An Introduction to Technical Analysis of Stock Charts

[tech/a]

Hi.
Technical analyisis is the study of price action.
There are many ways to study price action here are a few.

Bar charts,Candlesticks, Point and Figure,Steidelmayer,Renko,Kangi.
Oscillators(RSI,Williams,Stochastic,MACD etc),Indicators,Fibonacci,Time and Price analysis (Gann--Elliot)
Pattern recognition (Triangles,Flags,ledges,Rectangles(Including Darvas),Head and shoulders,diamonds,broadening tops and bottoms(Go on a diet!!)wedges and then simply the bars themselves(Open,High,Low,Close,Volume).

Initially Ill limit discussion and examples to the more common.
Indicators Oscillators and Bar Charts,pattern recognition and Bar analysis.
This will take sometime to work through and Ill be away again in early June till mid June.Ill also endeavour to give chart examples when explaining something.
The old picture says 1000 words.

Firstly Id like to have everyone understand the most common mistakes that occure using technical analysis.
(1) Incorrect use of an indicator---lack of understanding as to what it does.
(2) Using indicators and oscillators in the wrong context.The most common being looking for buy opportunities in a falling stock using OVERSOLD from an oscillator.(Oscillators are to be used WITH the prevailing trend---the only exception being Divergence with oscillator and price,Type A,B.or C).
(3) A signal from an oscillator means NOW----simply any oscillators signal means AROUND now unless proven otherwise.Think of it as a CIRCLE around a price area and not a DOT.
(4) Ocsillators and indicators are made up of PAST data and as such cannot be predictive.
(5) Signals remain valid for an infinite time.(There is a time when a signal is clearly wrong--- you must know when and take action).
(6) Analysis should start from monthly or weekly and move toward daily and then intraday.
(7) Over use of analysis.Many try to find Something,anything to justify their position---
(8)Price action DOESNT LIE.

For the purposes of education though I will start with Price bars and move out from there.
So things run smoothly Ill complete a topic and charts and post all at once this could take a while as time is scarce.My apologies.
Looking forward to discussion if there is anything specific please let me know and Ill answer it as we get to the relevant topic.You can private mail me if you wish.

TOPIC (1)
PRICE BARS---interpretation--reversals---gaps---volume

So if there are any specific questions to Price bars then lets hear them!
Im sure there will be some after the Price Bar module topic is posted.

[tech/a]

Initial analysis maybe boring to some .
I hope to show "Textbook" techniques and also some
ideas which are rarely seen in textbooks Im sure youll
enjoy things as time goes buy.Chart (1)

Here is one not often seen.
Composite Bars of Controlling Influence.Chart (2)

I prefer to use charts that show whats Happening NOW so we can see how analysis unfolds.This means we can comment of the resultant price action.
I hope to do this throughout our discussions where possible/appropriate.

[dutchie]

Looking good Tech/a -

Who said he did not want to write a book?

I have found reading books on TA that the more chart examples there are when explaining the theory the better (even more so in relative real time).

Its also a good time (in a difficult market) to start this thread and being able to learn about TA.

Keep it coming!

[tech/a]

Often analysis overlaps on a chart so where appropriate I will point it out within the context of the discussion.This next chart will begin the discussion on REVERSALS and various types of BARS and the logic behind them.

When analysing a chart I find the following "Trueism" invaluable.

When you have a 50/50 chance of being right remember you'll have a 90% chance of getting it wrong

There are quite a few patterns in the following series and I think many will find them handy for NOW analysis getting an idea what could happen tommorow or what happened today----as most trade short term and in a discretionary manner from what I can see.

This example is a past example from CBA chart.

[tech/a]

Lets continue the analysis on CBA forward with what has been introduced so far.The last chart is CURRENT so we can see the analysis playing out.

This is an expansion on Simple Bar chart analysis.(Cumulitive bar analysis).

Enough for today off to hit a white ball. :D :D

[Porper]

Excellent thread Tech A, don't think nobody is reading just because there aren't any questions yet.We probably just all understand up 'till now.When it gets more advanced I will guarantee the questions will flow.

Keep it coming.:bigthumb:

[Dan_]

tech/a,

An excellent thread. It is greatly appreciated the time and effort undertaken to assist in educating others and sharing up your knowledge.

Thanks again & keep them coming. :bier:

[gollum]

where do you suggest reading about bar analysis??

[rocker]

Great thread Tech/A, but just an observation that the second red price bar
was CBA going ex-div about 80cents if i remember, although the selling
continued for a couple of days. Any strategies for trading these? Sometimes
the gap closes straight away, other times keeps falling for a couple of days.

[tech/a]

Gollum,
Most info on Bar analysis is spread spasmodically over all sorts of books.Guppy I think has a bit in his publications.
I have a fair bit in my old Securities Institute Lecture Notes.
Some of what is here you wont find specifically in books---the Cumulative Bar analysis is an extention of Nison's use of Candlesticks.

Rocker.
Yes its a good idea to use some examples to trade.Single bars are best used as timing tools.Cumulative can be used as a stratagy.
Lets take the CBA chart.
You could sell calls at say 30 days out $1 above the highest high in the cumulative bar.If trades take place within a strike of the call then cover.
You could also short CBA.

Generally I use Bar analysis for buying timing and as an ALERT for possible selling as well as deciding how long to hold.(When Im trading in a discretionary manner)---which is very rare these days as Im predominately a systems trader.

Ill look for trade examples ---realtime through out the course so we can see how to apply that shown.

Now for the next type of reversal---the powerful---Key Reversal.

[tech/a]

Introducing 2 powerful reversal patterns.
(1) Island reversals
(2) Complex Pivot Point Reversals
BOTH appear at the END of Trends and mark at least a temporary change in trend.Look for breaks in current trendlines as shown on the charts.
The final Reversal Patter will the the SIMPLE PIVOT which Ill show when I find one!!

[tech/a]

Gullum

Should have mentioned that Larry Williams.
"Longterm secrets to Short Term Trading"
Has some excellent Bar and Bar pattern analysis
well worth buying.

I'll introduce some of Larry's patterns and Bar analysis to this thread.
I think also it would be best to have a seperate thread on each topic.
IE
This one on Bar and Bar Pattern Analysis
Next Gap Analysis.
ETC.

[skin]

Introducing 2 powerful reversal patterns.
(1) Island reversals
Would VCR in May 2005 represent an Island reversal?

[tech/a]

Skin

Your question is answered in the chart.
No its not an Island reversal but a Bullish Pivot Point Reversal.
The second chart shows a Bearish Pivot Point Reversal.

[tech/a]

Trading Small caps?? Introducing the Shark or oooops Bar.

[tech/a]

The Sling Shot Bullish stand alone Buy bar.

[DTM]

Nice thread Tech. Thanks from us who are still learning. :)

[suzanne]

Dear Tech /a ,

Thanks for taking the time to show us the TA. Finding it very helpful.

I took your advice and trialed and registered with Amibroker. Still finding my way about but feel it is going to be very helpful.

Anyway with regards to your last chart - sling shot I think it was called.

I came across a trading strategy the other day on the net, where the idea was - when a fundamentally good stock was falling or moving down - you wait till the stock is oversold. Then you wait for an increase in volume. Then according to the writers 'secret accumulation formula' if a particular accumulation criteria was met - you buy in the next day.

Often I have seen this type of thing happen but the few times I have tried to get in and make a quick profit and get out - I am too slow and get caught. Another time (ADY) a few weeks back - I was quick enough to get in and take a small profit over 2 days, but the price kept going up and I missed out again. Just can't win.

So what type of 'accumulation indicator ' do you think the advertiser may be referring to to indicate what was called 'professional money buying into the stock' or stock that is under strong accumulation.

Would one just look at the volume accumulation indicator or is there another such indicator that can be used.

Still learning

Cheers
Suzanne

[tech/a]

Suzanne

Sounds very much like Neilsen.
Ive been working with Mike Park who seems to be advanced even further than Neilsen.Anyway its an indicator based upon market depth and the accumulation of buyers or sellers.I havent finihed evaluating Mikes indicator(Which isnt on the market but similar to Neilsens).But from what I see so far its certaintly no magic bullet.
For some reason people rush to subscribe to "New" indicators---under the misconception that they will find their pot of gold because this is new and no one knows about it yet!

I have a free method which returns around 150% a year and I only know of 18 people who use it all with similar results to my own.

But traders (God Bless em) just love to re invent the wheel!!

There is NO magic bullet----all patterns/indicators/and methods fail its what you do when they do and what you do when they dont thats important.

(Rule (1)Now what you and many others here need to do is find out "WHAT IT IS YOU HAVE TO DO")

In the coming months I will go through "What" you need to develope a startagy---infact there is enough here to develope a simple short term trading methodology even now.---But thats beyond this thread.In time I think we should devise and trade a few.The Good The Bad and the down right Ugly---so we can see success and what to do when we have failure!

If you or anyone else likes an idea here I suggest you make a note of it under "Entry or Exit" technique and have a play "ON PAPER" with a few ideas.

I only trade with price action-----1 Moving Average and thats it!
150% for the last 3 yrs!

If I can do it EVERYONE CAN!
Read Rule (1)
In time everyone will be able to answer Rule (1)
My FCN thread may be of interest.

[suzanne]

Dear Tech/a,

Thanks again for the info. Certainly something to think about. I will keep following this thread to see what develops. I'll also check out FCN thread.

Cheers
Suzanne

[tech/a]

The FIRST of Larry Williams's Smash Days."The Naked Close"

[tech/a]

As I find othe Bar chart analysis I'll post them up here.

I think it would be a good idea even at this early stage to start a thread on Technical setting of Position sizing---Technical setting of Stops---and general Money Management.

That way those who are struggling with losses like those Suzanne described may have something to work with.---Plus its a practical application to trading which I feel should be introduced to new traders as soon as possible!
Then soon we can introduce some working examples and watch their developement.

I'll then follow with Gap analysis and then Pattern analysis.

Thoughts? :confused:

[excalibur]

Mabe it is a choice of taste, but I personally would prefer you would use lines instead of candlesticks in your graphics.
General money management would be interesting.

Keep up the good work mate

[Rafa]

Keep it up Tech/a, this knowledge is extremely valuable.

A thread on stops also sounds like a great idea, tho in most instances, I remember you writing in another post once, if the shares fallen more than 5-8% its probably as good a time as any to take the stop!

Alas, for me anyway, it’s easier said than done!!!

R.

[tech/a]

Ex

Please tell me thats a tongue in cheek comment.

They are BAR charts not Candlesticks----but you knew that!!!

[tech/a]

The IMPULSE Move,Day or Bar

[tech/a]

Rich emailed me and asked how one could trade Impulse Bar setups.
I'll use his example of JUM to demonstrate 2 options.

[Milk Man]

keep this up and we'll never have to buy another charting book again.
nice work- never even seen or heard of an impulse day. :D

[tech/a]

If anyone is SERIOUSLY interested in Steidlmayer Distribution Analysis by Peter Steidlmayer and the Chicago Board of Trade then go here and download the FREE 350 page book on the analysis.

http://www.cbot.com/cbot/pub/page/0,3181,1184,00.html


I hav spent a lot of time looking into this (Also known as Market Profile).
It is one of the best short term trading tools I have seen.
Unfortunately unlesss you wish to invest 1000s it has to be hand charted.

I will introduce aspects(Certain analysis)of this style of trading which can be easily related to conventional trading methods.

[tech/a]

A great example of an Impulse Bar in the USD

http://www.aussiestockforums.com/forums/showthread.php?p=13052#post13052

[Battman64]

Larry Williams is certainly worth studying
Many great points.

[sam76]

Tech,

Just read through this thread: absolutely awesome!

Thanks for taking the time to put it all together.

much appreciated.

Sam.

[RichKid]

Rich emailed me and asked how one could trade Impulse Bar setups.
I'll use his example of JUM to demonstrate 2 options.

XJO impulse bar imo last week breaking the short term downtrend. Short term trade, only noticed it yesterday. Would still be in this trade if traded as tech suggested. Should be able to close at a profit too the way things are going today. Just theory atm.

[RichKid]

The FIRST of Larry Williams's Smash Days."The Naked Close"

Tech,
Great thread this, been reviewing it, what's the second type? Hope I haven't missed it.

[tech/a]

Rich.

I had every intention of continuing with the tutorials but time is the issue.
Ill keep going when time allows--if anyone else wants to add to the thread with relevant stuff in tutorial format then please go ahead.

[RichKid]

Rich.

I had every intention of continuing with the tutorials but time is the issue.
Ill keep going when time allows--if anyone else wants to add to the thread with relevant stuff in tutorial format then please go ahead.

Thanks Tech, I'll see if I can do some research on Williams' stuff but will be cautious re posting stuff as I'm still learning it and don't want to mislead anyone, especially as this is a tute type thread rather than a pure discussion.

[coyotte]

Top work tech/a

Shame to see this buried


Cheers
Coyotte

[It's Snake Pliskin]

Top work tech/a

Shame to see this buried


Cheers
Coyotte

I agree!

[tech/a]

Rich.

I had every intention of continuing with the tutorials but time is the issue.
Ill keep going when time allows--if anyone else wants to add to the thread with relevant stuff in tutorial format then please go ahead.

Yes it appears my Altzhimers has kicked in.

[dubiousinfo]

Top work tech/a

Shame to see this buried


Cheers
Coyotte


I agree too!

[tech/a]

Yes it appears my Altzhimers has kicked in.

Its really played Havoc with my HINDSITE analysis.

[ozambersand]

Just bumping this so I can find it again more easily. So much to digest, can't do it in one sitting!
Thanks for all the info and work that is in the thread too Tech/A

[lvt]

Hi,

I am brand new to the forum, have not looked around much but will.

I have question on Steidlmayer. More specific the construction of the VAD.

Can you help? I urgently need to understand this.

Thank you,
Leon


Hi.
Technical analyisis is the study of price action.
There are many ways to study price action here are a few.

Bar charts,Candlesticks, Point and Figure,Steidelmayer,Renko,Kangi.
Oscillators(RSI,Williams,Stochastic,MACD etc),Indicators,Fibonacci,Time and Price analysis (Gann--Elliot)
Pattern recognition (Triangles,Flags,ledges,Rectangles(Including Darvas),Head and shoulders,diamonds,broadening tops and bottoms(Go on a diet!!)wedges and then simply the bars themselves(Open,High,Low,Close,Volume).

Initially Ill limit discussion and examples to the more common.
Indicators Oscillators and Bar Charts,pattern recognition and Bar analysis.
This will take sometime to work through and Ill be away again in early June till mid June.Ill also endeavour to give chart examples when explaining something.
The old picture says 1000 words.

Firstly Id like to have everyone understand the most common mistakes that occure using technical analysis.
(1) Incorrect use of an indicator---lack of understanding as to what it does.
(2) Using indicators and oscillators in the wrong context.The most common being looking for buy opportunities in a falling stock using OVERSOLD from an oscillator.(Oscillators are to be used WITH the prevailing trend---the only exception being Divergence with oscillator and price,Type A,B.or C).
(3) A signal from an oscillator means NOW----simply any oscillators signal means AROUND now unless proven otherwise.Think of it as a CIRCLE around a price area and not a DOT.
(4) Ocsillators and indicators are made up of PAST data and as such cannot be predictive.
(5) Signals remain valid for an infinite time.(There is a time when a signal is clearly wrong--- you must know when and take action).
(6) Analysis should start from monthly or weekly and move toward daily and then intraday.
(7) Over use of analysis.Many try to find Something,anything to justify their position---
(8)Price action DOESNT LIE.

For the purposes of education though I will start with Price bars and move out from there.
So things run smoothly Ill complete a topic and charts and post all at once this could take a while as time is scarce.My apologies.
Looking forward to discussion if there is anything specific please let me know and Ill answer it as we get to the relevant topic.You can private mail me if you wish.

TOPIC (1)
PRICE BARS---interpretation--reversals---gaps---volume

So if there are any specific questions to Price bars then lets hear them!
Im sure there will be some after the Price Bar module topic is posted.

[tech/a]

leon.

How to actually plot the VAD?

Its all by hand
using 15 min bars--generally.
Very quickly
Each price bar is plotted starting with A (TPO's)
If there is already a plot at that price you place the plot to the right of it.
As time goes by a profile of the days trading developes.
The VAD
is the region where 70% of the days trading was facilitated.
This Zone then becomes the area from which breakouts or retracements are likely to originate from or fall back to.

[Timmy]

I have question on Steidlmayer. More specific the construction of the VAD.

What's a VAD and how urgent is it that you understand it?

[pennywise75]

I have a free method which returns around 150% a year and I only know of 18 people who use it all with similar results to my own.

But traders (God Bless em) just love to re invent the wheel!!

There is NO magic bullet----all patterns/indicators/and methods fail its what you do when they do and what you do when they dont thats important.

(Rule (1)Now what you and many others here need to do is find out "WHAT IT IS YOU HAVE TO DO")

In the coming months I will go through "What" you need to develope a startagy---infact there is enough here to develope a simple short term trading methodology even now.---But thats beyond this thread.In time I think we should devise and trade a few.The Good The Bad and the down right Ugly---so we can see success and what to do when we have failure!

If you or anyone else likes an idea here I suggest you make a note of it under "Entry or Exit" technique and have a play "ON PAPER" with a few ideas.

I only trade with price action-----1 Moving Average and thats it!
150% for the last 3 yrs!

If I can do it EVERYONE CAN!
Read Rule (1)
In time everyone will be able to answer Rule (1)
My FCN thread may be of interest.

Tech/a thanks for the great post
What happened to this thread?

I am new to the forum and have spent much of my weekend reading through past threads... think i need a lay down due to brain overload.

I was really looking forward to hearing about MA's.

Did you follow this up in another thread?

keep up the good work

[tech/a]

Too long ago.

There is much over the years in various threads.
Just doing a bit on VSA (Volume spread Analsysi). In the Pullbacks thread (beginners forum)