Basic Training Book

BASIC TRAINING OF TECHNICAL ANALYSIS
LECTURE BOOK
1|Page https://decisionmaker.com.bd/
Sessions Outline and Topic Covered
First day
Session - 1: Introduction and Understanding of Stock Market
 Stock market and stock exchanges
 Regulator – objectives and functions
 Related terms and words
 Instruments – share, bond and mutual fund
 Primary, secondary and OTC market
 Types of investors
 NAV, EPS, PE, dividend and dividend yield
 DSE company page information
Session - 2: Candlestick Charts – Part one

 Introduction to various types of charts
 History of candlestick chart and its benefits over others
 Formation of a standard candle with live example
 Descriptions of some single and double candlesticks charts
 Trade entry, exit and stand aside criteria
 Examples analysis and discussion
 Participants findings of different candlesticks on stock charts
Session - 3: Candlestick Charts – Part Two

 Descriptions of some multi candlesticks charts
 Trade entry, exit and stand aside criteria
 Examples analysis and discussion
 Participants findings of different candlesticks on stock charts
 Support and resistance with candlesticks
 Trade results mindset
Session - 4: Amibroker installation and use of Indicators and
Oscillators
 Advantages and disadvantages of Amibroker
 Installation and database formation
 Data feed
 Amibroker customizations
 Types of moving averages and their use
 Guppy Multiple Moving Averages
 Identification of trend
 Support and resistance detail analysis
Second day
Session - 5: Profitable use of Indicators and Oscillators including
Divergences
 What is RSI, MACD and their calculation
 Overbought and oversold zone and confirmation of reverse
 On balance volume and Accumulation and distribution line
 Bullish and bearish divergence identification
 Money flow index
 Ichimoku
 Other indicators and osccilators
 Entry and exit planning
Session - 6: Important Chart Patterns like Triangles, Head and

Shoulders etc
 Famous profitable chart patterns
 Their characteristics
 Identification
 Entry, exit and stand aside criteria
 Examples discussion
Session - 7: Elliot Wave Principle (EWP) and Stand aside Position
 Introduction, benefits and drawbacks of EWP
 Motive waves and corrective waves and combination
 Rules of EWP
 Major patterns
 Fibonacci ratios and wave proportionate
 Wave and pattern identification and discussion
Session - 8: Trading Psychology, Entry and Exit Strategies
 Bull and bear market
 Institution and smart money
 Behavioral finance and biases
 Market cycle – bear to bull to bubble to crash
 How to use stop loss
 DSE Mobile App usages
Session 1: Introduction and
Understanding of Stock Market
Basics of Capital Market Training Contents:
Capital Market: the part of a financial system concerned with raising capital by
dealing in shares, bonds, and other long-term investments.
Function of Capital Market:
 It acts in linking investors and savers
 Facilitates the movement of capital to be used more profitability and
productively to boost the national income
 Boosts economic growth
 Mobilization of savings to finance long term investment
 Facilitates trading of securities
 Minimization of transaction and information cost
 Encourages a massive range of ownership of productive assets
 Quick valuations of financial instruments
 Through derivative trading, it offers insurance against market or price threats
 Facilitates transaction settlement
 Improvement in the effectiveness of capital allocation
 Continuous availability of funds
Objective of Capital Market:
 Protection of investors
 Ensuring that the markets are fair, efficient and transparent.
 The reduction of systemic risk
Money Market: The money market refers to trading in very short-term debt
investments. At the wholesale level, it involves large-volume trades between
institutions and traders.
Stock Market: The stock market refers to the collection of markets and exchanges
where regular activities of buying, selling, and issuance of shares of publicly-held
companies take place.
Function:
 Providing liquidity or mobility of (Buying-selling) financial securities
 Pricing of securities
 Issue of securities
 Listing of securities
 Settlement etc.
Objective:
 Capital Formation
 Facilitating Trading
Primary Market: The primary market is where securities are created. It's in this
market that firms sell (float) new stocks and bonds to the public for the first time.
An initial public offering, or IPO, is an example of a primary market.
Secondary Market: The secondary market is where investors buy and sell securities
they already own. It is what most people typically think of as the "stock market,"
though stocks are also sold on the primary market when they are first issued.
Over the counter Market (OTC): Over-the-counter or off-exchange trading is
done directly between two parties, without the supervision of an exchange. It is
contrasted with exchange trading, which occurs via exchanges. A stock exchange
has the benefit of facilitating liquidity, providing transparency, and maintaining the
current market price.
Block Market: A block trade is a high-volume transaction in a security that is
privately negotiated and executed outside of the open market for that security.
Spot Market: The spot market or cash market is a public financial market in which
financial instruments or commodities are traded for immediate delivery.
Regulators and Related Parties of Stock Market:
 BSEC
 Exchange:
o Dhaka Stock Exchange (DSE)
o Chittagong Stock Exchange (CSE)
 CDBL
 Brokerage/Merchant Banks/Asset Management
Companies/Underwriters/Banks/Issuing Companies
Functions and Objectives of Regulators:
 Regulating the business of the Stock Exchanges or any other securities
market.
 Protection of investors
 Ensuring that the markets are fair, efficient and transparent.
 The reduction of systemic risk
 Prohibiting fraudulent and unfair trade of securities etc.
Instruments of Stock Market:
Stock (Equity): The capital raised by a company or corporation through the issue
and subscription of shares.
Bond: A bond is a fixed income instrument that represents a loan made by an
investor to a borrower (typically corporate or governmental).
Mutual Funds: A mutual fund is a company that pools money from many investors
and invests the money in securities such as stocks, bonds, and short-term debt. The
combined holdings of the mutual fund are known as its portfolio.
Types of Mutual Funds:
Close-end: A closed-end fund is a portfolio of pooled assets that raises a fixed
amount of capital through an initial public offering (IPO) and then lists shares for
trade on a stock exchange.
Open-end: An open-end mutual fund is a collection of investor money pooled
together to achieve a common investment objective. As the name implies, an open-
end mutual fund is open to new investors. Investors who want to purchase shares of
an open-end mutual fund would purchase it directly from the fund manager.
Earnings per Share (EPS): Earnings per share (EPS) is calculated as a company's
profit divided by the outstanding shares of its common stock.
Price to Earnings Ratio (P/E): The price to earnings ratio or P/E ratio is a method
of measuring a company’s value. The P/E ratio is calculated by dividing the
company’s market value per share by the earnings per share (EPS).
Dividend: a sum of money paid regularly (typically annually) by a company to its
shareholders out of its profits (or reserves).
Dividend Yield: The dividend yield is a financial ratio that shows how much a
company pays out in dividends each year relative to its stock price.
Some Additional Topics:
 Investors Vs. Traders
 Types of Investors
 Price Vs. Value
DSE company page information discussion
Session 2: Candlestick Chart - Part One
10 | P a g e https://decisionmaker.com.bd/
Introduction
Candlestick Chart (also called Japanese candlestick chart) was first created by a
Japanese rice trader named Homma Munehisa. In the 1700s, the charts gave Homma and
others an overview of open, high, low, and close market prices over a certain period. This
was introduced to the Western world by Steve Nison in his book, Japanese Candlestick
Charting Techniques. This style of charting is very popular because it is easy in reading
and understanding the graphs.
There are other types of charting like point and figure chart, line chart, bar chart etc. But
candlestick charting is very user friendly. There are three types of candles: bullish, bearish
and neutral.
A standard bullish and bearish candle formation (গঠন):
Neutral candle formation(popular name is Doji):
There is small/no real body in neutral candles. We will discuss five types of doji
candles later.
Hammer
The Hammer candlestick pattern, also known as bullish pin bar, is a bullish
reversal candlestick pattern that mainly finds at the bottom of downtrends. The
Hammer helps traders understand where support and demand are located. After a
downtrend, the hammer can signal to traders that the downtrend could be over and
it is time to find a buy setup.
It indicates a failed attempt to force price lower, followed by strong buying

action that ultimately determines the candlestick’s appearance.
Characteristics (বৈশিষ্ট্য) of Hammer:
a) Location the bottom of a long downtrend or strong support level
b) Long lower wick and lower wick at least double of real body
c) No or little upper shadow
d) Open, high and close are almost same level
e) Real body may be red or green, both are bullish but green is more bullish
Investment decision:
Confirmation is needed for buy decision (candle say morning star or trend-line
break, bullish divergence in RSI or MACD etc). Some aggressive traders buy seeing
a hammer with green real body.
Stop loss:
Example of Hammer:
Hanging Man
The Hanging Man candlestick pattern, also known as bearish pin bar,
is considered as a bearish reversal pattern. This pattern occurs mainly at the top of
an uptrend and can act as a warning of a potential reversal to downward. What
happens on the next day after the Hanging Man pattern is what gives traders an idea
as to whether or not prices will go higher or lower. It is important to emphasize that
the Hanging Man pattern is a warning of potential price change not a signal.
Characteristics (বৈশিষ্ট্য) of Hanging Man:

a) Location is top of an uptrend or strong resistance level
b) Gap up opening
c) Lower wick/shadow at least double of real body
d) No or little upper shadow
e) Open, high and close are almost same level
f) Real body may be red or green, both are bearish but red is more bearish
Confirmation needed for sell decision (candle say evening star or trend-line break,
bearish divergence in RSI or MACD etc)
Examples of Hanging Man Candle:
Facebook 2H Chart
Piercing Line
The Piercing Line Pattern is considered as a bullish candlestick reversal

pattern. Bears try to force price down but bulls come and push price up.
Characteristics (বৈশিষ্ট্য) of Piercing Line Pattern:
a) Find in downtrend or strong support area

b) Two candles pattern
c) First candle is long bearish
d) Next candle gap down but closes above the middle of previous bearish
candle
e) More volume than usual
Confirmation needed for buy decision (say next candle close above the previous
bearish candle or trend-line break, bullish divergence in RSI or MACD etc).
Stop loss:
Examples of Piercing line candle
Dark Cloud Cover
Dark Cloud Cover is a bearish candlestick reversal pattern. It is a two session
pattern. The pattern makes when a bearish candle on Day 2 closes below the middle
of Day 1’s bullish candle. The rejection of the gap up is a bearish sign itself, but the
retracement into the previous day’s gains adds even more bearish sentiment.
Characteristics (বৈশিষ্ট্য) of Dark Cloud Cover Pattern:

a) Find in uptrend or strong resistance area
b) Two candle formation
c) First day/session a bullish candle appears
d) Second day/session price gap up
e) Price closes at least 50% below of the previous bullish candle
Traders suggest not selling exactly when one sees the Dark Cloud Cover pattern until
other confirming signals are given such as a break of an upward trend-line or other
technical indicators.
Stop loss
Examples of Dark Cloud Cover:
Inverted Hammer and Shooting Star
The Inverted Hammer candlestick formation occurs mainly at the bottom of

downtrends and can act as a warning of a potential bullish reversal. It is created
when the open, low, and close are roughly the same price. Also, there is a long
upper shadow which should be at least twice the length of the real body. Real body
may be read of green but green works well.
The Shooting Star candlestick is a bearish reversal candlestick pattern that typically
occurs at the top of uptrend. It is created when the open, low, and close are roughly
the same price. Also, there is a long upper shadow; at least twice the length of the
real body. Real body may be green or red.
During training session, participants have to find inverted hammer and shooting
star on charts. They also have to summaries their characteristics and decision
rules.
Doji/Neutral Candlesticks:
The doji is candlestick formation, signifying equality or indecision between bulls

and bears. A doji is formed when the opening price and the closing price are equal
or close to equal that means a doji candle has no real body or very small. There are
Five Types of Doji:
Though doji is a neutral formation, please remember the followings:

** Dragonfly/butterfly doji works as hammer at the bottom of a
downtrend.
** Gravestone doji works as shooting star at the top of an uptrend.
** 4 price doji works as marubozu if it meet certain criteria.
Session 3: Candlestick Charts - Part Two
Morning Star
The Morning Star Pattern is a bullish reversal pattern, usually occurring at the
bottom of a downtrend. It is a three candlestick pattern.
Characteristics (বৈশিষ্ট্য) of Morning Star:

f) It is a three candles formation
g) Location at the bottom of a long downtrend or strong support level
h) First day candle is a long bearish candle
i) Second day price gap down and create a doji or small bullish or bearish
candle
j) Third day gap up and create a long bullish candle
k) High volume on third day
If bullish sentiment continues forth day, buyer may take position considering bullish
divergence in RSI or MACD or on balance volume.
Stop loss:
Evening Star
The Evening Star pattern is a bearish reversal pattern. It usually occurs at the top of
an uptrend. It is three candle patterns.
Characteristics (বৈশিষ্ট্য) of Evening Star:
g) Location is top of an uptrend or strong resistance level
h) First day candle is a long bullish candle
i) Second day price gap up and create a doji or small bullish or bearish candle
j) Third day gap down and create a long bearish candle
k) High volume on third day
If bearish sentiment continues forth day, one may consider to exit position taking
into account the bearish divergence in RSI or MACD.
Stop loss:
Examples of Evening star candlestick pattern:
Three White Soldiers
The Three White Soldiers pattern is a bullish reversal pattern and formed by three
bullish candles at downtrend. It either ends the downtrend or implies that the period
of consolidation that followed the downtrend is over.
Characteristics (বৈশিষ্ট্য) of Three White Soldiers:
f) Find in downtrend or strong support area

g) Three candles pattern
h) First candle is bullish
i) Next candle is more bullish candle and closes near the top with small or no
shadow
j) The last candlestick should be at least the same size as the second candle and
have a small or no shadow.
If bullish sentiment continues subsequent days, buyer may take position considering
bullish divergence in RSI or MACD or on balance volume.
Stop loss:
Three Black Crows

The Three black crows is a bearish reversal pattern and formed by three bearish
candles at top of uptrend. It implies that the period of the uptrend is over.
Characteristics (বৈশিষ্ট্য) of Three Black Crows:

f) Find in uptrend or strong resistance area
g) Three candle formation
h) First candle is bearish
i) Next candle is more bearish candle and closes near the low with small or no
shadow
j) The last candle is also bearish and should be at least the same size as the
second candle and have a small or no shadow.
If bearish sentiment continues subsequent days, one may consider exiting position
taking into account the bearish divergence in RSI or MACD.
Stop loss:
Examples of Three Black Crows:
Marubozu Candlestick Pattern:

Marubozu in Japanese means “bald head” or “shaved head” as this candlestick
formation has no wicks or shadow (but may have small). It also means dominance.
There are two types of marubozu: bullish and bearish.
A Bullish marubozu is a long green/white body candle with no or small wick. If
forms when the high and close price are almost same. It can be found anywhere in
price chart. It indicated a bullish continuation or reversal.
A Bearish marubozu is a long red/black body candle with no or small wick. If forms
when the low and close price are almost same. It can be found anywhere in price
chart. It indicated a bearish continuation or reversal.
Participants have to find bullish and bearish marubozu candlesticks on charts in
the class. They also have to summaries their characteristics and decision rules.
Bullish Engulfing Pattern

A Bullish Engulfing Candlestick Pattern is formed when a bearish candle of
previous day totally engulfed by a long bullish candle. It is a bullish reversal
pattern, usually occurring at the bottom of a downtrend. It can also found during
continuation of an uptrend.
Characteristics (বৈশিষ্ট্য) of Bullish Engulfing Pattern:

a) Find in downtrend or during uptrend continuation
b) Two candles formation but more than two is possible
c) First candle is bearish
d) Next candle is long bullish and totally engulfs first candle
If it is found in strong support zone, a long position can be taken considering other
set up like bullish divergence.
Stop loss:
Bearish Engulfing Pattern

A Bearish Engulfing Pattern is formed when a bullish candle of previous day is
totally engulfed by a long bearish candle. It is a bearish reversal pattern, usually
occurring at the top of as uptrend. It can also found during continuation of a
downtrend.
Characteristics (বৈশিষ্ট্য) of Bullish Engulfing Pattern:

a) Find in uptrend or during downtrend continuation
b) Two candles formation but more than two is possible
c) First candle is bullish
d) Next candle is long bearish and totally engulfs first candle
If it is found in strong resistance zone/top of an uptrend, take profit considering other

set up like bearish divergence.
Stop loss:
Examples of Bullish and Bearish Engulfing Pattern:
Training Session 5:
Profitable use and of
Indicators/Oscillators including
Divergences
Relative Strength Index
Relative Strength Index (RSI) is an oscillator developed by J. Welles Wilder, Jr. RSI
measures the strength of any trading instrument by monitoring changes in its closing
prices. Most traders in all markets pay more attention to closing prices than to any
other prices. RSI shows whether bulls or bears are stronger at closing time. It is a
leading: it is never a laggard.
RSI = 100 – (100/ (1+RS))
RSI fluctuates between 0 and 100. When RSI reaches a peak and goes down, it
identifies a top. When RSI falls and then goes up, it identifies a bottom. These turns
come at different levels in different markets or even in the same market, during bull
and bear periods.
RSI gives three types of trading signals. They are, in order of importance,
divergences, charting patterns, and the level of RSI:
Bullish and Bearish Divergences: Divergences between RSI and prices give the
strongest buy and sell signals. They tend to occur at major tops and bottoms. They
show when the trend is weak and ready to reverse.
a) Bullish divergences give buy signals. They occur when prices fall to a new low
but RSI makes a higher bottom than during its previous decline. Buy as soon as RSI
turns up from its second or third bottom. Buy signals are especially strong if the first
RSI bottom is below its lower reference line and the second and third bottom is
above that line.
b) Bearish divergences give sell signals. They occur when prices rally to a new peak
but RSI makes a lower top than during the previous rally. Sell short as soon as RSI
turns down from its second top. Sell signals are especially strong if the first RSI top
is above its upper reference line and the second top is below it.
RSI Levels
When RSI rises above its upper reference line, it shows that bulls are strong but the
market is overbought and entering its sell zone. When RSI declines below its lower
reference line, it shows that bears are strong but the market is oversold and entering
its buy zone.
a) Buy when RSI declines below its lower reference line and then rallies above
it.
b) Take profit when RSI rises above its upper reference line and then crosses
below it.
Moving Average Convergence Divergence

Moving Average Convergence-Divergence (MACD) consists of three exponential
moving averages: 12, 26 and 9. It appears on the charts as two lines whose crossovers
give trading signals. Moving averages identify trends by filtering out daily price
ripples. MACD is a more advanced indicator. The MACD line oscillates above and
below the zero line, which is also known as the centerline.
Calculation of MACD:
MACD line = 12 EMA – 26 EMA
Signal Line: 9-day EMA of MACD Line
The original MACD indicator consists of two lines: a solid line called the MACD
line and a dashed line called the Signal line. The MACD line is made up of two
exponential moving averages (EMAs). It responds to changes in prices relatively
quickly. The Signal line is made up of the MACD line smoothed with another EMA.
It responds to changes in prices more slowly.
Trading Decision
a) Signal line crossovers are the most common MACD signals. A bullish
crossover occurs when the MACD turns up and crosses above the signal line.
A bearish crossover occurs when the MACD turns down and crosses below
the signal line.
b) Centerline crossovers are the next common MACD signals. A bullish

centerline crossover occurs when the MACD line moves above the zero line
to turn positive. A bearish centerline crossover occurs when the MACD
moves below the zero line to turn negative.
c) Divergences form when the MACD diverges from the price action of the
underlying security. A bullish divergence forms when a security records a
lower low and the MACD forms a higher low. The lower low in the security
affirms the current downtrend, but the higher low in the MACD shows less
downside momentum.
d) A bearish divergence forms when a security records a higher high and the
MACD line forms a lower high. The higher high in the security is normal for
an uptrend, but the lower high in the MACD shows less upside momentum.
Even though upside momentum may be less, upside momentum is still
outpacing downside momentum as long as the MACD is positive.
On balance volume and Accumulation and distribution line

On-Balance Volume (OBV) is an indicator designed by Joseph Granville. OBV is a
leading indicator of the stock market. OBV is a running total of volume. It rises or
falls each day, depending on whether prices close higher or lower than on the
previous day. When a stock closes higher, it shows that bulls won the day's battle;
its volume on that day is added to OBV. When a stock closes lower, it shows that
bears won the day, and that day's volume is subtracted from OBV. If prices close
unchanged, OBV stays unchanged. On-Balance Volume often rises or falls before
prices - it acts as a leading indicator.
Trading Signals
The patterns of OBV tops and bottoms are more important than the absolute levels
of this indicator. Those levels depend on when you start to calculate On-Balance
Volume. When OBV rises or falls together with prices, the trend is confirmed. If
prices reach a new high and OBV reaches a new high, the uptrend is likely to
continue. If prices reach a new low and OBV falls to a new low, the downtrend is
likely to continue. It is safer to trade in the direction of a trend that is confirmed by
OBV.
a) When OBV reaches a new high, it confirms the power of bulls, indicates that
prices are likely to rise even higher, and gives a buy signal. When OBV reaches a
new low, it confirms the power of bears, calls for lower prices ahead, and gives a
signal to sell short.
b) OBV gives its strongest buy and sell signals when it diverges from price. If prices
rally and rise to a new high and OBV rallies to a lower high, it creates a bearish
divergence and gives a strong sell signal. If prices decline, rebound, and then fall to
a new low, but OBV falls to a more shallow bottom, it traces a bullish divergence
and gives a strong buy signal.
Long-term divergences are more important than short-term divergences.
Divergences that develop over the course of several weeks give stronger signals than
those that last only few days.
In case of breakout of price, OBV should be also breakout to be a real breakout.
Money Flow Index:

The Money Flow Index (MFI) uses price and volume and the concept of
accumulation distribution. It creates an overbought and oversold indicator that is
helpful in confirming trends in prices and warning of potential price reversals.
How to interpret MFI
Here are the four main ways to interpret the MFI:

a) Below 20 is considered oversold; a trader might look for buying
opportunities at these levels.
b) Above 80 is in overbought territory; a trader might look for sell signals here.
c) Bullish divergence: When prices fall, but the volume on the down days is
less than the volume on up days, then money is flowing back into the stock,
a bullish divergence.
d) Bearish divergence: If prices rise, yet the volume on the up days is less
than the volume transacted on down days, then money is secretly pouring
out of the stock; this is a bearish divergence.
Session 6: Important Chart Patterns like
Head and Shoulders, Triangles
The Head and Shoulders is a chart pattern created by three highs, the outside two
are closed high and the middle is highest. It is a trend reversal formation.
It is formed by a high (shoulder), followed by a higher high (head), and then another
lower high (shoulder). The line that connects the bottoms, often called the
“neckline”. It does not need to be strictly horizontal.
Example: GP formed a clear head and shoulders pattern at the top
If it doesn’t look like a human head and shoulders, then it probably isn’t a head
and shoulder pattern. A head and shoulders pattern is not completed until the
neckline is broken.
The slope of neckline can be horizontal, up or down. Typically, when the slope is
down, it produces a more reliable signal.
The head is the second peak and is the highest point in the pattern. The two shoulders
also form peaks but do not exceed the height of the head.
With this formation, we put an entry order below the neckline.
We can also calculate a target by measuring the high point of the head to the
neckline.
This distance is approximately how far the price will move after it breaks the
neckline.
You can see that once the price goes below the neckline it makes a move
that is at least the size of the distance between the head and the neckline.
Inverse Head and Shoulders

The name speaks for itself. It is basically a head and shoulders formation, except this
time it’s upside down.
A low is formed (shoulder), followed by an even lower (head), and then another
higher (shoulder). These formations occur after extended downward movements.
Here you can see that this is just like a head and shoulders pattern, but it’s in
downside.
With this formation, we would place a buy order above the neckline.
Our target is calculated just like the head and shoulders pattern.
Measure the distance between the head and the neckline, and that is approximately
the distance that the price will move after it breaks the neckline.
You can see that the price moved up nicely after it broke the neckline.
If your target is hit, then be happy with your profits.
However, there are trade management techniques where you can lock in some of
your profits and still keep your trade open in case the price continues to move your
way.
In summary, the Head and Shoulders chart pattern essentially represent:
 A rally to a new high

 Followed by a decline, then
 A marked uptrend forming a higher high
 A second decline, and
 A final rally to create another higher high but fails.
 Form a neckline
 If the volume in the left shoulder is greater than the right shoulder,
there is an increased likelihood of the head and shoulder pattern
completing.
 Aggressive entries can be taken immediately when the price breaks
the neckline.
 Conservative entries can be taken after the neckline has been re-
tested post-breakout.
 If price breaks the neckline, retracements occur almost 70% of the
time.
 Minimum target will be top to neckline distance.
Triangle Pattern
Triangles can be divided into three major groups, depending on their angles.
The upper and lower lines of symmetrical triangles converge at the same angles.
Symmetrical triangles reflect a fair balance of power between bulls and bears and
are more likely to serve as continuation patterns.
An ascending triangle has a relatively flat upper boundary and a rising lower
boundary. Its flat upper boundary shows that bulls are maintaining their strength and
can lift prices to the same level, while bears are losing their ability to drive prices
lower. An ascending triangle is more likely to result in an upside breakout.
A descending triangle has a relatively flat lower boundary, while its upper boundary
slants down. Its flat lower boundary shows that bears are maintaining their strength
and continue to drive prices down, while bulls are losing their capacity to lift prices.
A descending triangle is more likely to lead to a downside breakout.
Volume tends to shrink as triangles get older. If volume jumps on a rally toward the
upper boundary, an upside breakout is more likely. If volume becomes heavier when
prices fall toward the lower boundary, a downside breakout is more likely.
Trading Decision:
Breakout trading: One may take trade in the direction of breakout. Valid breakouts
are accompanied by a burst of volume - at least 50 percent above the average for the
past 5 days. Breakout has to be sustained on day close price.
Trading in the direction of main trend: In trying to decide whether a triangle on a
daily chart is likely to lead to an upside or a downside breakout, look at the weekly
chart. If the weekly trend is up, then a triangle on the daily charts is more likely to
break out to the upside, and vice versa.
Trading on pullback: When a breakout from a triangle is followed by a pullback,
pay attention to volume. A pullback on heavy volume threatens to terminate the
breakout, but a pullback on light volume offers a good opportunity to add to your
position.
Stop loss:
Session 7: Elliott Wave Principle
Introduction:
Elliott Wave Principle is a method of technical analysis. It is named after Ralph
Nelson Elliott (28 July 1871 – 15 January 1948). He was an American Accountant
and Author. EWP describes that the movement of the stock market could be
predicted by observing and identifying a repetitive pattern of waves.
After being forced into retirement due to an illness, Elliott needed something to
occupy his time and began studying 75 years worth of yearly, monthly, weekly,
daily, and self-made hourly and 30-minute charts across various indexes. Result is
mind blowing.
Benefits of trading with the EWP:
There are four practical benefits of trading with the EWP:
 setting realistic price targets,
 finding ideal level/point of entry and exit
 suggesting stand aside period and
 Capturing the most out of the trend.
Basic Principles - The Eight Wave Pattern

Movement of stock in the direction of the trend unfolds in 5 waves (called motive
wave) while any correction against the trend is in three waves (called corrective
wave). The movement in the direction of the trend is labeled as 1, 2, 3, 4, and 5. The
three wave correction is labeled as a, b, and c. These patterns can be seen in long
term as well as short term charts.
Ideally, smaller patterns can be identified within bigger patterns. In this sense, Elliott
Waves are like a piece of broccoli, where the smaller piece, if broken off from the
bigger piece, does, in fact, look like the big piece. This information (about smaller
patterns fitting into bigger patterns), coupled with the Fibonacci relationships
between the waves, offers the trader a level of anticipation and/or prediction when
searching for and identifying trading opportunities with solid reward/risk ratios.
Guidelines:
 Wave 2 can’t retrace more than the beginning of wave 1
 Wave 3 cannot be the shortest wave of the three impulse waves, namely
wave 1, 3, and 5
 Wave 4 does not overlap with the price territory of wave 1
Motive Waves
A motive wave is a 5 wave move in the same direction as the trend of one larger
degree and labeled as 1, 2, 3, 4 and 5. Wave 1, 3 and 5 subdivisions are impulse and
wave 2 and 4 are retracement. There are three types of motive waves: impulse,
impulse with extension and diagonal.
An ideal motive wave, impulse and impulse with extension:
Leading diagonals
Ending diagonals
Corrective Waves
The classic definition of corrective waves is waves that move against the trend of
one greater degree. Corrective waves have a lot more variety and less clearly
identifiable compared to impulse waves. Sometimes it can be rather difficult to
identify corrective patterns until they are completed.
There are five types of corrective patterns:
 Zigzag (5-3-5)
 Flat (3-3-5)
 Triangle (3-3-3-3-3)
 Double three: A combination of two corrective patterns above
 Triple three: A combination of three corrective patterns above
Zigzag
Flat
There are three types of flat correction: regular, expended and running flat.
The example of running flat will be given during training.
Triangles
A triangle is a sideways movement that is associated with decreasing volume and

volatility. Triangles have 5 sides and each side is subdivided in 3 waves hence
forming 3-3-3-3-3 structure. There are 4 types of triangles in Elliott Wave Theory:
Ascending, descending, contracting, and expanding. Three types are illustrated
below:
Fibonacci Summation Series
One of the most popular discoveries by Leonardo Fibonacci is the Fibonacci
Summation series. This series takes 0 and adds 1 as the first two numbers.
Succeeding numbers in the series adds the previous two numbers and thus we have
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 to infinity. The Golden Ratio (1.618) is derived
by dividing a Fibonacci number with another previous Fibonacci number in the
series. As an example, 89 divided by 55 would result in 1.618.
Relation between Fibonacci and Elliott Wave Theory:

Fibonacci Ratio is useful to measure the target of a wave’s move within an Elliott
Wave structure. Different waves in an Elliott Wave structure relates to one another
with Fibonacci Ratio. For example, in impulse wave:
 Wave 2 is typically 50%, 61.8%, 76.4%, or 85.4% of wave 1
 Wave 3 is typically 161.8 % of wave 1
 Wave 4 is typically 23.6% or 38.2% of wave 3
 Wave 5 is typically equal to wave 1 or 61.8% of wave 1+3
Traders can use the information above to determine the point of entry and profit
target when entering into a trade.
Common Fibonacci retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%.
Common Fibonacci extension levels are 61.8%, 100%, 161.8%, 200%, and 261.8%.
**These levels should not be relied on exclusively, so it is dangerous to assume the

price will reverse after hitting a specific Fibonacci level.
Highly recommended for further study and practice:

https://elliottwave-forecast.com/elliott-wave-theory/
https://bullwaves.org/traders-guide-elliott-wave/
Soft copy of original book
Decision Maker Ltd. Bangla Book
Session 8 - Market Psychology
Market Psychology: Market psychology is the mood of the market participants
at any given point in time. Greed, fear, and excitement can all contribute to market
psychology.
Bull Market: a market in which share prices are rising, encouraging buying.
Bear Market: a market in which share prices are falling, encouraging selling.
Smart Money/Market Maker: Smart money is the capital that is being
controlled by institutional investors, market mavens, central banks, funds, and other
financial professionals. Smart money was originally a gambling term that referred
to the wagers made by gamblers with a track record of success.
Behavioral Biases:
 Anchoring
 Overconfidence
 Loss Aversion
 Over & Under Reaction
 Herd Behavior
Stop Loss tools (excel): We will try to find our protective and progressive stop
loss in excel
A Bubble to Blast Cycle: Jean-Paul Rodrigue’s bubble chart stages analysis
DSE Mobile App: Features and Application of DSE Mobile app

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BASIC TRAINING OF TECHNICAL ANALYSIS

Session - 2: Candlestick Charts – Part one

Session - 3: Candlestick Charts – Part Two

Session - 6: Important Chart Patterns like Triangles, Head and

A standard bullish and bearish candle formation (গঠন):

It indicates a failed attempt to force price lower, followed by strong buying

Characteristics (বৈশিষ্ট্য) of Hanging Man:

The Piercing Line Pattern is considered as a bullish candlestick reversal

Characteristics (বৈশিষ্ট্য) of Piercing Line Pattern:

a) Find in downtrend or strong support area

Characteristics (বৈশিষ্ট্য) of Dark Cloud Cover Pattern:

The Inverted Hammer candlestick formation occurs mainly at the bottom of

The doji is candlestick formation, signifying equality or indecision between bulls

Though doji is a neutral formation, please remember the followings:

Characteristics (বৈশিষ্ট্য) of Morning Star:

Examples of Evening star candlestick pattern:

Characteristics (বৈশিষ্ট্য) of Three White Soldiers:

f) Find in downtrend or strong support area

Three Black Crows

Characteristics (বৈশিষ্ট্য) of Three Black Crows:

Examples of Three Black Crows:

Marubozu Candlestick Pattern:

Bullish Engulfing Pattern

Characteristics (বৈশিষ্ট্য) of Bullish Engulfing Pattern:

Bearish Engulfing Pattern

Characteristics (বৈশিষ্ট্য) of Bullish Engulfing Pattern:

If it is found in strong resistance zone/top of an uptrend, take profit considering other

Examples of Bullish and Bearish Engulfing Pattern:

Moving Average Convergence Divergence

b) Centerline crossovers are the next common MACD signals. A bullish

On balance volume and Accumulation and distribution line

Money Flow Index:

How to interpret MFI

Here are the four main ways to interpret the MFI:

Example: GP formed a clear head and shoulders pattern at the top

With this formation, we put an entry order below the neckline.

Inverse Head and Shoulders

If your target is hit, then be happy with your profits.

In summary, the Head and Shoulders chart pattern essentially represent:

 A rally to a new high

Basic Principles - The Eight Wave Pattern

There are five types of corrective patterns:

The example of running flat will be given during training.

A triangle is a sideways movement that is associated with decreasing volume and

Relation between Fibonacci and Elliott Wave Theory:

**These levels should not be relied on exclusively, so it is dangerous to assume the

Highly recommended for further study and practice:

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