Technical analysis uses statistical data from market activity, past prices and trading volumes to identify patterns and indicators that can predict a security's future performance. Hundreds of techniques exist, including chart patterns like bar charts, candlestick charts and point and figure charts that consolidate supply and demand forces into a visual representation. Technicians believe prices move in predictable trends and patterns until a change causes the trend to reverse, and chart analysis helps identify support and resistance price levels as well as common patterns like double tops/bottoms and head and shoulders formations that can signal trend reversals.

1. Technical Analysis
• There are hundreds of thousands of market participants buying and
selling securities for a wide variety of reasons:
• hope of gain, fear of loss, tax consequences, short-covering,
hedging, stop-loss triggers, price target triggers, fundamental
analysis, technical analysis, broker recommendations and a few
hundred more.
• Trying to figure out why participants are buying and selling can be a
daunting process.
• Chart patterns put all buying and selling into perspective by
consolidating the forces of supply and demand into a concise
picture.

2. Technical Analysis
• Method of evaluating securities by
analyzing statistics generated by
– Market activity
– Past Prices
– Volume
• Do not attempt to measure intrinsic value
• Instead look for patterns and indicators on
charts to determine future performance

3. Technical Analysis
• The world of technical analysis is huge
• Hundreds of different patterns and
indicators investors claim to be successful

4. Technical Analysis
• Technicians believe that securities move
in very predictable trends and patterns
• Trends continue until something happens
to change the trend
• Until that change takes place, price levels
are predictable

5. Charts
• Line Charts
• Bar Charts
• Candle Stick Charting
• Point and Figure Chart

6. The Bar Chart

7. Daily chart is typical
but could be weekly
or monthly
Bar shows H and L
Tick on R shows close
Tick on L shows open

8. The Bar Chart
(Continued)

9. Candle Stick Charting

10. Candle Stick Charting
(Continued)
• Green is an example of a
bullish pattern, the stock
opened at (or near) its
low and closed near its
high
• Red is an example of a
bearish pattern. The
stock opened at (or near)
its high and dropped
substantially to close near
its low

11. Candle Stick Charting
(Continued)

12. Point and Figure Chart
• Somewhat rare
• Plots day-to-day increases and declines in price.
• A rising stack of XXXX’s represents increases
• A rising stack of OOOO’s represents decreases.
• Typically used for intraday charting
• If used for multi-day study, only closing prices
will be used

13. Point and Figure Chart

14. Point and Figure Chart
(continued)
• Helps to filter out less-significant price
movements allowing analyst to focus on most
important trends
• Used to keep track of emerging price patterns
– No time dimension
• Two attributes affecting the appearance of a
point & figure chart
– Box size
– Reversal amount

15. Resistance and Support
• Price levels at which movement should stop and reverse direction.
– Act as floor and ceiling
– Different strengths (major and minor)
• Support
– Price level below the current market price at which buying
interest should be able to overcome selling pressure and thus
keep the price from going any lower
• Resistance
– Price level above the current market price, at which selling
pressure should be strong enough to overcome buying Interest
and thus keep the price from going any higher

16. Resistance and Support
One of two things can happen when stock approaches
resistance/support
• Can act as a reversal
point
– When price drops to a
support level, it will go
back up
– When price rises to a
resistance level, it will
go back down
• Support/Resistance
reverse roles once
penetrated.
– Market price falls
below a support level,
then the former
support level becomes
a resistance level
when the market later
trades back up to that
level

17. Resistance and Support
Resistance
Support
Resistance/Support

18. Trend Line Mechanics
UPTREND LINE DRAWN ACROSS TWO LOWS
DOWNTREND LINE DRAWN ACROSS TWO HIGHS
The uptrend line is drawn across two lows that are several trading days (preferably
10 or more) apart. The line should not be significantly steeper than the trends that
appear via inspection of the price patterns on the chart. The downtrend line is
drawn across two highs. The chart below demonstrates both.

19. Technical Analysis: Double Tops, Bottoms
DOUBLE TOP ALONG MAJOR
RESISTANCE PLANE
DOUBLE BOTTOM ALONG MAJOR
SUPPORT PLANE
RELIABLE FORMATIONS
The top or bottom will occur along resistance and support planes respectively. When
the market fails on a rally to a previous high a "double top" is developed. Volume is
found to be distinctly low at second Top. A double bottom occurs along the plane at
the old low.

20. Double Tops and Bottoms
• Double top is a bearish indicator
• Double bottom is a bullish indicator
• If the price line falls from the neckline by a
distance equals to the distance between
the peak and trough, the indication is to
sell for top and buy for bottom.

21. 810 was also resistance on the
monthly Nov
Double Top

23. Technical Analysis:
Head and Shoulder Formations
WIDELY OBSERVED
PROVIDES A PROJECTION OF HOW FAR
THE MARKET WILL MOVE
VERY RELIABLE FORMATION
A widely observed formation, we often see head and shoulder tops and bottoms in
the market. Once completed, the formations give relatively accurate measures of
how far the market will move. Volume is Heavy at the left shoulder and noticeably
low volume at the right shoulder.

24. Head and Shoulders
• Volume is heavy at the left shoulder
• Low volume at the right shoulder
• The prices are expected to decline after
the penetration at least as much as the
distance between the head and the
neckline.

25. Notice how the
breakout is tested, a
good place to sell

26. DOW JONES INDUSTRIAL INDEX
(Basket of large company stocks)
Neckline
Shoulder
Shoulder
Head
Formation not relevant until
neckline is broken. Projects
distance between head and
neckline. Projection depends
on where price breaks
neckline.
10800

27. Triangles
Descending Triangle.
Break out tends to be to
downside.
Ascending triangle. Break
out tends to be to the
upside.
Symetrical triangle. When prices break out of a
symmetrical triangle, the reversal is generally sharp.
Triangles are:
1. Frequent.
2. Not very reliable.