- Ascending trendline example shown in infosys chart.
- Look at the number of touches at the beginning of the trendline.
- As a result of more number of touches on the trend line it acted as a support for a long time.
- The trendline started at 1120 region broke only when the stock reached nearly 2450 area.
- The profit of following this ascending trendline is more than 1000 points
June 16, 2010
- The negative divergence has been developing in dow jones for quite some time.
- But the price just keep on going in the opposite direction.
- So there is negative divergence and the price is not falling down what does that mean.?
- That means if the markets are strong divergences can be ignored.
- But eventually the prices will react so for trading divergence one should wait for the price confirmation.
ASCENDING TREND LINE
Trend line is the most important tool in technical analysis. Constructing a trend line is easy, connect high prices or low prices of a stock or index on it chart, We will get a trendline.
We can classify trendlines into two types The ascending trendline and the descending trendline. The ascending trendline or the uptrend line can be formed by connecting the low prices of a stock. The uptrend line can be extended into the future and is considered as good support level for the stock.
We need only two points to construct a trendline . But the effectiveness of the trendline increases with more touches on the trendline. If the touches on the trendline increases more number of traders will believe in it.
Trendlines are mainly used to predict support and resistance level of a stock. And for drawing patterns like channels, triangles etc.
Lets look at some examples from recent pastCLICK HERE TO SEE THE INFOSYS CHART A GOOD EXAMPLE FOR ASCENDING TRENDLINE
- SP 500 Trading near important support and resistance area
- Yesterday us markets made a good break out.
- Now its time for follow up action. And SP 500 Should break out above trend line for more upside targets.
- On the other hand bears will try to break the lower trend line. Which can drag the prices lower
- Dow jones support and resistance line shown in 15 minutes chart.
- It seems another fight is about to unfold between 10400 and 10500 for deciding the next direction.
- So a break of support line or resistance line can give the next trade.
FALLING WEDGE IN LINE CHART
- The first chart is the 10 minutes chart of dow jones.
- It shows the possible resistance zone for tomorrow.
- The second chart shows the falling wedge which i mentioned earlier.
- The third chart is the most important one. The price is now trading above its 200 day moving average. and has also captured the 20 day moving average.
- And a bullish candlestick pattern can also be seen a white marubozu. Let's see if this gets any follow up tomorrow
- Reliance communication has made smart recovery from 130 levels.
- The current uptrend from bottom seems to be very strong.
- It seems the stock will have enough momentum to move above 194.
- This can be called as a break out only if the stock closes above 194
INVERTED HEAD AND SHOULDERS
DESCENDING BROADENING WEDGE
- Nifty has multiple choices how it want's to move up.
- First it the inverted head and shoulders break out.
- Then the descending broadening wedge which gave a false break down has now given an upside break out with good volumes
- Then after spending sometime below the 200 day moving average has now closed above 200 and 50 day moving average.
- So for the short term all possibilities are pointing upwards but different targets.
INVERSE HEAD AND SHOULDERS
The inverted head of this pattern is the low in the middle. The first and the third lows are the resistance and are called as shoulders, the second lows is called as the head. A neckline can be drawn connection the high points of the two shoulders. This pattern is the opposite of the regular head and shoulders and is used to determine a change in a down trend.
1. At first the price goes to a low and from there it comes up.
2. Then the price falls to a new low which is lower than the previous low and comes up again.
3. And for the third time the price falls, But will not fall as deep as second low.
Traders will watch out for a big increase in volume at the time of the breakout.
Calculate the distance the from the neckline to the bottom of the head and then added to the neckline when ever it breaks out. And one should also consider long term moving averages and fibonacci retracements also as a guide for fixing targets.
CLICK HERE TO SEE NIFTY'S RECENT INVERTED HEAD AND SHOULDERS
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