TECHNICAL WAY TO SELECTION OF STOCKS FOR CAPTURING BIG MOVES
TECHNICAL WAY TO SELECTION OF STOCKS FOR CAPTURING BIG MOVES
The selection of stocks alongwith time factor is most crucial for building success in stock market. A stock may be good with all right fundamentals but if its timing is not correct one can see plethora of stocks just languishing along its mean. So selection of stock encompasses two major factors:-
-Location of price
-Time
Selection Methodology
In order to ascertain the location of price there has to be a reference point based on which the vibration of stock can be determined. Without going too much into theory lets get into brasstacks.
Step 1. Location of Price.
-Check the location of price with reference to its life time high and low.
-Divide it in four parts – Consider Life time low = 0 and Life time High =100% The division will be in four parts – 0-25%, 25 to 50%, 50 to 75% & 75 to 100%. (This is as recommended by WD Gann).
(Comments – Money can be made in all four parts. I consider 0 to 25 or 50% as stocks in accumulation stage. The typical characteristics of this stage is the prolonged time a stock takes in its gathering critical mass. The stocks above 50% are generally in mark up phase and movement is expected to be faster. Hence to increase the probability of success one should select stocks above 50% levels.)
Step 2 Watchlists
- Selection of Stock Basket eg F & O stocks only as Volume and liquidity is abundant. One can do trading both in cash & derivative segments. However the undermentioned methodology can be applied to other stocks too. It is important to create a watchlist in which one desires to do trading.
Step 3 Methodology
-Time Frame – Monthly
-Tool – Box
-Requirements – Locating time corrections or Previous Swing High(PSH) & Previous Swing Low(PSL) on the chart
- Analysis of distance between of the boxes
(a) Draw a box encapsulating previous time correction or PSH and PSL on monthly chart. In a trending stock it would be difficult to find PSH & PSL. It would be then pertinent to draw a box where previous time correction was observed.
(b) Farther the boxes trending the stock, nearer the boxes less trending is the vibration or character of the stock. Eg Deepak Nitrite.
(c) Time spent in the box gives the character to the stock and its behavourial patterns can be easily discerned. Deepak Nitrite spends nearly more the one year in the box before it actually breaks the box.
(b) Make a watch list of such stocks and they can be categorised as High, Medium and Low Momentum stocks. It can defined subjectively based on the trending phase, length of time correction and distance from the box.
Step 4. Elimination Criteria. Stocks who see downward violation of boxes.
(a) At times the price violates the box by breaking down and forming a lower low. This lower low can also be lower than previous swing low.
(b) Selection of such stock is ominous for something is fundamentally wrong in the stock. Flag all such stocks and stay away from them.
Step 5. Relational Orientation. Before going into details of box study it would be important to relate the behaviour of stock as compared to sectoral index and NIFTY. A simple correlation can be drawn by placing NIFTY and stock chart side by side and comparing its behaviour. Its behaviour can be classified into three categories:-
-Under Performing.
-Following the index.
-Out performing.(eg Cummins)
-Generally it is seen that stocks which are outperforming the index are the ones where smart money is flowing. The sector wise flow of smart money can be determined from FPI monitor website which is one of the major source which actually moves the price.
- There is a relative strength indicator in trading view which makes it graphically easier to locate such stocks.
-Make watchlist of stocks which are consistently out performing the index.
Step 6. Confluence of factors. Hence what we are looking at is stock with farther boxes or high momentum and simultaneously outperforming the index. When both criteria meet there is an opportunity to create wealth. This strategy would work for long term traders or investors.
Step 7. Timing the Entry. A stock before getting into trending phase always makes a signal move by breaking the box, retracing back and then undertaking the upmove. The retracement is normally on low volumes. Post retracement one monthly candle should close above the high of previous candle to confirm the completion of retracement. It should be accompanied with volumes. Its ideal time for taking the entry. Sometimes in high momentum scenario price doesn’t retrace and just shoots up. It is recommended to avoid taking entry into running candle. One can also use lower timeframe to make an entry the conditions remaining the same albeit with two weekly green candles.
Step 8. Pitch Fork Analysis. Pitch fork is a tool basically based on Fib numbers however it is more dynamic than fib retracements. In a trending stock it can help you give the entry and exit points for its gives fib levels, mean, retracement levels and future levels where stock may reach.
Step 9. Contemplating a Move. One should avoid contemplating a move. Eg Price moves from bottom of the box to top of the box with momentum however at times its doesn’t break the box and falls for second touchbase.
Summary. Hence as basic rules breaking of box is an imperative, retracement and then upmove should be the pattern for taking the trade. Confirmation after retracement by a green monthly candle closing above the high of previous candle is also mandatory. Early confirmation can also be sought on lower timeframes. Eg AB capital fits the bill.
Disclaimer This post is for leaning purpose only.
Views Welcome
Regards
The selection of stocks alongwith time factor is most crucial for building success in stock market. A stock may be good with all right fundamentals but if its timing is not correct one can see plethora of stocks just languishing along its mean. So selection of stock encompasses two major factors:-
-Location of price
-Time
Selection Methodology
In order to ascertain the location of price there has to be a reference point based on which the vibration of stock can be determined. Without going too much into theory lets get into brasstacks.
Step 1. Location of Price.
-Check the location of price with reference to its life time high and low.
-Divide it in four parts – Consider Life time low = 0 and Life time High =100% The division will be in four parts – 0-25%, 25 to 50%, 50 to 75% & 75 to 100%. (This is as recommended by WD Gann).
(Comments – Money can be made in all four parts. I consider 0 to 25 or 50% as stocks in accumulation stage. The typical characteristics of this stage is the prolonged time a stock takes in its gathering critical mass. The stocks above 50% are generally in mark up phase and movement is expected to be faster. Hence to increase the probability of success one should select stocks above 50% levels.)
Step 2 Watchlists
- Selection of Stock Basket eg F & O stocks only as Volume and liquidity is abundant. One can do trading both in cash & derivative segments. However the undermentioned methodology can be applied to other stocks too. It is important to create a watchlist in which one desires to do trading.
Step 3 Methodology
-Time Frame – Monthly
-Tool – Box
-Requirements – Locating time corrections or Previous Swing High(PSH) & Previous Swing Low(PSL) on the chart
- Analysis of distance between of the boxes
(a) Draw a box encapsulating previous time correction or PSH and PSL on monthly chart. In a trending stock it would be difficult to find PSH & PSL. It would be then pertinent to draw a box where previous time correction was observed.
(b) Farther the boxes trending the stock, nearer the boxes less trending is the vibration or character of the stock. Eg Deepak Nitrite.
(c) Time spent in the box gives the character to the stock and its behavourial patterns can be easily discerned. Deepak Nitrite spends nearly more the one year in the box before it actually breaks the box.
(b) Make a watch list of such stocks and they can be categorised as High, Medium and Low Momentum stocks. It can defined subjectively based on the trending phase, length of time correction and distance from the box.
Step 4. Elimination Criteria. Stocks who see downward violation of boxes.
(a) At times the price violates the box by breaking down and forming a lower low. This lower low can also be lower than previous swing low.
(b) Selection of such stock is ominous for something is fundamentally wrong in the stock. Flag all such stocks and stay away from them.
Step 5. Relational Orientation. Before going into details of box study it would be important to relate the behaviour of stock as compared to sectoral index and NIFTY. A simple correlation can be drawn by placing NIFTY and stock chart side by side and comparing its behaviour. Its behaviour can be classified into three categories:-
-Under Performing.
-Following the index.
-Out performing.(eg Cummins)
-Generally it is seen that stocks which are outperforming the index are the ones where smart money is flowing. The sector wise flow of smart money can be determined from FPI monitor website which is one of the major source which actually moves the price.
- There is a relative strength indicator in trading view which makes it graphically easier to locate such stocks.
-Make watchlist of stocks which are consistently out performing the index.
Step 6. Confluence of factors. Hence what we are looking at is stock with farther boxes or high momentum and simultaneously outperforming the index. When both criteria meet there is an opportunity to create wealth. This strategy would work for long term traders or investors.
Step 7. Timing the Entry. A stock before getting into trending phase always makes a signal move by breaking the box, retracing back and then undertaking the upmove. The retracement is normally on low volumes. Post retracement one monthly candle should close above the high of previous candle to confirm the completion of retracement. It should be accompanied with volumes. Its ideal time for taking the entry. Sometimes in high momentum scenario price doesn’t retrace and just shoots up. It is recommended to avoid taking entry into running candle. One can also use lower timeframe to make an entry the conditions remaining the same albeit with two weekly green candles.
Step 8. Pitch Fork Analysis. Pitch fork is a tool basically based on Fib numbers however it is more dynamic than fib retracements. In a trending stock it can help you give the entry and exit points for its gives fib levels, mean, retracement levels and future levels where stock may reach.
Step 9. Contemplating a Move. One should avoid contemplating a move. Eg Price moves from bottom of the box to top of the box with momentum however at times its doesn’t break the box and falls for second touchbase.
Summary. Hence as basic rules breaking of box is an imperative, retracement and then upmove should be the pattern for taking the trade. Confirmation after retracement by a green monthly candle closing above the high of previous candle is also mandatory. Early confirmation can also be sought on lower timeframes. Eg AB capital fits the bill.
Disclaimer This post is for leaning purpose only.
Views Welcome
Regards