technical analysis from a to z pdf free download

technical analysis from a to z pdf free download

But if you listen, you may learn something new. Technical analysis of the financial markets. Load more similar PDF files.

PDF Drive investigated dozens of problems and listed the biggest global issues facing the world today. Login Checking Reset Password. First Name. Last Name. Email Email already registered. I agree to the Terms of use , Privacy policy and subscribe to newsletter. Type Code Resend verification email Sending Email.. Consider the breakout of Phillip Morris in Figure Note how the breakout was followed by a correction in the price where prices returned to the resistance level.

Figure 13 The price action following this remorseful period is crucial. One of two things can happen. Either the consensus of expectations will be that the new price is not warranted, in which case prices will move back to their previous level; or investors will accept the new price, in which case prices will continue to move in the direction of the penetration. If, following traders' remorse, the consensus of expectations is that a new higher price is not warranted, a classic "bull trap" or "false breakout" is created.

Prices drop below a support level long enough to get the bears to sell or sell short and then bounce back above the support level leaving the bears out of the market see Figure Figure 15 The other thing that can happen following traders' remorse is that investors expectations may change causing the new price to be accepted. In this case, prices will continue to move in the direction of the penetration i.

Conversely, if the breakout is on moderate volume and the "remorseful" period is on increased volume, it implies that very few investor expectations have changed and a return to the original expectations i.

Resistance becomes support When a resistance level is successfully penetrated, that level becomes a support level. Similarly, when a support level is successfully penetrated, that level becomes a resistance level. An example of resistance changing to support is shown in Figure When prices approach the previous support level, investors seek to limit their losses by selling see Figure A security's price represents the fair market value as agreed between buyers bulls and sellers bears.

Changes in price are the result of changes in investor expectations of the security's future price. Support levels occur when the consensus is that the price will not move lower. It is the point where buyers outnumber sellers. Resistance levels occur when the consensus is that the price will not move higher. It is the point where sellers outnumber buyers. Volume is useful in determining how strong the change of expectations really is.

Traders' remorse often follows the penetration of a support or resistance level as prices retreat to the penetrated level. This type Line Studies of a change is often abrupt and "news based.

Formula Primer As shown in Figure 19, a rising trend is defined by User Groups successively higher low-prices. A rising trend can be thought of Educational Products as a rising support level--the bulls are in control and are pushing prices higher. A falling trend can be thought of as a falling resistance level--the bears are in control and are pushing prices lower.

Figure 20 Just as prices penetrate support and resistance levels when expectations change, prices can penetrate rising and falling trendlines. Figure 21 shows the penetration of Merck's falling trendline as investors no longer expected lower prices. Note in Figure 21 how volume increased when the trendline was penetrated. This is an important confirmation that the previous trend is no longer intact.

Figure 21 As with support and resistance levels, it is common to have traders' remorse following the penetration of a trendline. This is illustrated in Figure Figure 22 Again, volume is the key to determining the significance of the penetration of a trend. In the above example, volume increased when the trend was penetrated, and was weak as the bulls tried to move prices back above the trendline. This chapter describes the basic Market Indicators calculation and interpretation of moving averages.

Full details Line Studies on moving averages are provided in Part Two. Periodicity The Time Element A moving average is the average price of a security at a given Conclusion time. Bibliography About the Author A "simple" moving average is calculated by adding the Formula Primer security's prices for the most recent "n" time periods and then dividing by "n. The Educational Products result is the security's average price over the last 25 days.

This calculation is done for each period in the chart. Training Partners Note that a moving average cannot be calculated until you have "n" time periods of data.

For example, you cannot display a day moving average until the 25th day in a chart. If the security's price is above its moving average, it means that investor's current expectations i.

Conversely, if today's price is below its moving average, it shows that current expectations are below average expectations over the last 25 days.

The classic interpretation of a moving average is to use it to observe changes in prices. Investors typically buy when a security's price rises above its moving average and sell when the price falls below its moving average. Time periods in moving averages "Buy" arrows were drawn on the chart in Figure 24 when Aflac's price rose above its day moving average; "sell" arrows were drawn when Aflac's price fell below its day moving average.

To simplify the chart, I did not label the brief periods where Aflac crossed its moving average for only a few days. You can also use computer software to automatically determine the optimum number of time periods. Ignoring commissions, higher profits are usually found using shorter moving averages. Merits The merit of this type of moving average system i. The disadvantage is that you will always buy and sell late.

If the trend doesn't last for a significant period of time, typically twice the length of the moving average, you'll lose money. As shown in Figure 26, it is very common for a security to penetrate its long-term moving average, and then return to its average before continuing on its way. Figure 26 You can also use moving averages to smooth erratic data. The charts in Figure 27 show the 13 year history of the number of stocks making new highs upper chart and a week moving average of this value lower chart.

Note how the moving average makes it easier to view the true trend of the data. The result is a value Market Indicators that is used to anticipate future changes in prices. Line Studies Periodicity A moving average fits this definition of an indicator: it is a The Time Element calculation that can be performed on a security's price to yield Conclusion a value that can be used to anticipate future changes in prices.

The result is an indicator that oscillates above and below zero. This is bullish as it shows that current expectations i. I also displayed the and day moving averages on the price chart. This line is referred to as the "signal" line. The signal line anticipates the convergence of the two moving averages i.

Figure 29 Let's consider the rational behind this technique. The MACD is the difference between two moving averages of price. When the shorter-term moving average rises above the longer-term moving average i. Leading versus lagging indicators Moving averages and the MACD are examples of trend following, or "lagging," indicators. They don't warn you of upcoming changes in prices, they simply tell you what prices are doing i. Trend following indicators have you buy and sell late and, in exchange for missing the early opportunities, they greatly reduce your risk by keeping you on the right side of the market.

Figure 30 As shown in Figure 31, trend following indicators do not work well in sideways markets. These indicators help you profit by predicting what prices will do next.

Leading indicators provide greater rewards at the expense of increased risk. They perform best in sideways, "trading" markets. Leading indicators typically work by measuring how "overbought" or "oversold" a security is. This is done with the assumption that a security that is "oversold" will bounce back. It has been my experience that most investors including me are better at following trends than predicting them. Thus, I personally prefer trend following indicators.

However, I have met many successful investors who prefer leading indicators. The approach is that you should use lagging indicators during trending markets and leading indicators during trading markets. While it is relatively easy to determine if prices are trending or trading, it is extremely difficult to know if prices will trend or trade in the future.

Many of the examples in subsequent chapters demonstrate divergences. When divergences occur, prices usually change direction to confirm the trend of the indicator as shown in Figure This occurs because indicators are better at gauging price trends than the prices themselves.

There is another group of technical analysis tools Line Studies designed to help you gauge changes in all securities within a Periodicity specific market. These indicators are usually referred to as The Time Element "market indicators," because they gauge an entire market, not Conclusion just an individual security.

About the Author Formula Primer While the data fields available for an individual security are limited to its open, high, low, close, volume see page , and User Groups sparse financial reports, there are numerous data items Educational Products available for the overall stock market.

For example, the number of stocks that made new highs for the day, the number of Training Partners stocks that increased in price, the volume associated with the stocks that increased in price, etc. Market indicators cannot be calculated for an individual security because the required data is not available. Related Link: Traders Library Investment Bookstore Market indicators add significant depth to technical analysis, because they contain much more information than price and volume.

The analogy being "all boats rise in a rising tide," it is therefore much less risky to own stocks when the stock market is rising. Categories of market indicators Market indicators typically fall into three categories: monetary, sentiment, and momentum. Monetary indicators concentrate on economic data such as interest rates. They help you determine the economic environment in which businesses operate.

These external forces directly affect a business' profitability and share price. Examples of monetary indicators are interest rates, the money supply, consumer and corporate debt, and inflation. Due to the vast quantity of monetary indicators, I only discuss a few of the basic monetary indicators in this book. Sentiment indicators focus on investor expectations--often before those expectations are discernible in prices.

With an individual security, the price is often the only measure of investor sentiment available. However, for a large market such as the New York Stock Exchange, many more sentiment indicators are available. These include the number of odd lot sales i. The rational being, if everybody agrees that prices will rise, then there probably aren't enough investors left to push prices much higher.

This concept is well proven-- almost everyone is bullish at market tops when they should be selling and bearish at market bottoms when they should be buying. The third category of market indicators, momentum, show what prices are actually doing, but do so by looking deeper than price.

Given the above three groups of market indicators, we have insight into: 1. The external monetary conditions affecting security prices. This tells us what security prices should do. The sentiment of various sectors of the investment community.

This tells us what investors expect prices to do. The current momentum of the market. This tells us what prices are actually doing. Figure 35 shows the Prime Rate along with a week moving average. This chart illustrates the intense relationship between stock prices and interest rates. I labeled the chart with "buy" arrows each time the moving average rose above This is the level where investors were extremely bearish and expected prices to decline. You can see that each time investors became extremely bearish, prices actually rose.

You can see how this momentum indicator caught every major market move. Figure 37 Figure 38 merges the preceding monetary and momentum charts. Figure 38 The chart in Figure 38 is a good example of the roulette metaphor. You don't need to know exactly where prices will be in the future--you simply need to improve your odds.

These Market Indicators include the support, resistance, and trendline concepts already Line Studies discussed. Periodicity The Time Element Figure 39 illustrates several line studies. These and numerous Conclusion additional studies are explained in later chapters. Consider the following charts of a Line Studies Swiss Franc contract shown in Figures 40, 41, and The difficulty associated with shorter periodicities is compounded by the fact that you have less time to make your decisions.

Opportunities exist in any time frame. But I have rarely met a successful short-term trader who wasn't also successful a long- term investor. And I have met many investors who get caught by the grass-is-greener syndrome believing that shorter-and- shorter time periods is the secret to making money--it isn't.

This section presents the time Market Indicators element. This chart shows that investors Formula Primer continually reaffirmed the security's upward movement. This shows that on two occasions investors believed the security's price would move higher. Figure 44 The pause after the rapid increase in Disney's price is a typical phenomena.

People have a difficult time accepting new prices suddenly, but will accept them over time. What once looked expensive may one day look cheap as expectations evolve. This is an interesting aspect of point and figure charts, because point and figure charts totally disregard the passage of time and only display changes in price.

A Sample Approach There are many technical analysis tools in this book. The most difficult part of technical analysis may be deciding which tools to use! Here is an approach you might try. Determine the overall market condition. If you are trading equity-based securities e. The object is to determine the overall trend of the market. Pick the securities. I suggest that you pick the securities using either a company or industry you are familiar with, or the recommendation of a trusted analyst either fundamental or technical.

Determine the overall trend of the security. The best buying opportunities occur when the security has just risen above this long- term moving average. Pick your entry points. Buy and sell using your favorite indicator. However, only take positions that agree with overall market conditions.

Much of your success in technical analysis will come from experience. The goal isn't to find the holy grail of technical analysis, it is to reduce your risks e. As you gain experience, you will make better, more informed, and more profitable investments. I Moving Averages Indicators suggest you refer to Section Two while you continue to explore Market Indicators this exciting and potentially profitable pursuit.

Line Studies Periodicity A fitting conclusion to an introduction on technical analysis is a The Time Element list of lessons I have learned, both from others and the hard Conclusion way. It is Formula Primer tempting to think that a loss "doesn't count" until the position is closed--but it does!

If you wouldn't buy it, you should consider Training Partners selling it. Most investors only discuss their successes, threatening your Related Link: focus and confidence.

Most investors spend their time looking for easy money which is not an easy search instead of learning the key factors to security prices-- supply and demand. P-S T-Z The discussion on each tool includes an overview, an Bibliography explanation of its interpretation, and an example of the About the Author indicator or line study in action. When space has permitted, I Formula Primer have also included a step-by-step explanation of the relevant calculations.

User Groups Educational Products Most of these techniques can be applied to any type of security, including stocks, bonds, options, futures, mutual Training Partners funds, and indices. A ten-week moving average of this value is then P-S calculated.

Absolute value i. The indicator is Advancing-Declining Issues based on the premise that the more volume that accompanies Advancing, Declining, Unchanged Volume a price move, the more significant the price move. When the indicator Cumulative Volume Index moves down, it shows that the security is being distributed, as Cycles most of the volume is associated with downward price D-L M-O movement. For example, if the indicator is Formula Primer moving up and the security's price is going down, prices will User Groups probably reverse.

Prices then corrected to confirm the indicator's trend. Calculation A portion of each day's volume is added or subtracted from a cumulative total. The nearer the closing price is to the high for the day, the more volume added to the cumulative total. The nearer the closing price is to the low for the day, the more volume subtracted from the cumulative total.

If the close is exactly between the high and low prices, nothing is added to the cumulative total. Typical analysis involves looking for breakouts, Commodity Selection Index new highs and lows, and divergences. When Advancing, Declining, Unchanged Volume compared to the movement of a market index e. The analogy is that trouble looms when the generals lead e. The DJIA was making new highs during the 12 months leading up to the crash. This type of divergence, where the generals lead and the troops refuse to follow, usually results in the generals retreating in defeat as happened in It is calculated by Advancing-Declining Issues dividing the number of advancing issues by the number of Advancing, Declining, Unchanged Volume declining issues.

The advantage of the Ratio is Chaikin Oscillator that it remains constant regardless of the number of issues that Commodity Channel Index are traded on the New York Stock Exchange which has Commodity Selection Index steadily increased.

The higher the value, the more D-L M-O "excessive" the rally and the more likely a correction. Likewise, P-S low readings imply an oversold market and suggest a technical T-Z rally. Bibliography About the Author Keep in mind, however, that markets that appear to be extremely overbought or oversold may stay that way for some Formula Primer time. When investing using overbought and oversold User Groups indicators, it is wise to wait for the prices to confirm your belief that a change is due before placing your trades.

You can see that prices usually declined after entering the overbought level above 1. Arms Index Average True Range The difference between the number of advancing and declining Bollinger Bands issues is the foundation of many market breadth indicators.

Indicators Chaikin Oscillator that use advancing and declining issues in their calculations Commodity Channel Index are called market breadth indicators. Plotted by itself, this indicator is helpful to T-Z determine daily market strength.

Very weak days have About the Author readings of less than -1, Formula Primer I prefer to plot a 5-to day exponential moving average of the User Groups Advancing-Declining Issues rather than the daily values themselves. I drew "buy" arrows when the moving average rose above and "sell" arrows when it fell below Normally, I would use , but the strong up-trend during this period caused the indicator to have an upward bias.

Calculation The Advancing-Declining Issues is calculated simply by subtracting the number of declining issues from the number of advancing issues. The following table shows the calculation of the Advancing- Declining Issues.

Declining volume is the total volume for Candlesticks - Japanese all securities that declined in price. Charts of Bibliography the advancing or declining volume can be used to look for About the Author volume divergences where advancing volume increases but the market falls to see if selling pressure is waning, to view Formula Primer daily trends, etc. User Groups Due to the erratic fluctuations in advancing and declining Educational Products volume, I suggest you smooth the indicators with a 3- to Training Partners day moving average.

A bearish divergence developed as prices tried to rally trendline "A" while the advancing volume was declining trendline "B". The Advancing Volume showed the true picture and prices were forced to correct. This tool was Advancing-Declining Issues developed by Dr. Alan Andrews. You can see how prices tended to "walk along" the trendlines. This line is the "handle" of the pitchfork. The second and third trendlines are then drawn beginning at the two right-most points a major peak and a major trough and are drawn parallel to the first line.

These lines are the "tines" of the pitchfork. If more volume is associated with advancing T-Z stocks than declining stocks, the Arms Index will be less than Bibliography 1. Formula Primer The Index is usually smoothed with a moving average. I User Groups suggest using a 4-day moving average for short-term analysis, a day moving average for intermediate-term, and a day Educational Products moving average for longer-term analysis.

Training Partners Normally, the Arms Index is considered bullish when it is below 1. When the indicator drops to extremely overbought Traders Library Investment Bookstore levels, it is foretelling a selling opportunity. When it rises to extremely oversold levels, a buying opportunity is approaching. What constitutes an "extremely" overbought or oversold level depends on the length of the moving average used to smooth the indicator and on market conditions.

Table 5 shows typical overbought and oversold levels. Table 5 Moving Average Overbought Oversold 4-day 0. Horizontal lines are drawn at the oversold level of 1. I drew "buy" arrows when the Arms Index peaked above 1. In most of the cases the arrows occur at, or one day before, significant changes in price. Correlation Analysis Refer to the discussion on Standard Deviation for additional Cumulative Volume Index information on volatility interpretation.

Arms Index Since standard deviation is a measure of volatility, the bands Average True Range are self-adjusting: widening during volatile markets and Bollinger Bands contracting during calmer periods.

These comments Cumulative Volume Index refer to bands displayed on prices. The distinctive characteristic of Bollinger Bibliography Bands is that the spacing between the bands varies based on About the Author the volatility of the prices.

During periods of extreme price changes i. During periods of stagnant pricing i. Educational Products Mr. Bollinger notes the following characteristics of Bollinger Training Partners Bands. This observation is useful when projecting price targets. Example The following chart shows Bollinger Bands on Exxon's prices. The Bands were calculated using a day exponential moving average and are spaced two deviations apart.

The bands were at their widest when prices were volatile during April. They narrowed when prices entered a consolidation period later in the year. The narrowing of the bands increases the probability of a sharp breakout in prices. The longer prices remain within the narrow bands the more likely a price breakout. Calculation Bollinger Bands are displayed as three bands. The middle band is a normal moving average. In the following formula, "n" is the number of time periods in the moving average e.

The upper band is the same as the middle band, but it is shifted up by the number of standard deviations e. In this next formula, "D" is the number of standard deviations. The lower band is the moving average shifted down by the same number of standard deviations i. Bollinger recommends using "20" for the number of periods in the moving average, calculating the moving average using the "simple" method as shown in the formula for the middle band , and using 2 standard deviations.

He has also found that moving averages of less then 10 periods do not work very well. Martin Zweig. The Breadth Thrust is Advancing-Declining Issues calculated by dividing a day exponential moving average of Advancing, Declining, Unchanged Volume the number of advancing issues, by the number of advancing Andrews' Pitchfork plus declining issues.

A "Thrust" indicates that the stock market has rapidly Chaikin Oscillator changed from an oversold condition to one of strength, but has Commodity Channel Index not yet become overbought. The average gain following these fourteen Cycles Thrusts was Zweig also points out that most bull markets begin P-S with a Breadth Thrust.

Trust the next thrust Investment advisors are tracked as to whether they are Advancing, Declining, Unchanged Volume bullish, bearish, or neutral on the stock market.

Correlation Analysis Extreme pessimism almost always coincides with market Cumulative Volume Index bottoms. In almost every case, extremely high or low readings Bibliography have coincided with market tops or bottoms. Read more here. Professor of Anthropology Bruce Hardy makes headlines for his study on the cognitive abilities of Neanderthals. A senior English major talks with her advisor about his philosophy on creative writing and teaching.

A science-writing initiative will empower Kenyon students to artfully articulate important scientific topics. Kenyon alumni working in food and drink industries are sharing their go-to happy hour pairings.

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