I experience some difficulty in loading(posting) and viewing charts in WordPress. So created a new blog with blogspot. I would be posting my analysis charts in that wesite.
I thank all you for visiting my blog and for the support you gave.
I also invite you to visit frequently to my new blog too and encourage
New Blog :
Last week i recommended to buy UNITECH. I too bought at Rs 49.40.
Then it moved to Rs77 and has reversed.Today i exited my position at Rs75. If anybody had bought it and got profit please share with us.
This simple to understand trading system was developed by Dave Landry .
The system uses the 20 period exponential moving average and its relation ship with price to create buy/sell signals.
Buy alert: If today’s low and yesterday’s low is greater than the 20-day EMA. This signal remains valid until the low touches or falls below the 20-day EMA.
Buy entry: Place a buy stop order a few paisa above the two-day high. This will help ensure buying with the new trend and help to avoid false signals. Keep order until filled or as long as the buy alert is still valid.
Long exit: Place a stop equal to the 20-day EMA. Continue to update this stop daily to form a trailing stop.
Sell alert: If today’s high and yesterday’s high is less than the 20-day EMA. This signal remains valid until the high touches or rises above the 20-day EMA.
Sell entry: Place a sell stop order a few paisa below the two-day low. This will help ensure that you will sell with the new trend and help to avoid false signals. Keep order until filled or as long as the sell alert is still valid.
Short exit: Place a stop equal to the 20-day EMA. Continue to update this stop daily to form a trailing stop
1.What stage is this stock in?
This stock is in stage two.
You remember the stages right? Stage one is a consolidation, stage
two is an uptrend, stage three is another consolidation, and stage four
is a downtrend. This stock was in a stage one in February but in
March, it broke out into a stage two. It is currently still in a stage two.
2. Is this stock in and uptrend or a downtrend?
This stock is in an uptrend.
3. How strong is the trend?
This stock is in a strong trend.
The ADX indicator is near 40 which we consider to be a
fairly strong trend. The higher the ADX, the stronger the trend. This
stock is at the lower trend line.
4.What wave is this stock in?
This stock is in the fourth wave.
In Elliott Wave theory, a stock goes through 5 waves in an uptrend. In
the chart above, the first wave after the breakout is wave 1. The first
pullback is wave two, the next wave up to 3500 is wave three, and
the pullback that we are in now is wave four. There is one more wave
5.What do the moving averages tell me?
The moving averages are lined up.
We want the 10 SMA above the 30 EMA and we also want there to be
plenty of space in between the two moving averages. This creates the
Traders Action Zone (TAZ) that we can trade in.
6. Was there a breakout recently?
There was a breakout recently.
This is good! We want to buy a pullback as close as possible to a
breakout as we can. Why? We want to know that there is interest in a
stock. Remember that institutional traders have to accumulate shares
over time. They can’t buy tons of shares all at once. They have to
buy a little at a time. By looking for breakouts, we can expect them to
have to buy more in the future. This will propel the stock higher.
7. What does volume tell me?
Volume is showing that there is interest in the stock.
See the big volume on up days and the lower volume on down days?
This is the ideal scenario but it isn’t absolutely necessary.
தின வணிகத்தி்ல் நான் உபயோகப்படுத்தும் ஒரு முறை 15 நிமிட பிரேக் அவுட் டிரேடிங். முதல் 15 நிமிட அதிகபட்ச உயர்வு (High) மற்றும் அதிகபட்ச தாழ்வு(low) ஆகியவற்றைக் குறித்துக் கொள்ளுங்கள். பின்பு High நிலையை உடைத்து மேலே செல்லும் போது Lowவை Stop loss ஆக வைத்துக்கொண்டு Long போகவும். அவ்வாறாக இல்லாமல் Low நிலையை உடைத்து கீழே செல்லும் போது Highயை Stoploss ஆக வைத்துக்கொண்டு Short போகவும்.
இவ்விரெண்டும் இல்லாமல் High மற்றும் Low இவை இரண்டிற்கும் நடுவில் சென்றால் பெறிய வணிகர்கள் வணிகத்தில் பங்கேற்கவில்லை என்று பொருள். அப்பொழுது RSI மற்றும்
STOCHASTIC உபயோகப்படுத்தி Over sold ஆக இருந்தால் Long போகலாம், Over bought ஆக Short போகலாம்.
பார்க்க எளிதாகத் தோன்றும் இம்முறை பல சமயங்களில் பயன்தருகிறது…….
In Japanese candlesticks, there are some patterns that are called secondary signals because they do not arise as frequently as the more common bearish or bullish engulfing patterns, bullish or bearish harami patter, hanging man or hammer patterns. We deal with two such patterns in this column — three white soldiers and three black crows. These patterns can be used for confirmation of market trend and sentiment.
The three white soldiers pattern consists of three consecutive white real bodies, each with a higher close. This pattern should occur in a downtrend, signifying bullish reversal formation. Each candlestick should open within the previous real body and it should close above the previous day’s closing price. Generally, upper and lower shadows are absent or small. Traders make use of this pattern to confirm a change in momentum and an alteration in the sentiment of investors from bearish to bullish. The length of the candlestick helps in reinforcing the reversal implied by the pattern. The longer the candles, the more spectacular the reversal. Secondly, higher each consecutive candle opens compared to the previous candle, stronger the chance of a sustained reversal.
The daily chart of Pantaloon Retail illustrates a three white soldiers pattern. The stock reversed it down trend in March 2007 by forming the three white soldiers pattern. The stock has been on a steady rally since then. The three black crows pattern consists of three consecutive black real bodies, each with a lower close. This pattern is a three candle bearish reversal pattern formation that occurs in an uptrend. It is the opposite of three white soldiers pattern. These black candles should open within the previous real body and it should close below the previous day’s closing price.
Usually, upper and lower shadows are absent or small. Traders make use of this pattern to confirm that the uptrend has ceased and the bears have taken control. The daily chart of Parsvnath Developers shows three black crows pattern
சே குவேரா புரட்சியின் அடையாளம்.இன்றைய இளைஞர்கள் கட்டாயம் தெரிந்து கொள்ளப்பட வேண்டியவர் சே.கொடுங்கோலன் ஆட்சியின் கீழிருக்கும் கியூபா வை கைப்பற்ற பிடல் காஸ்ட்ரோவின் தலைமையில் உருவான புரட்சிப்படையில் கொரில்லா யுத்த முறையை அறிமுகப்படுத்தியவர் சே.
பொலிவியாவிலும் தனது கொரில்லாத் தாக்குதலை கையாளும் சே பல்வேறு தோல்விகளையும், இழப்புகளையும் சந்திக்க நேரிடுகிறது. இறுதியில் பொலிவிய ராணுவத்தால் சுட்டுக் கொல்லப்படுகிறார் சே.
“The revolution is not an apple that falls when it is ripe. You have to make it fall.” - Che Guevera
சே வைப்பற்றிய அருமையான புத்தகம் ஒன்றைக்கான நேரிட்டது. Download செய்க: Che Guevera
Click on the following to get an enlarged image:
Star patterns in Japanese candlesticks are single-candle formation that look like the twinkling stars that we all are familiar with. Stars have small real bodies and they gap away from the previous candlesticks. In other words, the star candlestick’s real-body does not overlap that of the previous candlestick. This gives rise to the illusion that these small-bodied candles are floating in the sky.
The candlestick stars can be either white (bullish) or black (bearish) in colour. Stars taken in isolation do not have too great a significance. They imply indecisiveness; that the investors are beginning to doubt the strength of the prevailing trend. A long white or dark-bodied candlestick typically occurs before the star candlestick. These stars combine with other candles to form various candlestick patterns such as morning star, evening star, doji star and shooting star. A look at the morning and evening star candlestick patterns.
Morning star: This is a three-candle reversal setup. Morning star is a bottom reversal pattern, bullish in nature. The pattern occurs after at the end of the downtrend. The first candle is a long dark real-body and the second is the star signalling uncertainty. The third candle is a real white one that covers at least half of the first candle. These three candles do not overlap on each other. Refer to the daily chart of GVK Power and Infrastructure for morning star candlestick pattern. From Rs 21, the stock tumbled to Rs 12. After a long dark candlestick around this level, the stock gaps down shaping a star. The bulls take control later on and the stock reverses direction. The uptrend of the stock continues to Rs 25.
Evening star: It is a top reversal three candle pattern, which is a bearish reversal. This pattern happens after a continued uptrend. The first candle is long white real-body and the second is the star, indicating indecisiveness. While the third candle is a real dark candle that eats al least half of the first candlestick. The three candles do not overlap on each other. Infosys illustrates evening star candlestick pattern.
Following an upmove from Rs 1,300 to Rs 2,000 (from March to June 2008), the stock formed an evening star candlestick pattern. One can observe that after a long white candlestick, the stock gapped up next session forming a small real-body (star). Subsequently, the stock changed its trend, completing the evening star pattern.
Some candlestick patterns such as hammer, hanging man, inverted hammer and shooting star are formed with a single candlestick. Hammer and inverted hammer are formed following a decline and are bullish reversal patterns, while the hanging man and shooting star candlestick patterns are formed following an up move and are bearish reversal. Among these patterns, we shall discuss hammer and hanging man candlestick patterns in detail. Hanging man pattern is similar to a cross in appearance and occurs near the end of an uptrend. This pattern is formed when the stock opens high and there is an intra day sell-off followed by a sharp recovery that brings the stock back near its opening level. So, the pattern has a small body with a long lower shadow (twice the length of the body).
The preceding trend determines the classification that the pattern as hanging man or hammer pattern. A hanging man candlestick pattern is seen in the Jindal Steel chart. The stock found support at around Rs 1,600 in early July 2008 and was on a medium-term uptrend. In early August, the stock formed a hanging man candlestick pattern, signalling trend reversal.The candlestick formation of bullish hammer patterns is almost similar to the hanging man pattern except the point of its occurrence. When the same pattern, that is, when the stock opens high and there is an intra day sell-off followed by a sharp recovery that brings the stock back near its opening level is formed after a downtrend, it is called a hammer pattern.The BHEL chart illustrates the hammer pattern. The stock’s downtrend, which commenced in September 2008, reversed, shaping a hammer candlestick pattern at Rs 1,000. The stock moved up in the two weeks following this pattern.
Note: Though both the bullish hammer and the bearish hanging man pattern do signal an impending trend reversal, it is best to wait and see the candlestick patterns on the subsequent days before selling or buying any particular stock. A long black candle with a shaven head would be ideal for confirming the trend reversal in hanging man pattern. On the other hand, for bullish hammer, a long white candle would be a perfect conformation of trend reversal. Moreover, you can also confirm the signal with the help of other tools such as oscillators, moving averages etc. before deciding to act based on these patterns
RelianceInds -Target:1280 Stoploss: 1160[Targets Reached]
United Spirits- Target:620 Stoploss: 540[Targets Reached]
Sesa Goa -Target:84 Stoploss: 72[Targets Reached]
A double inside day or bar occurs when two inside bar appears in a row. An inside bar is simply a price bar with a high below previous high and a low above previous low. Notice the range of price bar number two encompasses the price bar number one and price bar numberthree encompasses the price bar two.
In this instance, I believe these formation introduces tradable moves.
1.India Infoline- [open:44.05, Low:42.7, Profit:3%]
2. HindustanOilExploration-[open:46.55, Low:44.7, Profit:3.7%]
In a sell call, sell the stock in the opening. I would move downward below the opening price at any point of time in a day . When it yields a profit of 1%-2% by moving downwards cut the trade and exit with profit.
Amid a high volatility in todays market, our recommendations performed quite well.Performance of todays intraday calls are as follows.If u want to earn least profit like 2%-5% every day,this will be useful.
Go Long –
Biocon [Daysopen:103, DaysHigh:105.50, Profit:2.4%]
Union Bank Of India[Daysopen:126.00, DaysHigh:127.40, Profit:1.1%]
Go Short –
Tata Chemicals[Daysopen:116.55, DaysLow:113.25, Profit:2.9%]
Hindustan Oil Exploration[Daysopen:49.90, DaysLow:45.65, Profit:9.3%]
Buy: United Spirits-Target:645 StopLoss:600 [triggered stoploss]
Buy:TataTea- Target:595 Stoploss: 575[triggered stoploss]
There are certain candlestick patterns that give an early indication that a prevalent trend has run its course and is beginning to lose strength. Dark Cloud Cover pattern (DCC) and piercing patterns belong to this class. A DCC pattern is formed with two candles. The first candle is white and the second is black, forming the ‘dark cloud’ that hovers ominously, threatening the prevalent up trend. Needless to add, the DCC pattern occurs near the top of an uptrend.
The second candle in the DCC pattern gaps upward and then moves down, some way within the body of the first white candle but it does not cover the first candle entirely. If it did so, it would then get labelled as a bearish engulfing candle. The extent of penetration within the body of the first candle determines the strength of the pattern. When the second candle moves more that half-way within the body of the first , it implies that a trend reversal is imminent. Dark clouds (second black candle) that move less that half-way within the first candle can turn out to be a false alarm or minor halts within an up trend.
Dark Cloud Cover pattern
Refer the chart of Canara Bank which illustrates DCC pattern. In late September 2008, the stock encountered resistance at around Rs 230 and the uptrend was arrested with the formation of a dark cloud cover pattern. The stock reversed direction following this trend. The piercing pattern is the inverse of the DCC pattern. While the latter occurs towards the end of an up-trend, piercing patterns occur towards the end of a down trend and signal the possibility of a trend reversal from that juncture. This pattern is made up of two candles too. The first candle should be a long black candle as it would be part of the downtrend. The second candle would gap downward and then move higher well within the body of the second. Again, the extent of the penetration determines the strength of the pattern.
Refer to the chart of Reliance Infrastructure for piercing patterns. It isevident that the stock’s downtrend was arrested in early July 2008 when a piercing pattern was formed. When the stock’s decline resumed two months later, another piercing pattern was formed in late October 2008 that arrested this leg of the down-move.
A penetration that exceeds 50 per cent of the first candle’s body should be a more reliable signal of a trend reversal.
There are few candlestick patterns that give a fairly accurate warning about an impending reversal in prices. Bullish and bearish engulfing patterns belong to this class of candlestick patterns.
The ease with which they can be identified also contributes to their popularity and wide usage. To form the bullish and bearish engulfing patterns, what is needed is a pair of candles.
A bullish engulfing candle occurs following a significant downtrend when a large white candlestick’s body absolutely covers a smaller black candlestick formed in the previous session.
It is enough if the body of the first candle is covered or engulfed by the second candle. It is not imperative that the shadows of the previous candle are covered.
This pattern is more successful when it is formed in the oversold area that occurs at the end of an extensive downtrend.
The larger the candle that is engulfed, the more effective the reversal signal is. Since the second candle is formed when the price opens lower that the previous day’s close and closes strongly above it, it implies that the investor sentiment is turning bullish.
Let us illustrate bullish engulfing pattern with an example. Refer to the Bank of India chart below. The stock was on downtrend from mid-May to early-July 2008 low.
After forming a large bullish engulfing candlestick pattern at around Rs 200, the downtrend got arrested. Subsequently, the stock began to rally higher.
A bearish engulfing candle occurs towards the end of a significant up trend. When the body of a large black candlestick completely covers a smaller white candlestick’s body, such a pattern is known a bullish engulfing pattern.
This pattern is more successful when it is formed in the overbought area that appears at the end of an prolonged uptrend.
Chennai Petroleum’s chart represents bearish engulfing candlestick pattern. After finding support at around Rs 245 in mid-March 2008, the stock rallied up to Rs 400 levels.
However, after reaching an overbought level, the stock reversed direction forming a bearish engulfing candlestick pattern.
There was a change in investor sentiment at that peak which was indicated by the black engulfing candle. Later on, the stock’s decline prolonged and it reached Rs 245
There are numerous Japanese candlestick patterns that have neutral implications. They do not signal a trend reversal but indicate a pause in the price movement. Spinning tops are one such neutral pattern.
The candlesticks, which have a small bodies with long upper and lower shadows, are called spinning tops. The colour of the body is not important in this pattern. These candlestick patterns occur on days of indecisiveness. Not much inference can be drawn from these patterns, except that the security is pausing or moving sideways. Spinning top candlestick patterns are shown in the Patni Computer Systems’ chart.
Though the term ‘harami’ might sound insulting to those who speak Hindi, its meaning is pretty innocuous. The word harami means pregnant in Japanese.
The harami patterns are a clue of a trend change at the end. This is a combination pattern of two candlesticks; one long candlestick followed by a small one that is within the body of the first. In bearish harami pattern, the first candle is white and the second is black, though the colour of the second candlestick is not important. The upper and lower shadows of the second candlestick do not have to be limited within the body of the first. However, it is preferable if the shadows are limited.
In bullish harami pattern, the first candle is black and the second white. This pattern occurs at the end of the downtrend. In sideways market consolidation, harami patterns do not have significance.
Refer the example below. The Reliance Industries stock, which was declining during September and October 2008, found support at around Rs 1,000 level. Triggered by bullish harami candlestick pattern, the stock temporarily reversed direction and rallied up the Rs 1,500 levels.
நீங்கள் எத்தனை சின்னவர்கள் என்பதல்ல விஷயம்.
உங்களது அபார நம்பிக்கையும், நடவடிக்கையுமே உங்களது
– பிடல் காஸ்ட்ரோ
“The Power of Positive Thinking” written by Norman Vincent Peale is the single book which i would recommend you to read to manifest your circumstances.
It outlines simple principles which if followed would provide whatever you want. Really you can master your circumstances rather than letting it master you. A simple and lucid style. Download it for free from here:
The shaded area indicates the ‘falling edge pattern’ and its broke out implies an upmove.
Going long is another way of saying – buy. When we recommend a buy on a counter, we recommend an entry price. A trader / investor goes long ( or buys ) at that price. Since you are taking a bullish view on the stock / future / call / put that you are buying, you expect an appreciation in price. However, markets may feel otherwise and react downwards. Therefore a stop-loss is in order. Setting a stop loss is putting a limit on how much money you are willing to lose – before you initiate a trade. This practice ensures that your capital remains intact. On the flip side, one may or may not keep a stop profit limit. The matter is subject to personal preferences. You may want to let your profits run ( continue ) or set a stop profit and exit.
However, setting stop-losses is an art rather than a mathematical function. Setting a simple stop-loss is not enough. We therefore advocate setting trailing stop losses. Let’s take a hypothetical example -
Suppose you buy a scrip XYZ at Rs 100.
You set a stop loss of Rs 10 ( exit at Rs 90 )
The price starts moving above Rs. 100 and hits 110
You should modify your stop loss to trail the price – now the stop loss is at 100 – your capital is safe
The price of XYZ goes to 120, your stop loss trails to 110 – your capital has appreciated already. At this stage you can let your brokers computer take over the trade, while you divert your attention elsewhere – another trade, a movie or a holiday ! If the stop loss is “hit” you still make money, if the price keeps rising, so does your trailing stop loss and assured profits.
Your feedback is important ! Please let me know your views.
வாழ்வின் வினோதமான விதிகளில் இதுவும் ஒன்று. அவமானங்களாலும் புறக்கணிப்புகளாலும் வதைபடும் பிஞ்சு இதயங்கள் தான் பிற்காலத்தில் சரித்திரங்களை உருவாக்கும் சாதனை மனிதர்களாக உருவெடுக்கின்றனர்.
சிறுவயதில் வேதனைகளுக்குள்ளாகி தாழ்வுமனப்பான்மை கொள்ளும் இதயமானது, வளர வளர மற்றவர்களின் முன் தன்னை முக்கியத்துவம் நிறைந்தவர்களாகவும், திறமைசாலிகளாவும் காண்பித்துக்கொள்ள விரும்பும். சாப்ளினின் ஆரம்பகால வேதனைகளும் பிற்காலச் சாதனைகளும் உணர்த்தும் உளவியல் ரீதியான பேருன்மை இது.
The saucer, reveals an unusually slow shift intrend. Most often seen at bottoms,the saucer pattern represents a slow and more gradual change in trend from down to up.The chart picture resembles a saucer or rounding bottom—hence its name .
The third and final type of gap is exhaustion gap. From the name one can understand that this gap has something to do with the final stages, for that is when exhaustion sets in. Exhaustion gaps are the gaps which occur at the end of a strong up or downtrend. These gaps are the first signal that the prevalent move (down or up) is approaching to an end.
How can you identify an exhaustion gap? Simple. The gap should be recorded with a large price difference between the previous day’s closing price and the fresh opening price. Furthermore, the volume should be extraordinary. If one does not observe extremely high volume, then it can be safely assumed that the gap is not an exhaustion gap.
Following a long down-trend these gaps materialise due to a bout of panic and pessimism. These gaps symbolize high selling pressure and liquidating of entire holding as investors suddenly lose hope. Equally in an uptrend or bull run, the stock price jumps up with a very high demand for the stock. The exhaustion gaps are filled quickly as the stock price reverses its trend after these gaps. Profit booking happens when exhaustion gap occurs in an up-trend and fresh buying emerges in a down-trend as investors believe that the trend has run its course.
Refer to the Uco Bank chart shown below, in which an exhaustion gap is noticeable. After a long uptrend or bull run from April 2007 low of Rs 20, the stock formed an exhaustion gap at around Rs 71, almost towards the end of the trend. As the gap occurred with very high volume and the stock had rallied strongly prior to this gap, we cannot call it a runaway gap. Therefore it is an exhaustion gap. Subsequently, the stock recorded its life-time high of Rs 88.9 in early January and within a week, the stock reversed its trend due the profit taking and other pessimistic news flow.
Refer to the Alphageo India chart, where all the three types of gaps are depicted. The stock began to trend upward since May 2007. During its upward journey, the stock formed two runaway or measuring gaps, one in late September 2007 and another one during early November 2007.
The stock’s up-trend prolonged further, however, after recording an all-time high of Rs 1,078 the stock reversed its trend. In early January 2008, the stock gapped up accompanied with very high volume, signalling that the up-trend was nearing its end. We name the stock’s January gap as an exhaustion gap. Moreover, Alphageo’s new down-trend was welcomed by forming a breakaway gap.
There are three types of gaps in technical analysis namely – the breakaway, runaway (or measuring or continuation) and exhaustion gaps.
A breakaway gap is formed when the stock price breaks out at the completion of an important price pattern or sideways consolidation range. Breakaway gaps are of great interest to traders since they signal a potential change in trend. The formation of the gap highlights the bullishness or the bearishness of the breakout, depending upon the direction of the gap. A sideways consolidation is just a price range or band in which the stock or market has traded for a particular time period, a short-term. The upper boundary of the sideways consolidation acts as resistance, when the stock approaches from below while the lower boundary of the sideways consolidation acts as support when the stock approaches from the top. Market interest is required to break out of the sideways consolidation range.
The volume should pick up significantly during the breakout either up or down. Increased volume not only shows the high enthusiasm, it also means that those who are holding positions on the wrong side of the break out are squaring their position. The breakout point becomes the recent support, if the stock makes an upward breakout. Similarly, in a downward breakout, the point of breakout becomes the resistance level for the stock.
We would like to recollect one point about gaps which we had discussed in our previous techschool session. That is, generally the gaps get filled or closed because market dislikes vacuum. However, some gaps take quite some time to fill, it could be a day or a week or even a month. Hence, any trading strategies should not be executed on the belief that the gap would be filled or closed in the near future.
Refer to chart of Apollo Group (APOL) given below, which is listed on the Nasdaq. Following a downward gap in late March 2008, the stock found support at around $43 and consolidated sideways in a trading range of $43-$54 for almost three months. Triggered by the company’s Q3 earnings announcement which beat analyst’s expectation and hiking of the number of shares in the share buyback programme to $500 million during early July, the stock breakout of the range by forming a breakaway gap. Subsequently the stock began to trend up and encountered resistance at $68 in September.
Refer to the Brunswick Corp (BC) chart below representing a downward breakaway gap.
In technical analysis, even empty spaces have significance. Such spaces between the price movements where no trade has taken place are called gaps. Gaps can be seen in charts all time period, whether hourly, daily, weekly or monthly. They can however be observed only on candlestick or bar charts; they cannot be seen on line or close-only charts.
Gaps imply highly emotional periods. Most often, gaps form between a day’s close and the next day’s opening price. This happens because developments that unfold while the market is closed are absorbed and reflected in the opening price. While gaps are common in daily charts, they are rare in weekly or monthly charts since a gap can be formed on a weekly chart only between Friday’s close and Monday’s opening and between a month’s closing price and the next month’s open on a monthly chart. One can observe frequent gaps in the BSE sensex daily candlestick chart below.
The common classification of gaps is between upward and downward gaps. When the lowest price in a particular trading time period is above the highest level of the previous trading time period is known as upward gap. On the other hand, when the highest price in a particular trading time period is below the lowest price in the previous trading time period is downward gap.
Gaps generally occur in the morning due to overflow of orders. Why do the orders overflow? Reflection of the emotional events that happened after market’s close such as news release, earnings reports, order-win, merger or acquisition result in a deluge of orders at a higher or lower level depending on the impact of the development.
Generally, the gaps get filled or closed because market dislikes vacuum. However, some gaps take quite some time to fill, it could be a day or a week or even a month. Hence, any trading strategies should not be executed on the belief that the gap would be filled or closed in the near feature.
Gaps arise repeatedly in the equities markets; but they are rare in the forex market due to its high liquidity and 24-hour trading. On 8 July, Amrutanjan announced that it had sold its lands and buildings situated in Tamil Nadu, to LIC for a total consideration of Rs 110 crores. This emotional incident, reflected in the form of an upward gap in the subsequent trading session. Refer to the chart above. It took almost one month to fill or close the gap. Gaps occurring while the price pattern is in formation are called as common gaps or area gaps. That are usually closed and do not have technical importance.
The flags and pennants are common continuation patterns that have similar exterior. They also have the same volume formation and measuring criteria. These patterns are relatively shorter in time duration and should preferably be completed between one to three weeks.
The flags and pennants are short pauses in a vibrant market progress. An obligation for both the patterns is that they should be preceded by a sharp and approximately straight-line move. This vertical move could be in either direction, up or down. While this move pauses for a while, the flags and pennants are formed. The security resumes the prior trend following the completion of these continuation patterns. These patterns are the most trustworthy of the continuation patterns and they rarely, if ever, turn out to be a trend reversal.
If you are wondering why these patterns are called by different names despite similar features, here is why – there is a difference in the construction of these patterns. The flag patterns look like a rectangle or parallelogram drawn by two parallel trend lines that tend to slope in the opposite direction of the prevailing trend. In an uptrend the flag pattern would have a slight downward slope. On the other hand, in a downtrend the flag pattern would have a slight upward slope.
The pennant is recognized be two converging trend lines. This pattern is horizontal and very narrowly depicts a small symmetrical triangle. Interestingly, both flags and pennants take less time period to form in down-trends, between one and two weeks. The steep price decline/ascent prior to the formation of the pattern should be on heavy volume. While pausing, the volume activity should drop off as the pattern begins to form. A spurt in volume is mandatory when the security breaks out of the pattern.
Both the patterns have similar measuring implication. The sharp up-move or down-move is called flagpole. These continuation patterns tend to emerge at about the halfway point of the move. The move after the breakout will duplicate the flagpole or the move prior to the pattern formation. That is, the vertical distance of the flagpole is measured and its target is calculated from the breakout point of the flag or pennant. The BSE Sensex represents two downward flag pattern during June and their targets had been met. Refer the charts below.
We notice a pennant pattern in Ingersoll-Rand (India)
These are bearish patterns and portend that the security is likely to decline once the pattern terminates.
These patterns mostly occur during a down-trend but they can also be noticed at significant peaks.
Descending triangles are formed when consecutive troughs (at least two) are formed at approximately the same level and the intervening peaks are formed at successively lower levels.
The lower trend-line joining the troughs is horizontal while the upper trend-line, connecting the peaks slopes downward.
The troughs represent the support zone where all the selling is absorbed. The lower peaks reflect the bearish bias since they are formed due to the unwillingness of the buyers to pay higher price.
The pattern is deemed complete when the security moves conclusively below the lower trend-line accompanied by strong volume.
It is frequently observed that the price moves higher to re-test the lower trend-line following the break-out. To derive the target for this pattern, the height from the base to the upper trend-line at the widest part is deducted from the lower trend-line to derive the extent to which it can decline.
Volume action is similar to head and shoulder and other triangle patterns i.e., it contracts as the pattern unfolds and expands during the break-out phase. A descending triangle pattern is apparent in the chart of Bharat Petroleum depicted above.
The stock formed a descending triangle between February and May this year that marked a halt in the down-trend that began from the January peak. Volume expanded as the stock price rose in June to re-test the lower trend-line. The final crash took the stock price way below the projected target of the pattern that was at Rs 278.
The chart of Axis Bank above shows a descending triangle that was formed towards the peak of the structural up-trend.
The consecutively lower peaks denoted the waning of buying interest and would have sent a danger signal to those reading this chart.
The decline following the breach of the lower trend-linewas shallow but after the lower trend-line was re tested in May, there was a steeper decline that dragged the stock to the pattern’s projected target.
These chart patterns occur, when the stock stops trending up or down and moves sideways. The sideways price action on the charts is a pause in the existing trend. Termination of the continuation pattern also marks the resumption of the prior trend (that can be either up or down).
Reversal and continuation patterns can be differentiated based on the time consumed. The reversal patterns generally take longer to form and signify major trend changes while continuation patterns take less time and are classified as intermediate patterns.
Triangles, flags, pennants, wedge, rectangle and continuation head and shoulders are some of the continuation patterns. Triangles are classified into three types, symmetrical, ascending and descending. Each type of triangle has a different formation and forecasting implications. To draw most triangles, four reversal points (two peaks and two troughs) are the minimum requirement, while many triangles have six reversal points (tree peaks and three troughs). Symmetric Triangles are continuation patterns shaped by two converging trendlines (the upper line descending and the lower line ascending) along a price range that gets narrow over time-period due to lower tops and higher bottoms. The point of intersection of the two converging trendlines is called the apex.
The symmetrical triangle is also known as a coil. If the trend prior to the formation of the symmetrical triangle is up, then the pattern would have bullish implication and vice versa. The volume should shrink as the price swings narrow within the triangle and it should obviously pick up at the breakout. A break below the lower trendline of the pattern is used by technical traders to signal a move lower, whereas a break above the upper trendline signals the commencement of a move upward. Occasionally a return move will take place back to the penetrated trendline following a breakout. One can see a symmetric triangle formation in the chart of Gammon India shown below. This continuation pattern was followed by the stock continuing further.
Traders could have gone short while this triangle was unfolding to reap profits in the subsequent decline. The stock was on a downtrend from its January high of Rs 845 to its April low of Rs 361. However, the stock found support at around Rs 360 level during April and paused for two months (consolidated sideways). This sideways consolidation shaped into a continuation pattern known as symmetrical triangle. In this scenario, the symmetrical triangle pattern had bearish implication since the prevalent trend was down. During mid July, the stock broke below the lower trendline of the pattern and moved lower.
We also notice a symmetrical triangle pattern in chart of ABB spanning March and April. Following the breach of the down trend line, the stock moved lower.
Another pair of reversal patterns that are easy to identify and sends a thrill of anticipation through analysts are the double top and double bottom.
The frequency with which they recur on the charts make them the trader’s favourite.
Double-top pattern forms after an extended up-trend while double bottom forms after a prolonged down-trend. The double top pattern has two consecutive peaks approximately equal.
The intervening trough is used to draw the neck-line. Similarly, double bottom has two consecutive troughs approximately equal. The neckline is drawn across the peak following the first trough.
The double top formation resembles the letter “M” while the double bottom is similar to “W”.
The volume pattern and measuring techniques are same as head and shoulders and triple top.
Volume is generally heavier during the first peak/trough and lighter on the second peak/trough. A conclusive penetration of the neckline on heavier volume is a good warning that the price of the stock will continue to decline. It also implies that the pattern is complete and that the trend has reversed.
To project the target of the pattern, the distance between the peak and neckline is deducted from the neckline in double top. Similarly, the height of the trough is added to the neckline to arrive at the projected target for the double bottom.
An ideal double top pattern formation is noticeable in Chambal Fertilisers and Chemicals between December 2007 and January 2008.
The stock formed the first peak at Rs 95 and then declined to form the trough at Rs 75.
The second peak was formed with lower volume. In late January 2008, the stock conclusively penetrated the neckline at Rs75 and declined sharply.
While declining from the second peak, the stock also penetrated the medium-term up trend line thus signalling a trend reversal.
To workout the target of this pattern, the distance between the peak and neckline (Rs 95 and Rs 75), which is Rs 20, is deducted from the neck line at Rs 75, giving us the target of Rs 55. Once the stock broke through the neckline, the price objective was achieved in just two trading sessions.
We also notice an ideal double top pattern in ONGC in the chart above
Triple bottom reversal patterns are relatively rare to spot in charts though it does not diminish their utility in identifying major reversals in trend. The triple-bottom is formed by three consecutive troughs. The trend-line joining the two intervening peaks ought to be penetrated with high volumes in order to confirm and mark the completion of the pattern. Volumes are seen to decrease with each succeeding troughs whereas it expands once the break-out above the trend-line happens.
The significance of a support increases once the price reverses higher after an attempt at penetrating that level. If the stock fails thrice at declining below a certain level, the confidence among investors that the stock has bottomed gains force and results in a meaningful rally.
The measuring implication for the triple bottom is similar to that of triple tops and head and shoulders. The distance between the lowest trough and the trend-line is measured and added to the break-out point to give the level to which the ensuing rally can take the stock.
Since the sentiment is bearish during the decline preceding the triple bottom, number of traders would be holding short positions at the first trough. The rally succeeding the first trough is mainly propelled by these short positions getting covered. Once these positions are covered, the rally loses steam and the second trough is formed. But short sellers lose conviction on repeated attempts to penetrate the support and this in turn translates in to lower volumes in succeeding troughs.
The chart below of Areva T&D shows a triple bottom reversal pattern. Note the contracting volume with the successive troughs and volume expansion during price break-out.
It is not imperative for the troughs to be formed at exactly the same level. They can be 1 to 3 per cent higher or lower than the preceding troughs. But if the second and third trough are formed at higher levels than the first, it is a positive since it reflects buying interest. It is also common to face difficulty in differentiating between an inverse head and shoulders and a triple bottom pattern. In inverse head and shoulders, the second trough is the lowest and the first and third troughs are formed at roughly the same level. This need not be so in triple bottom pattern.
A triple bottom reversal was also apparent in the daily chart of Sensex in March and April 2007
One of the most commonly used reversal patterns is the head and shoulders pattern that is a top reversal pattern.
Inverse head and shoulders pattern or head and shoulders bottom is a bottom reversal pattern and indicates that an uptrend is likely to commence.
The top reversal patterns are shorter in duration and more volatile when compared with bottom reversal patterns. Bottom reversal patterns generally take more time to form.
Inverse head and shoulders pattern forms after a prolonged down trend. On completion of the pattern, we can witness a change in trend.
This formation has three consecutive troughs. The middle trough is the lowest (head) and the two exterior troughs (shoulders) are slightly higher than the middle trough and are approximately equal. These shoulders can be of different widths as well as different heights.
The peaks following the troughs are connected to form a neckline. The pattern is confirmed and completed only when the neckline is penetrated with increase in the volume.
Let us now understand inverse head and shoulders with a chart example.
The two-year down trend from 1999 in Ingersoll-Rand India (refer above chart) reversed after the formation of an inverse head and shoulders pattern. The stock almost took 18 months (August 2000 to February 2002) to complete the pattern. Longer the duration of the price pattern, the greater its significance.
The volume was heavy in the left shoulder and the head formation. This indicates greater selling pressure in the first two troughs.
The up move from the head shows an increase in volume, indicating fresh buying interest or change in investor sentiment.
In February 2002, the stock conclusively broke through the neckline accompanied by heavy volume.
Typically after a break-out, a return move back to the neckline is quite probable and in our example the stock made a return move (a pull back) to the neckline.
Subsequently, the stock resumed its uptrend and continued to trend upward.
We also notice an inverse head and shoulders pattern in the Wipro chart shown above, spanning between January and April 2008.
Reversal patterns are very useful to chartists in anticipating a change in the prevalent trend. We took a peek at what reversal patterns are and the intricacies of the head and shoulder pattern in our last tech school. We move on to triple top reversal patterns this week.
As the name suggests, triple top pattern consists of three peaks at roughly the same level with two intervening troughs. The volume tends to decrease with each consecutive trough and it expands while the pattern breaks below the baseline. The measuring implication for this pattern is similar to that of the head and shoulder pattern. The move following the break-out will be at least the distance between the highest point in the pattern and the baseline.
The triple-top pattern is confirmed only after the price moves conclusively below the baseline connecting the two intervening troughs. The psychology behind the pattern is that as the up-trend progresses, investors get nervous about an impending reversal. However, in the reaction following the first peak, many investors who could not buy the stock at lower levels, rush in to buy. But in the down move after the second peak, there are fewer takers for the stock and the third peak is formed with the lowest volumes.
Repeated attempts to surpass a certain resistance, has a demoralising effect on the investor morale and there is an exodus from the stock that is reflected in the expanding volumes on the break-out.
Let us consider the real-life example of the triple top formation in the weekly chart of Bajaj Holdings between May 2006 and February 2007. In this instance, the stock made a triple top around Rs 1,170. Though there was an intra-week move above this level in May 2006, it ended the week below the level. In real-life instances the peaks rarely form at precisely the same level. It would be best to give a leeway of 2-5 per cent difference between the three peaks. The stock re-tested the baseline following the break-down before finally heading lower. The difference between the baseline (Rs 900) and the peak (Rs 1,177) was Rs 277. Deducting this number from the baseline, we get the projected target for the pattern at Rs 623. This target was achieved by March 2008.
Another example of triple top pattern is displayed in the daily chart of Crompton Greaves shown above
Reversal patterns are invaluable in identifying an imminent trend reversal in the charts. Here are a few common introductory points for all reversal patterns:First, for any reversal to take place there should be a prior trend. For head and shoulder pattern, the existing trend would be an up trend. On the other hand, for inverse head and shoulders, the prior trend would be a downtrend.
Reversal patterns need to be confirmed by penetration of key trend-lines. Jumping to conclusions regarding a trend reversal prior to the penetration of a trend line can lead to disastrous consequences.
Note that topping patterns are shorter in duration and more volatile when compared to bottoming patterns. Another significant confirming aspect in the completion of all price patterns is that volume should increase in the direction of the market trend and is a significant confirming aspect in the completion of all price patterns. Price patterns also have measuring techniques to conclude minimum price objective.
One of the most commonly used reversal patterns is the head and shoulders pattern. The head and shoulders pattern has three consecutive peaks with the middle peak being the highest (head) and the two exterior peaks being lower than the middle peak (shoulders) and approximately equal. The troughs of each peak when connected is known as a neckline.
Volume plays a vital role in confirming the pattern. The advance of the left shoulder and the decline of the right shoulder should have higher volume than the advance of the head. The pattern completes its formation when the neckline is broken with increase on the volume.
If we take a close look at the chart of Bank Nifty we can find a Complex Head and Shoulders Pattern. The formation of the pattern began in late October 2007 when the index formed its left shoulders. The head was formed in January 2008. Later on, the index found support at the neckline at 8650 level and bounced off forming right shoulders. In late February, the index conclusively broke through its neckline.
Typically after break through, a return move back to the neckline is quite probable.. However, in this case it did not occur. The breach of the neck line was accompanied by a spurt in volumes as is required. As for measuring techniques, in this case, the top of the head is approximately at 10600 and the neckline is at 8650. The vertical distance from the neckline to the top of the pattern is 1950. This 1950 would be measured downward from the neckline (8650-1950=6700), giving us the price objective at 6700. The index reached this target in mid March.
The Bank Nifty formed a long-term Head and Shoulders pattern, spanning almost an year between June 2007 and June 2008.
The index broke through the neckline in early June, made a return move back to the neckline and than then continued to decline. But as the pattern is very large and the time period is also long, achieving the price objective can take more than a year.
Novice investors wishing to get acquainted with technical analysis would have been bemused by quaint terms such as head and shoulders, cup and saucer, neckline, double tops, rounding bottoms and so on, that appear frequently in technical analysis literature. What is more, these terms are often cited as a justification for supporting a buy or sell decision.
Though the above-mentioned terms sound like parts of the human anatomy or articles of everyday usage in homes, they are actually patterns that frequently occur in charts. John J Murphy defines price patterns as pictures or patterns that appear on price charts of stocks or commodities that can be classified into different categories and that have predictive value.
Let us take the daily chart of ACC as an example. This stock formed a head and shoulder formation between July 2007 and December 2007, as marked in the chart. This is a top reversal formation and implies that the stock is on the verge of declining sharply.
The stock price declined below the neck-line in January and is currently down 40 per cent from that level.
Most of the patterns use volumes to corroborate the signals. For example, the breach of the neck-line ought to be accompanied by a spurt in volumes in order to qualify as a classic head and shoulder pattern.
Similarly, continuation patterns or sideways moves ought to record a decline in the traded volumes.
That brings us to the classification of patterns. The two broad categories into which chart patterns can be classified are, reversal patterns and continuation patterns.
Reversal pattern signal the termination of a prevalent trend and the beginning of a new trend in the opposite direction.
Continuation patterns, on the other hand, unfold during a trend and the price action following the pattern would be in the direction of the prevalent trend.
Traders can anticipate the future movement of a stock based on the pattern that in unfolding in the chart and take an appropriate position (long or short) in advance. Periods of lull during which continuation patterns unfold are very useful for traders who are betting on the continuation of the prevalent trend to take position.
The chart above of Gammon India depicts a symmetric triangle formation. This continuation pattern was followed by the stock continuing further. Traders could have gone short while this triangle was unfolding to reap profits in the subsequent decline.
Apart from aiding in generating buy and sell signals, moving averages can also shed light on future price expansion. In this class of the tech school, we will be looking at what moving average compression (MAC) is and how it helps in trade set ups. In plain English, moving average compression is a concentration of moving averages with different parameters. When it take place on a price chart, the moving averages appears knotted together.
In chart 1of Allahabad Bank, we can view three different simple moving averages, which are plotted based on Fibonacci numbers namely 13, 21 and 34 days.
The point where these moving averages come together and form one line is referred to as Moving average compression (MAC).
MAC works in identifying trade set ups as it represents periods of market contraction. As the price activity cannot be sustained forever, MAC is mostly a predecessor to price expansion. A trader can initiate a trade in the period when the MAC is perceived in the chart to be ready in position to take advantage of the price break-out when it takes place.
In Chart-1, the three simple moving averages are knotted together and appeared as a single line for a number of trading sessions (enclosed by a circle) in early February. This contraction indicated that the stock price is likely to expand soon.
This is precisely what Allahabad bank did in the later part of February and March. The success of the MAC tool in not dependent on the parameters used. One can use very long period moving averages such as 50, 100 and 200-day simple moving average such as that used in chart-2 (Punjab National Bank).
Chart 3 depicts MAC with 13, 21, 34 and 50 day moving averages.
Many chartists use multiple moving averages and use the cross-over of these averages to generate or to confirm buy and sell signals, which we had discussed in our previous Tech School.
Moving averages (MA) can be used to identify the point at which a position (buy/sell) can be initiated and the duration for which the position can be held on to. In other words, these technical tools help an investor to stay on the right side of the trend for as long as possible.
A buy is signalled when the stock’s closing price crosses above the moving average from below after a down-trend.
A sell is generated the stock’s closing price moves below the moving average from the top after an uptrend.
As long as the stock price is above the MA the trend is defined as bullish. In the same way, as long as the stock price is trading below the MA, the trend is defined as bearish.
When using multi moving average lines with different time frames, the buy and sell signal or the identification or confirmation of trend reversals are done when the fast (such as 21-day SMA) moving average crosses the slower (such as 50-day SMA) moving average.
This crossing of moving averages is called moving average crossover.
In chart-1 of ABB the stock price crossed below the 21-day moving average (thin line) in mid-January, indicating sell (see box). The 21-day moving average crossed below the 50-day moving average (thick line) from the top (see circle) a little later, indicating the end of the uptrend and the beginning of the new downtrend.
Chart-2 of Piramal Healthcare depicts signals generated by moving averages in an up trend.
In August 2007, the stock price crossed above the 21-day moving average, indicating a buy (see box). Subsequently the stock began to trend upward, the 21-day moving average crossed over the 50-day moving average (see circle) confirming the end of downtrend and the commencement of a new up-trend.
In case of stocks in a non-trending or sideways consolidation phase, the multiple moving averages are difficult to implement .
Having discussed the basic properties of a moving average and the two popular kinds of moving average, simple and exponential, let us now move on to other more complex ways of calculating the moving average line.
Moving average line can also be plotted with the aid of linear regression techniques called the time series moving average or the linear regression indicator. A time series moving average plots the last point of the line instead of plotting a straight linear regression line. This moving average is plotted using the specified number of periods for each day. The individual points are then linked together with a line.
A triangular moving average is a weighted moving average where middle values are assigned more weight compared to the early and late values. It is merely a double-smoothed simple moving average, which is very vital in a volatile market as it helps to spot significant trends without difficulty.
A variable moving average is an exponential moving average that’s able to automatically alter its smoothing constant based on the volatility of the data series. Sensitivity is increased by giving more weight to the current data thus making it a better indicator for the short term.
Volume adjusted moving average incorporates volume in its calculation. In calculating this average line under this method, the weights are assigned proportionate to the volume recorded on that day. Thus days with higher volume is given greater weight than days with lower volumes.
We had discussed some of the basic technical analysis tools in our previous lessons such as up trendline, down trendline, support and resistance. The moving average gives buy and sell signal at the apt juncture that can be used by traders and investors alike to take or pare positions.
With the recent preoccupation among our analyst fraternity with the moving averages in general and 200-day moving average in particular, most of us would like to know what a moving average is. As we all know, an average is the middle value for a set of data. Since the value of the moving average line is calculated afresh for a pre-determined period with the latest data, the average “moves” over time. The moving average line helps in smoothing the data and points towards the underlying trend in the chart. Moving averages is a trend following and smoothing tool.
There are numerous types of moving averages. The more popular are the simple moving average and exponential moving averages (or exponential weighted moving averages). To construct the simple moving average or arithmetic mean, the required values for a particular period is taken and its average is calculated. For a 20-day moving average, the latest 21-days values are taken and its average is calculated by adding all values and dividing it by 21. Refer to chart 1 depicting Bongaingaon Refinery for a 21-day simple moving average.
To construct the exponential moving average (EMA), the latest data is multiplied by an exponential percentage thus giving greater weight to the most recent data. The formula for an exponential moving average is:
EMA (current) = [(Price (current) - EMA (previous day)) x Multiplier] + EMA (previous day).
Multiplier = 2 / (N + 1)
A “Multiplier” is used to express the degree of weighing decrease, where N is the specified number of periods. The exponential moving average is more sensitive and moves very close to the stock price, as the greater per cent of weight is given to the most recent data. As we can see from Chart 2 depicting 21-day exponential moving, the line moves much closer to the price than a simple moving average.
One of the tenets of technical analysis is `price discounts everything’. To accept this tenet, one needs to spend at least a few years poring over the industries and companies’ performance data, trying to correlate the stock price moves to such numbers. This cumbersome exercise will finally lead to dawning of the ultimate truth – price movement in stock markets is not always rational.
That is the reason why most technical analysts believe that study of the market price is sufficient in forecasting the future trend in prices. If the stock is in an uptrend, it means that the factors affecting the price are bullish – so demand is greater than supply. The reverse is true in a downtrend i.e. the factors affecting the price are bearish – so supply is greater than demand.
Many a time charts tend to give advance signals prior to the news outbreak to the public. If we consider the ongoing talks about Bharti Airtel acquiring a stake in Johannesburgbased MTN, the news was reported in the media on May 6 on which day, Bharti crashed 5 per cent. But the stock had already hit key resistance levels and given a sell signal on April 28. Followers of technicals could have opened a short position well before the down-move. Chart 1 depicts the daily chart movement in Bharti.
Let us consider another recent example. The stock price of BASF moved up sharply from Rs 208 to Rs 258 between
May 8 and May 13. However, the news of the parent company planning to make an open offer to the Indian public was publicised only on May 15.
One of the reasons for the superiority of the study of market action is the inefficient nature of our stock markets where information is not disseminated evenly to all. Insiders who buy and sell based on news and information that is known to a select few cause signals to crop up in advance in charts.
But this tenet is not infallible. Market action is at times entirely manipulative and undertaken by unscrupulous entities with the sole intention of luring na‹ve investors into the counter. Technical indicators give false signals in such phases. There are two ways in which such stocks can be dealt with. The easier recourse would be to avoid trading in them. The second way out would be to move in and out of such stocks quickly, i.e. keep booking profits at every ascent.