Technical analysis

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Technical Analysis
StockStream LLP

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Disclaimer
• Trading carries significant risk of losses and may not be suitable for all
investors. Traders should assess these risks either themselves or in
consultation with a financial advisor before investing.
• There is no guarantee that the trading techniques, methods and other
information in this presentation will result in profits. The content in this
presentation in only intended for educational and informational
purposes and not intended as trading recommendation.
• The content of this presentation is subject to change without notice.
• Stockstream Financial Advisory Services LLP or mystockstream.com
will not take any liability or accountability of losses arising from the use
of information in this presentation in any manner.

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StockStream Education Model

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Introduction
• Technical Analysis looks at chart patterns to identify trading
opportunities.
• Technical analysis is not an exact science.
• Based on the assumption that all current market information
is reflected in the prices.

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Approach
• The steps to conducting a technical analysis are as follows
o Identify the market bias. The market may be in one of the
following
 Uptrend
 Downtrend
 Range trade
o Determine your trading strategy based on the market bias.
o Use one or more of technical indicators to determine entry points
 Trend lines
 Moving Averages
 Fibonacci Analysis
 Oscillators
 Bollinger Bands

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Market Bias-Uptrend
• Markets making a series of
higher highs and higher lows
are said to be in an uptrend.
• Look for buying opportunities
at supports in uptrends.
• Supports are identified using
technical analysis.

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Market Bias-Down trend
• Markets making a series of
lower highs and lower lows
are said to be in a down trend.
• Look for selling opportunities
at resistance levels in down
trends.
• Resistance levels are
identified using technical
analysis.

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Market Bias-Range trade
• Markets that are not in a
uptrend or down trend are
said to be in a range.
• Figure shows one specific
range trade scenario
where prices are confined
between two price levels
• Look for selling
opportunities at resistance
and buying opportunities
at support.

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Trading Strategy
• After determining the market bias the next step is designing
your trading strategy.
• Trading strategy is used to determine the following,
o Entry levels
o Stop Loss levels
o Profit taking (Limit) levels
• One or multiple technical indicators are used to determine a
trading strategy

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Trading Strategy: Trend lines
• A trend line is a straight line connecting consecutive higher
lows in an uptrend or consecutive lower highs in a
downtrend.
• Test of a trend line offers buying opportunities in an uptrend
and selling opportunities in a downtrend.
• Trend lines are closely watched by number of traders and
thus provide good opportunities to enter trades.

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Example 1: Trend lines
• Determine the Market Bias:
The market is making higher
lows and higher highs. It is in
a strong uptrend
• Looking for buying
opportunities
• Use trend lines to identify
entry points

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• Draw a trend line connecting
2 consecutive lows.
• Buy on a confirmation of
bounce after a retest of the
trend line.
• Place a stop below the low
from the test of the trend line.
• Book profits on candle close
below the trend line

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The market is making lower
lows and lower highs. It is in
a strong down trend
• Looking for selling
opportunities
• Use trend lines to identify
entry points

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• Draw a trend line connecting
2 consecutive lower highs.
• Sell on a confirmation of
failure after a retest of the
trend line.
• Place a stop above the high
from the test of the trend line.
above the trend line

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Trading Strategy: Psychological Levels
• Psychological levels are price levels that are considered
important by the markets.
• These are generally round numbers like 10, 20, 50, 100,
etc.
• These levels are important because a number of traders
place buy or sell orders at round numbers (depending on
the market bias), thus providing support or resistance to
price movements.

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Example: Psychological Levels
o The market is making
lower lows and lower
highs. It is in a strong
downtrend
opportunities on 4 hr chart
• Use test of a psychological
level to identify entry points

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Example: Psychological Levels
• Look to sell on test of
psychological levels
of the candle from a failure of
the test at the psychological
level.
• Book profits on test of
another psychological level or
buy signal generated by
another technical indicator.

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Trading Strategy: RSI
• RSI stands for Relative Strength Indicator.
• It is a technical indicator that falls under the category of
oscillators.
• RSI can take values between 0 to 100.
o Values from 0 to 30: Oversold markets
o Values from 70 to 100: Overbought markets
• Markets can remain overbought or oversold for extended
periods. So place trades on a confirmed move out of the
extended conditions

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Example: RSI
o If you are trading on a 4
hr chart look at a daily
chart to determine trend.
downtrend
opportunities on 4 hr chart
• Use RSI to identify entry
points

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Example: RSI
• Prepare to sell once RSI
moves above 70 in a
downtrend.
• Sell when the RSI moves
back below 70 on a closing
basis.
of the candle from a test of
the overbought levels.
• Book profits when the RSI
touches oversold levels.

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Trading Strategy: Moving Averages
• A moving average is calculated by averaging the closing
prices of the market over a specified period of time.
• A simple moving average (SMA) places equal weight on
every price point within the period while an exponential
moving average (EMA) places a higher weight on more
recent price points.
• Commonly looked at moving averages are,
o 200 day SMA: Defines market bias. Price above this SMA
implies an uptread and vice versa
o 100 day, 21 day and 55 day SMA: Faster Moving
Averages. More sensitive to price movements.
o 10 day EMA: Strong trends are supported at this EMA.

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Example: Moving Averages
higher lows and higher
uptrend
opportunities at supports
• Use moving averages to
identify entry points

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Example: Moving Averages
• Buy on a confirmation of
bounce after a retest of the 10
day EMA.
• Place a stop below the low
from the test of the 10 day
EMA.
below the 10 day EMA.

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Trading Strategy: Bollinger Bands
• Bollinger band uses a simple moving average of the price and
standard deviation around that moving average to generate
trading signals.
• At the default settings Bollinger bands use a 20 period
moving average and a 2 standard deviation (σ) band around
the moving average.
• Trading signals are generated on a test and failure at the
upper (+2σ) or the lower (-2σ) band depending on the market
conditions.

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Example: Bollinger Bands
o If you are trading on a
daily chart look at a
weekly chart to determine
trend.
downtrend
opportunities on daily chart
• Use Bollinger bands to
identify entry points

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Example: Bollinger Bands
• Sell on a failure at the upper
Bollinger band
of the candle from the failure
at the upper Bollinger band.
• Book profits when prices
confirms a bounce from the
lower Bollinger band.

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Trading Strategy: MACD
• MACD stands for Moving Average Convergence Divergence.
• MACD uses a combination of moving averages to generate
trading signals.
• MACD calculates a difference to 2 moving averages and
compares it with an EMA of the difference to generate trading
signals.
• At the default setting MACD plots the difference of a 12 period
and 24 period EMA called the MACD line. It then calculates a 9
period EMA of the MACD line called the signal line.
• Crossovers of the MACD and Signal lines generates trading
signals.

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Example: MACD
o If you are trading on a
daily chart look at a
weekly chart to determine
trend.
downtrend
opportunities on daily chart
• Use MACD to identify entry
points

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Example: MACD
• Sell on a crossover of the
MACD and signal line. Also
indicated through negative
values on the histogram.
of the reversal point.
• Book profits when the MACD
and signal line crossover to
the upside. Also indicated
through positive values of the
histogram

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Trading Strategy: Stochastic
• It is a technical indicator that falls under the category of
oscillators.
• Stochastic can take values between 0 to 100.
o Values from 0 to 20: Oversold markets
o Values from 80 to 100: Overbought markets
• There are 2 types of Stochastic
o Fast: Generates more trading opportunities but is less
accurate.
o Slow: Generates fewer trading opportunities but is more
accurate compared to Fast Stochastic. This will be used in
further analysis.
• Crossovers of the stochastic lines in overbought or oversold
conditions generates trading signals.

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Example: Stochastic
higher lows and higher
uptrend
opportunities at supports
• Use stochastic to identify
entry points

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Example: Stochastic
• Buy on a crossover of the
stochastic lines in the
oversold region.
• Place a stop below the low of
the reversal candle.
• Book profits when the
stochastic lines crossover to
the downside.

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Questions
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Technical analysis

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