Hi saint...thanks for the additional notes.
Yes, as you said volume is greatest in the formation of the left shoulder as a new peak is being generated.
The pullback to the down at the left neckline is made with less volume, and the subsequent rally to the 'head' is again on thin volume, and so on till the resistance point which was marked by the left shoulder, is tested on the right shoulder. So far so good.
As we are talking of a
trendline reversal, the assumption is that there was a prior up-trend in place to begin with. The rules and logic both suggest that an existing trend is firmly in place till clearly broken.
With the H&S, identification of neckline support coming down off the right shoulder, and volume confirmation on the break are the most critical factors. As the support at the right neckline is broken, it indicates the compulsion to sell at lower prices. These lower prices, combined with an increase in volume indicate an increase in supply as more sellers flood in.
(Clearly then, the force required to break a support would only come on increased volume, just as in the case of breaking a resistance.)
While the recognition or spotting a trendline breakdown is of critical importance, it's also vital to understand that a trendline may be broken but not necessarily reversed. This is exactly what happened with the H&S of KtkBank we are discussing.
At no time did the support level (108.75) marked at the left neckline get broken while the price fell off the head. It stopped at 111.45 and went back up to test 125, the peak on the right shoulder, well above the 119 peak of the left shoulder. It then fell to get supported at 111 again, and yet again climbed up at 116.35, yesterday's close. The volume/sellers needed to effect the break never showed up. There is no compulsion yet to sell at lower levels. From a pure technical perspective, the reversal has not happened.
So, as things stand today, there is no distinct indication of KtkBank turning bearish till 108 is clearly broken with volume.
I believe, compared to Double Tops or Bottoms, which also indicate trend reversal, the H&S patterns can be tricky to recognise and predict.
My call on this was at 120 (on the right shoulder) as the price then was breaking the resistance of 118-119 formed at the left shoulder. As there was no hindsight of a H&S then, the assumption was that a previous resistance was being taken out. The volume was nice, over 30 lakhs. The first target called was 130, the lows formed earlier at the head. The price did rally to 125 highest close with intraday high at 128 off. From there it fell off to stop at 111 again, the earlier low of the right-side neckline support. Here a Double Bottom of sorts took place at 111 with a resulting rise to 116 off.
Yes, interesting our divergent calls, to say the least.
Hi Karthik...yes, just checking out Amibroker, a charting software.
Thought I may be eligible to play with these thing by now!
Notice the ascending triangle at the left most side!
This is for fun partially...I do understand the descending formation you pointed out last night.
Cheers.
