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.

[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.

[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.

[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