Basic Technical Analysis From The Butcher

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    Be aware, any thing you learn here is only for its education value and does not in any way shape or form represent financial advice. If you make decisions based on the information you find from anything on Hot Copper you're an idiot. Always make your own decisions, and if you are unsure consult a financial advisor, of which I am not. If you think I have told you to make a decision, you are wrong, and you are stupid. I only communicate my thoughts and opinions on this platform and these can change faster than you can decide whether you're hungry or not. If you lose money, be an adult about it and suck it up. it means you were wrong and you made a mistake and you should stop crying about it, be an adult about it, and learn from your mistake.

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    A friend of mine has asked that I tell him a thing or two about charting. By the way Steve, you owe me a carton of beer for this! Time is money damn it!

    Now for the rest of you, being the living embodiment of Mother Theresa that I am I decided that I would put it up on HotCopper so we can all bask in the glory that is my wonderful caring heart. Steve on the other hand isn't so lucky.
    Now you either believe that charting works or it doesn't. But even if you learn it at the most basic levels you can learn to time your exits and entry's better, making you just that little bit more profitable.

    When you are starting trading I believe there are a few basic crowd concepts that you should know.
    1. People are collectively fearful, and greedy people who don't even realise they do the same things over and over again
    2. There are a few people that lead the market, and many that follow it.
    3. We are here to make money, not to pick tops and bottoms. As the saying goes, cut your losses and let your winners ride. If you put on a trade and it starts going the wrong way, get rid of it. Its better to miss a move because you interpreted a signal wrong and lose a little money rather than lose all your money. The game is a long one, so you'll always get another chance to have another win.

    Keep in mind whenever you are charting you are looking at the fears, hopes and dreams of a collective mass of people. And the balance of intelligence of the players is not even distributed. Its not fair, but life's not fair.

    So lets start with my basic set up.

    Every chart guy has a basic set up which we put overlays and lines over. I'll do that tomorrow maybe. Today I'll just explain whats going on here.

    The Price Action is the little green and red blocks on the charts, called candles. The way they work is that a Red candle was a close below the opening price, and a Green candles was a close above the opening price. The tops and the bottoms of the coloured area represents these values. There are often tails that extend above and below the coloured blocks. These are the periods high and low price value.

    MAs or moving averages. Depending on the number they use, they tally up all the preceding periods, average it and then draw a line based on what that value would be. So a 200MA would be a 200 day moving average in this chart be cause it uses 200 days to make the line.

    The bollinger bands are set as standard to a 20 period moving average, and from that two lines are drawn above the 20 period moving average, two standard deviations in either direction. When doing statistical analysis, most statistics fall about 1 standard deviation average from the average. Outliers are outside of 2 standard deviations away. So that means almost all of the Price Action is contained somewhere within the two lines. If it is outside the Bollinger band range it will return sooner rather than later.


    The fat blue lines I have drawn in are resistance and support lines. These represent a magical number that for some reason, once the price action reaches it people stop wither buying or selling and create a zone that the price action has trouble crossing in the future. As you can see. These lines are set by peaks and zones that the price action has bunched around. I like to call the latter congestion zones. A crossing of a Support or Resistance level can be a very strong signal that the price is heading in a particular direction. Support means it stops the price going down, resistance means it stops it going up.

    Trend lines are also set by using peaks, valleys and congestion zones. However the sort of predict the direction that the price is going to head to in the future. They also work like support and resistance lines in that they form these psychological lines that the price has trouble crossing later on. When they do it can be a strong signal that the price is headed in a particular direction.

    Here are a list of basic buy and sell signals. See if you can spot some of them on the charts I put up.

    - Moving Average Crosses.
    When a fast moving average crosses a slow moving average it is used like a momentum indication to say that the price is headed in a particular direction. Eg, if the 20MA cross from the lower side to the upper side of either the 50MA or the 200MA it is a signal of the price going up for an extended period. If it is to cross down from the upper to the lower side, it is a signal to sell. There is a very good example of this on the chart.

    - Support/Resistance Price Action Cross
    If the price action is to cross a line of support or resistance, this is a signal that it is headed in that direction.

    - Bollinger Outliers
    As I mentioned, any price action that happens outside the bollinger bands can be used as an indication that the price has moved too far and too quickly in a given direction and that it may return to the inside of the bollinger band. You can use these as opportunities to buy and sell, they tend to work well for shares that are making fast price moves and sometimes you can actually pick a peak with them. Other times, the price just accelerates.

    A tip for any buy or sell signal, the more signals you get, the stronger the indication is for you to buy or sell. Sometimes a signal on its own can mean nothing. Other times it is the only signal you will get. Charting's not easy, but if it were everyone would be doing it. Your aim if you're just beginning to learn it should be to better time your entries and exits, and to sell before things get really rough.

    Again, see if you can spot some of these signals on the charts and see how they would have played out if you were to trade them.

    If you have any thoughts or anything you would like me to add in my next post please let me know by using the @madbutcher thing to bring it to my attention.

    P.S. Steve, you owe me a carton.
    Last edited by madbutcher: 03/05/18
 
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