Teach A Man To Fish And.........

[Saint]

Thanks for your remarks Srisara,
I understand that you have to draw the line close to the daily bottoms. Hope to see a proper drawing from Saint in the same chart. Also I am attaching another pic of malabar building met which i thought showed a double bottom pattern before the trend change during the period of January to July 2005. Please excuse me seniors if i am making blunders or being bit over enthusiastic
Thanks in advance

Hi Allepian,

Nope,not over enthusiastic at all.........had said previously that a thinking mind will have questions.So it's great that you have doubts and want clarification.Feel free to ask......may not answer you immediately,but you will get your answer over few days.

Yes on MALABAR BUILDING......not very clean though,as low volume stock.But yes,that W pattern started a run that made its highs in AUG 2005.

Happy Trading!
Saint

 

[Saint]

REVERSAL PATTERNS (CONT.)

3. Head and Shoulders Pattern

---Bearish,reversal pattern signalling the end of the current uptrend.
---Basically looks like the silhouette of a human left shoulder,head and the right shoulder.

---Like the Double Top,strong volume push prices upwards forming the "left shoulder".The pullback is on lesser volume,then another strong rally on good volume,forming the "head"......but this time,the volume causing this rally although forming higher prices,is now on relatively lower volume as compared to the vol. in the rally causing the left shoulder.....as the stock pulls back to the neckline,and starts rallying again to form the rt.shoulder,now volume is very noticeably lighter.

---The break of the neckline confirms the H & S pattern(Neckline is the line connecting the two troughs on either side of the head).Volume expansion is noticed as the pattern confirmation takes place.......and the stock or index is now in adown trend.(Reverse happens now......vol. expands on the down fall and decreases on a return move up).

Trading-Wise:ENTRY:The first down day below the neckline confirms the pattern.......short as the neckline breaks or enter short on a weak rally back to the area of the neckline.This line that was formerly strong support now acts as a stiff resistance.Short half on that return move,and the other half below the low of the confirmatory bar.
TARGET:First target would be.......calculate the difference from the head to neckline.Add that to the low of the bar that confirmed the pattern.
STOP:The high of the right shoulder.

One Important Condition:Once the neckline gets broken,expect a return move......but at all costs the price should not re-break the neckline upwards.If this happens,it is called a FAILED H&S PATTERN.Like a failed breakdown,this acts as a bear trap.....and is bullish.So get out if that neckline gets broken back upwards...

4. INVERSE H&S PATTERN
-Reverse of the above.
-reversal pattern that ends a downtrend.
-Tradewise,all reverse of above.

Happy Trading!!
Saint

 

[Dhanya]

Hi Saint,

With the Semi-Log,Trendlines fitting better.Thanks a lot.....

Regds,
Dhanya

 

[rahulg77]

hi Saint,

All so beautifully explained. It took me so long to read and understand from the magee book. But you explained it in so simple words. If you do not mind I would like to add something in the inverse H&S pattern if you do not mind. Everything would be reverse of the above except the volume on the right shoulder would show increase instead of descrease as in H&S. PLs correct me if I wrong. What I read is volume is very imp to confirm a H&S too so I thought it woould be nice if we bring this diff out.

Sorry for adding in your thread.

Rgds
Rahul

 

[rahulg77]

Hi Saint,

I have been trying to find a H&S pattern in Indian stocks. COuld you pls attach some if you have any. Also waht would be the time period for daily and weekly pattern formation.

Rgds
Rahul

 

[rahulg77]

Hi Saint,

Sorry am moving ahead of the thread but I think I found a C&H pattern in formation. Its completed the cup now waiting for the handle. Could you pls see Riddhi Siddhi and see if you think it is one and what should i look in it for confirmation if the handle does form.

Rgds
Rahul

 

[Alleppian]

Hi Saint,
Thanks for the explanation and picture.So in a sideways movement the trend line can be drawn only in a day to day or hourly basis close to where the action takes place(ups and downs) and since there isn't any long term trend change- don't draw it.Am i correct ? I just want to make sure about the basics.
H & S pattern explanation is very good. Hope to see a sample pic with all the target calculation trading strategy (are we asking too much?)
Thanks again

 

[Saint]

VOLUME and the H & S

Volume plays an important role in us calling a particular pattern a H&S.Let us go through the Volume bit.

When the left shoulder is made,in both the h&s and inverted h&s,expect strong volumes.When the head is made,it is on (usually) decreased volumes as compared to the left shoulder.But as Rahul pointed out a key difference,the rt shoulder on a h&s is on usually lower volumes.Volumes increase wnen necklines break,and patterns get confirmed.And as all breakdown patterns,a break below support is accompanied by strong vols.,and then the return rally to what is now resistance is on low volumes,followed by strong vols again,bringing the stk to newer lows.

But,in the Inverted H & S,once again,we have strong volumes in the forming of the lt shoulder.Again,we have decreased volumes in the forming of the Head.But,here,we have increased volumes taking prices back to the neckline,then a dip in volume as the stk tries to make the rt shoulder,and then a burst in volume taking it through the neckline.

Summarising,H&S=Lt shoulder-Strong vols
Head-Lighter volumes
Rt shoulder-Same as or lighter than the head.
*Increase in volumes as neckline breaks to the downside.

Inverted H&S=Lt shoulder-Strong vols
Head-Lighter vols
*Increase in volumes,sometimes higher than before the formation of lt shdr
Rt shoulder-Dip in vols from the rally
*Once again,an increase in volumes breaking the stk out over the neckline.

An important thing to remember is that markets or stocks do not need strong volumes for the breakdown from the h&s as it basically falls with its own weight,but you need strong volumes for a breakout from an Inverted h&s.

Thanks Rahul

Saint

 

[Saint]

REVERSAL PATTERNS(CONT.)

5.CUP WITH HANDLE FORMATION

-also a reversal pattern,but more obvious at the bottom rather than at the top.
-basically looks like a coffee cup with a handle.
-There is a basing stage,accumulation phase(cup),then a breakout,followed by a pullback,forming what looks like a handle.
-Breaking out of the top of the cup is confirmation of a change in trend.

-Few criteria:The cup should be more rounded than a "V".
The handle should be in the top part of the cup,not too deep.
Cup pattern should take at least 7weeks to form.
Volumes should contract in the handle and expand on b/out.

-From a trade perspective,the buy is at the area where the top of the cup is taken out.Stop:At the low of the handle.Target:Measure the distance to the low of the cup.Add that to the breakout area.

6.REVERSE CUP N HANDLE
-Occurs at the top,rest all reverse of the above.

7.BROADENING FORMATION

-When the trendlines,from left to right,converge.....it's called a triangle.When the trendlines start from a point and diverge as we go from left to right of the chart,that's called a Broadening Formation.
-One more interesting feature:In a triangle,volume decreases within the pattern.In a Broadening Formation,volume expands along with wider price swings.
-This is a BEARISH pattern.
-Due to its divergence,the stock makes a high and a low,then high2 will take out previous pivot high,then prices fall to low2,which takes out the previous pivot low.Then prices move upwards to form high3,which is higher than high2 or high1(not necessary,can even be same height at times).
-Three successive higher peaks,and two declining lower troughs complete this pattern.Confirmation is when the low 2 is taken out as prices start making new lows.

Shall keep throwing out examples of reversal patterns the next few days as and when I come across.

All the best!
Saint

 

[SGM]

If my questions are not in order with your thread, you can answer them with ur preference.

Hello,
You have good valid questions. But as you have stated, they can be asked/answered in other threads. Let me try to point you to relevent threads.

http://www.traderji.com/data-feeds/

http://www.traderji.com/software/

1. To do day trading, is the trading software a must or we can do without it?
2. What are the sources which we get live data from?
3. Do we have any freeware/priced chart/trading software which actually helps?

If you want to do day trading based on buy/sell signals from technical analysis you will need a software and live data feed. plz refer to the above mentioned threads in the forum, i am sure all your question will be answered.

As for the next one, I would also like to be enlightened

4. How do you actually short list the stocks(out of so many) for trading? what criteria is used?

Regards
Sanjay