TECHNICAL ANALYSIS FOR A BEGINNER - Riad Siddiky Pran
as its for the beginner, i hv chosen the following 10 points....i know there r many peoples those hv good knowledge in FA & TA...they can participate....& i m only trying for those who r beginner & that's why i m trying t...o express in as simple as i can..wth example.....
1) we should put it in our mind tht for choosing any script at first comes the FUNDEMENTAL then TIMING & SCENERIO RELATED TO THT SCRIPT and then comes TECHNICAL ANALYSIS OF that script
2)we should distribute our capital in different terms like SHORT MID & LONG terms
3)what is TECHNICAL ANALYSIS
4) WHY TA IS NEEDED thats mean the importance of TA
5)WHEN WE SHOULD APPLY TA & WHEN NOT
6)WHAT IS RSI & how it can indicate buy or sale signal
7)MOVING AVAREGE & ITS SIMPLE CLASSIFICATION & how it can produce buy or sale signals
8) VOLUME indicator
9)MACD & how it can produce buy & sale signal
10) AN EXAMPLE explaining all the above topics....
i think these wll be enough for a beginner.........
BEFORE DISCUSSING I WANT TO MENTION THT ITS JUST A TRIAL FOR GIVING SOME INFOS FOR THE BEGINNERS & TRYING TO DISCUSS IN SIMPLE TERMS THT ANYONE CAN UNDERSTAND EASILY.
1)FIRST COMES FUNDEMENTAL, THEN COMES TIMING & SCENERIO RELATED TO THT SCRIPT & THEN COMES TECHNICAL ANALYSIS OF THE SCRIPT:-
> in choosing any script we hv to remember that it should be fundementally strong & should belong to A category
>what fundemental points we should see...authorized capital, paid up capital, gap between athourized & paid up capital, nav, number of shares,holdings of sponsors, directors,institutions & public then the devidend record, price range of last 1yr, pe, eps,reserve...etc which wll be discussed by RICKY & TANVIR illaborately on their discussion topic
>TIMING & SCENERIO related to the script is another important thing we should consider....as we know though fundementally strong every share dont play all around the year..again sometimes some bad news related to tht script or sector may play against it...so before considering any share we should be aware tht wether it is the playing time of this share or not
>if the above 2 things are fit apropriately then we can go for TECHNICAL ANALYSIS for the exact timing for buying it
2) PORTFOLIO MANAGEMENT IN TERMS OF SHORT, MID & LONG:--
>there is a popular saying tht, "DONT PUT UR ALL EGGS IN SAME BUSKET"
> a smart bussiness man wll not be a trader only so, he should play distributing his capital in different sectors for gaining safely as because some times market goes wrong...
> in my point of veiw everybody should distribute his capital's 30-40% for short term(7-15 days) then 30-40% for midterm(2-3 months) then 20-40% for long term(>3months)
> by above distribution he can do a very good RISK MANAGEMENT & his money wll never be stuck in adverse situations
3) WHAT IS TECHNICAL ANALYSIS:--
this sector deals about the price movement of market based on SUPPLY & DEMAND determining the direction or trend of the script in future. it doesnt consider the fundemental basis of any script & simply we can say TECHNICAL ANALYSIS TRIES TO DETERMINE THE PSYCHOLOGY OF THE TRADERS OF THE MARKET OR THAT PARTICULAR SCRIPT.
> SO,we can easily judge the perfet buying & selling time by doing some simple TA wth some simple tools
> in this discussion we wll try to understand some basic things about TA, we hv to put it in our mind tht its a very vast & critical thing to understand in some lines...bt just we can try atfirst wth the a b c d which may help us to atleast determine the simple BUY & SALE signals
4) IMPORTANCE OF TECHNICAL ANALYSIS :--
> if we just consider the FUNDEMENTAL only then sometimes we may not be able to buy or sell at appropriate time & our hard earned money may become stuck
>sometimes we become confused tht which price of any particular script is safe or lowest , even we become confused tht when we should offload by gaining maximum profit....TA helps us in this timing which i wll try to clearify by giving example describing a chart
5) WHEN WE SHOULD APPLY TA & WHEN SHOULDN'T:--
> FREINDS , we have to put it in our mind very firmly that TA dont work in a abnormal market, means when the normal flow of market is interrupted the TA dont works.
> then what should we do? the smartest thing is TO OBSERVE IT TILL THE MARKET GAIN ITS NORMAL FLOW.
>when the market is normal & we want to apply TA ....then there some basic thing of a chart we should consider-- *TREND OF A CHART- up, down, sideways
*SUPPORT & RESISTANCE LEVEL of a trend
*CHART PATTERNS like head & shoulder, symmetrical triangle, ascending triangle, descending triangle, double top, double bottom etc etc
IN THIS SECTION- iwll just discuss abt support & resistance as its just a beginners session, all couldnt be covered in such a small span
*SUPPORT LEVEL:-- when we see in a chart , we can see some up peaks & some low depressions in a trend if we connect the low depressions points by an imaginery line then we can easily get the support level of the chart. normally buying a script in its support level is usually safe & ensures maximum gain
*RESISTANCE LEVEL:-- when we connect the peaks of a trend wth an emeginary line then we can get the resistance level of tht scripts. usually a scripts seldom crosses uts resistance level, so we can sell the script in this level may make us gaining max profit & ensures the safety against loss
****sometimes in a trend resistance level may become support level by breaking the upper limit & indicating towards the establishment of a new trend which is known as "ROLE REVERSAL"
6) RSI & ITS USE:--
> it means RELATIVE STREGNTH INDEX which indicates the momentum of the trend of the script, usually it uses 14 trading days basis
>it is measured from 0 to 100 level
> normally below 30 it indicates OVERSOLD state & gives a safe price level for buying
> above 70 it indicates OVERBOUGHT state & gives a signal for selling
> when it moves upwards or downwards sharply incates a strong either up momentum or the weak momentum of the trnd respectively, so up momentum produces a BUY SIGNAL & down momentum produces a SALE SIGNAL
7) MOVING AVERAGES:--
usually there are 2 types --
*SIMPLE MOVING AVRGE( SMA)-- ITS THE MOST COMMONLY USED...here it is calculated by the sum of closing prices of a duration(i.e. 20 days) devided by the number of days(20)...
*EXPOTENTIAL MOVING AVRGE( EMA)--- its calculation is complicated & need not to known by a analyst bcos most of the sites which has charting pakages auto calculate it. the difference is tht here the charting package smoothen the avarages putting some recent data points while calculating the avarages...thats why EMA is considered much more efficient than SMA....
** HOW THE MOVING AVARAGES MAY PRODUCE SIGNALS??
> during analysing a chart the analyst may take two time spans moving avarge, one long i.e 20 & another short i.e. 5..( either SMA or EMA)
> if the short one crosses the long one in upward it produces a buy signal & vice versa for sell signal
8) VOLUME INDICATOR:--
> most popular indicator for the analysts
> it directly shows the psychology of the buyers or sellers
> when the volume begin to grow than the previous trading days implies towards a upward momentum of the scripts
>** bt we should keep it in mind tht if volume grows bt the price falls then definitely it indicates towards a future bad consequence of the share which means most of the times tht big instutions(big brothers) are selling off their holdings
9) MACD & HOW IT CAN PRODUCE SIGNALS :--
> it means MOVING AVARAGE CONVERGENCE DIVERGENCE which is another popular indicator in TA
> It is comprised of 2 expotential moving avrge one is long term & another is short term which help to measure the momentum of the script
> MACD= SHORT TERM MOVING AVRGE- LONG TERM MOVING AVRGE
>short term usually calculated from 12 days avrge & long term by 26 days avrge
> usually in most of the chart package uses MACD HISTOGRAM where .....
* a centreline is considered which is 0 line * a 9 days expotential moving avrge is plotted * and a macd ( difference btwn long & short term) is plotted
> whenever macd crosses the exp9 upwards a positive green bars show the upward momentum from the centreline on the histogram & when crosses downwards vice versa happens producing buy & sell signal respectively
10) EXAMPLES OF SIMPLE TA:--
FREINDS what we learn in above discussion just a simple TA & how to judge the signals now in the following Picture we can see examples to correlate our learning ....
in above chart we can see....
1)RSI moved upwards from 40 to 68 level within 5 trading days showing strong upward momentum in the trend & we wll consider the buy signal when it moved from 40 to 50 level within one trading day...
2)SMA 10 crossed sma 25 when the price of the script ws 13 & gave a buy signal
3)the volume is continuously up in last 5 trading days indicating a strong upward momentum & a buy signal
4) IN MACD HISTOGRAM... macd crossed exp9 in upward direction indicating a buy signal & the green bars r showing upward momentum of thew trend
in the above chart we can see the followings....
1)RSI is falling sharply from 70+ to 40 within 7 trading days indicating the downward momentum of the trend which is weakened
2)SMA10 ( SHORTER ONE) marked by brown line crossed downward the SM...A 25 (LONGER ONE) marked by blue line indicating towards sell signal
3) volume bars are gradually falling from the mid sept meaning tht the public has less interest in this script...so, a sell signal when volume begin to fall consecutive 3 days
4)in MACD HISTOGRAM... we can see tht macd crossed downwards the exp9 & the green bars are showing downward momentum from the center line revealing the weak momentum & as well as a sell signal
FREINDS IN ABOVE DISCUSSION I TRIED MY BEST TO PUT SOME GUIDELINES FOR THE BEGINNERS.....HOPE ALL WLL LIKE IT,..... THANKS
1)RSI moved upwards from 40 to 68 level within 5 trading days showing strong upward momentum in the trend & we wll consider the buy signal when it moved from 40 to 50 level within one trading day...
2)SMA 10 crossed sma 25 when the price of the script ws 13 & gave a buy signal
3)the volume is continuously up in last 5 trading days indicating a strong upward momentum & a buy signal
4) IN MACD HISTOGRAM... macd crossed exp9 in upward direction indicating a buy signal & the green bars r showing upward momentum of thew trend
in the above chart we can see the followings....
1)RSI is falling sharply from 70+ to 40 within 7 trading days indicating the downward momentum of the trend which is weakened
2)SMA10 ( SHORTER ONE) marked by brown line crossed downward the SM...A 25 (LONGER ONE) marked by blue line indicating towards sell signal
3) volume bars are gradually falling from the mid sept meaning tht the public has less interest in this script...so, a sell signal when volume begin to fall consecutive 3 days
4)in MACD HISTOGRAM... we can see tht macd crossed downwards the exp9 & the green bars are showing downward momentum from the center line revealing the weak momentum & as well as a sell signal
1)RSI is falling sharply from 70+ to 40 within 7 trading days indicating the downward momentum of the trend which is weakened
2)SMA10 ( SHORTER ONE) marked by brown line crossed downward the SM...A 25 (LONGER ONE) marked by blue line indicating towards sell signal
3) volume bars are gradually falling from the mid sept meaning tht the public has less interest in this script...so, a sell signal when volume begin to fall consecutive 3 days
4)in MACD HISTOGRAM... we can see tht macd crossed downwards the exp9 & the green bars are showing downward momentum from the center line revealing the weak momentum & as well as a sell signal