Wisdom Wilson Ukpeh
Researcher
On the January 12, we performed a technical analysis on CGW at ₦18.2. CWG (Computer Warehouse Group) is an IT service company in the ICT sector of the Nigerian Stock Exchange.
In this technical analysis, we used,,, the following tools:
- Chart pattern
- Trend lines
- Support and resistance line
- Bollinger Bands
- Relative Strength Index (RSI)
- Money Flow Index (MFI)
- Volume
Each tool had its purpose during the technical analysis which includes: entry, exit, take profit, volume, and so on. Thus in this article, we shall dive into why CWG and the step-by-step analysis of the stock with each tool.
Why CWG?
Before commencing your technical analysis, the stock you’re investing in must have a strong fundamental background so that you can sleep well at night while your money multiples. With that being said, CWG has a good fundamental and potential for upward growth.
Step-by-step technical analysis of CWG
Step 1: Check for volume
Volume is an important aspect of technical analysis. Without volume, investors can experience fluctuation in the market or choppy trends whereby nothing significant is happening in the market
For CWG, the green volume bar (bullish signal) crossed the threshold at 3.18 million, indicating a strong buy signal for investors. However, we can’t use only this indicator to make our final trading decision. We need other confirmations.
Step 2: Draw a trend line
A trend line helps you know the overall market strength. It helps you know if the market is a strong bull or bear. A trend line that touches 3 spots indicates an absolutely strong trend upward or downward. A trend line with just 2 touchpoints is good and indicates relative market strength
As you can see in the photo above the trend line for CWG touched three spots upward, indicating a strong bull market trend.
Step 3: Draw support and resistance lines
After drawing your trend line, the support and resistance lines should be your next step. The role of these lines is to reveal your next buy, sell, and take profit.
For CWG, four horizontal lines were drawn at ₦10.76, ₦13.97, ₦15.66, and ₦18.98. These lines acted as support and resistance with ₦10.76 as the strongest support level, ₦18.98 as the strongest resistance, and the take profit level.
Step 4: Find your entry point
This stage is where you’d upload your main entry or confirmation indicator. There are different types of entry indicators like MACD, Schocastic, Parabolic SAR, double moving average, triple moving average, and so on.
For CWG, we used Bollinger Bands because it’s easy to use, understand and perform multiple functions. It’s also good for beginners in technical analysis. Once the price crosses the moving average inside, it’s an entry or exit signal depending on the overall trend strength
The entry point:
We used three criteria to determine the next buy entry point. These criteria include:
- The signal from the entry indicator
- The chart pattern before the signal
- The overall trend (bullish or bearish)
If two or more of these criteria are met, we’re good to go. From the image above, the circled sections indicate possible entry points for investors.
Step 5: Check for money flow, overbought and oversold regions in the market
This final step strengthens your position as an investor. If money flow points upwards or above 50, that’s a good signal to invest. The indicator responsible for this is called the MFI. Then, for the overbought and oversold regions, we used the RSI to determine this. The threshold for the overbought region is 70 and 20 for the oversold.
For CWG, the money flow pointed upward at 32.46 which offers investors the confidence to invest as seen in the image below
The RSI was within the safezone at 52.05 as seen in the image below
Note: If RSI is in the overbought region, it’s time to exit. On the other hand, if the RSI is in the oversold region, prepare to establish a buying position.
Wrap up
These five steps form the foundation of this technical analysis, as each step serves a unique purpose. It’s important to note that one indicator, chart pattern, or trend line isn’t enough to make a strong investing position. The best way to perform a technical analysis is by combining these trading tools.
