The Whole purpose of this lecture is to explain the role of technical analysis in trading , its effectiveness and its limitation. Most of the concepts in here are well researched and I only point at them and will not expand as one does not really have to know loads of abstract stuff to beat the market. You do not have to be a rocket scientist to understand the market. Technical analysis is a new subject to our community and we are all learning from each other. Please do not feel I am an expert at this field because I am not. I doubt if there is any expert at all when it comes to mass behaviour..
..
Those of you who wish a copy of this lecture please send me an email [email protected].
This is our agenda for this lecture.
1) What is technical analysis?
2) Market Theory
3) Ways of analysing the market
4) Technical indicators and their roles
5) Market modes (trending , trading or combination)
6) Multi time frame analysis
7) How to trade DOW
8) How to trade US stocks
9) How to short term trade ( buy now sell 5 to 10 days after)
10) Coffee break and questions from iraj
11) Confirmation principle ( Mike’s lecture)
12) Questions and answers for Mike
13) Reward/risk
14) NEWS and SPIKES
15) Tips
16) Only fools and horses (How the market cleverly out perform most traders)
Unfortunately I have to go to Scotland shortly after the lecture and I can not stay with you all.. I try to answer all your questions as much as I can..Also all EXCEL Macro and the set ups for IRD to trade the DOW as well as the lecture note will be posted on Monday
1) What is technical analysis :-
Technical analysis is the study of supply and demand in the market (Stock market, fruit market, meat market, any market where prices are MARKED by dealers).
When we technically analyse the market we try to make sure we buy cheap to sell more. All in all we technically analyse the market not to be conned by other participant and the market makers…
2) Market theory
1) Efficient market theory and its extension Random theory
Market is claimed to be efficient or random. Let me explain this. Have you ever noticed how the balls in national lottery on Saturdays move up down left right in various direction . This is an example of random movement. No predictable direction what so ever. Those who believe in random market believe prices move randomly and no one can predict the future price movements unless he has a crystal ball. Since one does not have the crystal ball any profit made from the market is pure accident. The supporters of this theory do not believe in TA or FA and argue with this simple example . Get your self a piece of paper and a coin and toss it up. Every time you get a head draw a cross above the previous point and tail below the previous. keep tossing up until you get your self a beautiful chart. Once you have that chart, you can easily find many different TECHNICAL PATTERNS such as head and shoulder, ascending triangles and loads more. According to their supporters all FA and TA fund managers are wasting their client’s time as the market is nothing but a toss up and since you have to pay commission to play the game the odds are against you and you ALL lose. No matter what. They call this as efficient market or a big Giant Casino as Nick Leeson (Rouge trader ) puts it.
2) Chaotic Market.
Ok market is hard to beat but not impossible . This is what supporters of the chaotic theory believe. They reckon the market moves in chaotic but predictable manner.
For example , get your self a balloon and throw it in the air. One thing is for sure, the balloon moves in a very complicated manner but we at least know the balloon moves in the direction of throw initially. Hey ,,, the guy has a point in here….. Technicians fall into this group. We might not be able to predict what happens to the balloon 2 minutes after the throw but surely the first few seconds we know where the balloon is heading..
I like to give you a final example:- Get your self a bag and throw 3 red 3 white balls in it, draw one ball out, What are the chances of having a red ball ? Of course 50/50. Put the ball back into the bag, what are the chances of drawing another red….. correct 50/50 again as we have put the first ball back in to the bag.
(We call this independent event and is an statistical concept)
Now, do as above but this time do not put the red ball back into the bag, what are the chances of next red YEP correct 2/6 LESS THAN 50%…
When market gets oversold it is very similar to not putting the red ball back into the bag and the odds of a reversal increases Therefore there is a correlation between prices movement . Hence the market is not a TOSS UP. . THIS IS WHY IRAJ IS A TECHNICIAN.
Enough said on this subject lets move on
WAYS OF ANALYSING THE MARKET
Few ways of analysing that. By analysis , I mean making sure the demand still exist to sell a long position or vice versa and hence make a profit. After all this is why we are all in the market….
A) PATTERN :- Pattern analysis Those who use patterns they look into shapes, patterns and deduct a certain conclusion to help them to buy cheap sell expensive In previous lecture my colleague sb (his nick name) talked about Patterns. I will not expand on his work .
B) INDICATORS . TA indicators fall into this category. Users of this methodology use HIGH LOW OPEN CLOSE .
C) NEURAL NETWORK leave that out. Totally different story… This is what I understand best but since we have little back ground I leave it at that. Those interested parties email me for a One2One talk, if interested.
D) There are other ways of trading the market.. You can use 50/50 toss up , ask the chartroom participants or phone a friend… This way you never become a millionaire
NO MATTER WHAT METHODOLGY WE USE THE WHOLE IDEA REVOLVES AROUND ONE SIMPLE CONCEPT. HOW TO SPOT THE BARAGINS.
MARKET MODE
It is often said market can behave in any of the these three modes.. Oscillation .. Trending or both
What I am going to tell you now is that we do not have TRENDING MARKET… Market always oscillates between over bought and over sold limits except that in the trending case these limits are short lived.. O well Is that important at all? YES it is … for many reasons
1) we do not need to include trend following indicators into our decision making process… So less information overload while trading
2) Most of trend following indicators do not tell us any thing special than a simple trend line would not .. For example a Moving average cross over system would tell you market is trending up if , say 3 days MA crosses above say 10 days… Change these parameters and market does not trend and so on.. Some use 200 MA others 100 MA some 50MA depending on their vision of the market.. Some one said to me well iraj these parameters come from the stock’s personality and the cycle amplitude of the market in general and I said yeh right….
As far as my research goes Market always oscillates… up down up down up down and so on… call it higher lows established or what ever pleases you
I am going to give you a link in a minute for you to see what I mean. Notice the strong up trend in the 1 minute chart ( bottom right in the chart), while CCI was oscillating between over bought and over sold limits. Please click on
http://www.investorevolution.com/wwwthreads/bbfiles/21-74940-Image1.gif
Ok I am going to tell you how to call the market and get MOST your trades right in any market, But I need to explain the Multi time frame analysis
MULTI TIME FRAME ANALYSIS
Multi time frame analysis very robust and solid concept in technical analysis.. The theory says instead of having confirmation of MANY TA INDICATORS in ONE SINGLE TIME FRAME, use SINGLE INDICATOR IN DIFFERENT TIME FRAMES.. In another word change the
Following strategy ( example only)
BUY IF
RSI (1 minute bar) < 30 and
Money flow Positive and
CCI < 100
Into
BUY IF
RSI (I minute bar ) and RSI ( 10 minute bar) and RSI ( daily ) and RSI (weekly ) ALL < 30.
The last strategy is by far more powerful for trading /investing than the first strategy. Martin Ping an excellent TA researcher has expressed the importance of this issue many times in stocks & commodities magazine..
Now this is what you have to learn for the rest of your lives for correct trading.
If you want to take a position (say long) make sure you have loads and loads of back up in longer time frames. Lets say you are a day trader and only interested in a scalp… then have a 5 minute back up ( make sure the stock is oversold in 5 minute ) and then take a position when the 1 minute is oversold too.
continued..................
..
Those of you who wish a copy of this lecture please send me an email [email protected].
This is our agenda for this lecture.
1) What is technical analysis?
2) Market Theory
3) Ways of analysing the market
4) Technical indicators and their roles
5) Market modes (trending , trading or combination)
6) Multi time frame analysis
7) How to trade DOW
8) How to trade US stocks
9) How to short term trade ( buy now sell 5 to 10 days after)
10) Coffee break and questions from iraj
11) Confirmation principle ( Mike’s lecture)
12) Questions and answers for Mike
13) Reward/risk
14) NEWS and SPIKES
15) Tips
16) Only fools and horses (How the market cleverly out perform most traders)
Unfortunately I have to go to Scotland shortly after the lecture and I can not stay with you all.. I try to answer all your questions as much as I can..Also all EXCEL Macro and the set ups for IRD to trade the DOW as well as the lecture note will be posted on Monday
1) What is technical analysis :-
Technical analysis is the study of supply and demand in the market (Stock market, fruit market, meat market, any market where prices are MARKED by dealers).
When we technically analyse the market we try to make sure we buy cheap to sell more. All in all we technically analyse the market not to be conned by other participant and the market makers…
2) Market theory
1) Efficient market theory and its extension Random theory
Market is claimed to be efficient or random. Let me explain this. Have you ever noticed how the balls in national lottery on Saturdays move up down left right in various direction . This is an example of random movement. No predictable direction what so ever. Those who believe in random market believe prices move randomly and no one can predict the future price movements unless he has a crystal ball. Since one does not have the crystal ball any profit made from the market is pure accident. The supporters of this theory do not believe in TA or FA and argue with this simple example . Get your self a piece of paper and a coin and toss it up. Every time you get a head draw a cross above the previous point and tail below the previous. keep tossing up until you get your self a beautiful chart. Once you have that chart, you can easily find many different TECHNICAL PATTERNS such as head and shoulder, ascending triangles and loads more. According to their supporters all FA and TA fund managers are wasting their client’s time as the market is nothing but a toss up and since you have to pay commission to play the game the odds are against you and you ALL lose. No matter what. They call this as efficient market or a big Giant Casino as Nick Leeson (Rouge trader ) puts it.
2) Chaotic Market.
Ok market is hard to beat but not impossible . This is what supporters of the chaotic theory believe. They reckon the market moves in chaotic but predictable manner.
For example , get your self a balloon and throw it in the air. One thing is for sure, the balloon moves in a very complicated manner but we at least know the balloon moves in the direction of throw initially. Hey ,,, the guy has a point in here….. Technicians fall into this group. We might not be able to predict what happens to the balloon 2 minutes after the throw but surely the first few seconds we know where the balloon is heading..
I like to give you a final example:- Get your self a bag and throw 3 red 3 white balls in it, draw one ball out, What are the chances of having a red ball ? Of course 50/50. Put the ball back into the bag, what are the chances of drawing another red….. correct 50/50 again as we have put the first ball back in to the bag.
(We call this independent event and is an statistical concept)
Now, do as above but this time do not put the red ball back into the bag, what are the chances of next red YEP correct 2/6 LESS THAN 50%…
When market gets oversold it is very similar to not putting the red ball back into the bag and the odds of a reversal increases Therefore there is a correlation between prices movement . Hence the market is not a TOSS UP. . THIS IS WHY IRAJ IS A TECHNICIAN.
Enough said on this subject lets move on
WAYS OF ANALYSING THE MARKET
Few ways of analysing that. By analysis , I mean making sure the demand still exist to sell a long position or vice versa and hence make a profit. After all this is why we are all in the market….
A) PATTERN :- Pattern analysis Those who use patterns they look into shapes, patterns and deduct a certain conclusion to help them to buy cheap sell expensive In previous lecture my colleague sb (his nick name) talked about Patterns. I will not expand on his work .
B) INDICATORS . TA indicators fall into this category. Users of this methodology use HIGH LOW OPEN CLOSE .
C) NEURAL NETWORK leave that out. Totally different story… This is what I understand best but since we have little back ground I leave it at that. Those interested parties email me for a One2One talk, if interested.
D) There are other ways of trading the market.. You can use 50/50 toss up , ask the chartroom participants or phone a friend… This way you never become a millionaire
NO MATTER WHAT METHODOLGY WE USE THE WHOLE IDEA REVOLVES AROUND ONE SIMPLE CONCEPT. HOW TO SPOT THE BARAGINS.
MARKET MODE
It is often said market can behave in any of the these three modes.. Oscillation .. Trending or both
What I am going to tell you now is that we do not have TRENDING MARKET… Market always oscillates between over bought and over sold limits except that in the trending case these limits are short lived.. O well Is that important at all? YES it is … for many reasons
1) we do not need to include trend following indicators into our decision making process… So less information overload while trading
2) Most of trend following indicators do not tell us any thing special than a simple trend line would not .. For example a Moving average cross over system would tell you market is trending up if , say 3 days MA crosses above say 10 days… Change these parameters and market does not trend and so on.. Some use 200 MA others 100 MA some 50MA depending on their vision of the market.. Some one said to me well iraj these parameters come from the stock’s personality and the cycle amplitude of the market in general and I said yeh right….
As far as my research goes Market always oscillates… up down up down up down and so on… call it higher lows established or what ever pleases you
I am going to give you a link in a minute for you to see what I mean. Notice the strong up trend in the 1 minute chart ( bottom right in the chart), while CCI was oscillating between over bought and over sold limits. Please click on
http://www.investorevolution.com/wwwthreads/bbfiles/21-74940-Image1.gif
Ok I am going to tell you how to call the market and get MOST your trades right in any market, But I need to explain the Multi time frame analysis
MULTI TIME FRAME ANALYSIS
Multi time frame analysis very robust and solid concept in technical analysis.. The theory says instead of having confirmation of MANY TA INDICATORS in ONE SINGLE TIME FRAME, use SINGLE INDICATOR IN DIFFERENT TIME FRAMES.. In another word change the
Following strategy ( example only)
BUY IF
RSI (1 minute bar) < 30 and
Money flow Positive and
CCI < 100
Into
BUY IF
RSI (I minute bar ) and RSI ( 10 minute bar) and RSI ( daily ) and RSI (weekly ) ALL < 30.
The last strategy is by far more powerful for trading /investing than the first strategy. Martin Ping an excellent TA researcher has expressed the importance of this issue many times in stocks & commodities magazine..
Now this is what you have to learn for the rest of your lives for correct trading.
If you want to take a position (say long) make sure you have loads and loads of back up in longer time frames. Lets say you are a day trader and only interested in a scalp… then have a 5 minute back up ( make sure the stock is oversold in 5 minute ) and then take a position when the 1 minute is oversold too.
continued..................
