57986531 Gann RRR Technical Analysis

Technical Analysis

Presentation on Technical

Analysis

Assumptions Underlying Technical Analysis

 Market Value is determined by interaction of demand and

supply.

 Changes in trend are caused by shifts in demand and

supply.

 Some chart patterns tend to repeat themselves

Consideration of Technical Analysis

Price

Time

Volume

Breadth

What is Technical Analysis?

 Evaluating securities by

analyzing statistics

generated by market

activity such as past prices

and volume.

 Use charts and other tools

to identify patterns that can

suggest future activity.

Line Chart

Bar Chart

Close Open

High

Low

****Red/black bar (closing is below the open) green/white bar (closing is above the open)

High

Open

Close

Candlestick

****Red/black candle (close is below open) green/white candle (close is above open)

High

Open

Close

Low

Body

Point & Figure Chart

A chart that plots day-to-day price movements without taking into consideration the passage of time. Point and figure charts are composed of a number of columns that

either consist of a series of stacked Xs or Os. A column of Xs is used to illustrate a rising price, while Os represent a falling price.

Types of Pattern

 Head And Shoulders

Pattern

 Inverse Head And

Shoulders

 Cup and Handle

 Rounding Bottom

 Rounding Top

 Double Bottom (W)

 Double Top (M)

 Triple Top

 Triple Bottom

 Triangle

 Flag

 Wedge

Head And Shoulders Pattern

 Rises to a peak and

subsequently declines.

 Then, the price rises

above the former peak

and again declines.

 And finally, rises again,

but not to the second

peak, and declines once

more.

Inverse Head And Shoulders

 The price falls to a trough and then rises.

 The price falls below the

former trough and then rises again.

 Finally, the price falls again, but not as far as the second trough.

Rounding Bottom

 Rounding bottoms are

found at the end of

extended downward

trends and signify a

reversal in long-term

price movements.

Rounding Top

 A rounding top may form

at the end of an extended

upward trend and

indicates a reversal in

the long-term price

movement.

 Form the shape of an

upside down "U".

Double Top (M)

D

ouble-top pattern is

found at the peaks of an

upward trend and is a

clear signal that the

preceding upward trend

is weakening and that

buyers are losing interest.

Upon completion of this

pattern, the trend is

considered to be

reversed and the security

is expected to move

lower. It takes the shape

of „M`.

Double Bottom (W)

This is the opposite chart

pattern of the double top as

it signals a reversal of the

downtrend into an uptrend.

This pattern will closely

resemble the shape of a

"W".

Cup and Handle

A pattern on bar charts

resembling a cup with a

handle. The cup is in the

shape of a "U" and the

handle has a slight

downward drift. The

right-hand side of the pattern has

low trading volume.

Triple Top

Predict the reversal of a

prolonged uptrend. The

bounce off the resistance

near the third peak is a

clear indication that buying

interest is becoming

Triple Bottom

Predict the reversal of a

prolonged downtrend.

The third bounce off the

support is an indication

that buying interest

(demand) is outweighing

selling interest (supply)

and that the trend is in

the process of reversing.

Ascending Triangle

In an ascending

triangle, one trendline is

drawn horizontally at a

level that has historically

prevented the price from

heading higher, while the

second trendline

connects a series of

increasing troughs.

Traders enter into long

positions when the price

of the asset breaks above

the top resistance

Descending Triangle

One trendline that

connects a series of

lower highs and a second

trendline that has

historically proven to be a

strong level of support.

Traders enter into short

positions when the price

breaks below the support

level.

Symmetrical Triangle

The pattern is identified by drawing two trendlines that connect a series of

sequentially lower peaks and a series of sequentially higher troughs. Both trendlines act as barriers that prevent the price from heading higher or lower, but once the price breaches one of these levels, a sharp movement often follows.

Flag

Flag looks like a

rectangle. The rectangle

is formed by two parallel

trendlines that act as

support and resistance

for the price until the price

breaks out. The buy or

sell signal is formed once

the price breaks through

the support or resistance

level, with the trend

continuing in the prior

direction.

Wedge

 Wedge signals a reverse

of the trend that is

currently formed within

the wedge itself.

 The falling wedge is a

bullish pattern.

 A rising wedge is a

bearish pattern.

Support and Resistance

Support is where a falling price can

be expected to halt, temporarily, due to a concentration of demand.

Resistance is where a rising price

can be expected to halt temporarily due to a

concentration of supply.

Resistance

When the price line break through the support new support line is formed at the new low and the previous support becomes the new resistance.

Resistance

Support

Support

When the price line cut the resistance new resistance is formed at the new high and the previous resistance becomes the new support.

Resistance

Support and resistance points are

likely to develop

 At previous highs and lows

 At the upper and lower areas of gaps

 At extreme high low days - “emotional points” on chart  At trendlines and moving averages

Rules for determining significant support

and resistance zones

 The more times a zone has been able to halt or reverse a price trend, the greater its significance.

 The greater the price move preceding a given support or resistance zone, the greater its significance.

 The more a security changes hands at a particular level, the more significant that level is likely to be as a support or resistance zone.

Volume

 Use as confirmation

 Increasing Volume = Confirmation [Price should go

below ( above ) the low (high) of the high volume

day ]

 Higher the volume = Stronger the move

 Indicates strength of the move

Trend line

Moving Average (MA)

Emphasize the direction of a trend and smooth out price

and volume fluctuations.

An upward momentum is said to begin when a price line

crosses above a moving average.

Downward momentum is said to begin when a price line

crosses below a moving average average.

Types of Moving Averages

Simple Moving Average

Weighted Moving Average

Crossover between the Price and Moving

Average generates buying and selling points

Sell

Sell

Buy

Buy

Buy

Buy

Simple Moving Average

On Nifty Spot.

200 Day M.A

Sale

_Sale

Buy

Crossover between the two Moving Average

indicates trend reversal

50 days M.A

10 days M.A

Buy

Buy

Sell

Simple Moving Average

On Nifty Spot

Market Breadth

 Technique used in technical analysis that attempts to gauge the direction of the overall

market

 Positive market breadth occurs when more companies are

moving higher than are moving lower.

Advance/Decline Line (A/D)

 If the markets are up but the A/D line is sloping downwards, it's usually a sign that the markets are losing their breadth and may be setting up to head in the other direction

.

 If the slope of the A/D line is up and the market is trending

upward then the market is said to be healthy

.

Momentum

 Momentum measures the amount that a security‟s price has changed over a given time span.

 Momentum indicator can be used as a trend-following oscillator, Buy

when the indicator bottoms and

turns up and sell when the indicator peaks and turns down.

 Momentum indicator can be as a leading indicator. It assumes that market tops are typically identified by a rapid price increase and that market bottoms typically end with rapid price declines.

Relative Strength Index

RSI comparer's the internal strength of a single security. It is a

price-following oscillator that ranges between 0 and 100. The RSI usually tops above 80 and bottoms below 20.

Rate Of Change

This indicator plots positive values above the zero line and

negative below. A positive value suggests there is enough

market support to continue driving price activity in the

direction of the current trend. A negative value suggests

there is a lack of support and that prices may begin to

become stagnant or reverse.

Moving Average Convergence

Divergence (MACD)

 When the MACD falls

below the signal line, it is

a bearish signal,

 When the MACD rises

above the signal line, the

indicator gives a bullish

signal,

 When the security price

diverges from the MACD.

It signals the end of the

current trend.

Stochastic Oscillator

Transaction signals occur when the %K crosses through a three-period moving average called the "%D". It usually tops above 80 and bottoms below 20.

Elliott Wave Theory

Elliott Wave Theory interprets

market actions in terms of recurrent price structures. Basically, Market cycles are composed of two major types of Wave : Impulse Wave and Corrective Wave. For every impulse wave, it can be sub-divided into 5 - wave structure (1-2-3-4-5), while for corrective wave, it can be sub-divided into 3 - wave structures (a-b-c).

Waves within Wave

An important feature of Elliott Wave is that they are fractal in nature. 'Fractal' means market structure are built from similar patterns on a larger or smaller scales. Therefore, we can

count the wave on a long-term yearly market chart as well as short-term hourly market

Rules for Wave Count

 Wave 2 should not break

below the beginning of Wave 1;

 Wave 3 should not be the shortest wave among Wave 1, 3 and 5;

 Wave 4 should not overlap with Wave 1, except for wave 1, 5, a or c of a higher

degree.

 Rule of Alternation : Wave 2 and 4 should unfold in two different wave forms.

Wave forms in Impulse Wave

(a) Extended Wave

(b) Diagonal Triangle at Wave 5

(c) 5th Wave Failure

Gann Theory

Gann Theory is a theory on stock price

movements that provides a basis for technical analysis.

The six basic tenets of Gann Theory:  Markets have three trends (bull, bear

& sideways).

 Trends have three phases (major, minor and sideways).

 The stock market discounts all news.  Stock market averages must confirm

each other.

 Trends are confirmed by volume.  Trends exist until definitive signals

prove that they have ended.

Bull Trend Bear Trend

Major Trend

Minor Trend

Bull and Bear Trend

Bull Trend

Bear Trend

Gann System

L H

H

L

Buy Signal (high is broken but low is not)

H

H L

L

Sell Signal (low is broken but high is not) H H H H L L _L L

Inside Bar (neither high nor low is

broken , continuation of previous trend )

Outside Bar (both high low is broken , continuation of previous trend)

Rules for Risk Reward Ratio

(RRR) Buying

 Buy (Near/Close) to Previous day low.

 Buy ( Near/ Close) to Previous Week‟s low.

 Buy near previous swing bottom, even if low is broken.

 Buy at 50% retracement of last upswing.

 Buy if 2 day‟s low is same even if high is not broken.

 Buy if 2 week‟s low is same even if high is not broken

SL 1

SL 2

Stop loss (SL): keep trailing the SL to previous day‟s/week‟s low.

SL 3

Risk : Reward = 1 : 3

Buy near previous Swing bottom. SL 1

Buy SL 2

Buy at 50% retracement of last upswing.

Buy

Rules for RRR Selling

 Sell ( Near/ Close ) to previous day high.

 Sell ( Near/ Close ) to previous week‟s high.

 Sell near previous swing top, even if high is broken.

 Sell at 50% retracement of last down swing.

 Sell if 2 days high is same even if low is not broken.

 Sell if 2 weeks high is same even if low is not broken

SL 3 SL 1

SL 2

Risk : Reward = 1 : 3

Stop loss (SL): keep trailing the SL to previous day‟s/week‟s low. SL 1 SL 2 SL 3 SL 4 Sell Sell Sell Sell near previous swing top

Sell at 50% retracement of last down swing.

Sell