pnbalaji said:
Hi Vvonteru,
I started reading the book "Come into my trading room" of Alexander Elder as per your suggestion. The book is really good and I would like to thank you for your great suggestion.
However, I have a small question. I could not understand much about the "Kangaroo tail" that was explained in the book as it was not explained with the help of any diagram or chart?. Could you please explain when ever you get some spare time. Hope that I am not disturbing you from your schedule. If you could explain it with the help of some chart, that would be helpful for me and other TA learners.
Thanks in advance,
Balaji.
U have to wait on the chart. But, let me explain what I understood (its been a while I read the book). Lets start with how stock prices go up or down. This is due to the demand for buy or sell. Lets take an example of RCVL. This has broken out of the trading range recently and closed at 320.60. If no demand exists for buying above 320.60 (no buy orders above 320.60) and sell orders exist below 320.60, the stock price will come down. I think so far U already know.
Now imagine some good news comes for RCVL. There are lots of traders who buy on news. They jump on news and put in buy orders. Most of them give market orders (they don't want to miss the action). The market makers (MM, who execute all the buy and sell orders in our behalf) see so many buy orders for RCVL and increase the buy price. Since these are market orders, they get executed no matter what the price is. Lets say more buy orders come in. MM see this as an opportunity and increase the price (On the intra day chart, U will observe a long open and close tick). They will push it so high till a point where no demand exists. Once U have this scenario, open a daily chart. The tick on that will have huge high (tail) low range. What we should read from the tick is that there is no demand at this high point and go for a short next day. Elder talks about the levels and stops for doing this. Similar is the case when the stock goes down.
Now, identifying the Kangaroo Tail is tricky (infact, I used to argue with my friend all the time. He used to look at some volatility on a day and say, there goes the kangaroo), just like using any indicators. Huge range can be there on any day. But, Kangaroo tail only applies on extremes. For example, when stock on a bad news is going down. After several days of sell of, U see a huge down bar, now thats a Kangaroo Tail. Why, because, the stock has been going down so low and at some point the MM tried to sell the last bit and found no orders to sell below that point. Similar is the case of upside.
Hope U got the point. I will see if I can get hold of a chart on it.
Dinesh, I will get back to U.
Guys, try to limit Ur request for stock suggestions to 2 or 3. Looking at a big list, I feel lazy and postpone it. What U could do, just give me 2. Later on, come with more.
