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Academy #8Technical Analysis

Speakers: Charles & Daniel

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Introduction Charles-Antoine Bory

◦ Board member + chairman Audacity◦ Swiss: good with other people’s money◦ Many years of investment experience

Daniel Göttmann◦ Chairman STCM◦ German: paying the bill in a few years◦ Many years of investment experience

Content Introduction Volatility Charts Basic patterns Trend indicators Momentum indicators Advanced chart patterns Links Conclusion

What is technical analysis? Graphical analysis

“In finance, technical analysis is a security analysis discipline used for forecasting the direction of prices through the study of past market data, primarily price and volume.” Wikipedia

Technical analysis is more concerned with finding cues about the market micro structure!

Belief that the historical performance of stocks and markets are indications of future performance.

Technical vs Fundamental Never forget your fundamental analysis!

Use technical analysis as complement

Combination is the key!

Why is it important? Identifying securities to buy/sell

Timing of buy and sell orders

Drawing in your professional life

Volatility Volatility is a measure for the variation of

the price of a financial instrument over time◦ Standard deviation◦ A higher volatility implies a riskier asset◦ Volatility varies over time◦ Volatility typically high in bear markets

Volatility Negatively correlated with price

Volatility Stocks: volatility goes up, as prices go down Implication for options? Want to trade volatility? Use the VIX

Chart Types: Line Charts

Chart Types: OHLC

Chart Types: Candle Sticks

Basic Patterns

Patterns: Support Price level at which demand is thought to be

strong enough to prevent the price from declining further

Patterns: Resistance Price level at which selling it thought to be

strong enough to prevent the price from rising further

Patterns: Change in polarity principle Resistance becomes support (and vice-

versa)

Patterns: Trend

Patterns: Triple Bottom Buy signal at (3)

Patterns: Triple Top Sell signal at (3)

TrendIndicators

Trend: SMA

Trend: SMA

Trend: SMA

Trend: SMA Golden Cross: fast moving average crosses

slow moving average from below◦ Buy signal!◦ Typically comes with high trading volumes

Trend: SMA Dead Cross: fast moving average crosses

slow moving average from top◦ Sell signal!

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Trend: Bollinger Bands 1 moving average (e.g. 20 days) +/- 1 standard

deviation Bands as support/resistance Adjusts to market conditions Contains ~88% of price movements

Trend: MACD Moving Average Convergence Divergence MACD=12d EMA – 26d EMA, 9d EMA (signal line) Trend + momentum Crossover

MomentumIndicators

Momentum: RSI Relative Strength Index 0<RSI<100 RSI>70 => overbought (=> sell) RSI<30 => oversold (=> buy)

Momentum: Stochastic Oscillator Similar to RSI Used to forsee reversal 20<STO<80

Momentum: other Rate of Change (ROC) Commodity Channel Index (CCI) StochRSI TIX Ulitmate Oscillator (ULT) Aroon[…]

Advanced Chart Patterns

Patterns: Candle patterns

Patterns: Head & Shoulder Most reliable trend-reversal pattern

◦ Detectable by volume peaks1. Rises to a peak and subsequently declines.2. The price rises above the former peak and again

declines.3. Price rises again, but not to the second peak,

and declines once more.

Patterns: Triangles Ascending Descending Use a price range

Questions?

Volume The more volume the better

◦ Lower transaction costs (bid-ask spread)

What is happening?

What is happening?

What is happening?

What is happening?

Recommended websites Investopedia.com

◦ To lookup easy definitions

Bloomberg.com◦ Click on “Index Chart” -> “Overlay” / “Indicators”

Stockcharts.com◦ Perform technical analysis easily◦ Explanation for each indicator◦ All indicators available

Chartgame.com◦ Test your knowledge and predictions!

Conclusion Always combine many indicators at the same

time◦ Avoid multicollinearity◦ E.g. Candle sticks + Volatility + Volume + SMA +

MACD + RSI

Focus on liquid stocks

Always use it as a complementary tool to fundamental analysis

Now, impress your investment group!

Thank you for your attention! Next B&R Beurs events:

◦ 13/12 at 9pm: Social drink @ Sus&Co◦ 15/12: Deadline ABN Amro Turbo Assignment◦ 10/01: New Year’s drink (Champagne!!)