Part 6: Fundamentals VS Technical Analysis

This is the 6th and last part of Fundamentals vs Technical Analysis.

What is Ticker-tape reading?

You seen this in old movies. Until the mid-1960s, "tape reading" was a popular form of technical analysis. It consisted of reading market information such as price, volume, order size, and so on from a paper strip which ran through a machine called a stock ticker. Market data was sent to brokerage houses and to the homes and offices of the most active speculators. This system fell into disuse with the advent of electronic information panels in the late 60's, and later computers, which allow for the easy preparation of charts.

Quotation board

This is something else that you seen in Black and White Movies. Another form of technical analysis used so far was via interpretation of stock market data contained in quotation boards, that in the times before electronic screens, were huge chalkboards located in the stock exchanges, with data of the main financial assets listed on exchanges for analysis of their movements. It was manually updated with chalk, with the updates regarding some of these data being transmitted to environments outside of exchanges (such as brokerage houses,bucket shops, etc.) via the aforementioned tape, telegraph, telephone and later telex.

This analysis tool was used both, on the spot, mainly by market professionals for day trading and scalping, as well as by general public through the printed versions in newspapers showing the data of the negotiations of the previous day, for swing and position trades.

Despite to continue appearing in print in newspapers, as well as computerized versions in some websites, analysis via quotation board is another form of technical analysis that has fallen into disuse by the majority.

You should learn charting terms and indicators

Concepts

• Average true range – averaged daily trading range, adjusted for price gaps.
• Breakout – the concept whereby prices forcefully penetrate an area of prior support or resistance, usually, but not always, accompanied by an increase in volume.
• Chart pattern – distinctive pattern created by the movement of security prices on a chart
• Cycles – time targets for potential change in price action (price only moves up, down, or sideways)
• Dead cat bounce – the phenomenon whereby a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement
• Elliott wave principle and the golden ratio to calculate successive price movements and retracements
• Fibonacci ratios – used as a guide to determine support and resistance
• Momentum – the rate of price change
• Point and figure analysis – A priced-based analytical approach employing numerical filters which may incorporate time references, though ignores time entirely in its construction
• Resistance – a price level that may prompt a net increase of selling activity
• Support – a price level that may prompt a net increase of buying activity
• Trending – the phenomenon by which price movement tends to persist in one direction for an extended period of time

Learn types of charts

• Candlestick chart – Of Japanese origin and similar to OHLC, candlesticks widen and fill the interval between the open and close prices to emphasize the open/close relationship. In the West, often black or red candle bodies represent a close lower than the open, while white, green or blue candles represent a close higher than the open price.
• Line chart – Connects the closing price values with line segments.
• Open-high-low-close chart – OHLC charts, also known as bar charts, plot the span between the high and low prices of a trading period as a vertical line segment at the trading time, and the open and close prices with horizontal tick marks on the range line, usually a tick to the left for the open price and a tick to the right for the closing price.
• Point and figure chart – a chart type employing numerical filters with only passing references to time, and which ignores time entirely in its construction.

Learn Overlays

Overlays are generally superimposed over the main price chart.

• Bollinger bands – a range of price volatility
• Channel – a pair of parallel trend lines
• Ichimoku kinko hyo – a moving average-based system that factors in time and the average point between a candle's high and low
• Moving average – an average over a window of time before and after a given time point that is repeated at each time point in the given chart. A moving average can be thought of as a kind of dynamic trend-line.
• Parabolic SAR – Wilder's trailing stop based on prices tending to stay within a parabolic curve during a strong trend
• Pivot point – derived by calculating the numerical average of a particular currency's or stock's high, low and closing prices
• Resistance – a price level that may act as a ceiling above price
• Support – a price level that may act as a floor below price
• Trend line – a sloping line described by at least two peaks or two troughs
• Zig Zag – This chart overlay that shows filtered price movements that are greater than a given percentage.

Breadth indicators

These indicators are based on statistics derived from the broad market

• Advance–decline line – a popular indicator of market breadth
• McClellan Oscillator - a popular closed-form indicator of breadth
• McClellan Summation Index - a popular open-form indicator of breadth

Price-based indicators

These indicators are generally shown below or above the main price chart.

• %C – denotes current markets environment as range expansion or a range contraction, it also forecast when extremes in trend or choppiness are being reached, so the trader can expect change.
• Average directional index – a widely used indicator of trend strength
• Commodity Channel Index – identifies cyclical trends
• MACD – moving average convergence/divergence
• Momentum – the rate of price change
• Relative strength index (RSI) – oscillator showing price strength
• Relative Vigor Index (RVI) – oscillator measures the conviction of a recent price action and the likelihood that it will continue
• Stochastic oscillator – close position within recent trading range
• Trix – an oscillator showing the slope of a triple-smoothed exponential moving average

Volume-based indicators

• Accumulation/distribution index – based on the close within the day's range
• Money Flow – the amount of stock traded on days the price went up
• On-balance volume – the momentum of buying and selling stocks

Warning;

You can learn this stuff and still loose money in the market.