S2_Fundamental of Technical Analysis and Algorithmic Trading

8/13/2019 S2_Fundamental of Technical Analysis and Algorithmic Trading

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Saeed Ebrahimijam

Spring 2013

Faculty of Business and EconomicsDepartment of Banking and Financeu kdeniz niversitesi

FINA4 7


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Types of charts- Line charts

- Bar charts

- Japanese Candlestick charting Arithmetic Versus Logarithmic Scale

Volume

Fundamental of Technical Analysisand Algorithmic Trading 2


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Charts say us what the stock is really doing inthe market.

Whether it is good time to enter the market?

Charts are faster!!



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S

tockPrice

Time


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Each bar is composed of 4 elements: Open: the price of the stock when it opens in the beginning of

the specific trading period. High : the highest price of the stock in the specific trading period. Low : the lowest price of the stock in the specific trading period. Close: the price of the stock, at the end ofthe specific trading

period.



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One Candle stick for each period of time.1 min, 15 min, 1Hour, daily, weekly, monthly

Doji star



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1- too much Bearish

2- too much Bullish

3- Bearish

4- Bearish

5- Bullish

6- Bullish

7- Neutral


8- Neutral9-Bullish in the downtrend, Bearish in the uptrend10-Bullish in the downtrend, Bearish in the uptrend11- A turning period

12- A turning period13- End of downtrend14- A turning period15- (possible) turning period


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- Hammer- Bullish engulfing pattern

- Tweezer bottom

- Piercing line- Morning star

- Bullish doji star

- Bullish harami

- Bullish harami cross- Bullish meeting lines



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- Window- Upside tasuki gap

- Rising three methods

- Falling three methods- Side-by-side white lines



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In a period of time the prices fall down, but atthe end of the period prices rises rapidly andclose price is near the open price.

The length of down shadow should at leastequal to double of candle body.



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The size of the black candlestick isnt that important. Thesecond candlestick, however, should be a long whitecandlestick which should totally engulf the body of the firstblack candlestick.

The wider the price range on the up day, and the heavier the

trading volume, the more bullish it becomes.


The upside reversal day takes placewhen a market opens lower and closes

higher the day after a market decline.


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develops over three periods.- In the first period, pricesclose lower than they werewhen they opened, resulting ina black main body.- In the second period, pricesopen lower creating a downsidegap and close higher aftertrading in a relatively narrowrange (a small main body).- In the third period, pricescontinue to move higher and

close above the midpoint of thefirst periodsblack main body.



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Note:


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They are reversal patternsthatcan be recognized through thesethree characteristics:

- The first stick is a bullish candle,which is part of a recent uptrend.

- The second candle has a small body,indicating that there could be someindecision in the market. This candlecan be either bullish or bearish.

- The third candle acts as aconfirmation that a reversal is inplace, as the candle closes beyondthe midpoint of the first candle.


Note:


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On an arithmetic scale, an equal distance for each price unit ofchange is shown on the vertical scale. Thus the distance between10 and 20 on the vertical scale equals the distance between 20and 30, 30 and 40, and so on. On a logarithmic scale, thedistance between each price unit of change represents an equalpercentage of change. For example, the difference between 10and 20 and 40 and 80 is the same because each represents a100 percent increase.


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The trade volume is commonly mentioned atthe bottom of the charts according to theperiod of required period of time.

Increase and decrease in the volume will takeinto consideration in predicting and analysisof price volatility.

In a healthy uptrend, volume bars are

generally larger when prices are rising andsmaller when prices are falling. In otherwords, volume is confirming the price trend.



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heavier volume should be evident in thedirection of the existing trend.



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Itsgenerally a good sign when a price rise is confirmed by rising volume aswas the case with Barrick Gold at the start of 2008. Heavy downside volumeduring March 2008, however, warned of a downside correction.


Source: StockCharts.com

S2_Fundamental of Technical Analysis and Algorithmic Trading

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