technical analysis -advance level research & development department, mex. all rights reserved
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Technical Analysis-Advance Level
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Disclaimer
This presentation is being provided solely for informational purposes. Mercantile Exchange Nepal Limited does not warrant the accuracy or completeness of any information provided in this presentation and such information is provided without any correctness or condition of any kind. Neither Mercantile Exchange Nepal Limited nor any other person associated with the creation of this presentation or its contents shall be liable or responsible to any person for any harm, loss or damage that may arise in connection with the use of this presentation, including without limitation, any indirect, third party, or consequential damages.
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Flow of Presentation
• Technical Indicator• Japanese Candlesticks• Technical Indicators• Conclusion
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Technical Indicators
• A technical indicator is a series of data points that are derived by applying a formula to the price data of a security
• Price data includes any combination of the open, high, low or close over a period of time
RESEARCH & DEVELOPMENT DEPARTMENT, MEX. ALL RIGHTS RESERVED
Technical Indicators
• A technical indicator offers a different perspective from which to analyze the price action.
• Some, such as moving averages, are derived from simple formulas and the mechanics are relatively easy to understand
• Others, such as Stochastics, have complex formulas and require more study to fully understand and appreciate
• Technical indicators can provide unique perspective on the strength and direction of the underlying price action
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Technical Indicators
• Why Use Indicators? An indicator can act as an alert to study
price action a little more closelyIndicators can be used to confirm other
technical analysis tools Some investors and traders use indicators
to predict the direction of future prices
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Technical Indicators
• Tips for Using Indicators Indicators indicate Signals should be taken in context with
other technical analysis tools Learning how to read indicators is more of
an art than a science Hundreds of indicators in use today Choose carefully and moderately
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Japanese Candlesticks
• Candlestick charting first appeared sometime after 1850
• Credit goes to legendary rice trader named Homma from the town of Sakata
• Original ideas were modified and refined over many years of trading eventually resulting in the system of candlestick charting that we use today
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Japanese Candlesticks
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Candlesticks Pattern, WHY??
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• Doji
Major Candlesticks Pattern
Bulls and Bears are at an equilibrium A state of indecision Always take notice
•
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Major Candlesticks Pattern
• Gravestone Doji
Open and the close occur at the low of the day Top of a up- trend
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• Dragonfly Doji
Open and the close occur at the top of the day Bottom of a down- trend
Major Candlesticks Pattern
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• Bullish Engulfing Pattern
End of a downtrend Buying pressure Beginning of an up - trend
Major Candlesticks Pattern
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Opposite to the bullish pattern End of an up – trending market Selling pressure
Major Candlesticks Pattern
• Bearish Engulfing Pattern
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Major Candlesticks Pattern
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• Dark Cloud Cover
Two – day bearish pattern End of an upturn Closes below the 50% level
End of a declining market Price opens lower than the previous day Closes above the 50% level
• Piercing Pattern
Major Candlesticks Pattern
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• Hammer
Long lower shadows and small real bodies Patter at the bottom of the down-trend is Hammer
Major Candlesticks Pattern
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• Hanging-man
Major Candlesticks Pattern
Long lower shadows and small real bodies Pattern at the top of the up-trend is Hanging Man
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• Morning Star
Bottom reversal signal Beginning of an up - trend
Major Candlesticks Pattern
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Major Candlesticks Pattern
• Evening Star
Opposite of the Morning Star Top reversal signal Beginning of a down - trend
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• Shooting Star
Warning that the top is near Bottom of a trend is a bullish signal (inverted hammer)
Major Candlesticks Pattern
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Moving Averages
• Simple Moving Averages• Exponential Moving Averages
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Moving Averages
Simple Moving Averages• Average Value of a commodity over a set period• Emphasizes the direction trend • Upward trend is when a shorter duration MA (for e.g.,
15 days) crosses over the longer duration MA (for e.g., 50 days)
• Downward trend is when a longer duration MA (for e.g., 50 days) crosses over the shorter duration MA (for e.g., 15 days)
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Moving Averages
Simple Moving Averages
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Moving Averages
Exponential Moving Averages• Similar to Simple Moving Averages • Except more weight is given to the latest data• 12- and 26-day EMA’s are the most popular • Example of EMA
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Moving Averages
Exponential Moving Averages
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Pivot Points
• Predictive indicator of
market movement
• Uses the previous time
frame prices to
calculate the next time
frame’s pivot points
Calculation used for Pivot
Points
Resistance 3 = H + 2*(P-L)
Resistance 2 = P + (Res1-Sup1)
Resistance 1= 2 * P - L
Pivot Point = ( H + C + L ) / 3
Support 1 = 2 * P - H
Support 2 = P - (Res1-Sup1)
Support 3 = L - 2*(H-P)
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Example of Pivot Points
• Gold Prices on 31st March 2011
Open High Low Close1435.80 1445.05 1427.80 1431.39
R2 R1 Pivot S1 S2
1452.13 1440.97 1434.77 1424.54 1417.10
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Example of Pivot Points
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Relative Strength Index
• Developed by J. Welles Wilder • Measures the magnitude of gains against
the magnitude of losses over a period• Range 0-100• Formula=100-100/(1+RS)• where, RS=Average Gain / Average
Loss
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Relative Strength Index
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Relative Strength Index
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Bollinger Bands
• Created by John Bollinger in 1980s• Determines the overbought and oversold
zones• Consists of three curves
Upper Band-Middle Band+2 S.D. Middle Band-20 Days SMALower Band-Middle Band-2 S.D.
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Bollinger Bands
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Fibonacci
• Discovered by Leonardo Pisano • Series numbers: 0, 1, 1, 2, 3, 5, 8, 13,
21, and so on• Fibonacci Retracement Levels (Golden
Mean)0.236, 0.382, 0.500, 0.618, 0.764
• Fibonacci Extension Levels0, 0.382, 0.618, 1.000, 1.382, 1.618
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Fibonacci Retracement
• Works best when the market is trending• Used to determine support and resistance
level• General consensus is the market always
reverses from one of the support/resistance levels
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Fibonacci Retracement• Uptrend
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Fibonacci Retracement
• Uptrend
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Fibonacci Retracement
• Downtrend
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Fibonacci Retracement• Downtrend
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Fibonacci with Trend Lines
• Useful on trending market i.e. Uptrend or Downtrend
• Example of silver• Want to take a long position but don’t
know when• Draw the trend line from 24th August till
22nd October• Draw the Fibonacci levels taking a swing
low price of USD 22.79(coinciding with one of the lowest trend levels of 22nd October) and swing high price of USD 29.34.
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Fibonacci with Trend Lines
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• Silver Prices found support at 61.8 level i.e. USD 25.31 (coinciding with the trend line as well) on 16th November
• Take a Long position at this level
• Silver Prices broke the swing high level on 4th December
Fibonacci with Japanese Candlesticks
• Tracking the development of exhaustive candlesticks
• Indicates a continuation of a trend• Example of Gold• Draw the Fibonacci levels taking a swing
low price of USD 1156 on 27th July and Swing high price of USD 1387.08 on 14th October
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Fibonacci with Japanese Candlesticks
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• Gold prices found support at 23.6 Fib Level on 21st October
• Formation of a Dragonfly Doji after a bearish candle the preceding day
• Dragonfly Doji indicates the beginning of a bullish trend
• Take a long position at this level
• Gold Prices break the swing high level on 5th November
MACD• Developed by Gerald Appel in late 1970s• Acronym for Moving Average Convergence
Divergence• Identify a new trend• Calculation• MACD: (12 Day EMA-26 Day EMA)• Signal Line: 9 Day EMA• MACD Histogram: MACD-Signal Line
• Rules for Trading• When MACD>Signal Line=Bullish Market• When MACD<Signal Line=Bearish Market
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MACD
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Conclusion
• Technical Indicators work in tandem with each other
• Weigh the pros and cons of each indicator before reaping the results
• The best strategy forward is using technical and fundamental factors simultaneously
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