June 16, 2010

  • 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
  • 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


DESCENDING TRENDLINE

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 past
CLICK 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.
POSSIBILE RESISTANCE
FALLING WEDGE IN LINE CHART
DAILY 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
NIFTY

DOW JONES

  • Dow jones and nifty mirroring the hour chart
  • Lets see if nifty does what dow did last night
  • Dow ended up closing above 10400.

  • There is clear negative divergence in macd hour chart.
  • But the daily trend is up.
  • If price moves above today's high divergence will vanish in no time.
  • above days high one can go long

  • Nifty since morning has been trading in a small range
  • A Break out on either side will give good momentum.
  • Since the daily and hourly trend is up it will be safe to take a buy rather then a sell with day low as stop loss
  • 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
MOVING AVERAGE
  • 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

Description:
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.

Characteristics:
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.

Volume:
Traders will watch out for a big increase in volume at the time of the breakout.

Target:
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


DAILY CHART


  • SP 500 has closed above its 200 day moving average.
  • The index has also given a good break out from its daily channel.
  • The index has closed above its short term resistance levels.

  • EUR/USD Pair is moving up smartly.
  • A daily close above 1.23 can take it to 1.26.
  • And this will add to the bullishness of the markets.

Disclaimer

All the contents of niftychartsandpatterns are for educational purposes only and are not Investment Advice or recommendations offered to any person(s) with respect to the purchase or sale of the stocks / futures. Niftychartsandpatterns shall not be held responsible for the actions of individuals, parties, or corporations taken in response to the ideas, thoughts, concepts or information presented in this blog. Hence all the visitors are requested to apply their prudence and consult their financial or investment adviser before acting on any of the Ideas in this blog.

Followers

Blog Archive

Powered by Blogger.

My Favourite Quote

"All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis."
—Jesse Livermore