technical analysis applied

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Technical Analysis applied

Standard Online Share Trading

Riette Kotze


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What is technical analysis? Study charts

Add technical indicators to:

Determine the trend and price movement*


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Benefits of technical analysis Determine what is most probable to happen in the future: Trend and price

Know when to buy and sell

Capital protection

Maximize returns

Eliminate emotions and thoughts

Put the odds in your favour

Universal principles:Applied to any market place.

Applied to any instrument e.g. shares, warrants, CFDs

Applies to end of day or intraday data* Live data: Easy Trader, R99.00 per

month.


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Factors that influence intent Investment size

Risk profile

Market behaviour

Goals:

% growth p.a. or p.m.

index barometer outperform the index

Invest and or trade

Instrument and period selection


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Critical Components Selection:

Instrument*

company

Timing

One trending indicator to determine long-, medium and short term trend e.g.-

One trading indicator to determine price movement e.g. Stochastic

Above will be determined by intent


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Investing

Selection: Required: Long term upward trend

Shares in sectors that outperform the index and is the best performer in the sector

over at least 3 years.

How?

Compare all the sectors to the index, using Relative Strength. RS above 1: 1st

outperformed 2nd

Compare all the shares in the sector to the sector, to find the best performer

consistently over 3 years.Timing:

Buy and hold 3 years+ or as long as the long term trend is up.

Entry: Long term trend must be up, low on price on trading indicator or previous

time frame. Exit: End of long term trend.


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Measuring out- and under performance

Relative Strength:

Compare: two instruments.

Select a graph

Select amount of data in line with intent

Select a second graph: Enter the short code into the second window below thegraph on the left hand side

Select Rel Str from dropdown stats window

Interpretation:

Above 1: 1st outperform 2nd Below 1: 1st underperform to 2nd


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Where to find charts


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List of indices


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Relative strength of AUTM against

ALSH


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Shares in sector


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Shares in sector


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Shares selected

News

Results

Dividends

Announcements


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Home and Market info: News


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Tools: Company info: Company

results and next results due


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Tools: Company info: Dividends

payable and dividends paid


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Home: Special announcements


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Trading

Selection:

Derivatives:

Derived from an underlying instrument.

Instruments: warrants, SSFs, CFDs

Differences between shares and derivatives

Trending or trading underlying*

Volatility and trading range* (H-L: daily, weekly or monthly)

Timing:

Short term trading: Buying and selling frequently

Entry: Short term trend align with medium- and long term trend, low on price.

Exit: Short term price or trend.

Used for either or:

Hedge*, Speculate or capital conversion


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Help: Online courses


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Help: Downloads


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Market info: Market movements


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Speculation


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Hedging


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Average daily trading range: H-L

R2.00


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Average weekly trading range: H-L

R5.00


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Average monthly trading range:

H-L R12.00


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Chart options

Line chart: High, low or close

Bar chart or OHLC

Candlesticks

Log in

Tools: Price charts: Interactive charts

Select a chart

Select a chart option from the OHLC dropdown menu

Select a time frame: Daily, weekly or monthly


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Line chart

High

Low

Close: Most important

Select a chart

Select high or low or close from the OHLC dropdown menu

Upward trend: Higher highs, lows and closing prices.

Downward trend: Lower highs, lows and closing prices.

Look whether exceeding previous highs or lows, especially extreme highs and lows.


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Bar Charts or OHLC (open, high, low, close)

Open

High

Low

Close

Indicate trend continuation or reversal.

Position of close:

+ close above open and close near high

- close below open and close near low

Change in average trading range

ATR instrument and intent specific stop loss placement

Gaps


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Bar Chart Formation

Change in range:

Spikes:

Upward trend: Close closer to high

Downward trend: Close closer to low

Key reversal day:

Top key reversal day:

open above previous close

higher high

close near low or lower.

Bottom key reversal day:

open below previous close

lower low

close near high or higher


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Bar Chart Formation

Uncommon gaps:

Exhaustion gaps:

Occurs towards the end of a trend

Usually with low volume

Indicates very strong selling or buying pressure

Might or might not be filled

Break-away gaps:

Beginning of new trend

Followed by bigger trading range, as a result of increased volatility & volume

Unlikely to be filled

Run-away gaps:

In an existing trend

Trend continuation

Might or might not be filled


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Japanese Candlesticks

Body: Difference between O and C

Shadows: H and L

Open, close, high and low.

Indicate change or continuation in direction

Body colour:

+ Blue candlestick: buying pressure > selling pressure and close > open

- Red candlestick: selling pressure > buying pressure and open > close

Long bodies indicate strength

Long shadows indicate uncertainty and can result in a change in direction.


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Reversal signals

Changes in:

Colour

Length of the bar or trading range:

Length of the body

Length of the shadows


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Bottom reversal patterns

Engulfing white or Bullish engulfing:

Strongest bottom reversal signal.

After a downtrend

Can result in a trend change.

Red candle body followed by a blue candle body.

Blue candle body engulfs previous red candle body:

Blue candle opens at or below previous close of red candle.

Blue candle closes at or above previous open of red candle.

Short or no shadows.

The more previous candle bodies the blue candle body engulfs, the stronger the

signal.


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Bottom reversal pattern

Engulfing white


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Engulfing white


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Piercing Pattern:

Weaker than Engulfing white.


Blue candle opens at or below previous low of red candle.

Blue candle closes at least halfway up the body of previous red candle , between

half way and the opening price of the previous red candle.

In a falling market

If blue candle doesnt close at least half way in the previous red body, seen as a

bearish continuation pattern, depending on close e.g. in-neck line, on-neck line or

thrusting pattern.


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Piercing pattern


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Piercing pattern


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Bullish counter attack

Weaker signal.


Blue candle opens below previous close of red candle.

Blue candle closes at close of previous red candle.


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B l


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Hammer

Small body at the upper end of the trading range

lower shadow at least twice the length of the body (umbrella line)

small or no upper shadow.

The longer the lower shadow, the stronger the degree of failure.

Bullish emerges during a downtrend

A signal that the downtrend should end

Body can be White/hollow/ empty/ blue or black/filled/ red

Power line: White/ hollow/ empty/ blue hammer

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B tt l tt


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Hammer

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B tt l tt


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Hammer

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Inverted Hammer

Upper shadow at least twice the length of the body

no or a small lower shadow.

Bullish emergence after a decline.

Small body at the lower end of the range

Body black/blue or white/red

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B tt l tt


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Inverted Hammer

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Inverted Hammer

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Tweezer bottoms

Lowest lows of 2 or more candles, the same.

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Tweezer bottoms

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Tweezer bottoms

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Top reversal patterns

Engulfing black or Bearish engulfing

Blue candle followed by red candle:

Red candle opens at or above previous close of blue candle.

Red candle closes at or below previous open of blue candle.

After an uptrend

Strongest top reversal signal.

Can result in a trend change.

Short or no shadows.

The more previous candle bodies the red candle body engulfs, the stronger the

signal.

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Top reversal pattern


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Engulfing Black

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Engulfing Black

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Dark cloud cover


Red candle opens at or above previous close of blue candle.

Red candle closes at least halfway down the previous body of the blue candle, between half way and the previous blue candles opening price.

After an uptrend

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Dark cloud cover

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Dark cloud cover

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Bearish counter attack


Red candle opens above previous close of blue candle.

Red candle closes at previous close of blue candle.

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T l


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Shooting star

Bullish failure after a rally

The longer the upper shadow, the stronger the degree of failure.

Small body at the lower end of the range upper shadow at least 2 x body length

small or no top

Body black/blue or white/red

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Shooting Star

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op e e sa patte

Shooting Star

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Hanging man

Body White/blue or black/red

Lower shadow at least 2 - 3 x body length (umbrella line)

no / small upper shadow Body at the upper end of the trading range

Bearish emergence

After an extended rally, preferably an all time high.

Needs confirmation: next candle to open and or close beneath hanging mans

body.

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p p

Hanging Man

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p p

Hanging Man

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Tweezer tops

Highest high out of 2 or more candles the same.

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p p

Tweezer Tops

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Tweezer Tops

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Compilation of a strategy: Timing


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p gy g

Trending indicator:

to establish the:

Long term trend

Medium term trend Short term trend

Up

Down

Sideways

For entry and exit answers

Trading indicator:

To establish price movement

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MAC-D: Moving Average Convergence Divergence


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Select the graph

Select MACD from one of the stats drop down menus

Period selection is extremely important.

Long term trend SMA 12 and 200+ daily (just change red 26 to 200) or 12 and 26monthly

Medium term trend SMA 12 and 90 daily (just change red 26 to 90) or 12 and 26

weekly

Short term trend SMA 12 and 26 daily(default)

Very short term trend SMA 3 and 8 daily

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MAC-D: Moving Average Convergence Divergence


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Interpretation:

Investors: MACD 12 and 200 up through 0, beginning of an upward trend. MACD

12 and 200 down through 0, beginning of a downward trend.

MACD 12 & 26 monthly or weekly crossovers

Traders: Crossovers:

Black line or MACD up through blue line or signal line, beginning of an upward

trend, end of a downward trend, over sold position.

Black line or MACD down through blue line or signal line, beginning of a

downward trend, end of an upward trend, over bought position.

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Trading Indicator


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Price movement

Leading indicator

Entry Re-entry

Exit

Re-exit

Adding

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Stochastic


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Momentum oscillator

High-low range over x number of days and the relationship of the close to the low

over that period.

%K: Difference between last close and lowest low over a period

%D: High-low ratio oscillator

.

Sell: %D Stochastic breaks down through %K or red down through blue.

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Stochastic


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Select graph

Select Stochastic from dropdown stats window

Not necessary to change parameters.

Interpretation: Buying opportunity going up if red line goes up through blue line. Opportunity to

get out of derivative position making money going down or in to make money

going up.

Selling opportunity if red line goes down through blue line, sign that price is

coming down not necessarily trend. Opportunity to get out of derivative positionmaking money going up or in to make money going down.

Trade in the direction of the trend.

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A step by step approach


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International Indices: DJ-IND

Long term trend

Medium term trend

Short term trend Price movement

Compare DJ-IND with DJ-TRAN

DJ-INDALSH

Sector

Share

Index: ALSH long-, medium-, short term trend and price movement

Sectors: Relative strength against index to find outperformers or underperformersand long-, medium- , short term trend and price movement.

Shares: Relative strength against sector to find outperformers or underperformers,

as well as long-, medium-, short term trend, as well as price movement.

OR Selection based on how much & how fast it moves.

Timing: MAC-D and Stochastic Long-, medium and short term

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Strategy Summary


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DJ-IND trend & price movement

ALSH Index trend & price movement

Sector selection: Outperforming index using RS

Shares selection: Outperforming sector using RS

Timing:

DJ-INDALSH

Sector

Share

Graph option e.g. candlestick chart

Trending indicator: e.g. MAC-D for trend

Trading Indicator: e.g. Stochastic for entry, re-entry, exit , re-exit or adding to

position

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Summary


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Relative Strength Measure under- and out performance.

Selector choose between two instruments.

Compare two instruments.

RS above 1: 1st outperformed 2nd

RS going up the page: 1st increasingly performing better in comparison to 2nd

MAC-D Trend following momentum indicator

Relationship between 2 MAs of a price

Buy: MACD (black line) up through MA (blue line)

Sell: MACD (black line) down through MA (blue line)Long term trend: monthly default parameters (12 & 26) or hourly

Medium term: weekly default parameters (12 & 26) or 30 minute chart

Short term: daily default parameters (12 & 26) or 15 minute chart

Very short term trend: daily data and change 12 & 26 to 3 & 8 or 5 minute chart

Intraday: Use default parameters: Long term trend

Stochastic Upward movement: closed near high

Downward movement: closed near low

Buy: %D Stochastic (red line) breaks up through %K Stochastic (blue line)

Sell: %D Stochastic (red line) breaks down through %K Stochastic (blue line)

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Summary


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Engulfing white

Piercing pattern

Bullish Counter Attack

Hammer

Inverted hammer

Tweezer bottoms

Engulfing black

Dark cloud cover


Shooting star

Hanging man

Tweezer top

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81Copy Right


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The material supplied by Mariette Kotze to SBG Securities (Pty) Ltd. is protected by law and may not be copied,reproduced, printed or otherwise distributed, whether in part or in full. The context of the content may not be

construed in any way. The material is intended for personal or private use only.

technical analysis applied

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