Understanding Chart Patterns, Trends, and Indicators for Stock Market Forecasting, Schemes and Mind Maps of Japanese

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Technical Analysis

Introduction

 Technical Analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.

 Technicians (also known as quantitative analysts or chartists) usually look at price, volume and psychological indicators over time.

 They are looking for trends and patterns in the data that

indicate future price movements.

Strength & Weakness of

Technical Analysis

Strength Weakness

• Focus on Price Analyst Bias
• Supply, Demand and Open to Interpretation

Price Action Too Late

• Support/Resistance Always Another Level
• Pictorial Price History Trader’s Remorse
• Assist with Entry Point

Chart Type

 Charting Stocks

• Bar Charts and Japanese Candlestick Charts
• Point and Figure Charts
• Line Chart

 Major Chart Patterns

 Price-based Indicators

Support & Resistance

 Support and resistance lines indicate likely end of trends.

 Resistance results from the inability to surpass prior high.

 Support results from the inability to break prior low.

 If support has broken than that level become the resistance, and vice-versa.

Support (^) Resistance

Breakout

Historical Support & Resistance

Up Trend

It describes the price movement of a stock when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend.

UpTrend Higher Highs – HH Higher Lows - HL

HH

HH

HH

HL

HL HL

Down Trend

Describes the price movement of a stock when the overall direction is downward. A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend.

Lower High – LH Lower Low - LL

LL LL LL LL

LH LH LH

Candlestick charts are an effective way of visualizing price movements.

There are two basic candlesticks:

• Bullish Candle: When the close is higher than the open (usually green or white)
• Bearish Candle: When the close is lower than the open (usually red or black)

Candlestick Basics

Candlestick Parts

 There are three main parts to a candlestick:

• Upper Shadow: The vertical line between the high of the day and the close (bullish candle) or open (bearish candle).
• Real Body: The difference between the open and close; colored portion of the candlestick.
• Lower Shadow: The vertical line between the low of the day and the open (bullish candle) or close (bearish candle).

 The open and close are very close together, creating a very small body

 It represent indecision between the bulls and the bears.

Doji

Long-Legged Doji

 A long-legged Doji is the same as Doji, except the upper and lower shadows are much longer than the regular Doji formation.

Hammer

 The Hammer candlestick formation is a significant bullish reversal candlestick pattern that mainly occur at the bottom of downtrends.

 It has a long lower shadow twice the length of the upper body.

Hammer