Technical analysis in r software basics & candlestick charts using quantmod package

1. Technical Analysis using R
Software
Basics of Technical Analysis & Candlestick Charts
Rajesh Prabhakar Kaila
http://facultyofbusinessanalytics.blogspot.in/

2. Introduction to Technical Analysis
 Technical analysis is based on a completely different approach
compared to Fundamental Analysis ( based on "value" of a
company or a commodity) and Technical Analysts also called
chartists are more focused on the price movements and volumes
of the stock or commodity or currency in the market.
 Basically Technical Analysts study the trends, direction of
movement of the prices.
 Technical Analysts forecast the direction of movement of prices
through the study of past market data, primarily price and volume

3. Technical Analysis – Basic Assumptions
 Market Discounts Everything – All the company's or commodity’s
or currency’s fundamentals, including broader economic factors and
market psychology, are all priced into the stock price movement.
technical analysis assumes that, at any given time, a stock's price
reflects everything that has or could affect the company.
 Price Moves in Trends – Technical Analysts assume price
movements follow trends and once a trend has been established,
the future price movement will mostly be in the same direction
rather than be against it.
 History Tends To Repeat Itself – Technical analysts assume history
tends to repeat itself in terms of price movement based on the
assumption of market psychology that repetitive nature of price
movements are based on market participants react consistently to
similar market stimuli over time.

4. Technical Analysis – Candlestick Charts
 The candlestick chart can be
considered as a type of bar chart,
but it differs visually as it is
constructed using the Open, High,
Low Close prices of the stock or
commodity or currency is used to
construct it.
 The candlestick also has a thin
vertical line showing the period's
trading range.
 The difference comes in the
formation of a wide bar on the
vertical line, which illustrates the
difference between the open and
close. Also colors are used to
indicate movement.

5. Technical Analysis – Candlestick Charts
 Long white candlesticks indicate that the Bulls
controlled the ball (trading) for most of the game.
Long black candlesticks indicate that the Bears
controlled the ball (trading) for most of the game.
 Small candlesticks indicate that neither team could
move the ball and prices finished about where they
started.
A long lower shadow indicates that the Bears controlled
the ball for part of the game, but lost control by the end
and the Bulls made an impressive comeback.
 A long upper shadow indicates that the Bulls controlled
the ball for part of the game, but lost control by the end
and the Bears made an impressive comeback.
 A long upper and lower shadow indicates that the both
the Bears and the Bulls had their moments during the
game, but neither could put the other away, resulting in
a standoff.
Source: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks

6. Candlestick Charts – R Software
 Candlestick charts are created in R Software using Quantmod package.
 library("quantmod“)
 Sample Code
 getSymbols("YHOO",src="google") # from google finance
[1] "YHOO"
> getSymbols("GOOG",src="yahoo") # from yahoo finance
[1] "GOOG"
> getSymbols("DEXJPUS",src="FRED") # FX rates from FRED
[1] "DEXJPUS"
> getSymbols("XPT/USD",src="Oanda") # Platinum from Oanda
[1] "XPTUSD“
 Data Sources
 Yahoo! Finance (OHLC data)
 Federal Reserve Bank of St. Louis FRED® (11,000 economic series)
 Google Finance (OHLC data)
 Oanda, The Currency Site (FX and Metals)
 MySQL databases (Your local data)
Source: http://www.quantmod.com/examples/intro/

7. R Code for Candlestick charts
• For downloading data into R using quantmod
package.
• getSymbols (explained in earlier slide). This
will download data from Yahoo finance in
OHLC format
• Sample Code
getSymbols('INFY.BO',src='yahoo')
INFY=INFY.BO['2015-01-01::2015-05-31'] # download from
01/01/2015 till 31/05/2015
chartSeries(INFY)

8. Infosys Candlestick Chart