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Technical Analysis Webinar Technical Analysis Webinar Darren Chu, CFA April 9, 2019 Not giving advice to buy/sell Disclaimer Not soliciting purchase/sale of securities, derivatives Do your own due diligence Presentation may not be transmitted, reproduced or made available to any other person without the prior written consent of Tradable Patterns Pte Ltd. Publish Tradable Patterns - daily newsletter . Technical analysis featured on Bloomberg Terminal, Refinitiv Eikon, Factset Terminal, Interactive Brokers’ IB Traders Insight, InsideFutures, ZeroHedge, BIO Liquid (Quoine) . Newsletter covers CME, ICE equity index, commodity futures markets along with VIX, spot FX and cryptocurrencies (as seen in my Watchlist) Introduce PE/VC/Family Offices to direct investments (Tech, Medtech, Healthcare, Education, F&B, Property) Previously served as Intercontinental Exchange | NYSE Liffe's country manager for Australia, India, and the UAE between July 2010 and January 2014, expanding role to look after Liffe business development in APAC ex- Japan/Korea until his departure mid April 2014 Marketed Canadian futures and options for TMX Group | Montreal Exchange for 4 years, across North America, London, Singapore and Hong Kong Developed and presented CMC Markets Canada's educational offering, and headed up Chinese marketing and sales team Wrote course content for 3 derivatives courses offered by Canadian Securities Institute Forecasting prices based on historical price charts What is Applies to liquid futures, stocks, FX or any other trading Technical product where pricing determined by supply and demand, Analysis? and sufficient chart history available Works with any timeframe (e.g. 10 years, 1 year, 1 day, etc) 3 key ideas (from Dow Theory) . Price reflects all factors . Price not random . What is more important than why Combine fundamental & technical analysis in Fundamental assessing/predicting prices VS Technical Fundamental Analysis: Studies factors that Analysis impact economy, industry sectors and companies Technical Analysis: Studies price/volume charts 3 trend types (primary/secondary/minor; long/intermediate/short) Dow Theory Major trends have 3 phases (accumulation, trending, distribution) Volume must confirm trend Trend continues unless reversal confirmed Averages and related markets must confirm eachother Does not time bottoms and tops Highest Highest Opening Price Price Closing Chart Types Price Candlestick Price Charts Closing Opening Price Price Lowest Lowest Price Price Chart Types Candlestick Charts Source: Interactive Brokers TWS Up Chart Analysis Down Trends Sideways/Rangebound/Trendless Support: Price zone where buying overcomes selling, Chart creating low Analysis Resistance: Price zone where selling overcomes buying, Support & creating high Resistance Previous highs Chart Analysis Previous lows Determining Support & Round numbers Resistance Retracements of previous moves Charting patterns Chart Patterns Technical Analysis Technical Indicators and Oscillators Continuation VS Reversal Chart Patterns Continuation: Rectangle, Channel, Triangle, Wedge Reversal: Wedge, Double/Triple Bottom/Top, Head and Shoulders Chart Patterns Continuation - Rectangle Chart Patterns Continuation - Channel Chart Patterns Continuation - Triangle Chart Patterns Reversal - Triangle Chart Patterns Reversal - Wedges Chart Patterns Reversal - Double/Triple Bottom/Top Chart Patterns Reversal - Head & Shoulders Bottom Chart Patterns Reversal - Head & Shoulders Top Chart Patterns Continuation: Flags/Pennants Leading VS Lagging Technical Indicators & Leading (Momentum): RSI, Stochastic Oscillators Lagging (Trend): MA, MACD Compares strength of recent gains to that of recent losses Technical RSI: 0-100 Indicators & . Overbought: > 70 Oscillators . Oversold: < 30 Leading - RSI Divergences Centerline Crossover Must specify # of time periods (e.g. 14) Technical Indicators & Oscillators Leading - RSI Compares current close to high/low range over specified # of periods Technical %K: percentile that close ranks in high/low range Indicators & Oscillators %D: 3 day SMA of %K (acts as trigger line) Leading Stochastic: 0-100 . Overbought: > 80 - Stochastic . Oversold: < 20 Divergences % K Crossover Must specify # of time periods (e.g. 14) Technical Indicators & Oscillators Leading - Stochastic Smooths price movement Technical Allows easier identification of trends, Indicators & support/resistance Oscillators Lagging Especially useful w/ volatile markets - Moving Average Simple moving average (SMA) . Ideal for spotting longer-term trends Exponential moving average (EMA) . Less lag than SMA . More sensitive to recent prices . Better for shorter-term horizon Technical Indicators & Oscillators Lagging - Simple Moving Average Difference b/w longer-term MA (eg. 26 day EMA) and Technical shorter-term MA (eg. 12 day EMA) Indicators & Centred oscillator w/ no upper/lower limits Oscillators Lagging Divergence - MACD MA Crossover (anticipate w/ MACD histogram) Centreline Crossover Difficult to analyse MACD levels relative to historical Technical Indicators & Oscillators Lagging - Exponential Moving Average Technical Indicators & Oscillators Lagging - EMA vs SMA Difference b/w longer-term MA (eg. 26 day EMA) and Technical shorter-term MA (eg. 12 day EMA) Indicators & Centred oscillator w/ no upper/lower limits Oscillators Lagging Divergence - MACD MA Crossover (anticipate w/ MACD histogram) Centreline Crossover Difficult to analyse MACD levels relative to historical Technical Indicators & Oscillators Lagging - MACD Allows comparison of volatility and relative prices over time Technical 3 bands contain majority of price movement Indicators & Upper Band: SMA + 2 standard deviations Middle Band: SMA Oscillators Lower Band: SMA - 2 standard deviations Bollinger Band Bands widen w/ increases in volatility Default periods to 20, but as w/ all other indicators, customize based on market and trading preferences 10 day MA usually better for short term; 50 day MA usually better for long term Technical Indicators & Oscillators Bollinger Band Before trading, ensure technical indicators used provide Technical frequency of signals desired Indicators & Experiment with different parameter values Oscillators Indicator More frequent signals = Lower reliability Customizing 1, 2, 3, 5, 8, 13, 21…see any pattern in the #’s? Technical Key ratios: 0.236 (23.6%), 0.382 (38.2%), 0.5 (50%), 0.618 Indicators & (61.8%) Oscillators Fibonacci Liquid markets tend to find support/resistance around key ratios Technical Indicators & Oscillators Fibonacci Shorter time frames = More (false?) trading signals Multiple Timeframe Longer time frames = More signal lag Analysis Always study multiple time frame charts Each time frame chart may provide different signals Await confirmation from multiple time frames Increase probability of trading success by trading in direction of longer-term trends Multiple Timeframe Analysis Source: Interactive Brokers TWS Long White . Strong buying pressure Long vs Short . After strong selling, long white may provide turning Bodies point/support . After strong buying, long white may represent overbullishness Long Black . Strong selling pressure . After strong buying, long black may provide turning point/resistance . After strong selling, long black may represent overbearishness White Marubozu Marubozu Bulls in control from open to close Black Marubozu Bears in control from open to close Long Lower Shadow Long vs Short Bears in control for most of session Strong close as buyers later gain Shadows control Long Upper Shadow Bulls in control for most of session Weak close as sellers later gain control Long Shadows, Small Body Spinning Large session range, but little change Tops from open to close Equal battle between bulls and bears After big move, spinning top represents potential trend reversal Short Shadows, Small Body Similar to spinning top, except body Doji even smaller Equal battle between bulls and bears Neutral on their own Must analyse relative to price, volatility, and previous candlesticks The tinier the doji’s body relative to bodies of recent candlesticks, the more robust After big move/long candlestick, doji represents potential trend reversal Shape of candlestick following doji determines likelihood of reversal Long Shadows, Small Body Similar to regular doji, except long Long-legged shadows reflect even greater battle Doji between bulls and bears Neutral on their own Must analyse relative to price, volatility, and previous candlesticks The tinier the doji’s body relative to bodies of recent candlesticks, the more robust After big move/long candlestick, doji represents potential trend reversal Shape of candlestick following doji determines likelihood of reversal Long Lower Shadow, Tiny Body Dragon Fly Sellers controlled session, with buyers Doji emerging towards close After big move down, long black candlestick, or at support, dragon fly doji represents potential bullish reversal After big move up, long white candlestick, or at resistance, dragon fly doji represents potential bearish reversal Long Upper Shadow, Tiny Body Gravestone Buyers controlled session, with sellers Doji emerging towards close After big move down, long black candlestick, or at support, gravestone doji represents potential bullish reversal After big move up, long white candlestick, or at resistance, gravestone doji represents potential bearish reversal Candlestick High Scenario A Scenario B Limitation Open Open Open Close Close Close Low Which is more bearish? Scenario A or B? Star Small bodied star gaps up or down from previous
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