TA Crash Course

8/3/2019 TA Crash Course

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Introduction to Technical Analysis

Open Interest/ Volume

Timeframes – Monthly, weekly, daily

Support/ Resistances

Indicators – RSI, MACD, Moving Average, Fibonacci

Classical Reversal Patterns

Continuation Patterns –Triangles

Trading Divergences



Technical Analysis Philosophy

“Technical Analysis is the study of market action, primarily

through the use of charts, for the purpose of forecasting

future price trends.” – John J. Murphy

3 premises on which Technical Analysis is based on:

1. Market action discounts everything. (Insider’s trading/ pricing of news events)

2. Price moves in trends.

3. History repeats itself. (Humans always repeat the same mistakes.)

Is not concerned with reasons for Is not concerned with reasons for

price to rise or fall.price to rise or fall.Concerned with reasons for priceConcerned with reasons for price

movements.movements.

Using past price actions, chartUsing past price actions, chart

patterns and indicators to forecastpatterns and indicators to forecast

future prices.future prices.

Using weather data, production, exportsUsing weather data, production, exports

and ending stock numbers to predictand ending stock numbers to predict

supply demand and hence price action.supply demand and hence price action.

TechnicalistTechnicalistFundamentalistFundamentalist



Open Interest / Volume

Open interest = the total number of derivative contracts such as futures and

options that have not been closed out/ net off.

Volume = done/matched trades for the day

Rising open interest in uptrend – bullish. (New money is flowing into the market)

Falling open interest in uptrend – bearish. (Short covering. Uptrend losing momentum)

How Open Interest & Volume works

**Open interest is cumulative but volume is not.

Date A B C D E O.I Volume

1-Jan +1 -1 1 1

2-Jan +5 -5 6 5

3-Jan -1 +1 5 1

4-Jan -5 +5 5 5

Net positions -1 -4 +5 5



Weekly MDEX KPOc3

Rising Volume

Rising O.I

Steady Uptrend

Falling O.I

Flat Volume

Price going up

Price peaks usually

correspond

to volume peaks.



Candlesticks, BarCharts & Timeframe

open

open

close

close

Timeframe

1 Weekly Bar = 5 Daily Bars

1 Monthly Bar = 4 Weekly Bars

1 Quarterly Bar = 3 Monthly Candles

BarChart RepresentationCandleStick Representation



•Small noisy fluctuations amid visible trends.•Smaller range.

•Entry of trades & execution

Daily MDEX KPOc3



•Less noisy compared to daily charts.

•Larger trading range.

•Short term trend

Weekly MDEX KPOc3



•Trend is apparent.

•Less noise compared to daily and weekly charts.•Largest Range.

Monthly MDEX KPOc3



Supports & Resistances

•Supports and Resistances can be slanted or horizontal, formed by connecting

at least 2 points.

•Strength of the support/resistance depends on the number of points it touches and the

presence of gaps.

•Supports can become resistances and vice versa and they usually are very important

levels.

Daily GBPUSD



Trendline support Horizontal Resistance

turned support.

Gap

Gap

Support/ Resistance with gap

are very strong.

Weekly MDEX KPOc3 Supports & Resistances

Horizontal support

turned resistance



FX pairs are usually highly trending especially

AUDUSD which is a carry trade currency.

AUDUSD rises slowly and falls quickly. Morefavorable to go short than long.

2 points to draw,

3rd point to validate.

Steep trendlines

(> 45 degrees)

are usually not

sustainable.

Daily AUDUSD



Resistance trendline

touching 5 points. Very

strong resistance line.

2 points required

to draw support

Weekly USDJPY 1989 - 2009

False breakoutBreakout

Major downtrend resistance



Moving Averages – Lagging Indicator

•Curving Trendline

•Identify the start of a trend & tracks the progress of a trend.

•Lagging indicator – Reacts but not anticipate

Simple Moving Average (SMA)•Average of the previous N periods closing price.

Exponential Moving Average (EMA)

Aka Weighted moving averages. EMA reduces the lag by applying more weight to

recent prices relative to older prices.

Uses of Moving Averages

•Combination of 50, 100, 200EMA (Long term Trend)

•Combination of 10, 20, 40EMA (Short term trading)

•200EMA is the most popular long term trendline that traders use. Serves as a major support/ resistance level.



Trading Daily MDEX KPOc3 with Moving Averages

Uptrend intact

Sell when 50EMA cuts

the 200EMA.CPO = 3200RM??

Buy when 50EMA > 100EMA > 200EMA.

CPO = 1450 RM

Whipsaws abound

in a ranging

market.

What is wrong here?!



MACD – Moving Average Convergence Divergence

Lagging Centered Oscillator (MACD = 12EMA – 26 EMA of price, 9EMA)MACD > 0 bullish, MACD < 0 bearish

MACD lags but histogram leads

Weekly HSI

MACD histogram = Areabetween MACD Line & 9EMA.

Trend reversal confirmed by

MACD crossover

MACD crossover

MACD histogram

crosses over 0.

9 EMA

MACD line

MACD crossover

whipsaw+ve

-ve



RSI – Relative Strength Index

Index from 0 to 100. Upper (70) and lower (30) band.Ranging oscillator. Momentum indicator. Works best in ranging market.

Common settings are RSI 5, 7 and 14.

Overbought Regions

Oversold Regions

Extreme volatility

RSI = 9

4H USDJPY



Fibonacci Retracement

Fibonacci retracement is used for finding support/resistance levels.38.2% & 50% retracement levels are most common.



Fibonacci Retracement

50% retracement



Classical Reversal Patterns

Island Reversals

Head & Shoulders

Double Tops/ Bottoms

Triple Tops/ Bottoms

Bullish/Bearish Engulfing



Island Reversal Formation

Bearish top Bullish bottom

Island Reversal Top

Weekly HSI



Neckline – Support turned resistance

Left Shoulder Right Shoulder

Head

Weekly USDJPY

Head & Shoulders Formation



[Daily DJIA] Failed Head & Shoulder

False Breakout!

L. Shoulder R. Shoulder

Head

Neckline



[Daily DJIA] Inverted Head & Shoulder

Major Trend Reversal

L. Shoulder

R. Shoulder

Head



[Weekly AUDUSD] Double Bottom Formation

Crucial Support/ Resistance

W-shaped Double Bottom Higher lows

Panic selling, carry trade

unwind.



Weekly EURUSD Double Top Formation

M-shaped Double Top

Support



Weekly EURUSD Triple Bottom Formation

Resistance turned support

Higher Lows



Weekly EURJPY Triple Top Formation



Bullish Engulfing Reversal

Daily GBPJPY Bullish Engulfing Reversal



Bearish Engulfing Formation

What is one observation

about engulfing reversals?



Continuation Patterns

Triangles



Triangle

Triangle

Ascending

Triangle

Triangle

TrianglesTriangles precede a

large move.



Trading Divergences

MACD/RSI Divergences

D il USDJPY



Daily USDJPY

Bearish Divergence

Despite USDJPY making new highs, RSI shows

weakness with new lows.

Weekly EURJPY Bullish Divergence



Weekly EURJPY Bullish Divergence

Despite EURJPY making new lows, RSI shows

strength with higher lows.

RSI hit extreme levels.



Divergences on Daily KPOc3Daily KPOc3

Bearish

Bearish

Bullish

Bullish Bullish

No signal

on MACD

Bullish

No signal

on MACD

Not exactly

a divergence



“The futures market will let you have a realistic appreciation of who you are”.

“For momentum trades, work fast, exit fast”.

“There are no old and bold traders around.George Soros: Courageous in situational environment.”

“No news but market moves, price moves first, fundamentals come 2nd.

There are insiders”

“Sensitivity unequals to hope. Sensitivity is when you can sense danger,

whereas hope is a sign of danger!”

“Quality trades rather than quantity trades.”

“Trade to win, not trade to win when view is right.”

“At right time and right price, do SIZE!”

Market Quotes



Market Wizards

– J. D Schwager

Recommended Readings

Technical Analysis of

the Financial Market

-John J. Murphy

How to Trade in Stocks

Jesse Livermore

The Complete Turtle Trader

Michael W.Covel

Trading For a Living

Dr. Alexander Elder

Japanese Candlestick

Charting Techniques

-Steve Nison



Thank you!

Any Questions?

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TA Crash Course