Lecture 7 Technical AnalysisCurrent Events / NewsLecture ContentToday…Technical Analysis? Huh?Chart BasicsBasic TermsChartsChart Types - Line ChartsChart Types – Bar ChartChart Types – Candlestick ChartsChart Basics – Time ScaleSlide 13VolumePrice and VolumeTrends are your FriendsSometimes, trends difficult to seeTrendlinesChannelsSUPPORT / RESISTANCEChart Analysis : SupportAMZN Example of SupportsGOOG Support PsychologySupport BreakdownsChart Analysis : ResistanceTM – Resistance PsychologyResistance BreakoutsTGT Resistance BreakoutSHLD Breakout TradeMoving AveragesMoving Averages (DMA or WMA)WIRE – Support @ 10 WMASlide 33CPA – Support at 20 & 50 DMASlide 35So…Tools for stock chartsCharting on StockCharts.comStockCharts.comAnnotating in StockChartsUsing Charts on Investors.comSlide 42Homework / ReadingNext WeekLecture 7Technical AnalysisEconomics 98 / 198Spring 2008Current Events / NewsSimulation DiscussionLecture ContentToday…•Introduction to technical analysis–Basics & definitions–Stock charts & chart types–Moving Averages–Trends / Channels–Support & Resistance–VolumeTechnical Analysis? Huh?•Don’t get intimidated when you hear “technical analysis”•Comes down to your supply and demand–How is this different from fundamental analysis?•Tries to make sense of market emotions by studying market actionsCHART BASICSTechnical Analysis: Introduction to Stock ChartsBasic Terms•Volatility•Fluctuations•52-week high / low•Price / trading range•Open / closing priceCharts•Maps price performance•Sheds light on supply and demand•“investment roadmap”•Price / volume relationship importantChart Types - Line Charts•Most basic of all charts•Just a line that connects the closing prices over a time frame•No trading rangeChart Types – Bar Chart•Vertical line represents highs/lows of the day•Horizontal line represents closing price•Red = down•Blue/Black = upDaily HighDaily LowClosing PricePrice GapChart Types – Candlestick Charts•Vertical line represents the trading range•Wide bar represents open and close•White bar – Up and closes above opening price•Red Bar – down•Black bar – up, but closes below the opening priceChart Basics – Time Scale•Time Scale–Dates along bottom of chart (varies from seconds to decades)–Common Types: intraday, daily, weekly, monthly–Subtle differences between different time scalesChart Basics – Time ScaleDaily Chart Weekly ChartVolume•Amount of shares that trade hands between seller and buyers •Price movements more significant when volume is above averagePrice and VolumeAverage VolumeTrends are your Friends•Trend: general direction of stock•Uptrend: higher highs, higher lowsSometimes, trends difficult to seeTrendlines•Simply put, a line drawn connecting three lows to represent the overall trend•Upward trendline represents supportChannels•Two parallel trend lines that act as areas of support and resistance (more later)•Any break through the channel is a break of the trend, otherwise the price should stay in rangeSUPPORT / RESISTANCETechnical Analysis: Introduction to Stock ChartsBy Johns Wu & thebulltrader.comChart Analysis : Support Price at which BUYERS > SELLERS consistently. Buyers who missed out on the first dip will be pressured to buy if price continues to respect the support.AMZN Example of SupportsAMZN retraces from a monstrous rally to $60AMZN stops tanking at $60. NOT A COINCIDENCE.GOOG Support PsychologyGOOG skyrockets from AWESOME earnings, but should I buy it????$510. MANNNN, I should have bought GOOGOK. I’m not gonna miss out again. BUY @ $452$$$$$!!CAUTION: Supports can breakdown.Support Breakdowns SELL if support “breaks down”, because it signifies that BUYERS no longer overpower SELLERS. Breakdowns are a BEARISH SELL signal. You should have sold here, at the BREAK DOWN.Chart Analysis : Resistance Price at which SELLERS overwhelm BUYERS consistently. When a stock makes a new high and then retraces, sellers who missed out @ the previous peak will feel pressured to sell when price climbs back to that level.TM – Resistance PsychologyI should have sold when TM was $138!!Finally! $138. I better sell this time. Should I sell?? Na, I’ll take my chances.Resistance Breakouts When price “breaks out” above resistance, it becomes a new support level. *** IMPORTANT *** Breakout signifies clear dominance of BUYERS. (good time to buy) This is a BULLISH BUY signal. My favorite trade setup.TGT Resistance BreakoutRESISTANCE BECOMES SUPPORTBREAKOUT!!SHLD Breakout TradeMOVING AVERAGESTechnical Analysis: Introduction to Stock ChartsMoving Averages (DMA or WMA)•Most popular are 50-day and 200-day•Shows the average price of the last # days and plots it on a line•Often acts as areas of support and/or resistanceWIRE – Support @ 10 WMAWIRE – Support @ 10 WMACPA – Support at 20 & 50 DMACPA – Support at 20 & 50 DMA20 DMA and 50 DMA becomes points of support for this stockSo…•Charts are fundamental to technical analysis•Important to understand what is shown on a chart and the information it conveys•Chart patterns and bases to come…TOOLS FOR STOCK CHARTSTechnical Analysis: Introduction to Stock ChartsCharting on StockCharts.comGetting comprehensive stock charts•Type in the company symbol•Once you’re at the stock page, click on annotate to draw your own trendlines.•From there, you will get lots of tools for analyzing stock chartsStockCharts.comAnnotating in StockChartsUsing Charts on Investors.com•Log in using your username and password (you all have one as of now)•Enter a symbol for the stock and then click on IBD Charts just below it–There are links throughout the website that link to IBD charts–Right clicking on the chart will give you important data for that day or weekMoving averagesVolumeRelative Strength LineHomework / Reading•“Technical Analysis: Introduction”–Investopedia Tutorial–Link is on the download page of the websiteNext Week•We’ll be going over strategies using charts to buy stocks–Timing market bottoms –Identifying chart bases / patterns–Timing your stock purchases (after you’ve done your research / stock screens)•This is going to be the most technical / complicated part so make sure you understand the
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