new post on the outlook on Indian Market for next week.....
Visit:
www.sumitkgupta.com
Tuesday, June 29, 2010
Monday, June 28, 2010
Sunday, June 27, 2010
NIFTY is expected to run down till 6th / 7th July (14 calendar days) to 5080 / 5008.
It is then expected to run up about 600 points in next 29 to 43 calendar days, making a top around 8th August.
The LONG trading opportunities for today are not being posted in view of above position of NIFTY. In this kind of market, only strong Trades should be undertaken because if the overall market moves down, it drags along with it the good trading opportunities as well.
It is then expected to run up about 600 points in next 29 to 43 calendar days, making a top around 8th August.
The LONG trading opportunities for today are not being posted in view of above position of NIFTY. In this kind of market, only strong Trades should be undertaken because if the overall market moves down, it drags along with it the good trading opportunities as well.
Thursday, June 24, 2010
new post at www.sumitkgupta.com
Identifying trading Opportunities
We have covered good ground in terms of basic understanding and learning of stock markets. We have reached the level where we can draw up Swing charts and determine the trend using the Swing Charts.
It’s time to get into the identification of trading opportunities in a stock market i.e. a particular stock, index or commodity. We need to have.......
Identifying trading Opportunities
We have covered good ground in terms of basic understanding and learning of stock markets. We have reached the level where we can draw up Swing charts and determine the trend using the Swing Charts.
It’s time to get into the identification of trading opportunities in a stock market i.e. a particular stock, index or commodity. We need to have.......
Wednesday, June 23, 2010
Monday, June 14, 2010
Saturday, June 12, 2010
Thursday, June 10, 2010
New post at: www.sumitkgupta.com
Charts – Support and Resistance
Let’s look at few charts to understand Support and Resistance and cement the concept clearly in our minds.
If it looks like heavy stuff, it may be. That’s why we are breaking it into various pieces. When you start a thousand mile journey, you don’t expect to complete it in one straight go. You break it into various parts and complete it. How can an elephant be eaten??
more at www.sumitkgupta.com
Charts – Support and Resistance
Let’s look at few charts to understand Support and Resistance and cement the concept clearly in our minds.
If it looks like heavy stuff, it may be. That’s why we are breaking it into various pieces. When you start a thousand mile journey, you don’t expect to complete it in one straight go. You break it into various parts and complete it. How can an elephant be eaten??
more at www.sumitkgupta.com
Wednesday, June 9, 2010
Glass Floors and Ceilings
We keep hearing the stock analysts using the terms support and resistance, everywhere and every now and then. When I heard those terms, I always wondered what these terms mean. Believe me, even after 6 months into the trading, I didn’t EXACTLY understood, what the heck Support and Resistance were.
One day I read an article some where in a trading newsletter. I don’t remember the name of the author of the article so it’s difficult to give a credit. It was an interesting articlle with the same heading “Glass Floors and Ceilingsâ€. The author used the words Glass Floors and Ceilings to explain the meaning of Support and Resistance.
Support means a price level at which buying is strong enough to pull the prices UP. Resistance is just opposite of it, means, a price level where selling is strong enough to push the prices down.
Let’s look at a Support level as a Glass Floor. If you throw a ball at a floor, what does it do. It bounces UP. It comes down and then bounces again. And again. And when it has bounced enough, it rests on the floor. You might say it’s because of law of gravity. I would say it found SUPPORT on the floor level and hence, it bounced back.
In stock market, when prices of a stock or commodity are falling down, they hit a floor i.e. the prices would either hold there for some time or just hit and bounce back. Hence, SUPPORT is sort of a floor.
Now, consider Resistance as a ceiling. Leave a gas baloon in a room and till where can it go. To the roof or CEILING. The pressure of gas inside it, pushes it up but is not strong enough to push it through the Ceiling. It faces ‘resistance’ at the roof. In case of stocks, the Buying pressure or the Demand of that share or stock or commodity, pushes the prices up but only to a certain level.
Why the term GLASS?
Because glass can be broken.
Similarly, when stock prices hit a Support level multiple times, the glass Floor becomes weaker. Generally, if a Support level is hit 4th time, the support breaks and prices go further below. It might happen on 5th time. But if it doesn’t, then you can be sure, that is very very very….. strong support. So, any time when a stock price comes near that Support level, you can be more confident to buy it.
Reverse is true for Resistance!
But then, how come each analyst comes up with multiple Supports and Resistances. They say, if it breaks below 5000, it will find support at 4800. If it breaks that level, then next level will be 4500. If it holds at 4500 (support), then it will resistance at 4800 and then at 5000.
Once a stock breaks through a Support level, then that Support level becomes a Resistance. And if breaks above a Resistance, that Resistance level becomes a Support.
You can look at stock market as a building of multiple glass floors. Let’s say a building has 4 floors. Ground Floor(GF), First Floor, Second Floor and Third Floor. When you are at GF, the GF floor is your support and its ceiling is your Resistance. When you move up to First Floor, the ceiling (resistance) of Ground Floor becomes the floor (or your support) on Fisrt Floor. When you further move up to Second floor, first floor ceiling (resistance) will become your support (or floor) on second floor.
Now, think of above when you are moving down from the top floor to second floor to first floor and ground floor.
It’s that simple. Isn’t it!!!
We keep hearing the stock analysts using the terms support and resistance, everywhere and every now and then. When I heard those terms, I always wondered what these terms mean. Believe me, even after 6 months into the trading, I didn’t EXACTLY understood, what the heck Support and Resistance were.
One day I read an article some where in a trading newsletter. I don’t remember the name of the author of the article so it’s difficult to give a credit. It was an interesting articlle with the same heading “Glass Floors and Ceilingsâ€. The author used the words Glass Floors and Ceilings to explain the meaning of Support and Resistance.
Support means a price level at which buying is strong enough to pull the prices UP. Resistance is just opposite of it, means, a price level where selling is strong enough to push the prices down.
Let’s look at a Support level as a Glass Floor. If you throw a ball at a floor, what does it do. It bounces UP. It comes down and then bounces again. And again. And when it has bounced enough, it rests on the floor. You might say it’s because of law of gravity. I would say it found SUPPORT on the floor level and hence, it bounced back.
In stock market, when prices of a stock or commodity are falling down, they hit a floor i.e. the prices would either hold there for some time or just hit and bounce back. Hence, SUPPORT is sort of a floor.
Now, consider Resistance as a ceiling. Leave a gas baloon in a room and till where can it go. To the roof or CEILING. The pressure of gas inside it, pushes it up but is not strong enough to push it through the Ceiling. It faces ‘resistance’ at the roof. In case of stocks, the Buying pressure or the Demand of that share or stock or commodity, pushes the prices up but only to a certain level.
Why the term GLASS?
Because glass can be broken.
Similarly, when stock prices hit a Support level multiple times, the glass Floor becomes weaker. Generally, if a Support level is hit 4th time, the support breaks and prices go further below. It might happen on 5th time. But if it doesn’t, then you can be sure, that is very very very….. strong support. So, any time when a stock price comes near that Support level, you can be more confident to buy it.
Reverse is true for Resistance!
But then, how come each analyst comes up with multiple Supports and Resistances. They say, if it breaks below 5000, it will find support at 4800. If it breaks that level, then next level will be 4500. If it holds at 4500 (support), then it will resistance at 4800 and then at 5000.
Once a stock breaks through a Support level, then that Support level becomes a Resistance. And if breaks above a Resistance, that Resistance level becomes a Support.
You can look at stock market as a building of multiple glass floors. Let’s say a building has 4 floors. Ground Floor(GF), First Floor, Second Floor and Third Floor. When you are at GF, the GF floor is your support and its ceiling is your Resistance. When you move up to First Floor, the ceiling (resistance) of Ground Floor becomes the floor (or your support) on Fisrt Floor. When you further move up to Second floor, first floor ceiling (resistance) will become your support (or floor) on second floor.
Now, think of above when you are moving down from the top floor to second floor to first floor and ground floor.
It’s that simple. Isn’t it!!!
Tuesday, June 8, 2010
Trading Plan
(www.sumitkgupta.com)
By now, I believe we are a bit comfortable with bar and swing charts construction and trend determination. We also understand few important stock market terms like support and resistance (or glass floors and ceilings J), bull and bear market, long and short trades, STOP LOSS etc.
When you are an investor, you need to have an investment plan. Similarly, traders need to have a trading plan. We need to remember that our aim in this journey is to become an advanced trader with an ability to forecast the movement of stock or markets. There are few differences in investor and trader.
An investor seeks returns from the financial instruments of a company, primarily dividend and capital appreciation. A trader is interested in making profits from price movements (either side, UP or DOWN).
An investor has a longer term time frame (more than 6 month) and a trader has a short term time frame of upto 3 months.
An investor generally takes a lower risk, and hence his returns are lower. A trader takes a higher risk (though calculated and limited) looking for higher returns. My target from my trading is generally to get at least 5%-7% returns per month on the capital that I trade with. I also look at a Reward : Risk ratio of minimum 2 : 1. The higher, the better. In other words, if I am risking Rs. 10 on a share, my reward or profit on that trade should be minimum Rs. 20 per share. This was explained in an earlier post http://sumitkgupta.com/2010/05/05/risk-vs-risky
Whenever you are going to take a trade, on either side, Long or Short, a trading plan is a must. A trading plan has 4 essential components which are:
Entry Price – price at which you will get in the trade
Exit Price – target price or price at which you will exit making a profit
STOP LOSS – your life jacket – a price at which you will exit if the stock / market goes against you
Maximum risk that you will take – we will cover this later when we review the money management rules to keep alive in the market. As of now, let’s understand, mathematically it is :
(Entry Price – STOP LOSS Price) X Number of shares traded
Your maximum risk should not exceed 5% – 10% of your trading capital, depending upon your risk appetite.
The benefits of trading plan are that before you take the trade, you know how much amount you would lose if stock / market moves against you i.e. you were wrong in selecting the trade. You would also know your target when to take profits. Prices can go beyond your target price, but that’s the price point where you take your profits.
Remember, in stock markets, the profit is not yours unless you have booked it. It’s only a notional profit.
We will review few trading plans to increase our understanding of the trading plan over next couple of days.
Till then,……. keep determining the trend
www.sumitkgupta.com
(www.sumitkgupta.com)
By now, I believe we are a bit comfortable with bar and swing charts construction and trend determination. We also understand few important stock market terms like support and resistance (or glass floors and ceilings J), bull and bear market, long and short trades, STOP LOSS etc.
When you are an investor, you need to have an investment plan. Similarly, traders need to have a trading plan. We need to remember that our aim in this journey is to become an advanced trader with an ability to forecast the movement of stock or markets. There are few differences in investor and trader.
An investor seeks returns from the financial instruments of a company, primarily dividend and capital appreciation. A trader is interested in making profits from price movements (either side, UP or DOWN).
An investor has a longer term time frame (more than 6 month) and a trader has a short term time frame of upto 3 months.
An investor generally takes a lower risk, and hence his returns are lower. A trader takes a higher risk (though calculated and limited) looking for higher returns. My target from my trading is generally to get at least 5%-7% returns per month on the capital that I trade with. I also look at a Reward : Risk ratio of minimum 2 : 1. The higher, the better. In other words, if I am risking Rs. 10 on a share, my reward or profit on that trade should be minimum Rs. 20 per share. This was explained in an earlier post http://sumitkgupta.com/2010/05/05/risk-vs-risky
Whenever you are going to take a trade, on either side, Long or Short, a trading plan is a must. A trading plan has 4 essential components which are:
Entry Price – price at which you will get in the trade
Exit Price – target price or price at which you will exit making a profit
STOP LOSS – your life jacket – a price at which you will exit if the stock / market goes against you
Maximum risk that you will take – we will cover this later when we review the money management rules to keep alive in the market. As of now, let’s understand, mathematically it is :
(Entry Price – STOP LOSS Price) X Number of shares traded
Your maximum risk should not exceed 5% – 10% of your trading capital, depending upon your risk appetite.
The benefits of trading plan are that before you take the trade, you know how much amount you would lose if stock / market moves against you i.e. you were wrong in selecting the trade. You would also know your target when to take profits. Prices can go beyond your target price, but that’s the price point where you take your profits.
Remember, in stock markets, the profit is not yours unless you have booked it. It’s only a notional profit.
We will review few trading plans to increase our understanding of the trading plan over next couple of days.
Till then,……. keep determining the trend
www.sumitkgupta.com
Sunday, June 6, 2010
NIFTY has been moving up for last 3 days and closed higher than previous day. However, in my view, there is little strength in the UP move as of now.
Let’s look at the chart below to see how the market has been moving.
Please see the first circle marked at 50% – 5092.25. This is the 50% of the last range down which was 7th April – 5398 to 25 May 4786 or in other words, half way retracement in this range. According to GANN, 50% of a price movement is a major milestone in any stock movement and it either acts a support or resistance.
I was looking at 5092 level to understand which way NIFTY is expected to move. If it broke through this level, It would be headed up to 5500-6000 level in next few weeks. Breaking through a level means that the market or stock should CLOSE above the resistance level for 2 consecutive days, SUPPORTED by STRONG Volumes.
Now go back to the chart and see what’s happening to the volumes when NIFTY is moving higher. I have marked them in circle. Volumes are declining. This is a sign of weakness in the market. It shows, in a way, that the professionals are not interested in this UP move or the market at the moment.
So, it could be a false break out. It may still move higher, but I would not take a chance.
Now let’s look at weekly and 3 Day Swing Charts:
As is evident from above chart, both WEEKLY and 3 DAY SWING charts show the TREND as being DOWN. In fact, I am getting SELL signal on 3 DAY SWING chart. Target is 4590.
If NIFTY trades below 5090 on Monday, June 7, I will go SHORT on NIFTY with targets of 4730 and 4592. STOP LOSS at 5150.
Happy trading
Be profitable!
www.sumitkgupta.com
Let’s look at the chart below to see how the market has been moving.
Please see the first circle marked at 50% – 5092.25. This is the 50% of the last range down which was 7th April – 5398 to 25 May 4786 or in other words, half way retracement in this range. According to GANN, 50% of a price movement is a major milestone in any stock movement and it either acts a support or resistance.
I was looking at 5092 level to understand which way NIFTY is expected to move. If it broke through this level, It would be headed up to 5500-6000 level in next few weeks. Breaking through a level means that the market or stock should CLOSE above the resistance level for 2 consecutive days, SUPPORTED by STRONG Volumes.
Now go back to the chart and see what’s happening to the volumes when NIFTY is moving higher. I have marked them in circle. Volumes are declining. This is a sign of weakness in the market. It shows, in a way, that the professionals are not interested in this UP move or the market at the moment.
So, it could be a false break out. It may still move higher, but I would not take a chance.
Now let’s look at weekly and 3 Day Swing Charts:
As is evident from above chart, both WEEKLY and 3 DAY SWING charts show the TREND as being DOWN. In fact, I am getting SELL signal on 3 DAY SWING chart. Target is 4590.
If NIFTY trades below 5090 on Monday, June 7, I will go SHORT on NIFTY with targets of 4730 and 4592. STOP LOSS at 5150.
Happy trading
Be profitable!
www.sumitkgupta.com
Fundamental Analysis Vs Technical Analysis
Some of you have asked me as to why I don’t include an analysis of the current or expected economic environment, for example European crisis, corporate results etc. The simple reason to that is, we use Technical Analysis and NOT Fundamental Analysis. Fundamental Analysis focuses on the fundamentals of the company, economy and industry that it operates in.
Attempting to provide difference in Fundamental and Technical analysis, let’s review both-
Fundamental Analysis:
• Based on economic, industry and company information. Examples:
- What industry or business the company is in
- Financial information i.e. profits, revenue, operating margins
- Government regulations and changes
- Competition
- Dividend pay out
- Cash reserves and situation
• Picking stocks that are best performing in their industry or sector
• Brokers, fund managers have many specialists studying fundamentals
Technical Analysis:
• Use of price history to identify common patterns or change in trends
• Charting the primary tool
• Price action and reaction, support and resistance
• Indicators are used to forecast price movements
Technical analysis is based on the premise that all the information related to any stock or market is reflected or inbuilt in its current price. Technical charts can give you early warning / indications of any change in direction of price movement.
While both analysis may be good and I don’t advocate using any one of them, I prefer to use Technical analysis for various reasons.
Firstly, industry knowledge is required for Fundamental analysis. So, if you want to trade in 10 stocks from 10 different industries, you need to know all the industry.
Then, it is very time consuming because there are piles and piles and piles of information. I don’t have access to most Company’s information. By the time it is known to me or general public, it’s too late. All said and done about stopping Insider Trading, it still happens. One can always trade in a friend’s account who is not barred due to insider trading regulations applicable to you.
The information available is subjective to a lot of factors and may not be reliable. Information can be outdated too.
There are different styles of management for different companies and that might have an impact on the operations of the company, which may again be known to me post it has happened.
Technical charts can provide you advance information about a company. You can see it all on charts. I would just share a real example from my trading.
It was an early morning of July 2007. I had been a student of Technical analysis for less than 9 months. Around 8 am, I was scanning various stocks and came across the chart for GMR Infra. I don’t read newspaper (though at that time I had subscribed to Economic Times, most of which were never unfolded!) I checked with my wife as to where the ET for the day was. She was surprised “Aaj to ET ki kismat khul gayee. By the way, why do you need a newspaperâ€. I said, “there is some big news on GMR Infraâ€.
I couldn’t believe it! There was this news of GMR Infra bagging a $2.7 billion deal for Istanbul airport. Eureka!
How did I know this from chart?
I noticed an unusual spike in volumes of GMR Infra without much significant move in the stock. That day, the chart were providing a Buy signal (on my trading system). I went ahead and bought one lot of GMR Infra (1000 shares) @ Rs. 757 putting up Rs. 1.2 lakhs as margin money on July 10. I sold the lot @ Rs. 940 2 days later i.e. on 12th July, making a profit of Rs. 1.8 lakhs.
A whopping return of 150% on my investment in 2 days.
The point of sharing above example is not to brag about my ability to see a great profit making opportunity or how much money did I make or that it can be done every time. Idea is to demonstrate what technical charts / analysis can tell you in advance which you may come to know much later in Fundamental Analysis.
That was the day, when technical analysis became my preferred way to stock analysis, and I knew, it was my vehicle to acquiring unlimited wealth!
www.sumitkgupta.com
Some of you have asked me as to why I don’t include an analysis of the current or expected economic environment, for example European crisis, corporate results etc. The simple reason to that is, we use Technical Analysis and NOT Fundamental Analysis. Fundamental Analysis focuses on the fundamentals of the company, economy and industry that it operates in.
Attempting to provide difference in Fundamental and Technical analysis, let’s review both-
Fundamental Analysis:
• Based on economic, industry and company information. Examples:
- What industry or business the company is in
- Financial information i.e. profits, revenue, operating margins
- Government regulations and changes
- Competition
- Dividend pay out
- Cash reserves and situation
• Picking stocks that are best performing in their industry or sector
• Brokers, fund managers have many specialists studying fundamentals
Technical Analysis:
• Use of price history to identify common patterns or change in trends
• Charting the primary tool
• Price action and reaction, support and resistance
• Indicators are used to forecast price movements
Technical analysis is based on the premise that all the information related to any stock or market is reflected or inbuilt in its current price. Technical charts can give you early warning / indications of any change in direction of price movement.
While both analysis may be good and I don’t advocate using any one of them, I prefer to use Technical analysis for various reasons.
Firstly, industry knowledge is required for Fundamental analysis. So, if you want to trade in 10 stocks from 10 different industries, you need to know all the industry.
Then, it is very time consuming because there are piles and piles and piles of information. I don’t have access to most Company’s information. By the time it is known to me or general public, it’s too late. All said and done about stopping Insider Trading, it still happens. One can always trade in a friend’s account who is not barred due to insider trading regulations applicable to you.
The information available is subjective to a lot of factors and may not be reliable. Information can be outdated too.
There are different styles of management for different companies and that might have an impact on the operations of the company, which may again be known to me post it has happened.
Technical charts can provide you advance information about a company. You can see it all on charts. I would just share a real example from my trading.
It was an early morning of July 2007. I had been a student of Technical analysis for less than 9 months. Around 8 am, I was scanning various stocks and came across the chart for GMR Infra. I don’t read newspaper (though at that time I had subscribed to Economic Times, most of which were never unfolded!) I checked with my wife as to where the ET for the day was. She was surprised “Aaj to ET ki kismat khul gayee. By the way, why do you need a newspaperâ€. I said, “there is some big news on GMR Infraâ€.
I couldn’t believe it! There was this news of GMR Infra bagging a $2.7 billion deal for Istanbul airport. Eureka!
How did I know this from chart?
I noticed an unusual spike in volumes of GMR Infra without much significant move in the stock. That day, the chart were providing a Buy signal (on my trading system). I went ahead and bought one lot of GMR Infra (1000 shares) @ Rs. 757 putting up Rs. 1.2 lakhs as margin money on July 10. I sold the lot @ Rs. 940 2 days later i.e. on 12th July, making a profit of Rs. 1.8 lakhs.
A whopping return of 150% on my investment in 2 days.
The point of sharing above example is not to brag about my ability to see a great profit making opportunity or how much money did I make or that it can be done every time. Idea is to demonstrate what technical charts / analysis can tell you in advance which you may come to know much later in Fundamental Analysis.
That was the day, when technical analysis became my preferred way to stock analysis, and I knew, it was my vehicle to acquiring unlimited wealth!
www.sumitkgupta.com
Thursday, June 3, 2010
Trend Determination – contd…
by Sumit Gupta on June 2, 2010
--------------------------------------------------------------------------------
Trend determination is a very important topic in stock trading. As discussed earlier, one should always trade with the trend and hence, one needs to know what is the trend.
The trend may be UP, DOWN or UNCERTAIN. If trend is UP, we BUY (go LONG) to make profit. If trend is DOWN, we sell first (go SHORT) and then buy later to make profit. If trend is UNCERTAIN, we do nothing. We wait for a change in trend and once trend change confirms, we get in market again.
I would re-iterate at this time once again (and I will keep repeating again and again in our journey together), that our first objective in the market is to survive and then make money. By this I mean, protect our capital by taking limited risk and make money when the opportunity arrives.
Let me compare it with batting in crickt test match. You are on crease and the fielding side is bowling well. You defend on good balls (to save your wicket) and when a loose ball comes, you go for the big hit. Same in the stock market. Uncertain trend is one where the pitch in not condusive to batting but favors bowlers. In UP and DOWN trend, you need to play the right shot in the right direction
Obviously, how you trade will depend on your risk apetite as well as whether you are in for a Test match, one day or 20:20. I am in for a never ending series of TEST MATCHES. 20:20 is good for entertainment, but then entertainment doesn’t make money for every one!!!
I intend to get into charts now for next couple of posts so that we get ourselves familiar with trend determination. We will also discuss Strong and Weak trends and how to measure the strength (or weakness) of the trend.
Let’s look at some charts. This is Real Stufff ……..
ICICI Bank Daily Swing Chart
In the chart above, please see the LOWs and HIGH marked by circles. The trend is clearly DOWN. Not a good time to Buy. Is it good time to hold or sell out? I have an answer but …..
Let’s look at ICICI Bank weekly swing chart now :-
ICICI BANK WEEKLY SWING CHART
Weekly trend is also down. When both Daily and Weekly charts show a DOWN trend, stay away from buying. Whether you sell or hold, that would depend on Resistance and Support levels which we will study together at a later time.
INFOSYS DAILY SWING CHART
Please see the direction of the arrows . TREND is UP. Now look at the Weekly SWING chart for Infosys below:
INFOSYS WEEKLY SWING CHART
Trend is UNCERTAIN. However, from my analysis, it may be a good time to Buy for targets 2786 or 2842, once it trades above 2652 on Thursday, 3rd June 2010. STOP LOSS – 2617.
RELIANCE DAILY SWING CHART
This is a little interesting. The trend is UNCERTAIN but as of NOW. The previous TOP is at 1048.95. SO, the moment Reliance trades at 1049 on Thursday (or without making a LOW day), Trend will turn UP. Look at Weekly chart:
RELIANCE WEEKLY SWING CHART
UNCERTAIN trend, just as Daily chart. Interestingly, the Weekly trend will turn UP once Reliance crosses 1093.50
I guess, it’s enough practice for one day. Revise and absorb the learning contained herein.
by Sumit Gupta on June 2, 2010
--------------------------------------------------------------------------------
Trend determination is a very important topic in stock trading. As discussed earlier, one should always trade with the trend and hence, one needs to know what is the trend.
The trend may be UP, DOWN or UNCERTAIN. If trend is UP, we BUY (go LONG) to make profit. If trend is DOWN, we sell first (go SHORT) and then buy later to make profit. If trend is UNCERTAIN, we do nothing. We wait for a change in trend and once trend change confirms, we get in market again.
I would re-iterate at this time once again (and I will keep repeating again and again in our journey together), that our first objective in the market is to survive and then make money. By this I mean, protect our capital by taking limited risk and make money when the opportunity arrives.
Let me compare it with batting in crickt test match. You are on crease and the fielding side is bowling well. You defend on good balls (to save your wicket) and when a loose ball comes, you go for the big hit. Same in the stock market. Uncertain trend is one where the pitch in not condusive to batting but favors bowlers. In UP and DOWN trend, you need to play the right shot in the right direction
Obviously, how you trade will depend on your risk apetite as well as whether you are in for a Test match, one day or 20:20. I am in for a never ending series of TEST MATCHES. 20:20 is good for entertainment, but then entertainment doesn’t make money for every one!!!
I intend to get into charts now for next couple of posts so that we get ourselves familiar with trend determination. We will also discuss Strong and Weak trends and how to measure the strength (or weakness) of the trend.
Let’s look at some charts. This is Real Stufff ……..
ICICI Bank Daily Swing Chart
In the chart above, please see the LOWs and HIGH marked by circles. The trend is clearly DOWN. Not a good time to Buy. Is it good time to hold or sell out? I have an answer but …..
Let’s look at ICICI Bank weekly swing chart now :-
ICICI BANK WEEKLY SWING CHART
Weekly trend is also down. When both Daily and Weekly charts show a DOWN trend, stay away from buying. Whether you sell or hold, that would depend on Resistance and Support levels which we will study together at a later time.
INFOSYS DAILY SWING CHART
Please see the direction of the arrows . TREND is UP. Now look at the Weekly SWING chart for Infosys below:
INFOSYS WEEKLY SWING CHART
Trend is UNCERTAIN. However, from my analysis, it may be a good time to Buy for targets 2786 or 2842, once it trades above 2652 on Thursday, 3rd June 2010. STOP LOSS – 2617.
RELIANCE DAILY SWING CHART
This is a little interesting. The trend is UNCERTAIN but as of NOW. The previous TOP is at 1048.95. SO, the moment Reliance trades at 1049 on Thursday (or without making a LOW day), Trend will turn UP. Look at Weekly chart:
RELIANCE WEEKLY SWING CHART
UNCERTAIN trend, just as Daily chart. Interestingly, the Weekly trend will turn UP once Reliance crosses 1093.50
I guess, it’s enough practice for one day. Revise and absorb the learning contained herein.
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