IntroductiontoTechnicalAnalysis

AndrewWilkinson

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 RiskDisclosure
Futuresarenotsuitableforallinvestors.Theamountyoumaylosemaybegreaterthanyour
initialinvestment.Beforetradingfutures,pleasereadtheCFTCRiskDisclosure.Foracopy,
call(203)6185800.

Anystrategiesdiscussed,includingexamplesusingactualsecuritiesandpricedata,are
strictlyforillustrativeandeducationalpurposesonlyandarenottobeconstruedasan
endorsement,recommendationorsolicitationtobuyorsellsecuritiesorcommodities.
Pastperformanceisnotaguaranteeoffutureresults.

InteractiveBrokersLLCisamemberofNYSE,FINRA,SIPC.

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 TechnicalversusFundamental

Technical Fundamental
Analysisofinternals Analysisofexternals
Price Economy
Volume Management
Pattern SWOT
Support Strengths
Resistance Weakness
Opportunities
Recognition
Threats
Buy/Sellrecommendation

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 TechnicalversusFundamental

Fundamentalanalysisleadstopricepredictionsusing
valuationratios
Technicalanalysisusestrendandpatternrecognitionto
predictprices

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 WhatsinaChart?

Chartsshowthepriceperformanceofanunderlyingassetor
security
Getoverviewwithatleasta6monthpicture
Consideryourtimeframecarefully
Chartsexpresspricesaslines,barsorcandlesticks

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 ChartTypes

TraderWorkStation(TWS)displayspricesasa:
Line
Joinsclosingpricesbetweeneachspecifiedtimeframe
Bar
Usesanopen/high/low/closeconvention
Candlestick
Moreweightattachedtosessiondirection
VolumeandOpenInterest
Analystpaysattentiontothevolumeassociatedwithmovewithinagivensession

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 WhatstheAim?

Definethebigpicturetrend ifthereisone
Comparehealthofunderlyingtoabenchmark
Searchforshortertermopportunities
Understandthelikelihoodofimmediateupordownmovement
Definerange
Establishentryorexitpoints
Determinewarningsignsofabreachoftrendorapatternreversal

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 Trendlines

Straightlinejoiningtwoormorepricepoints
Supportlinedepictsupwardtrend
Resistancedepictsanareaabovecurrentpricethatinvestors
mayfindhardtobreach
Bothcanbehorizontallines
Investorsmayeyeballthetrend

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 Trendlines

A 14501250=200targetis1250200=1050
B 950 750=200targetis750250=550

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S&P500index overheadresistance

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 ChartPatterns

Trendlinesshowprevailingupordowntrend
Parallellinesdepicttradingchannel
Patternsemerge
Continuation
Reversal
Triangle
Head&shoulders
Wedge
Pennant&flags

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 Triangles

Continuation
Reversal

Continuation

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Wedge

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PennantsandFlags

Flags and pennants work best on intra-day

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 Studies

TWShasavarietyof
commonlyusedtechnical
indicators
Withinachart,select
ChartsandAddStudy
Forbriefdescriptionofany
study,usethesearchbox
ontheIBwebsite

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 MovingAverages

Oneofthesimplestformsofanalysis
Comparesaveragepriceforxdaysagainstashorterperiodofydays
Buywhenmoresensitiveshortermovingaveragerisesfasterthanlonger
period
Sellwhenshortermovingaveragefallsfasterthanlongerperiod
Differentsecurities,indicesandinstrumentsrequiredifferentlengthof
data(onesizedoesnotfitall)
Commonperiodsare5,9,21,50,90and200

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 ADX/DMI

Strengthoftrendindicator
Usestwofilters(DMI+andDMI)
ThenetofthesetwovaluesissmoothedtocreateAverage
DirectionalIndex
Thisindexrisestoconfirmtrendingprices
ADXreturnsvalues0100
OptimalperformancewhenADXisbetween2040

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 MACD

MovingAverageConvergenceDivergence
Employsexponentialmovingaverages
Subtractslongermovingaveragefromshortermovingaverageto
createMACD
Usesanevenshorterexponentialmovingaveragetocreatesignal
line
MACDpassingupanddownthroughsignallinegeneratesbuyandsell
signals
MACDminussignalalsocreateshistogram alsoareliabletechnical
indicator

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21
 ParabolicSAR

StopandReverse
Maydepictthecurrenttrend
Initiallyestablishedasapointatwhichprevailingposition
shouldbeclosed
Risingdotsbelowpricearelongexits
Fallingdotsabovepriceareshortexits

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 PivotPoints

TWScreatestworesistancepointsaboveprice
Twosupportpricesbelowprice
Bothusepreviousdayshigh,lowandclosingprices
Pivotpointiscalculatedusingafivepointsystem
Sometradersusethesetoclusterbuyandsellordersfordaytrading
Needtoknowwheneitherisgivingway

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 RelativeStrengthIndicator(RSI)

Looksatasetofuserdefineddataandcomparesnumberofupbars
versusdownbarstocreateanindex
Indicatoroscillatesbetween0100andconfirmsmarketstrength
Overboughtreadingsrangebetween80100
Oversoldreadingsrange020
Warning:Someofthebestmovesoccurintheseranges!
UsefulforfindingdivergencebetweenpriceandRSItoshowfalsemoves

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 StochasticOscillator

Createstwolines %kand%d
%k looksatmostrecentclosingpriceandcomparestothelowest
readingfromaspecifiedrangeanddividesbyoverallperiodrange
%d movingaverageof%k
Buyandsellindicationsoccurwhen%kcrosses%d
Againusefulforconfirmationofpriceactionatlows(highs)

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 OnBalanceVolume

Volumeisakeycomponenttotrenddevelopment
Createsasinglelinebelowthecharttoshowcumulativevolume
allowingforpricedirection
DailyvolumeisADDEDwhenpriceclosesup
VolumetotalisSUBTRACTEDwhenpricesfall
Usetogaugewhetherhighervolumeissupportingupordowntrend
Drawbackispricesettlement

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 Accumulate/Distribution

EnhancedversionofOBV
Doesntconsiderdailypricechange
Focusonlocationofcloserelativetorangeofclosesbeforeaddingor
subtractingdaysvolumetotal
ADlineshouldfollowprices
Cumulativebuyingshouldseelinerise
Sellingenmasseshouldseelinedecline
Lookingfordivergencebetweendecliningpricesandaccumulationof
volume

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 FibonacciNumbers

Seriesofmathematicalrelationships
Technicianbelievesthathistorywillrepeatitself
Pricesmoveinpredictablewavesafteramovehasbeenestablished
Keyretracementpoints:
23.6%
38.2%
50%
61.8%
76.4%

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FibonacciNumbers

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 Conclusion

Technicalanalysisisthestudyofprices
Chartistidentifiespatternstomakepredictions
Patternscanbenumericallyevaluatedandgiveriseto
numerousstudies
Valuablework,butyoumustbepreparedtoapplyvarious
studiestodifferentassetclassesandtimeframes

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Questions?

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