Technical Analysis - Charting

How do you decide which stock you should buy?

What price should you buy in? What price should you sell to take profit?

These are questions that many investors or traders ask themselves everyday. While many might be still scratching their heads, there are established methodologies in existing literatures that provide answers to their questions.

One might choose to use fundamental analysis (FA) – a technique that attempts to determine a security’s value by focusing on underlying factors that affect a company's actual business and its future prospects (extracted from http://www.investopedia.com.)

Others might want to use technical analysis (TA) - a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume (extracted from http://www.investopedia.com.)

Or you can use both fundamental analysis and technical analysis to complement each other as they worked hand-in-hand very well.

So, how do I use technical analysis?

Investors do not need to learn complicated concepts in technical analysis in order for them to use it in their investments. Most importantly, investors must learn correct TA concepts. Some of the very important concepts are price and volume, trendlines, support, resistances and chart patterns.

Armed with these critical yet basic concepts of TA, one can perform analysis on the stocks they would want to buy or sell.

Today, we are going to illustrate the use of Chart Formation on making informed decision on a mainboard listed stock – Hi-P International Limited.

Hi-P International - Timeframe of Chart

Here, we use Hi-P weekly chart instead of the more commonly used daily chart to gauge the significance of the pattern.

Double Top Formation

A clear formation of double top was formed from August 2005 to April 2006. Volume was significantly lower in the second top and this provided us with strong clues that price was weak when Hi-P again challenged previous high of $1.80.

Confirmation is essential for chart pattern. Upon a confirmation of this double top (price closed below $1.30), prices plunged without taking a breath. It hit a low of $0.66 in less than 6 months – a 65% plunge from high of $1.87.

With the concept of chart formations, long term investors can use this strong pattern to cash out on their positions, while short term investors will get wary of making entry into the stock.

Applying chart formations to Hi-P at current price

Potential Double Bottom Formation

At the current price, from technical point of view, there is a suggestion of a double bottom – suggesting that Hi-P might be bottoming out.

Volume is lower at the second bottom and this is an important criterion in a double bottom.

Most importantly, a double bottom must be confirmed with certain price action. As seen from the chart, price would need to make its way above the blue zone. Why the blue zone (consisting of two lines) and not a single horizontal? This concept is taught extensively in the Paper and Pencil Series: Practicing Technical Analysis (For Novices). By knowing the concept of these two lines, investors and traders can use it to manage the volatility in the market, as well as manage their risk and reward.

Chief Trainer Ms Binni Ong said:” Not knowing how to draw these two lines will put one at a disadvantage in this stock market. Those interested to constantly reap competitive advantage especially in the Singapore and US stock markets must know how to draw these two lines.”

More about chart patterns

We just described the double top and double bottom pattern. There are also many other chart patterns like head and shoulder, cup & handle, triangle, flag and pennant. Successful traders use patterns such as these to deliver consistent performance. In a starter course for TA, there is no reason why such valuable knowledge cannot be made accessible to the public.

39th & 40th Intake of Paper And Pencil Series: Novices

TerraSeeds Market Technician Pte Ltd is running the 39th and 40th intake of its Paper And Pencil Series: Practicing Technical Analysis (For Novices). In this course, participants will be equipped with critical TA knowledge such as price & volume, support & resistance, trendlines and chart patterns. Participants will be practicing on the spot with the trainer and assistant trainers to reinforce what they have learnt. While explaining TA concepts, trainers will also draw references to current happenings in the market to enhance students’ learning experiences. Thus, TA need no longer be a tough and boring topic with Terraseeds. After the course, students are able to apply TA to their own stocks.

In this 8.5-hour course, you will be empowered with practical TA usages on Singapore Stocks. Upon graduation, you can join our practice class together with our previous batches to continue your TA education with newly selected charts ($10 per pax, per session).

For more information on PnP Novice, please visit http://www.terraseeds.com or contact Tiong Hum at 6492 3196 or email: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it