Technical Analysis – A Layman Example

The Ultimate aim for being in Share Market is to earn Money, this happens by buying low and selling high or vice versa. The basic tools used for buying decision are

  1. Fundamental analysis
  2. Technical Analysis.

Whoever he may be whether he is from Institutions or Retail, the decision has to be taken only from one of the above or both.

Fundamental Analysis:
In Fundamental, buy/sell decision is being taken by analyzing companies’ growth, Expansion plans, Macro (Country and industries) and other Micro data (Company specific data such as Sales growth, Debt, Competition etc.) Some of the famous Sub tools used for Fundamental analysis are ROCE, P/E , EPS growth, PEG Ratio, Debt equity ratio etc.

Technical analysis:
Below table contains the marks of  a student in 5 tests.

Test NoMarks
135
240
350
465
5?

What would be the Mark in Test 5?
The mark would be more than 65, because in every subsequent test the student gets better and get more marks than the previous one. Analyzing more detail we come to know that his marks increases in a sequence like 5, 10, 15, so his mark in Test 5 may get around 85(i.e. 65 +20).

This is only Probability, he may become sick in Test 5 and the mark would even become zero right?Technical analysis works in the same way as above. Predicting Future price with Past Price.

The above Table has only few variables, what would happen if you have some 50 variables, you can still calculate but it takes time, what Happens for 1000 variables? That’s where we need Charts using Technology.

We are using Charts for Technical analysis because “A picture is worth a thousand words” so that we can easily understand what charts are really telling about the Market/Stock Charts includes all data and provide visual display of the entire value, by just seeing a chart one can find the movement of the price at a glance. And you can draw Trend lines, FIBO lines and many more to predict prices.

Why Use third party Charting software like AmiBroker/Ninja Trader/MT4 etc?

Traditional Trading Terminals provided by most of the Brokers are having basic Intraday/Historical Chart (Except Pi and other few who are providing Chart with advanced features).With basic Chart you can’t do much technical analysis.

If you want to find daily moving average price for past ten days, you need to add 10 days of price and divide by 10 instead in AmiBroker you can easily calculate the Moving average and plot it on the chart in a single line vector programming

MA_10D = MA(C,10);

It also has a lot of other inbuilt functions of the Charting software; it enables you to create your own Functions/Indicators.

What is a Strategy and how it works?

While observing a chart for a long time, you found that whenever the price crosses the previous hours High, It moves further high. Now you got a simple strategy .i.e. buy when the price moves above Previous Hour High. A Strategy is nothing but a set of defined rules for taking a Trading Decision.

How to implement the Strategy?

It’s nearly impossible to write down the price in a note book and find out the High price of the previous Hour and watch the current price to cross above the previous high and then place buy order. So here comes the use of Charting software.

AmiBroker as an example
Just the following two lines of the code will do the needful

PrvH = timeframegetprice(“H”,inHourly,-1);
Buy = cross(C,PrvH);

When you apply the above code on a livestock chart, whenever the current market price crosses above previous high, it’ll give signal in chart. Now you got a Buy Signal from the Chart Based on Your own Strategy.

What Next, Place a buy Order from the Terminal?

Switch to Your Trading Platform
Press F1 to Open BUY Order Window
Fill the Exchange, Trade Symbol, Quantity and Other Details
Press Submit Button.

By this time the price of the Stock might have moved higher. If every time, this happens then you may not be able to place order for every signal. What‘ll happen if I get signal on many symbols at a time? Open Buy Order window and Selecting Symbol and input price and Qty and press Ok and repeating the above for all symbols.

Suddenly you’ll feel bored/irritated and you may end with entering wrong details in Buy order window. Here comes the use API’s say for example PiBridge. It’s nothing but a line/link between the AmiBroker and Pi terminal. Pi-bridge enables the AmiBroker to talk to the Pi terminal in the form of code.

By just adding the following line of code to your AFL

PrvH = timeframegetprice(“H”,inHourly,-1);
Buy = cross(C,PrvH);
Buyprice = valuewhen(Buy,C);
brd = CreateStaticObject(“Pi.Bridge”);
brd.PlaceOrder ("NSE", "BHEL-EQ" ,"BHEL","MYSTRTEGY", 1 ,100,0, BuyPrice, 0, "L", "MIS", "AB1234","DAY");

Now what happens, when a signal is generated on AmiBroker chart say for Example BHEL, it places the Buy order for BHEL with 100 quantity and current market price as limit price in Pi. Your precious time has been saved. Thanks to the Pi Bridge.

You never gets Bored or Irritated when placing order In Pi with Pi Bridge. Now you Might have got rough Idea on Technical analysis, Charting Software and API (Pi Bridge).

Advantages of using charting software!

  1. Your Trading Ideas/Visualization/strategy can be converted into code and applied for practical use
  2. You can apply your Strategy to many symbols at a time
  3. You can use any inbuilt indicators on your strategy
  4. Orders can be placed automatically to Pi whenever signal is generated in AmiBroker Chart
  5. You can monitor as many symbols as you want.
  6. Back testing your strategy.

 Back testing, what is it?

I’m using the above Strategy as an example. You got your Strategy. But not sure about its profitability over the long term, to confirm it you are applying your Strategy to the historical data. If it gives better result .you can take your Strategy to live. If not try another set of rules or fine tune the current Strategy.

To Use AmiBroker or any Other Charting Software!

  1. AmiBroker or Other charting software Trial or paid versions
  2. You need to subscribe for data from Authorized data vendors
  3. AmiBroker can be feed with data by many ways .you can find One that suites you.
ChokS

ChokS

.Net Programmer. AFL Coder. Author of KiteDotNet & KiteXL.

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