I am actually bored writing about nifty as it is doing nothing other than keeping both the bears and bulls on tenterhooks. Below is a very simple chart (had to make it colorful...man you ought to feel you are putting work behind it!). The chart in itself is self explanatory; we are in range, and between this broader range we have some pretty tight intraday ranges, so the only way to play such range bound moves is selling the highs and buying the lows. In fact sell at resistances and buy at supports sounds better (gives it the professional touch)! For the fence sitters the wait has been long and frustrating but it will pay. Patience always pays! As for others if you good at ping pong, well you have a game!
"First say to yourself what you would be; and then do what you have to do." Epictetus
Just a few days back I had written about divergence. Well it’s a favorite trade set up of mine so thought would make another post out that with illustrations. Two reasons for doing this, one, this is my blog, two, I wanted it in my blog for future reference. As Pring states when the momentum and price are moving in tandem, there isn’t much to read other than assuming we have a healthy trend. It is when the momentum and price get out of sync we have Divergence in hand.
There are 2 basic types of Divergence.
REGULAR DIVERGENCE
1-Price is making higher highs while the indicator is not: Bearish
2-Price is making lower lows while the indicator is not: Bullish
HIDDEN/REVERSE DIVERGENCE
3-Indicator is making higher highs while price is not: Bearish
4-Indicator is making lower lows while the price is not: Bullish
Divergences test your patience, you have to let them develop and then get ready to put in your trade. One of the mistakes us novices make is we jump the gun too soon when we spot Divergence. It should be remembered (I might as well put this in bold font to drive home the point), Divergences in themselves do not signify a reversal or a trend change, they merely gives us an advanced warning of the underlying strength or weakness in the prevalent trend. The real confirmation comes from the Price action itself.
There is a lot one needs to understand about Divergence, than these simple interpretations. The significance of Divergence, the Divergence Trap and Complex Divergence (will add these later). I reiterate again that one should read Pring’s book on Momentum to get better hang of things. Divergences if traded right, can give phenomenal trades, but then you need to spot them, and wait patiently to let them develop, and finally pull the trigger when the PRICE gives the signal!
"Whether you think you can or think you can't, you're right." Henry Ford
These are just a few instances how we can play the gaps. The charts below are self explanatory. These are not exactly how the gaps would play themselves out, but would give you an idea, if such a situation occurs then these might be the possibilities. This is in keeping with the theory of KISS. By the way the conservative trades mentioned in the pictures below are nothing but the Dow Theory in action!!!!
First The Gap Ups;
Now The Gap Downs;
"If you are aware of your weaknesses and are constantly learning, your potential is virtually limitless." Jay Sidhu
The chart below is of RIL Futures 25 minutes, before I proceed let me be very clear that this chart is purely for illustrative purpose. What I want to show here is that if followed carefully, momentum (you can use any of your favorites) can signal some good trades. The chart is self explanatory and gave a good trade. RIL Future can reverse from here and might give us a good CNH formation; a valid breakout will only come if we trade above 1190 with volumes. Remember technical analysis is more of an art than science! If you are a serious student of TA then I suggest you read the book by Martin J Pring titled Martin Pring – On Market Momentum. Hopefully in one of future posts I would summarize some of the important points on how Pring would like us to see and interpret Momentum, still it will be a good idea if you buy and go through the book.
"To be a great champion you must believe you are the best. If you're not, pretend you are."
Wow! What a pullback! For the first time we believed in the SUPPORTS and wished the RESISTANCES away. I learnt an important lesson; one never underestimate a down on luck bull and two, never draw a big bear next to him and that also in RED! (Yeah I am talking about my last post and the oversized bear I drew there). Like I had mentioned in my previous post that if intraday trading is not your cup of tea then better stay on the Trend lines (ok I mean sidelines) till you get a breakout to trade. Yesterday was also a big chop chop day, today a good trade set up emerged.
A look at the daily chart above shows that yet again we are at the 20 periods MA. Next resistance is 2830/35, if we break this one with volumes we are again going to the higher ground 3030. As for the supports it isn’t hard to guess how about starting with 2720/2670 and 2585!!!
The daily chart is closed with what one would call a hammer! What’s more important is that it jabbed the lower line of the triangle and now is sitting on the edge. I guess the bear just got bigger or is it just a false break to the down side? The 20 period MA is at approx 2810 level and upper trend line resistance is at our much tested and held 2860/70! Supports? There are none only illusions of supports (anyway they don’t even hold like the resistances are doing). At the risk of being repetitive I am once again quoting a saying that there are no resistances in a bull market and no supports in a bear market.
Coming to the hourly chart, we can see that the triangle (drawn in dashed red and blue lines) is wasted. The price is right at the apex, with both the 20 and 50 periods MA’s nesting at 2700/2710. This might prove a resistance for tomorrow.
All in all a bit confused state of things, if you are good at intraday scalping you are in the game, but if you are the positional types, its better to wait for clear signals to emerge. The broader levels discussed earlier on the weekend post still hold ground. How about practicin patience? Three important P’s to trading are PATIENCE, PATIENCE and a whole lotta PATIENCE!!!
"You cannot escape the responsibility of tomorrow by evading it today."
Trading is nothing short of speculation and people who treat it as intelligent speculation have a fair chance of doing well.The posts in this blog are nothing but notes I am making for myself. I welcome serious discussion on TA from like minded people and willing to share whatever little knowledge I have of TA. Nothing on this site should ever be interpreted as advice, research or an invitation to buy or sell any securities.
TRADE LESS TRADE SMART!!!
Hit me with brickbats at mbhagra@yahoo.com
