further upward pressure.<br />
<br /></div>
<table border="0" style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1V9YfCo4fw05IZHakDoE2lsjdSs8Hboelzgwc8J8feC1TNi6MnDiNt4xwwQkJjRHuEKdGasISCRimQAJdyWY9qbnJZfmPW4LSavNJR3sNIP22GBAnzd5gazkxoS4OkFHClEZTl3s5Cwo/s1600/Bullish+Reversals.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="340" data-original-width="389" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1V9YfCo4fw05IZHakDoE2lsjdSs8Hboelzgwc8J8feC1TNi6MnDiNt4xwwQkJjRHuEKdGasISCRimQAJdyWY9qbnJZfmPW4LSavNJR3sNIP22GBAnzd5gazkxoS4OkFHClEZTl3s5Cwo/s1600/Bullish+Reversals.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"> <i>This reversal is identified by an emphatic reversal of price action, where in an uptrend the instrument opens up but then closes below the low of the day before. </i></td></tr>
</tbody></table>
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
</td><td width="20"></td><td valign="top"><br />
<br />
<br />
<br /></td></tr>
<tr><td><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLRv3Ndbv2EBczYRRzNQjZFtzqXZu0yWkRa0gPfuYGbFUbUWoNOkIbIUoCuhEsxNkpn1Dbsp6OyNG3Cf1sEtA-WnqJmKrP-IuLRQAbwWub-UnvpFAnSs6UzJk0uEURBsa5qW-4QLAhf4Y/s1600/Bullish+Reversals_2.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="343" data-original-width="389" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjLRv3Ndbv2EBczYRRzNQjZFtzqXZu0yWkRa0gPfuYGbFUbUWoNOkIbIUoCuhEsxNkpn1Dbsp6OyNG3Cf1sEtA-WnqJmKrP-IuLRQAbwWub-UnvpFAnSs6UzJk0uEURBsa5qW-4QLAhf4Y/s1600/Bullish+Reversals_2.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><i>This is identical to the key day reversal but on a weekly chart. When this occurs it is a very strong reversal signal.</i></td></tr>
</tbody></table>
</td><td width="20"></td><td valign="top"><br />
<br />
<br />
<br /></td></tr>
</tbody></table>
<h2 style="text-align: justify;">
Bearish Reversals</h2>
<div style="text-align: justify;">
The bearish reversal is the inverse of the bullish reversal as discussed above. It is a dramatic top formation and develops when prices have accelerated higher and become overextended on the upward side. It is characterised by a new short term high followed by the price closing the day lower.</div>
<table border="0" style="height: 523px; margin-left: 0px; margin-right: 0px; text-align: left; width: 467px;"><tbody>
<tr><td><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiw_gynjbRnK3ZqOjUkmy6oCxcEx-Bzw2vvb3HBBoRTpsTJR33Hx1Y_SUANJhWc52OLf-v22Ns2SAXay8jY93wL9IHMspTHZgI6VosfTKF7fiLudTA4AQxVtyzuo4mkEOppVp0WD_PC0c8/s1600/Bearish+Reversals.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="240" data-original-width="389" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiw_gynjbRnK3ZqOjUkmy6oCxcEx-Bzw2vvb3HBBoRTpsTJR33Hx1Y_SUANJhWc52OLf-v22Ns2SAXay8jY93wL9IHMspTHZgI6VosfTKF7fiLudTA4AQxVtyzuo4mkEOppVp0WD_PC0c8/s1600/Bearish+Reversals.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><i>Nickel accelerated up to a new historic high in January 2004. However, on the 6th January it reversed to close the day sharply lower.</i></td></tr>
</tbody></table>
</td><td width="20"></td><td><br /></td></tr>
<tr><td><div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3pF5PFi0G5rsucqGxlo33HCFR9akxXsMspq04NTHOZT2zP-q80EUQRvB0ZcbRyqhdx3eU6ILeEF7SboGwOXjg93xFn-T8O7eQ4auQLYgiZAR1yPeO8zyT77x-R2t9oiotqPLA291CsCY/s1600/Bearish+Reversals_2.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="264" data-original-width="401" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3pF5PFi0G5rsucqGxlo33HCFR9akxXsMspq04NTHOZT2zP-q80EUQRvB0ZcbRyqhdx3eU6ILeEF7SboGwOXjg93xFn-T8O7eQ4auQLYgiZAR1yPeO8zyT77x-R2t9oiotqPLA291CsCY/s1600/Bearish+Reversals_2.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><i>The reversal in January signalled the top and Nickel prices have moved steadily lower since this time.</i></td></tr>
</tbody></table>
</td><td width="20"></td><td><br /></td></tr>
</tbody></table>
<div style="text-align: justify;">
It is not uncommon for an instrument to regain composure after a reversal and revisit the level at which the previous reversal took place. However, it is more than likely that this level will have become a powerful level of support or resistance and may generate a further reversal signal.</div>
<h2 style="text-align: justify;">
Buying & Selling Climaxes</h2>
<div style="text-align: justify;">
The above example of Nickel can also be referred to as a “buying climax”.</div>
<div style="text-align: justify;">
Investors Intelligence uses this term to describe a more specific event which occurs over a one week period.</div>
<ul style="text-align: justify;">
<li>A buying climax is where a stock makes a new 52 week high but then closes below the previous week’s close.</li>
<li>A selling climax is where a stock makes a new 52 week low and then closes above the previous week’s close.</li>
</ul>
<div style="text-align: justify;">
The reason that we use such a rigid definition for climaxes is that this enables us to classify accurately and consistently what is and what isn’t a climax. This is important as we maintain historic records of the climaxes generated each week and have noted that important market turning points are often accompanied by a sudden rise in the number of buying or selling climaxes.</div>
<div style="text-align: justify;">
A great example of this was in October 2002 when the Dow Industrials made its final low of that cycle. At this point, our US Market Timing Service observed a massive increase in the number of US stocks generating selling climaxes. </div>
<div style="text-align: justify;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div style="text-align: justify;">
</div>
</div>

Head and shoulders Bearish Reversals Head and shoulders Bullish Reversals Head and shoulders formation Price Patterns The Double Bottom The Double top The Triple bottom Price Patterns

The Double Bottom The chart below shows the Italian MIB30 index. The red blotches from 2000 to 2002 mark the succession of lower peaks...

Moving averages

December 08, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h1 style="text-align: justify;">
Moving averages</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
The moving average (often shortened to "ma" in our research) is one of the most popular indicators and is used by technical analysts for a variety of tasks:</div>
<ul style="text-align: justify;">
<li>to identify areas of short term support/resistance</li>
<li>to determine the current trend</li>
<li>as a component in many other indicators such as the MACD, or Bollinger bands.</li>
</ul>
<div style="text-align: justify;">
The main advantages of moving averages is firstly that they smooth the data and thus provide a clearer visual picture of the current trend and secondly, that m.a. signals can give a precise answer as to what the trend is. The main disadvantage is that they are lagging rather than leading indicators but this should not be a problem to longer term investors.</div>
<div style="text-align: justify;">
There are two main forms of moving average:</div>
<div style="text-align: justify;">
The <b>simple moving average</b> (as the name suggests) calculates the average price over a specified moving time period. For example, a 20 day simple moving average will calculate the average mean price from the last twenty days closing prices and so on.</div>
<div style="text-align: justify;">
The <b>exponential moving average ("ema") </b>also averages the last x days closes but assigns a greater weight to the more recent prices making it more sensitive to current price action and thus reducing the lag effect.</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
Determining short term support and resistance</h2>
<div style="text-align: justify;">
The chart below shows the Nasdaq 100 index with a 50 day exponential moving average (ema).</div>
<div style="text-align: justify;">
The index is making higher highs and higher lows in a consistent manner through most of 2003 and the 50 day ema provided a good indication of where these troughs would be i.e. where to initiate trading long positions. One could of course try a slightly longer period moving average to ensure all troughs remained above the average but from experience we have found the 50 day ema does the job well.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihmcTV0w0ALRYb89JEG7cd2KTTD08b40rlaunJQNwM4IOvmleh_BEpwQ_hGiEMu2BBDGthc6z6TSRKTqQJ39-ceukc8OI6pVBGaBkhoK-2xE3pgKuD4bWLfbo2sk5gea-jpMZ-4wniYbw/s1600/Moving+averages.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="395" data-original-width="474" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihmcTV0w0ALRYb89JEG7cd2KTTD08b40rlaunJQNwM4IOvmleh_BEpwQ_hGiEMu2BBDGthc6z6TSRKTqQJ39-ceukc8OI6pVBGaBkhoK-2xE3pgKuD4bWLfbo2sk5gea-jpMZ-4wniYbw/s1600/Moving+averages.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
Generating trading signals</h2>
<div style="text-align: justify;">
The crossover method generates a fairly reliable automatic trading signal when a shorter term average cross above a longer term average.</div>
<div style="text-align: justify;">
In the example below we have shown 20 and 50 day ema’s for the Nasdaq 100 index. The crossover method would buy the index when the more sensitive 20 day ema (green line) crosses above the longer term 50 day ema (red line) and would sell the index when the 20 day ema crosses back below the 50 day ema.</div>
<div style="text-align: justify;">
We have marked buys with blue arrows and sells with red arrows – this rule of thumb system would have kept us in the market from approximately 1000 to around 1500.</div>
<div style="text-align: justify;">
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiTflauSUAFvM0QzggcsHHjQcZi-asyONP0w90Xzpx9k0IVcHNpm3pr1dGgk05hcRTSy9jUDQoA1pzpHGsr0PZcN_jcMUUAmVr1cYiDScTBTpWHHsc9zJm2OJ2WWQ9nAg1Z301LgvrmGw/s1600/Moving+averages+Trading+Signal.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="491" data-original-width="577" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiTflauSUAFvM0QzggcsHHjQcZi-asyONP0w90Xzpx9k0IVcHNpm3pr1dGgk05hcRTSy9jUDQoA1pzpHGsr0PZcN_jcMUUAmVr1cYiDScTBTpWHHsc9zJm2OJ2WWQ9nAg1Z301LgvrmGw/s1600/Moving+averages+Trading+Signal.jpg" /></a></div>
</div>
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
</div>

EMA Exponential moving average Moving averages Moving averages trading signals Simple moving average SMA Support and Resistance Moving averages

Moving averages The moving average (often shortened to "ma" in our research) is one of the most popular indicators and is us...

Momentum studies

December 08, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<h1 style="text-align: justify;">
Momentum studies</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Momentum indicators are used to monitor the underlying "health" of a particular trend. They do this through a variety measurements and most commonly by assessing the rate at which a stock or financial instrument is advancing or declining.</div>
<div style="text-align: justify;">
Changes in the rate of advance/decline are useful in determining the level of investor enthusiasm: for example, an uptrend “losing momentum” suggests investors are no longer prepared to buy as much stock at current prices demand pull had run out of steam and we could reasonably expect a period of consolidation before enthusiasm returns.</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
The Relative Strength Index (RSI)</h2>
<div style="text-align: justify;">
Relative Strength Index or “RSI” was developed by J. Welles Wilder in 1978 and was later discussed in his book <i>New Concepts in Technical Trading Systems</i>. The name "Relative Strength Index" is slightly misleading as the RSI does not compare the relative strength of two securities, but rather the strength of a single security to past data.</div>
<div style="text-align: justify;">
It is calculated by measuring the ratio of average price gains against average price losses over a specific rolling period. We have set our default period at 14 days as recommended by Wells Wilder but this can be varied to suit particular stocks or futures.</div>
<div style="text-align: justify;">
The RSI is an oscillator that ranges between 0 and 100. There are two main signals that can be generated from this indicator:<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQDqcJ_-BdC6pZ_tOBW6McP6PqENM1bVpc51eYqbv-UF9iS_IMWpIG4Zqn9ApsIWPRvhq7ocuqNeKz3xqpNi0h_1Oa8aE-wfxUHjmNb8Yhufno6CpvMwHMVI2-RcFPcrEAcakGnfc94rM/s1600/RSI+Overbrought_Oversold+Signal.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="325" data-original-width="379" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiQDqcJ_-BdC6pZ_tOBW6McP6PqENM1bVpc51eYqbv-UF9iS_IMWpIG4Zqn9ApsIWPRvhq7ocuqNeKz3xqpNi0h_1Oa8aE-wfxUHjmNb8Yhufno6CpvMwHMVI2-RcFPcrEAcakGnfc94rM/s1600/RSI+Overbrought_Oversold+Signal.jpg" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: small;"><b>Oversold / Overbought signals</b> When the RSI turns up, developing a trough from below 30, it suggests the price is oversold and likely to rally. Conversely, when the RSI turns down, making a peak above 70, it suggests that the price is</span> <span style="font-size: small;">overbought and likely to drop.</span><br />
<span style="font-size: small;"><i>The example chart shows the uptrend in Royal Bank of Scotland (RBS) this year.</i></span> <br />
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td><br /></td><td width="20"><br /></td><td><br /></td></tr>
</tbody></table>
<div style="text-align: justify;">
<span style="font-size: small;"><i>Using top and bottom signals in the RSI and trading out of the stock when the RSI turned down from above 70 and repurchasing when it turned up from below 30 would have been beneficial in this case – see red and green circles. </i></span></div>
<span style="font-size: small;"><i>This strategy would have enabled the technician to dodge some fairly sharp pull-backs which are marked with red arrows.</i></span></td></tr>
</tbody></table>
</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
One point to make is that one should put this indicator into perspective: the fact that it has risen above 70 cannot be construed as entirely bearish, rather it is telling us that the security is making consistently higher closes - a sign of strength. I like to think of the basic "overbought" signal as more of a warning that there is, in the short term, a higher <i>probability</i> of a pull-back or profit-taking rather than a sell signal. The RSI divergence signal below has greater longer term consequences for trend.</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
RSI Divergence signals</h2>
<div style="text-align: justify;">
Divergence occurs when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI.</div>
<div style="text-align: justify;">
Prices usually correct and move in the direction of the RSI. In this case, the RSI is acting as a leading rather than a lagging indicator giving early indication of future price movement.</div>
<div style="text-align: justify;">
<i>The example below shows Antofagasta, the UK Mining stock in 2004. The price makes a new high in early March but this high is not confirmed by the RSI indicator which makes lower highs.</i> </div>
<div style="text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioHtCKD1UsFSZFfeOxqr62hIhn2MKZbRmSkpdyPIiHqWFMbvCsn8u73NJJZ1OxA_ki3YTuVUOJxe2B8HFwZPporeg7TDBoXxmPW2zlUERaQDp5INTERtyrh-MiL40GrTgLRS3HO6qlIBI/s1600/RSI+Divergence+signals.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="491" data-original-width="572" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEioHtCKD1UsFSZFfeOxqr62hIhn2MKZbRmSkpdyPIiHqWFMbvCsn8u73NJJZ1OxA_ki3YTuVUOJxe2B8HFwZPporeg7TDBoXxmPW2zlUERaQDp5INTERtyrh-MiL40GrTgLRS3HO6qlIBI/s1600/RSI+Divergence+signals.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<div style="text-align: left;">
The above signal has much more significance than the basic "overbought" signal as it is suggesting that on each successive higher peak in the Antofagasta share price (in Jan, Feb, and March) the underlying "health" of the uptrend is deteriorating as depicted by the lower peaks in the RSI indicator.</div>
<h2 style="text-align: justify;">
<br /><br />Stochastics</h2>
<div style="text-align: justify;">
The stochastic indicator was developed by George C. Lane in the 1950’s. It measures the position of a price within its range over a specified time period using the closing price relative to the high and low prices over a period.</div>
<div style="text-align: justify;">
It is expressed as an oscillator and signals are somewhat similar to the RSI as one can use both overbought/oversold and divergence. What differentiates the stochastic indicator from the RSI is that the stochastic uses a moving average as a signal trigger.</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
Stochastic settings</h2>
<div style="text-align: justify;">
The main stochastic line is known as %K, and is calculated over a specified number of days (default is 9). A short term moving average (default 3) is applied to %K and this timing line is known as %D. As you will see from the momentum settings screen, there is a third variable which is used to “slow” or smooth the %K line by displaying it as a moving average. (Our default is 3).</div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
Applications</h2>
<div style="text-align: justify;">
The most reliable buy signal is to look for divergence in oversold territory (below 20) and then trade when %K the green line moves back above %D. The most reliable sell signal is divergence in overbought territory above 80 and the %K moving below %D.</div>
<div style="text-align: justify;">
We have used the stock example as for the RSI. Note that in this case the stochastic sell was generated before the RSI.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDkKpvJmWhUh4z2kBNUrBJHvVw8i0kMOsKdv503dpwo3YZPEJBahqrX2of87UxkeWayObAJKvRgBYW9jWsluzpa5OR0O3_FCdZ8B9cit3KzqsX4m0qPYlacBuebDbKmcEXaDxf3sV1NPk/s1600/Stochastics.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="498" data-original-width="564" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDkKpvJmWhUh4z2kBNUrBJHvVw8i0kMOsKdv503dpwo3YZPEJBahqrX2of87UxkeWayObAJKvRgBYW9jWsluzpa5OR0O3_FCdZ8B9cit3KzqsX4m0qPYlacBuebDbKmcEXaDxf3sV1NPk/s1600/Stochastics.jpg" /></a></div>
</div>
<div style="text-align: justify;">
  </div>
<div style="text-align: justify;">
</div>
<h2 style="text-align: justify;">
MACD Indicator</h2>
<div style="text-align: justify;">
The MACD was developed by Gerald Appel and set out in his book “<i>The Moving Average Convergence Divergence Trading Method</i>”.</div>
<div style="text-align: justify;">
The MACD indicator is the difference between two exponential moving averages (12 and 26 as default) and also has a signal trigger or timing line (9 day ema as default).</div>
<div style="text-align: justify;">
When values of the MACD indicator move above the zero level, it is similar to a moving average crossover signal described previously to identify uptrends.</div>
<div style="text-align: justify;">
However, many investors do not wait for the indicator to move above zero as a buy signal but instead look for divergence i.e. for the price to make a lower low and the MACD to make a higher low.</div>
<div style="text-align: justify;">
A signal line in the form of a short term moving average (red line) is applied to the MACD which to provide the actual signal.</div>
<div style="text-align: justify;">
The example below shows Bae Systems, the UK defence contractor, which has recently made new multi-year highs. However, notice how the MACD does not confirm these highs (i.e. makes a lower high) providing potentially a good early indication of a trend change – the actual signal will be generated when the MACD (blue line) crosses below the signal line (red line).</div>
<div style="text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQuwXVEflFlciof_eB4wuLp3oYqQGOJbcrfYiIVnJIB_SzJjAaEbidgpNafEaJ4TpwQ4XJBypCFqYgQ4YyRD7iEo2oKCGhbtCq_BFYi8ZYlvAyoMVoZ_r72Dyz437ttgDB9hxF3UNDSKk/s1600/uni27.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="498" data-original-width="564" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQuwXVEflFlciof_eB4wuLp3oYqQGOJbcrfYiIVnJIB_SzJjAaEbidgpNafEaJ4TpwQ4XJBypCFqYgQ4YyRD7iEo2oKCGhbtCq_BFYi8ZYlvAyoMVoZ_r72Dyz437ttgDB9hxF3UNDSKk/s1600/uni27.jpg" /></a></div>
<br />
</div>
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
</div>

MACD Indicator Momentum studies RSI Divergence signals RSI Oversold / Overbought signals Stochastic Stochastic Applications Stochastic settings The Relative Strength Index (RSI) Momentum studies

Momentum studies Momentum indicators are used to monitor the underlying "health" of a particular trend. They do this throug...

Index Relative studies

December 08, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h1 style="text-align: justify;">
Index Relative studies</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
The relative indicator (not to be confused with the “Relative Strength Index” which is a momentum indicator) compares the performance of a particular stock against that of a relevant index. It is displayed as a ratio by dividing the stock price by the index price.<br />
<br />
Traditionally it is used to determine how the stock is performing relative to the local stock market index of which it forms a part or relative to its industry or sector. It is part of a good investment discipline to check that our portfolio holdings are outperforming their local indices.</div>
<div style="text-align: justify;">
The relative indicator can also be used to help judge the likely reaction to a major level of support or resistance. For example, let’s look at Rio Tinto (RIO) the UK mining stock. The stock has remained in a major five year medium term sideways range. However, the relative indicator (lower chart) confirms that this was, in fact, a very <i>tradable</i> range. Let’s go through three periods on the chart.</div>
<div style="text-align: justify;">
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrovi_erZvmF-JXOWhaT5fY-P3WZQx0c0qqGN_k8WQtp-_YvXMbx91jQO73CoFPMmabr7Mkipckit-1EjIGvP8quEgG63S79rTtJswyTpqrOGyEbVyiV70egwyiDaU_Z0yf86oUl0BE00/s1600/Index+Relative+studies.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="635" data-original-width="494" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrovi_erZvmF-JXOWhaT5fY-P3WZQx0c0qqGN_k8WQtp-_YvXMbx91jQO73CoFPMmabr7Mkipckit-1EjIGvP8quEgG63S79rTtJswyTpqrOGyEbVyiV70egwyiDaU_Z0yf86oUl0BE00/s1600/Index+Relative+studies.jpg" /></a></div>
</div>
<div style="text-align: justify;">
<b>Point A:</b> We have marked the highs/lows on the relative chart to highlight the “relative base” that developed in late 2001.</div>
<div style="text-align: justify;">
This suggests that moves down to support at 900p were less than falls in the market around this time i.e. selling pressure was less for this stock than for the market and sentiment was improving.</div>
<div style="text-align: justify;">
<b>Point B:</b> the relative is now in an uptrend indicating that rallies in late 2001 and in late 2002 from 1000 to 1400 were stronger than the market rally i.e. sentiment is stronger than the market.</div>
<div style="text-align: justify;">
<b>Point C:</b> the stock price makes a new five year high ! an event normally considered as very bullish but the relative has not made a new high suggesting that investors are no longer buying this stock with the same vigour compared to other stocks in the index. This suggests that sentiment is waning and a time to take some well earned profits.</div>
<div class="contentAreaBar" style="text-align: right;">
<a class="whiteSmall" href="http://www.investorsintelligence.com/x/index_relative_studies.html#top"> </a></div>
</div>

Index Relative studies The relative indicator Index Relative studies

Index Relative studies The relative indicator (not to be confused with the “Relative Strength Index” which is a momentum indicator) co...

Volume studies

December 08, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h1 style="text-align: justify;">
Volume studies</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Changes in trend are often associated with sudden increases in trading volume and it is therefore well worth monitoring volume, particularly when a stock experiences a key day reversal.</div>
<div style="text-align: justify;">
</div>
<br /><div style="text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyf4PQuyWAA7PuXeBDjHPekbifHNqMfoNT_6vZ91oBms74gpvS3W95v-ANfc8pwbztCvzQt2OPfBOJXraTNIoVmnz62T4E-hVjjqz78XyxszKBu4SVFhbxuUmdoJzmK0lTAHtOTcBXcCs/s1600/Volume+Study.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="308" data-original-width="374" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyf4PQuyWAA7PuXeBDjHPekbifHNqMfoNT_6vZ91oBms74gpvS3W95v-ANfc8pwbztCvzQt2OPfBOJXraTNIoVmnz62T4E-hVjjqz78XyxszKBu4SVFhbxuUmdoJzmK0lTAHtOTcBXcCs/s1600/Volume+Study.jpg" /></a></div>
<br />
<br />
<br />
<br />
 Let’s take a look at Capita, the UK services stock. Since 2000, it had been in a steep downtrend falling from 600p to just 1/3 of this value at 200p. In hindsight, we know that the first few months of 2003 provided a great buying opportunity for most stocks, but could analysis of the volume have helped us back then ?<br />
<br />
<br />
<br />
<br />
<br />
We have already discussed the concept of key reversals. The chart below shows the two day reversal back in January 2004 – this signal was confirmed by the large increase in trading volume at that time. Note the volume histogram has a moving average line to isolate days of above average volume.<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqSMZ31j52TnXFpisEBiNz4xDF7GdOxtrL2tZ8HX_2XtXcPuZHOW6PsU3PAESw-xdxRGAgZtR2W83oLrh4OFd0itwFLmB0lgh1tGW1sdGrGInWl26d3yIajx3sNAUjSobmy9o4uIobovg/s1600/Volume+Study2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="489" data-original-width="569" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjqSMZ31j52TnXFpisEBiNz4xDF7GdOxtrL2tZ8HX_2XtXcPuZHOW6PsU3PAESw-xdxRGAgZtR2W83oLrh4OFd0itwFLmB0lgh1tGW1sdGrGInWl26d3yIajx3sNAUjSobmy9o4uIobovg/s1600/Volume+Study2.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
</div>

Volume studies Volume studies

Volume studies Changes in trend are often associated with sudden increases in trading volume and it is therefore well worth monitoring...

Putting it all together – a basic routine for investment

December 08, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h1 style="text-align: justify;">
Putting it all together – A basic routine for investment</h1>
<div style="text-align: justify;">
This tutorial aims to give a basic understanding of technical analysis and to at least whet your appetite to learn more. The good news is that there are many excellent books on the subject and these can be obtained by visiting our online Bookshop located on the top menu bar of the home page.<br />
<br />
<b>How to apply this tutorial</b><br />
<b></b><br />
Technical analysis can be applied as :<b>- a means of identifying potential investments</b> which can then be investigated further using analysis of underlying fundamentals, newsflow etc.<br />
<br />
Trading Tools:-  <b>a timing tool</b> to fine tune entry and exit points for an investment selected using other forms of analysis.<br />
<br />
However you use technical analysis, a disciplined approach is essential. Try to develop a routine way of analysing your investments and follow this each time you review existing holdings or investigate new positions.<br />
<br />
Here are some basic steps for looking at stocks:<br />
<br />
1. Determine the current trend of the relevant stockmarket indices.<br />
   -  When did this trend last change ?<br />
   -  Where is the major support and major resistance ?<br />
   -  Is the market trend likely to aid or hinder specific stock trends ?<br />
<br />
2. Determine the current medium term trend of the stock (use a five year bar chart)<br />
    - When did this trend last change ?<br />
    - Where is the stock positioned relative to major support and resistance ?<br />
<br />
3. Determine the current short term trend of the stock (use p&f chart and 6 month bar/candlestick charts)<br />
    - Where is the short term support and resistance ?<br />
    - have there been any important reversal patterns ? if so, do they re-enforce particular areas of support or resistance?<br />
<br />
4. Do the moving averages confirm the above trends ? is the price above its 50 day and 200 day averages and are the shorter term averages above the longer term ones (20 ema versus 50 ema).<br />
<br />
5. Determine the relative performance of the stock<br />
    - Is the relative indicator suggesting outperformance/underperformance and has this changed recently ?<br />
    - Is the stock in a strong sector relative to the market (view sector indices)<br />
<br />
6. Are the momentum indicators positive and do they confirm the stock action ?<br />
<br />
7. Has there been any strong volume activity in the last six months and did this coincide with a likely trend change or help confirm an area of support or resistance ?<br />
<br />
By answering the above questions, one should develop a good background to the current technical strength of the stock in question.  This will make it possible to compare it against other contenders for investment.<br />
<br />
One should also be able to develop a strategy for investing in that stock. One can determine a potential price target at a previous level of resistance although this is more difficult if the stock is making new highs ! One should also identify the level at which the trend will have been negated, the "stop" level at which one should seriously consider selling one’s holding or at the very least re-appraising the situation.</div>
</div>

A basic routine for investment How to apply tutorial Putting it all together Putting it all together – a basic routine for investment

Putting it all together – A basic routine for investment This tutorial aims to give a basic understanding of technical analysis and to a...

Using Point & Figure Charts

December 08, 2015 Paresh Ratan Kundu

<div dir="ltr" style="text-align: left;" trbidi="on">
<h1 style="text-align: justify;">
Using Point & Figure Charts</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
<i>Point and figure (p&f) charts provide a simple, yet  disciplined method of identifying current or emerging trends in stock  prices. This brief guide aims to familiarise the investor with the basic  concepts behind p&f charts and highlights some of the benefits from  using them in one’s investment procedure.</i>  </div>
<div style="text-align: justify;">
<b>The balance between buyers and sellers</b>  </div>
<div style="text-align: justify;">
P&F charts map out the relationship between supply (created  by sellers) and demand (created by buyers) at different price levels.  </div>
<ul style="text-align: justify;">
<li>When demand outstrips supply (more buyers than sellers), stock prices rise and this is depicted by a column of Xs on the chart.  </li>
<li>Conversely, when supply outstrips demand, (more sellers than  buyers) prices fall and this is depicted by a column of Os on the chart.  </li>
</ul>
<div style="text-align: justify;">
The objective of a p&f chart is to identify the points at which  established supply/demand relationships change (these are known as  “breakouts”). These changes will very probably lead to a future  significant move in the stock price. <br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZpw6iFB0p6A4kCTqQfrNSEewiL1y8swe8izJEMOSX27QgaBmqXrJ0eUcd7q06KGBLnDoy89EmrS0cCvSZlJacpLqM8R9RNHhLsQG5bw8iSajIprx-HvWMsPLASod7pSR9agPvb_DoYbg/s1600/usepf1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="192" data-original-width="288" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZpw6iFB0p6A4kCTqQfrNSEewiL1y8swe8izJEMOSX27QgaBmqXrJ0eUcd7q06KGBLnDoy89EmrS0cCvSZlJacpLqM8R9RNHhLsQG5bw8iSajIprx-HvWMsPLASod7pSR9agPvb_DoYbg/s400/usepf1.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>An example, the chart of Du Pont shows a recent trading range of $41-$44:</b><br />
At the $44 level (red line) there is more supply than demand as sellers step in and prices retreat.<br />
At the $41 level (blue line) there is more demand than supply as buyers step in and prices rise.<br />
In
  this case, a breakout (change in the supply/demand equilibrium) will  
occur when the range bands are breached on a move above $44 or below  
$41.  </td></tr>
</tbody></table>
</div>
<h1 style="text-align: justify;">
<b>What makes p&f charts so different?</b></h1>
<div style="text-align: justify;">
There is no doubt that point & figure charts look very different  from the now more common chart formats such as bar charts but with a  little effort one quickly appreciates their simple yet effective  approach – “point & figure charts shout where other charts merely  stutter”. Notable features are as follows:</div>
<div style="text-align: justify;">
<br /></div>
<ul style="text-align: justify;">
<li><b>No time axis</b> - unlike bar or candlestick charts, p&f charts have no horizontal time axis – only price change generates chart action.  </li>
<li><b>The 3 Box reversal rule</b>  - P&F charts will  not change direction (i.e. from a column of Xs to a column of Os)  unless the price moves more than 3 ‘boxes’ (or unit of price)  in the  opposite direction. There can therefore be no fewer than three boxes in a  column. This reversal technique is one of the key strengths to p&f  charting as it effectively filters out minor fluctuations to reveal  patterns.  </li>
<li><b>Semi log scale - </b>the Y axis scale on a p&f chart is graduated to allow one to view and compare similar signals for different prices stocks.  </li>
<li><b>Clear cut signals –</b> what makes p&f charts so popular is the clarity of signal: each stock is either on a <b><i>buy</i></b> or on a <b><i>sell</i></b> and identifying when this signal changes is well-defined and easy to spot.  </li>
<li><b>Support/resistance levels easy to identify </b>due to the almost diagrammatic box format.  </li>
<li><b>Stop and target levels </b>are calculated for every breakout signal</li>
</ul>
<h1 style="text-align: justify;">
P&F Chart Construction</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Our web site generates both the p&f charts and the resultant  signals for you (and we e-mail you when a signal changes).However, it is  important to have an understanding of how p&f charts are  constructed. The following exercise aims to demonstrate how p&f  charts develop and highlights just how quickly patterns emerge.<br />
<br /></div>
<table border="1" cellpadding="2" cellspacing="0" style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td valign="top" width="408"><div>
A stock was recently floated at $50. It moves steadily higher from $50 to $55, with hardly any pull-backs. </div>
<div>
</div>
<div>
The stock then starts to attract profit-taking and the price trades  down by $2 to $53. However no movement is shown on the chart because  the ‘3 box reversal rule’ requires the price to move by three price  units in the opposite direction below the highest point of the column of  Xs i.e. $55-$3 = $52 before registering the move.</div>
<div>
</div>
</td><td valign="top" width="132"><div>
<span style="font-family: "courier new";">56</span></div>
<div>
<span style="font-family: "courier new";">55 X</span></div>
<div>
<span style="font-family: "courier new";">54 X</span></div>
<div>
<span style="font-family: "courier new";">53 X</span></div>
<div>
<span style="font-family: "courier new";">52 X</span></div>
<div>
<span style="font-family: "courier new";">51 X</span></div>
<div>
<span style="font-family: "courier new";">50 X</span></div>
<div>
</div>
</td></tr>
<tr><td valign="top" width="408"><div>
The stock then trades down to $52, triggering the 3 box movement and the chart reverses down by 3 price units.</div>
<div>
</div>
</td><td valign="top" width="132"><div>
<span style="font-family: "courier new";">56</span></div>
<div>
<span style="font-family: "courier new";">55 X</span></div>
<div>
<span style="font-family: "courier new";">54 X <b><span style="color: red;">O</span></b></span></div>
<div>
<span style="font-family: "courier new";">53 X <b><span style="color: red;">O</span></b></span></div>
<div>
<span style="font-family: "courier new";">52 X <b><span style="color: red;">O</span></b></span></div>
<div>
<span style="font-family: "courier new";">51 X </span></div>
<div>
<span style="font-family: "courier new";">50 X</span></div>
<div>
</div>
</td></tr>
<tr><td valign="top" width="408"><div>
Each subsequent move in the established direction is recorded as it  happens. Here the stock trades down by another $1 to $51 so we add  another O to the chart </div>
<div>
</div>
<div>
The stock could trade back up $2 to $53 but no chart action will be  shown since the 3 box reversal rule requires three price unit movements  above the $51 low point to $54 (i.e. $51 + $3) before registering on  the chart..</div>
<div>
</div>
</td><td valign="top" width="132"><div>
<span style="font-family: "courier new";">56</span></div>
<div>
<span style="font-family: "courier new";">55 X</span></div>
<div>
<span style="font-family: "courier new";">54 X O</span></div>
<div>
<span style="font-family: "courier new";">53 X O</span></div>
<div>
<span style="font-family: "courier new";">52 X O</span></div>
<div>
<span style="font-family: "courier new";">51 X <span style="color: red;"><b>O</b></span></span></div>
<div>
<span style="font-family: "courier new";">50 X </span></div>
<div>
</div>
</td></tr>
<tr><td valign="top" width="408"><div>
</div>
<div>
The stock trades up by another $1 to $54, making a $3 increase and so triggers a up reversal of the full price rise to $54.</div>
<div>
</div>
</td><td valign="top" width="132"><div>
</div>
<div>
<span style="font-family: "courier new";">56</span></div>
<div>
<span style="font-family: "courier new";">55 X</span></div>
<div>
<span style="font-family: "courier new";">54 X O <b><span style="color: red;">X</span></b></span></div>
<div>
<span style="font-family: "courier new";">53 X O <b><span style="color: red;">X</span></b></span></div>
<div>
<span style="font-family: "courier new";">52 X O <b><span style="color: red;">X</span></b></span></div>
<div>
<span style="font-family: "courier new";">51 X O</span></div>
<div>
<span style="font-family: "courier new";">50 X</span> </div>
<div>
</div>
</td></tr>
<tr><td valign="top" width="408"><div>
As the stock price continues its upward movement, by $2 to $56,  each new movement is registered on the chart. In this instance, we have  our first breakout, a p&f bull signal, generated when the current up  column (Xs) moves above the previous up column of Xs</div>
<div>
</div>
</td><td valign="top" width="132"><div>
<span style="font-family: "courier new";">56     <b><span style="color: red;">X</span></b></span></div>
<div>
<span style="font-family: "courier new";">55 X   <b><span style="color: red;">X</span></b></span></div>
<div>
<span style="font-family: "courier new";">54 X O X</span></div>
<div>
<span style="font-family: "courier new";">53 X O X</span></div>
<div>
<span style="font-family: "courier new";">52 X O X</span></div>
<div>
<span style="font-family: "courier new";">51 X O</span></div>
<div>
<span style="font-family: "courier new";">50 X </span></div>
<div>
</div>
</td></tr>
</tbody></table>
<h1 style="text-align: justify;">
P&F Scaling</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
</div>
<div class="copyStandard" style="text-align: justify;">
<b>Semi Logarithmic Scales</b></div>
<div style="text-align: justify;">
Stock charts use a semi-logarithmic scale so that price formations remain appropriate at different levels.</div>
<div style="text-align: justify;">
The classic scale is as follows:</div>
<div style="text-align: justify;">
Up to $5              0.25 per box</div>
<div style="text-align: justify;">
$5 - $20              0.50 per box</div>
<div style="text-align: justify;">
$20-$100             1.00 per box</div>
<div style="text-align: justify;">
$100 upwards       2.00 per box</div>
<div style="text-align: justify;">
We have recently introduced the new extended semi-log scale which  provides a more sensitive scale for low priced stocks and also handles  high priced indices more appropriately.</div>
<div style="text-align: justify;">
Up to $5               0.10 per box</div>
<div style="text-align: justify;">
$5 - $10               0.20 per box</div>
<div style="text-align: justify;">
$10-$20               0.50 per box</div>
<div style="text-align: justify;">
$20-$100             1.00 per box<br />
<br />
$100-$200           2.00 per box</div>
<div style="text-align: justify;">
$200-$500           5.00 per box</div>
<div style="text-align: justify;">
$500-$1000        10.00 per box  </div>
<div style="text-align: justify;">
$2000-$5000       50.00 per box<br />
<br /></div>
<div style="text-align: justify;">
<b>Fixed Scales</b></div>
<div style="text-align: justify;">
For indices, we generally use a fixed scale which is selected by  balancing the necessary sensitivity with the efficacy of signals  produced.</div>
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td valign="top">For example, the S&P500 index currently uses a 5 point box scale.  </td><td><div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtK76X5NiP4xqtpNtkScQHi5ZPgc9Px6VuageKgcO-MZCEVC6bYpQ44AI8TtzS3oO2hN3Cxi8bLh1gGoRA41LmG8wV-UX4EDcn1BYj04eda_sbGaW0ipc825GClPLXF8ITGj6dnkMDNgE/s1600/usepf2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="225" data-original-width="300" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtK76X5NiP4xqtpNtkScQHi5ZPgc9Px6VuageKgcO-MZCEVC6bYpQ44AI8TtzS3oO2hN3Cxi8bLh1gGoRA41LmG8wV-UX4EDcn1BYj04eda_sbGaW0ipc825GClPLXF8ITGj6dnkMDNgE/s400/usepf2.jpg" width="400" /></a></div>
</td></tr>
</tbody></table>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
For breadth indicators and other oscillators with scales from 0% to  100%, we use a fixed 2% scale i.e. using a 3 box reversal it takes a 6%  move to reverse the indicator.<br />
<br />
<br /></div>
<h1 style="text-align: justify;">
P&F Support and Resistance Levels</h1>
<div style="text-align: justify;">
Whilst we are fully acknowledge the warning ‘past performance is no guarantee of future performance’ <b><i>support</i></b> and <b><i>resistance</i></b> levels emerge as patterns showing how investors have <i>actually </i>behaved  at certain price levels – ie the price at which demand for a stock  outstrips supply (price ‘support’) and the price at which supply  outstrips demand (price ‘resistance). A breach of these expected levels  is important in signalling a new trend.<br />
<br /></div>
<table border="1" cellpadding="2" cellspacing="0" style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td valign="top" width="408"><div>
</div>
<div>
Support levels are identified as a horizontal row of Os which  represents a level at which demand overcomes supply i.e. where buyers  feel confident to step in.</div>
<div>
</div>
</td><td valign="top" width="132"><div>
</div>
<div>
<b></b><br />
<div>
<b><b><span style="font-family: "courier new";">O</span></b></b></div>
<div>
<b><b><span style="font-family: "courier new";">O         X</span></b></b></div>
<div>
<b><b><span style="font-family: "courier new";">O X   X   X </span></b></b></div>
<div>
<b><b><span style="font-family: "courier new";">O X O X O X </span></b></b></div>
<div>
<b><b><span style="font-family: "courier new";">O X O X O X</span></b></b></div>
<div>
<div>
<b><b><span style="font-family: "courier new";">O   O   O</span></b></b></div>
</div>
<b><b><span style="color: #3300ff;">Support</span></b></b></div>
</td></tr>
<tr><td valign="top" width="408"><div>
</div>
<div>
Resistance levels are identified as a horizontal row of Xs which  represents a level at which supply overcomes demand i.e. where sellers  feel confident to step in.</div>
<div>
</div>
<div>
</div>
</td><td valign="top" width="132"><div>
<div>
</div>
<div>
<b><span style="color: red;">Resistance</span></b></div>
</div>
<div>
<b><span style="font-family: "courier new";">X   X   X   X</span></b></div>
<div>
<b><span style="font-family: "courier new";">X O X O X O X O</span></b></div>
<div>
<b><span style="font-family: "courier new";">X O X O X O X O</span></b></div>
<div>
<b><span style="font-family: "courier new";">X O   O   O X O</span></b></div>
<div>
<b><span style="font-family: "courier new";">X         O   O</span></b></div>
<div>
<b><span style="font-family: "courier new";">              O</span> </b></div>
</td></tr>
</tbody></table>
<div style="text-align: justify;">
<br /></div>
<div class="copyStandard" style="text-align: justify;">
<b>Long Term Support Levels or “Green Zones”</b></div>
<div style="text-align: justify;">
An examination of long term p&f charts will often reveals levels  at which stocks consistently find support (we reduce the display size of  Xs and Os to do this). We refer to these levels as “green zones” from  which we will be actively watching for new p&f bull trends to emerge  since the next price moves are, on past performance, <i>likely</i> to  be upward . We look for further confirmation such as selling climaxes  (particularly if on high volume) and evidence of insider buying.<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZdwiKcn83Oge32vTdBGkg0H41s85S9WlYqHk2RpxXkQnnu6SBJ9wkkMlYcbOI1jWzBJpIpXzPnVffOKuAScG6mk0BdDY6awz6yZJCYsdFeh9A_i3XnhwzXebD42kojMaldrwL3bHbdpo/s1600/usepf3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="479" data-original-width="574" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZdwiKcn83Oge32vTdBGkg0H41s85S9WlYqHk2RpxXkQnnu6SBJ9wkkMlYcbOI1jWzBJpIpXzPnVffOKuAScG6mk0BdDY6awz6yZJCYsdFeh9A_i3XnhwzXebD42kojMaldrwL3bHbdpo/s1600/usepf3.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<div class="copyStandard" style="text-align: justify;">
<b>Long Term Resistance Levels or “Red Zones”</b></div>
<div style="text-align: justify;">
Conversely, stocks reaching areas where they consistently find  resistance are known as “red zones”. These are levels at which caution  should be exercised, since the next price moves are, on past  performance, <i>likely</i> to be downward. Here we would initiate a <b>stop loss policy</b> to limit our losses.<span style="font-size: small;"></span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJOnX2SNa-X4-835vYXj7dd_FLZoGBTDuwCa_gm_5QnTj4sEij0SxUpR7H0VENyVPu0_6oX-1SZnB0ols8cC4HpxuGnbE7gu_xDqs7sQmaMqCrwHUawKKkUtDZQfkwF-qBXhvY9QjxV3s/s1600/usepf4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="479" data-original-width="556" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJOnX2SNa-X4-835vYXj7dd_FLZoGBTDuwCa_gm_5QnTj4sEij0SxUpR7H0VENyVPu0_6oX-1SZnB0ols8cC4HpxuGnbE7gu_xDqs7sQmaMqCrwHUawKKkUtDZQfkwF-qBXhvY9QjxV3s/s1600/usepf4.jpg" /></a></div>
<span style="font-size: small;"><br /></span></div>
<div style="text-align: justify;">
</div>
<h1 style="text-align: justify;">
Trend Lines</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Trend lines are very important in point & figure analysis. The saying that ‘the trend is your friend’ is certainly true.</div>
<div style="text-align: justify;">
</div>
<div class="copyStandard" style="text-align: justify;">
<b>The Bullish Support Line</b></div>
<div style="text-align: justify;">
Stocks above their bullish support line should be assumed to be in long term uptrends.</div>
<div style="text-align: justify;">
The line does not connect points and can therefore be drawn  immediately when an uptrend begins. It is drawn from the lowest point  made after the completion of a bear trend or a significant down move. It  is always drawn at a 45 degree angle, intersecting ascending corners of  the squares on the chart.</div>
<div style="text-align: justify;">
Long positions should be considered while the stock is above the bullish support line.  </div>
<div style="text-align: justify;">
A break of a bullish uptrend line (that has been in place for a  considerable amount of time) is considered to be a bearish event.</div>
<div style="text-align: justify;">
The bullish uptrend line for Cisco (shown below) has been in place since 2002. </div>
<div style="text-align: justify;">
By November 2004 (date of the chart) the stock has retraced below the  bullish uptrend line and although there is a great example of  horizontal support shown by four down columns of Os reversing back up at  the same level.<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhD3K18-BNsj_-DIpr3sX9ONPBVuBxxiB02UXnPzFadGz6GXdvaEmpFipjP2T0bcI-mnxX2YM6DtSP8Jm5MQ9ULkV0_MPKq83Kbbi2HQ_q8rZBodi3FHKb_XGqXkJKoMIQK8vJRf8LnYF4/s1600/usepf5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="480" data-original-width="575" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhD3K18-BNsj_-DIpr3sX9ONPBVuBxxiB02UXnPzFadGz6GXdvaEmpFipjP2T0bcI-mnxX2YM6DtSP8Jm5MQ9ULkV0_MPKq83Kbbi2HQ_q8rZBodi3FHKb_XGqXkJKoMIQK8vJRf8LnYF4/s1600/usepf5.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<div class="copyStandard" style="text-align: justify;">
<b>The Bearish Resistance Line</b></div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Stocks below their bearish resistance line should be considered to be in long term downtrends.</div>
<div style="text-align: justify;">
The line is drawn from the highest point on completion of a  significant uptrend and is extended downwards at an angle of 45 degrees  as far right as possible. </div>
<div style="text-align: justify;">
Short positions should be considered while the stock is below the  line and any buy signals given below this line should be disregarded. </div>
<div style="text-align: justify;">
A break of the bearish resistance line is considered to be a very bullish event.</div>
<div style="text-align: justify;">
In the chart of Bristol Myers Squibb below, the price has remained  below the bearish resistance line since December 2001. In February 2004,  it failed again at the line.<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgP8iV-8xQZgXeiuEaHtcHqVYFiBCFAxWLXefhzFuRs9yZM-ocPKQa_GNS3AfVVLYfIRnXbmNLxasQ0ScQs7VygxceATOScCVt0eR0Zx9Vp0lS-6VWMNHGEsKb3uyaOQiMf7kWLzJylLCU/s1600/usepf6.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="480" data-original-width="575" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgP8iV-8xQZgXeiuEaHtcHqVYFiBCFAxWLXefhzFuRs9yZM-ocPKQa_GNS3AfVVLYfIRnXbmNLxasQ0ScQs7VygxceATOScCVt0eR0Zx9Vp0lS-6VWMNHGEsKb3uyaOQiMf7kWLzJylLCU/s1600/usepf6.jpg" /></a></div>
</div>
<div style="text-align: justify;">
</div>
<h1 style="text-align: justify;">
Relative Strength Charts</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Movement of stocks, to a greater or lesser degree, is influenced  by the trends of the headline market indices and it is often said that  “a rising tide lifts all boats”. Relative strength charts aim to  eliminate this market factor providing a more accurate way of comparing a  stock against its peers.</div>
<div style="text-align: justify;">
The relative p&f chart is a ratio of the stock price divided by  the index price. The two indices most useful for relative purposes are  the Dow Industrials and the S&P500 indices. To bring the ratio  number up to a chartable level, we currently multiply the resultant  ratio by 10,000 for Dow relative charts and 1,000 for S&P500  relative charts.</div>
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td valign="top">For example,  Anheuser Busch (BUD) is finding resistance at around $54 but remains in a p&f uptrend.  <br />
What should we do with the stock? <br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhV3M9z7zlCEotfecVJGMBlHOYQ52m2D1VwbOzyMW4tyIbk7LGyVF6ot7W3QwpqQt71QPfiH4MGKI5WX21fgM2Veh7L50qGi5MVrMwm5OBYeU0r9yskZIWJg_n8iDvuBJa9nDSkwSG5gUQ/s1600/usepf7.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="225" data-original-width="300" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhV3M9z7zlCEotfecVJGMBlHOYQ52m2D1VwbOzyMW4tyIbk7LGyVF6ot7W3QwpqQt71QPfiH4MGKI5WX21fgM2Veh7L50qGi5MVrMwm5OBYeU0r9yskZIWJg_n8iDvuBJa9nDSkwSG5gUQ/s400/usepf7.jpg" width="400" /></a></div>
</td><td></td></tr>
</tbody></table>
<table style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td valign="top">Looking at the relative chart for BUD… it suddenly becomes much clearer…  The stock gave a p&f sell back in November 2002 – look at the downtrend in the relative chart since then!<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuy6VpaVZOZ8ceN3drnp-33bttQOU6W3M0ZgMa2JdjOZNaqXhBv0ZYcDnmdaVYjxAj1RkUe8G2pxw2t7zKP80xNp-UNlPIOPvown-SxPfOTA6CZljioa6tRmdyAEOH6Ksy1A8SjLQLG3M/s1600/usepf8.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="329" data-original-width="296" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuy6VpaVZOZ8ceN3drnp-33bttQOU6W3M0ZgMa2JdjOZNaqXhBv0ZYcDnmdaVYjxAj1RkUe8G2pxw2t7zKP80xNp-UNlPIOPvown-SxPfOTA6CZljioa6tRmdyAEOH6Ksy1A8SjLQLG3M/s1600/usepf8.jpg" /></a></div>
</td><td><br />
</td></tr>
</tbody></table>
<h1 style="text-align: justify;">
Determining Price Objectives</h1>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
There are several methods for determining the price objective on a  point & figure chart, the most popular is the vertical count  method. This is a mathematical calculation applied to all new p&f  signals that provides a good ball-park figure of what could be achieved  from that signal. A quick risk reward ratio of any buy signal can be  calculated by comparing the price objective to the stop loss level  (below the prior down column for a p&f buy).</div>
<div style="text-align: justify;">
We would also suggest studying areas of overhead resistance and  looking for the bearish resistance line when considering the likely  upside potential for a stock.<br />
<br /></div>
<table border="1" cellpadding="2" cellspacing="0" style="margin-left: 0px; margin-right: 0px; text-align: left;"><tbody>
<tr><td valign="top" width="408"><div>
</div>
<div>
<b>Calculations for a buy signal</b></div>
<div>
</div>
<div>
<i>To determine the vertical count for a buy signal, count the  number of Xs to the right of the low point, multiply by the box size and  multiply by 3.</i></div>
<div>
</div>
<div>
For example, in the example opposite, the stock generated a triple  top buy at $56 but the low point was the first column of Os down to $50.  </div>
<div>
</div>
<div>
We therefore count the column of Xs next to this column i.e. 5 boxes multiplied by the box size ($1) multiplied by 3 = $15</div>
<div>
</div>
<div>
To get the price objective, we add $15 to the low point i.e.</div>
<div>
$50 + $15 = $65 </div>
<div>
</div>
</td><td valign="top" width="132"><div>
<b>  </b></div>
<div>
<b><span style="font-family: "courier new";">56 O         X</span></b></div>
<div>
<b><span style="font-family: "courier new";">55 O <span style="color: #3300ff;">X</span>   X   X</span></b></div>
<div>
<b><span style="font-family: "courier new";">54 O <span style="color: #3300ff;">X </span>O X O X</span></b></div>
<div>
<b><span style="font-family: "courier new";">53 O <span style="color: #3300ff;">X </span>O X O X</span></b></div>
<div>
<b><span style="font-family: "courier new";">52 O <span style="color: #3300ff;">X </span>O   O</span></b></div>
<div>
<b><span style="font-family: "courier new";">51 O <span style="color: #3300ff;">X</span></span></b></div>
<div>
<b><span style="font-family: "courier new";">50 O</span></b></div>
<div>
<b><br /></b></div>
</td></tr>
</tbody></table>
<div style="text-align: justify;">
<br /></div>
<table border="1" cellpadding="2" cellspacing="0"><tbody>
<tr><td style="text-align: justify;" valign="top" width="408"><div>
</div>
<div>
<b>Calculations for a sell signal</b></div>
<div>
</div>
<div>
<i>To determine the vertical count for a sell signal, count the number of Os to the right of the high point</i>, <i>multiply by the box size and multiply by 3.</i></div>
<div>
</div>
<div>
For example, 4 boxes in down column to the right of the high point  at $56, multiplied by the box size ($1), multiplied by 3 = $12.</div>
<div>
</div>
<div>
Price objective subtract $12 from high point $56 = $44.</div>
<div>
</div>
<div>
</div>
<div>
</div>
<div>
</div>
</td><td valign="top" width="132"><div style="text-align: justify;">
<b>  </b></div>
<div style="text-align: justify;">
<b><span style="font-family: "courier new";">56     X</span></b></div>
<div style="text-align: justify;">
<span style="font-family: "courier new";"><b>55 X</b><b>   </b><b>X </b><b><span style="color: red;">O </span></b><b>X</b></span></div>
<div style="text-align: justify;">
<span style="font-family: "courier new";"><b>54 X O X <span style="color: red;">O </span></b><b>X O</b></span></div>
<div style="text-align: justify;">
<span style="font-family: "courier new";"><b>53 X O X <span style="color: red;">O </span></b><b>X O</b></span></div>
<div style="text-align: justify;">
<span style="font-family: "courier new";"><b>52 X O</b><b>   </b><b><span style="color: red;">O</span></b><b>   </b><b>O</b></span></div>
<div style="text-align: justify;">
<span style="font-family: "courier new";"><b>51 X</b><b>         </b><b>O</b></span></div>
<div style="text-align: justify;">
<b><span style="font-family: "courier new";">50 X</span></b></div>
<div>
<b><br /></b></div>
</td></tr>
</tbody></table>
</div>

Determining Price Objectives P&F Chart Construction P&F Relative Strength Charts P&F Scaling P&F Support and Resistance P&F Trend Lines Using Point & Figure Charts What makes P&F charts so different Using Point & Figure Charts

Using Point & Figure Charts Point and figure (p&f) charts provide a simple, yet disciplined method of identifying current or ...

Template desing

Why Technical Analysis?

Types of chart

Support and Resistance

The Concept of Trend

Price Patterns

Moving averages

Momentum studies

Index Relative studies

Volume studies

Putting it all together – a basic routine for investment

Using Point & Figure Charts

Popular Post

Why Technical Analysis?

Labels