Technical Analysis

References : Investopedia

http://www.chartpattern.com/

http://www.trending123.com/

http://www.topdogtrading.com/

http://www.incrediblecharts.com/

http://tradingauthority.com/

http://www.elliottwave.com/

http://www.chartnexus.com/

http://chartink.com/

http://www.google.com/finance

Peak trough & Consolidation

Trough :

The stage of the economy's business cycle that marks the end of a period of declining business activity and the transition to expansion.

Peak

The highest point between the end of an economic expansion and the start of a contraction in a business cycle. The peak of the cycle refers to the last month before several key economic indicators, such as employment and new housing starts, begin to fall. It is at this point that real GDP spending in an economy is its highest level.

Peaks and troughs are patterns that are developed by the price action experienced by all securities. As we know, prices never move in straight lines, whether in an uptrend or a downtrend. The term "zigzag pattern" has been used to describe the peaks and troughs, and many charting software programs will have a '%-zigzag' indicator that investors can lay down on a chart that they are viewing

Consolidation

In technical analysis, the movement of an asset's price within a well-defined pattern or barrier of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset breaks beyond the restrictive barriers. Periods of consolidation can be found in charts covering any time interval (i.e. hours, days, etc.), and these periods can last for minutes, days, months or even years. Lengthy periods of consolidation are often known as a base

Moving Average:

An indicator frequently used in technical analysis showing the average value of a security's price over a set period. Moving averages are generally used to measure momentum and define areas of possible support and resistance.

Exponential moving Average

A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. The exponential moving average is also known as "exponentially weighted moving average"

Mark sharp trades using using Andrew Pitchfork : here

Battered Stock that bounced back : here

Market Cycles

http://www.investopedia.com/articles/technical/04/050504.asp#axzz2EU3fG2fZ

Support and Resistance

Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. These terms are used interchangeably throughout this and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control.

What Is Support?

Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.
Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.

Where is Support Established ? Support levels are usually below the current price, but it is not uncommon for a security to trade at or near support. Technical analysis is not an exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. For this reason, some traders and investors establish support zones.

What Is Resistance?

Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.

Where is resistance established ? Resistance levels are usually above the current price, but it is not uncommon for a security to trade at or near resistance. In addition, price movements can be volatile and rise above resistance briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones.

Support Equals Resistance

Another principle of technical analysis stipulates that support can turn into resistance and vice versa. Once the price breaks below a support level, the broken support level can turn into resistance. The break of support signals that the forces of supply have overcome the forces of demand. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance.

Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.

In this example of the NASDAQ 100 Index ($NDX), the stock broke resistance at 935 in May-97 and traded just above this resistance level for over a month. The ability to remain above resistance established 935 as a new support level. The stock subsequently rose to 1150, but then fell back to test support at 935. After the second test of support at 935, this level is well established.

Where does this overhead supply come from? Demand was obviously increasing around 18 from Oct-98 to Mar-99 (green oval). Therefore, there were a lot of bullish buyers of the stock around 18. When the price declined below 18 and fell to around 14, many of these (now unhappy) bulls were probably still holding the stock. This left a supply overhang (commonly known as resistance) around 18. When the stock rebounded to 18, many of the green-oval-bulls probably took the opportunity to sell and "escape" with little to no loss. When this supply was exhausted, the demand was able to overpower supply and advance above resistance at 18.

Trading Range

Trading ranges can play an important role in determining support and resistance as turning points or as continuation patterns. A trading range is a period of time when prices move within a relatively tight range. This signals that the forces of supply and demand are evenly balanced. When the price breaks out of the trading range, above or below, it signals that a winner has emerged. A break above is a victory for the bulls (demand) and a break below is a victory for the bears (supply).

From the PeopleSoft (PSFT) example, we can see that support can turn into resistance and then back into support. PeopleSoft found support at 18 from Oct-98 to Jan-99 (green oval), but broke below support in Mar-99 as the bears overpowered the bulls. When the stock rebounded (red oval), there was still overhead supply at 18 and resistance was met from Jun-99 to Oct-99.

After an extended advance from 27 to 64, WorldCom (WCOM) entered into a trading range between 55 and 63 for about 5 months. There was a false breakout in mid-June when the stock briefly poked its head above 62 (red oval). This did not last long and a gap down a few days later nullified the breakout (black arrow). The stock then proceeded to break support at 55 in Aug-99 and trade as low as 50. Here is another example of support turned resistance as the stock bounced off 55 two more times before heading lower. While this does not always happen, a return to the new resistance level offers a second chance for longs to get out and shorts to enter the fray.

In Nov/Dec-99, Lucent Technologies (LU) formed a trading range that resembled a head and shoulders pattern (red oval). When the stock broke support at 60, there was little or no time to exit. Even though there is a long black candlestick indicating an open at 59, the stock fell so fast that it was impossible to exit above 44. In hindsight, the support line could have been drawn as an upward sloping neckline (blue line), and the support break would have come at 61. This is only 1 point higher and a trader would have had to take action immediately to avoid a sharp fall. However, the lows match up rather nicely on the neckline, and it is something to consider when drawing support lines.
After Lucent declined, a trading range was established between 40.5 and 47.5 for almost two months (green oval). The resistance level of the trading range was well marked by three reaction peaks at 47.5. The support level was not as clearly marked, but appeared to be between 40 and 41. Some buying interest began to become evident around 44 in mid- to late-February. Notice the array of candlesticks with long lower shadows, or hammers, as they are known. The stock then proceeded to form two up gaps on 24-Feb and 25-Feb, and finally closed above resistance at 48. This was a clear indication of demand winning out over supply. There were still two more opportunities (days) to get in on the action. On the third day after the breakout, the stock gapped up and moved above 56.

Support and Resistance Zones

Source:

Trend lines

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:trend_lines

MACD (moving average)

1. As its name implies, MACD is all about the convergence and divergence of the two moving averages. Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other.

2. Moving Average Convergence-Divergence (MACD) is one of the simplest and most effective momentum indicators available.

3. MACD is less useful for stocks that are not trending or are trading erratically.

4. Because MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.

RSI (overbought & oversold)

1. Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30

2. Wilder considers overbought conditions ripe for a reversal, but overbought can also be a sign of strength. Bearish divergences still produce some good sell signals, but chartists must be careful in strong trends when bearish divergences are actually normal.

3. ERSI Oversold in Uptrend: This scan reveals stocks that are in an uptrend with oversold RSI. First, stocks must be above their 200-day moving average to be in an overall uptrend. Second, RSI must cross below 30 to become oversold.

4. RSI Overbought in Downtrend: This scan reveals stocks that are in a downtrend with overbought RSI turning down. First, stocks must be below their 200-day moving average to be in an overall downtrend. Second, CCI must cross above 70 to become overbought.

CCI ( signals new trend)

1. Commodity Channel Index (CCI) is a versatile indicator that can be used to identify a new trend or warn of extreme conditions

2. In general, CCI measures the current price level relative to an average price level over a given period of time. CCI is relatively high when prices are far above their average. CCI is relatively low when prices are far below their average. In this manner, CCI can be used to identify overbought and oversold levels.

3. CCI measures the difference between a security's price change and its average price change. High positive readings indicate that prices are well above their average, which is a show of strength. Low negative readings indicate that prices are well below their average, which is a show of weakness. "

4. The Commodity Channel Index (CCI) can be used as either a coincident or leading indicator. As a coincident indicator, surges above +100 reflect strong price action that can signal the start of an uptrend. Plunges below -100 reflect weak price action that can signal the start of an uptrend.

5. As noted above, the majority of CCI movement occurs between -100 and +100. A move that exceeds this range shows unusual strength or weakness that can foreshadow an extended move

Bollinger band

MFI(signals reversal of trend)

1. The Money Flow Index (MFI) is an oscillator that uses both price and volume to measure buying and selling pressure. Created by Gene Quong and Avrum Soudack, MFI is also known as volume-weighted RSI

2.MFI starts with the typical price for each period. Money flow is positive when the typical price rises (buying pressure) and negative when the typical price declines (selling pressure).

3. the Money Flow Index (MFI) is best suited to identify reversals and price extremes with a variety of signals.

4. MFI is better suited to identify potential reversals with overbought/oversold levels, bullish/bearish divergences and bullish/bearish failure swings.

5. As with all indicators, MFI should not be used by itself. A pure momentum oscillator, such as RSI, or pattern analysis can be combined with MFI to increase signal robustness

Descending Triangle Pattern

A descending triangle pattern is a bearish formation that usually forms during a downtrend as a continuation pattern.

The Descending Triangle Pattern consists of one trendline that connects a series of lower highs and a second trendline that has historically proven to be good support level.

This is the chance for experienced traders to make substantial profits in a brief period of time.

The descending triangle pattern is created when a bearish market pushes stock prices down against a support level. It is a bearish formation that usually forms during a downtrend as a continuation pattern. They indicate distributions.

What does a Descending Triangle pattern look like?

Simply put, it looks like a right angle triangle. Two or more comparable lows form a horizontal line at the bottom. The Descending Triangle Pattern consists of one trendline that connects a series of lower highs and a second trendline that has historically proven to be good support level.

How does the descending pattern occur?

Traders wait for a move below support level as it means that the downward movement is building. When the breakdown finally happens, traders go into short positions and aggressively push price of the stock lower.

What are the parameters required for the 2 trendlines?

Lower Horizontal Line- At least 2 comparable lows are necessary to form the lower horizontal line. The lows have to be close, in relative proximity with each other. A distance should separate the lows and there should also be a reaction high between them.
Upper Descending trend line- To form the upper descending trend line, at least two reaction highs is required. They should be successively lower and there should be a certain amount of distance between the highs. Exception- If one reaction high is equal to or greater than the previous reaction high; the descending triangle pattern becomes invalid.

This pattern is a part of technical analysis that is used in the stock markets to understand market trends. It is a highly popular tool used by stock market traders to decipher when the demand for a stock is dipping and when the stock price goes below the lower support level. At this point of time, it is clear that the downside momentum is here to or become even stronger. This is the chance for experienced traders to make substantial profits in a brief period of time. Simply put, a descending triangle is bearish and an ascending triangle is bullish.

Some other aspects at a glance-

Duration- This pattern in the stock markets can range from a few weeks to many months. On an average, it lasts from 1-3 months.
Volume- The volume usually shrinks in this type of pattern. While volume confirmation is preferred, it is not always necessary.
Price projection- Price projection can be obtained by measuring the widest distance of the pattern and deducting it from the resistance breakout.

Rectangle Channel Pattern

A rectangle pattern or box pattern is a trading range which forms as a consolidation phase following a trend, making it a continuation pattern in most cases. The parallel trend lines connecting multiple highs and lows

during this extended period give the pattern its rectangle shape. A breakout occurs when either trend line is penetrated and the trading range is broken. An upside breakout from a rectangle pattern following an uptrend is a continuation signal for higher prices and is a technical buy signal. A downside breakout from a rectangle pattern following a downtrend is a continuation signal for lower prices and is a technical sell signal.

Ichimoku cloud basics

Cloud goes beyond the price action
If the current candlestick is above the cloud it is considered bullish and if the current candlestick is below the cloud is considered bearish sign.
Cloud is green means direction is bullish & if the cloud is red the direction is considered bearish
There are 5 lines . 2 lines forms the cloud & 3 lines are - 9 days conversion ( or lagging line) , 26d base & 26d span.
When the cmp is above all the lines
- All these 5 lines act as support for the price. The top line being the first support and (5th) last line being the last support.
When the cmp is below all the lines
- All these 5 lines act as resistance for the price. The bottom line being the first resistance and (5th) last line being the last resistance.
The cloud projects 26 days beyond today's date.

https://bullbull.in/blog/how-to-use-the-ichimoku-cloud/

Renko Charts

https://www.colibritrader.com/trade-with-renko-charts/

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