The first thing I do when analyzing ANZ is to zoom as far back as 3 years. In doing so, you can identify whether the stock has been growing at a healthy rate. This is also important to help identify MAJOR Support and Resistance levels as lines that take longer to form tend to be strong then those that have been recently formed.
So lets zoom out and see how ANZ has developed over 3 years (roughly) starting from 19 August 2008
At first glance, ANZ shows a sharp recovery from 2008's financial turmoil and peaks at October 2009 before stabilizing itself between the ranges of $20-$25.
When using technical analysis, the first thing you should always do is to identify REVERSAL days, that is the days when the share makes a 180 turn.
login to a charting software (www.prorealtime.com.en) and try doing it yourself and compare it to mine.
Once you have identified the reversal days, the next thing to do is to draw lines on them to identify the SUPPORT and RESISTANCE lines.
it should look something like this:
Looks very complicated, but what I have done is to link the reversal days to one another using lines! Wait a minute you must be thinking, at this rate you can be drawing lines all day long! Yes you actually can, but as you continually immerse yourself in the market, you can start identifying which lines are:
1) weak (those that wouldn't stand for long)
2)lines that you feel best suit the type of investor you are (riskier ones are the types who can tolerant higher variances; bigger swings in price movement)
3)lines that you feel are not necessary (matter of preference).
Upon closer observation, you'll see that the stock movement usually stops before the lines and:
1) Breaks past it
(this is usually dependent on the speed at which the stock is moving, the faster it moves, the more likely the line will break, the number of times the line has been challenged)
2) Bounces away from it
(hitting a wall and starts reversing, depends on how long the line has taken to form)
As you can see, technical analysis is quite relevant and reliable when identifying the future movement of stocks. Though it should be noted that technical analysis can sometimes fail as it is meant to be accurate only 60-70% of the time, which is why it is important to have a STOP LOSS system in place to avoid any investments from losing too much value.
The continuation of analyzing ANZ will feature ANZ in the time frame of 6 months.
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