證券交易知識學習--Technical Analysis

Technical Analysis

(http://www.investopedia.com/university/technical/ )

• Introduction

Technical analysis is based on the following three assumptions:

1. The market discounts everything

Ø only considers price movement, ignoring the fundamental factors of the company.

Ø at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors.

Ø This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price moves in trends

Ø price movements are believed to follow trends rather than to be against it.

3. History tends to repeat itself

Ø history tends to repeat itself, mainly in terms of price movement.

• Trends

1. Type: Uptrends/Downtrends/Sideways

2. lengths:

Ø short (less than 1 month),

Ø intermediate (1-3months), or

Ø long-term (longer than 1 year).
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3. Trendline
A trendline is a line to represent the trend in the market or a stock.
4. Channel

A channel, or channel lines, is the addition of two parallel trendlines that act as strong areas of support and resistance. Traders will expect a given security to trade between the two levels of support and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance.

5. Support and Resistance
You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply).



As you can see in Figure 1, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows).
Round Numbers and Support and Resistance
Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in support and resistance levels because they often represent the major psychological turning points at which many traders will make buy or sell decisions.
Role Reversal
Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support.

For example, as you can see in Figure 2, the dotted line is shown as a level of resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again.

The Importance of Support and Resistance

Ø make trading decisions and identify when a trend is reversing.

Ø a break beyond a level of support or resistance does not always have to be a reversal.

For example, if prices moved above the resistance levels of an upward trending channel, the trend has accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel.

Ø affect the way that you trade a stock.

Traders should avoid placing orders at these major points, as the area around them is usually marked by a lot of volatility. If you feel confident about making a trade near a support or resistance level, it is important that you follow this simple rule: do not place orders directly at the support or resistance level. This is because in many cases, the price never actually reaches the whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an important support level, do not place the trade at the support level. Instead, place it above the support level, but within a few points. On the other hand, if you are placing stops or short selling, set up your trade price at or below the level of support.

• Volume

Volume is simply the number of shares or contracts that trade over a given period of time, usually a day. The higher the volume, the more active the security.

Any price movement up or down with relatively high volume is seen as a stronger, more relevant move than a similar move with weak volume. Therefore, if you are looking at a large price movement, you should also examine the volume to see whether it tells the same story.

Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend.

Another important idea in technical analysis is that price is preceded by volume. Volume is closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end.

• Chart Patterns
  

Head and Shoulders

Cup and Handle

Double Tops and Bottoms
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Triangles

Flag and Pennant
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Wedge

Triple Tops and Bottoms

Rounding Bottom

• Moving average--MA

A moving average is the average price of a security over a set amount of time. Moving averages are generally used to measure momentum and define areas of possible support and resistance.

Types of Moving Averages

Simple Moving Average (SMA) -- most common method
It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation.

For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can see in Figure 1, a trader is able to make the average less responsive to changing prices by increasing the number of periods used in the calculation. Increasing the number of time periods in the calculation is one of the best ways to gauge the strength of the long-term trend and the likelihood that it will reverse.
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Linear Weighted Average

The linear weighted moving average is calculated by taking the sum of all the closing prices over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the number of periods.

For example, in a five-day linear weighted average, today's closing price is multiplied by five, yesterday's by four and so on until the first day in the period range is reached. These numbers are then added together and divided by the sum of the multipliers.
Exponential Moving Average (EMA)
This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average.

The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average. As you can see in Figure 2, a 15-period EMA rises and falls faster than a 15-period SMA. This slight difference doesn’t seem like much, but it is an important factor to be aware of since it can affect returns. 

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Major Uses of Moving Averages
Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels.

when the price > MA , the security is in an uptrend. Conversely,
when the price < MA, downtrend.
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When a short-term average > longer-term average, the trend is up.

When a long-term average > shorter-term average, a downward trend.
Moving average trend reversals

when the price moves through a moving average and
when it moves through moving average crossovers .

For example, when the price of a security that was in an uptrend falls below a 50-period moving average, like in Figure 4, it is a sign that the uptrend may be reversing.

when one moving average crosses through another.

For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.

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moving averages are used is to identify support and resistance levels.

For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.
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• Indicators and Osillators

Indicators (leading and lagging) are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum.
A leading indicator precedes price movements, giving them a predictive quality.

A lagging indicator is a confirmation tool because it follows price movement.

There are also two types of indicator constructions:

Oscillator indicators have a range, for example between zero and 100, and signal periods where the security is overbought (near 100) or oversold (near zero).

Non-bounded indicators still form buy and sell signals along with displaying strength or weakness, but they vary in the way they do this.

buy and sell signals in technical analysis is through crossovers and divergence. Crossovers are the most popular and are reflected when either the price moves through the moving average, or when two different moving averages cross over each other.The second way indicators are used is through divergence, which happens when the direction of the price trend and the direction of the indicator trend are moving in the opposite direction. This signals to indicator users that the direction of the price trend is weakening.

Indicators that are used in technical analysis provide an extremely useful source of additional information.

Accumulation/Distribution Line for calculating money flow

Acc/Dist = ((Close - Low) - (High - Close)) / (High - Low) * Period's Volume

If a security has an accumulation/distribution line that is trending upward, it is a sign that there is more buying than selling.

Average Directional Index (ADX) for measuring the strength of a current trend.

The indicator is seldom used to identify the direction of the current trend, but can identify the momentum behind trends.
The ADX is a combination of two price movement measures: the positive directional indicator (+DI) and the negative directional indicator (-DI). The ADX measures the strength of a trend but not the direction. The +DI measures the strength of the upward trend while the -DI measures the strength of the downward trend.

Aroon
The Aroon indicator is a relatively new technical indicator that was created in 1995. The Aroon is a trending indicator used to measure whether a security is in an uptrend or downtrend and the magnitude of that trend. The indicator is also used to predict when a new trend is beginning.

The indicator is comprised of two lines,

"Aroon up" line (blue line) : the amount of time it has been since the highest price during the time period.

"Aroon down" line (red dotted line): the amount of time since the lowest price during the time period.
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Aroon Oscillator
simply plot the difference between the Aroon up and down lines by subtracting the two lines. This line is then plotted between a range of -100 and 100. The centerline at zero in the oscillator is considered to be a major signal line determining the trend. The higher the value of the oscillator from the centerline point, the more upward strength there is in the security; the lower the oscillator's value is from the centerline, the more downward pressure. A trend reversal is signaled when the oscillator crosses through the centerline. For example, when the oscillator goes from positive to negative, a downward trend is confirmed. Divergence is also used in the oscillator to predict trend reversals. A reversal warning is formed when the oscillator and the price trend are moving in an opposite direction.

Moving Average Convergence Divergence (MACD)
This indicator is comprised of two exponential moving averages, which help to measure momentum in the security. The MACD is simply the difference between these two moving averages plotted against a centerline. The centerline is the point at which the two moving averages are equal. Along with the MACD and the centerline, an exponential moving average of the MACD itself is plotted on the chart. The idea behind this momentum indicator is to measure short-term momentum compared to longer term momentum to help signal the current direction of momentum.

MACD= shorter term moving average - longer term moving average

When the MACD is positive, it signals that the shorter term moving average is above the longer term moving average and suggests upward momentum.

The opposite holds true when the MACD is negative - this signals that the shorter term is below the longer and suggest downward momentum.

When the MACD line crosses over the centerline, it signals a crossing in the moving averages.

The most common moving average values used in the calculation are the 26-day and 12-day exponential moving averages.

Another aspect to the MACD indicator that is often found on charts is the MACD histogram. The histogram is plotted on the centerline and represented by bars. Each bar is the difference between the MACD and the signal line or, in most cases, the nine-day exponential moving average. The higher the bars are in either direction, the more momentum behind the direction in which the bars point.

buy signals is generated when the MACD crosses above the signal line (blue dotted line),
sell signals often occur when the MACD crosses below the signal.
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Relative Strength Index (RSI)
RSI helps to signal overbought and oversold conditions in a security. The indicator is plotted in a range between zero and 100. A reading above 70 is used to suggest that a security is overbought, while a reading below 30 is used to suggest that it is oversold. This indicator helps traders to identify whether a security’s price has been unreasonably pushed to current levels and whether a reversal may be on the way.


On-Balance Volume (OBV)
The OBV is calculated by taking the total volume for the trading period and assigning it a positive or negative value depending on whether the price is up or down during the trading period. When price is up during the trading period, the volume is assigned a positive value, while a negative value is assigned when the price is down for the period. The positive or negative volume total for the period is then added to a total that is accumulated from the start of the measure.



Stochastic Oscillator 
The idea behind this indicator is that in an uptrend, the price should be closing near the highs of the trading range, signaling upward momentum in the security. In downtrends, the price should be closing near the lows of the trading range, signaling downward momentum.

The stochastic oscillator is plotted within a range of zero and 100 and signals overbought conditions above 80 and oversold conditions below 20. The stochastic oscillator contains two lines. The first line is the %K, which is essentially the raw measure used to formulate the idea of momentum behind the oscillator. The second line is the %D, which is simply a moving average of the %K. The %D line is considered to be the more important of the two lines as it is seen to produce better signals.