Week 1

Technical Analysis

oup 12
Gr
 Definition of Technical Analysis

Charles Dow & Dow Theory

Importance of Technical Analysis

Contents
Technical Indicators - Price, Chart
patterns, Trends, etc.

Assumptions of Technical Analysis

Limitations of Technical Analysis

Scientific-Technical Analysis

Ticker Tape Reading

Quotation Board
Technical Analysis

TIO
 inition
Def

Technical Analysis
- A popular technique used to predict stock prices.
- To study past stock price data and search for patterns such as
trends and regular cycles.

What is Technical Analysis & Purpose

 The trader uses the ff:

Technical Indicators Chart Formations Trend Lines

Charles Dow
-Considered as the father of Technical
Analysis

-Founder and editor of the Wall Street

Journal and the co-founder of Dow
Jones & Company

Dow Theory is a framework for

First stock Index
technical analysis , based on the
-Dow Jones Transportation Average writings of Charles Dow regarding
(DJTA), which was followed by the Dow market theory.
Jones Industrial Average (DJIA).

Charles Dow and The Dow Theory

 1.The market discounts
everything

3. Primary
2. Three kinds of
trends have
Market Trends
three phases

Dow Theory Principles

of Dow
Theory.

4. Indices confirm 5. Volume must

each other confirm the trend

6.Trends persist until a clear

reversal occurs.
Six Principles of Dow Theory.
How is the Dow Theory useful for traders?
 Technical Indicators

Discussion - Price, Chart

patterns, Trends, etc.

Torrefiel
 Technical
Indicators
Heuristic or pattern-based signals produced by

the price, volume, and/or open interest of a

security or contract used by traders who follow

technical analysis.
 Types of Technical Indicators:
Trend Following Indicators: Moving Averages and Average Directional Index

Oscillators: Relative Strength Index and Stochastic Oscillator

Volatility Indicators: Bollinger Band and Average True Range

Momentum Indicators: Moving Average and Rate of Change

Volume Indicators: On Balance Volume and Chaikin Money Flow

Technical Indicators:
RELATIVE STRENGTH INDEX
RELATIVE STRENGTH

The relative strength index (RSI) is a momentum indicator used in technical analysis. RSI

INDEX measures the speed and magnitude of a security's recent price changes to evaluate overvalued or

undervalued conditions in the price of that security

MONEY FLOW INDEX How the Relative Strength Index (RSI) Works

As a momentum indicator, the relative strength index compares a security's strength on days when

MOVING AVERAGE
prices go up to its strength on days when prices go down.
CONVERGENCE

The RSI formula:

DIVERGENCE

RSI= 100 - [ 100/1 + Average Gain/Average Loss]

BOLLINGER BANDS
Relative

Strength

Index
Technical Indicators: MONEY FLOW INDEX

RELATIVE STRENGTH
The Money Flow Index (MFI) is a technical oscillator that uses price and volume data for

INDEX identifying overbought or oversold signals in an asset. It can also be used to spot divergences

that warn of a trend change in price. The oscillator moves between 0 and 100.

MONEY FLOW INDEX ​

Money Flow Index = 100 − 100/ 1+Money Flow Ratio​

MOVING AVERAGE
where:
CONVERGENCE

DIVERGENCE Money Flow Ratio = 14 Period Positive Money Flow/14 Period Negative Money Flow

Raw Money Flow = Typical Price * Volume

BOLLINGER BANDS

Typical Price = High + Low + Close /3

Money

Flow

Index
Technical Indicators:
RELATIVE STRENGTH

INDEX
MOVING AVERAGE CONVERGENCE / DIVERGENCE

MONEY FLOW INDEX Moving average convergence/divergence (MACD, or MAC-D) is a trend-following

momentum indicator that shows the relationship between two exponential moving averages

(EMAs) of a security’s price.

MOVING AVERAGE

CONVERGENCE /
Formula:

DIVERGENCE
MACD=12-Period EMA − 26-Period EMA

BOLLINGER BANDS
Moving Average Convergence / Divergence
Technical Indicators: BOLLINGER BANDS

RELATIVE STRENGTH
A Bollinger Band® is a technical analysis tool defined by a set of trendlines plotted two

standard deviations (positively and negatively) away from a simple moving average

INDEX (SMA) of a security's price, but which can be adjusted to user preferences.

BOLU = MA (TP , n) + m ∗ σ [TP , n]

MONEY FLOW INDEX BOLD=MA(TP , n) − m ∗ σ [TP , n]

where:

MOVING AVERAGE
BOLU=Upper Bollinger Band
CONVERGENCE
BOLD=Lower Bollinger Band
MA=Moving average
DIVERGENCE TP (typical price)=(High+Low+Close)÷3
n=Number of days in smoothing period (typically 20)
m=Number of standard deviations (typically 2)
BOLLINGER BANDS σ[TP,n]=Standard Deviation over last n periods of TP​

Bollinger
Bands
Assumptions of Technical Analysis
(1) Market action discounts everything,

(2) Prices move in trends,

(3) History tends to repeat itself,

(4) Emotions drives the market, and

(5) There are no certainties.

 Limit a tio ns
of Te ch n ic al
A na ly si s

So, what do Limitations of Technical Analysis

mean?
ULIBAS
Lim ita ti o n s 1. Possibility of giving a false signal.

of

2. Analysts bias.

Tec h n ica l

3. Open to interpretation.

Analysis

4. Ignores Fundamentals

5. Technical analysis can be too late.
Is Technical
Analysis
Scientific?
 The goal of technical analysis is to forecast a
stock's future direction. Most traders are
unaware that technical analysis is a scientific
principle. Technical analysis is based on science
since it is a social science that is applied and has
economic foundations. Its main concept is that
history repeats itself, and it uses historical
patterns to forecast future price fluctuations. Its
numerous signs can be profitable and are
supported by science. So the answer is YES.
 Ticker Tape

Discussion Reading

Quotation Board

SINGSON
Ticker Tape
thin strip of paper showing

information on the prices of stocks

in a linear manner
“ticker” word was derived from

the sound that the telegraphs

made
used to communicate information

about stock prices and volumes

either primary or secondary

strategy for technical analysis



Quotation Board
data was displayed on large chalkboards
included information about listed

financial assets and their movements

updates involved data transfer, wherein

some information would be spread

on-the-spot interpretation
 Stock

Website
modern version of ticker tapes and

quotation boards
provides prices about stocks and recent
trading activity
Thank you for
listening!
 Reporters:

Joanne Singson

Lorraine Thea Tio

Mariann Joy Torrefiel

Lara Jarella Ulibas

 References
Dow Theory; Charles H. Dow. (n.d.). Thismatter.com. Retrieved December 30,
2022, from https://thismatter.com/money/technical-analysis/dow-theory.htm‌
Hayes, A. (2022, March 14). Technical Analysis. Investopedia.
https://www.investopedia.com/terms/t/technicalanalysis.asp
Financial Markets and Institutions, Global Edition - Frederic S Mishkin, Stanley Eakins
Chen, J. (n.d.). Technical Indicator Definition. Investopea
https://www.investopedia.com/terms/t/technicalindicator.asp

The Basic Assumptions of Technical Analysis. (n.d.). Www.linkedin.com. Retrieved January 4, 2023, from
https://www.linkedin.com/pulse/basic-assumptions-technical-analysis-alvin-mathew/

Hayes, A. (2020, May 7). Bollinger Band®. Investopedia.

https://www.investopedia.com/terms/b/bollingerbands.asp

Long Trades vs. Short Trades: Which Should You Use? (n.d.). The Balance. Retrieved
January 10, 2023, from https://www.thebalancemoney.com/long-and-short-trading-
term-definitions-1031122
 References
Chen, J. (2022, July 11). Tape reading. Investopedia.
https://www.investopedia.com/terms/t/tape-reading.asp

Hayes, A. (2022, April 22). Ticker tape. Investopedia.

https://www.investopedia.com/terms/t/tickertape.asp

Investopedia Team. (2022, February 6). How to read a stock ticker.

https://www.investopedia.com/articles/01/070401.asp

Kumar, N. (n.d.). Tape reading trading strategies explained with free PDF. Stock
Markets Guides. https://stockmarketsguides.com/tape-reading-pdf/

Little, K. (2022, May 8). What is a stock market quote? The Balance.
https://www.thebalancemoney.com/understanding-stock-quotes-3141313

Technical analysis. (2022, November 13). In Wikipedia.

https://en.wikipedia.org/wiki/Technical_analysis#Ticker-tape_reading