Using multiple confirmations, different timeframes and by applying rules of price action over a chart let's one understand HOW THE PRICE BEHAVES!
Here is an example of buying a stock at the lows (Disclaimer: NOT THE ABSOLUTE LOWS)
Let's start with a Higher TF- Weekly'
The stock is in a formation of a price action pattern called CUP & HANDLE, where CUP is complete and HANDLE is forming and it is the spot where an early entry is possible ahead of a proper breakout.
This early entry becomes possible with following confirmations:
1. Volumes: Since the absolute low has been established the volumes in the stock as grown multi-fold which in itself is an indication that smart money is already into the stock.
2. RSI: After declining into bearish teritory below 40 in March 2020, the stock bounced back into neutral zone between 40-60 and closing above 60 on 31 August 2020. Since then the stock remained in overbought zone and kept on increasing and took a breather making a double bottom at 40(which is also termed as a support level) and making a neckline on 60 which was breached and retested providing adittional confirmation to the setup
3. The HANDLE: During handle formation the stock made a double botton between 870-910 levels which a pettern within a pattern also adding to the confidence.
The DAILY Chart
Now, the stock is confirmed that it is in a directional trend. Samller TF will help us in better entry and exit levels. The same procedure must also be followed in the lower TF because if the trend is distorting it will reflect in smaller TF first. Here,
1. Volumes: Near the neckline the stock has seen low volumes and the price has moved in a narrow range which we can also say an accumulation zone confirmed by a breakout with tremendous volumes.
2. RSI: Since the stock has been accumulating the RSI line rested near 60 zone which is also a support zone.
3. Pattern: As discussed earlier double botton is formed which more vibrant and act as a confirmation on lower TF.
Here is an example of buying a stock at the lows (Disclaimer: NOT THE ABSOLUTE LOWS)
Let's start with a Higher TF- Weekly'
The stock is in a formation of a price action pattern called CUP & HANDLE, where CUP is complete and HANDLE is forming and it is the spot where an early entry is possible ahead of a proper breakout.
This early entry becomes possible with following confirmations:
1. Volumes: Since the absolute low has been established the volumes in the stock as grown multi-fold which in itself is an indication that smart money is already into the stock.
2. RSI: After declining into bearish teritory below 40 in March 2020, the stock bounced back into neutral zone between 40-60 and closing above 60 on 31 August 2020. Since then the stock remained in overbought zone and kept on increasing and took a breather making a double bottom at 40(which is also termed as a support level) and making a neckline on 60 which was breached and retested providing adittional confirmation to the setup
3. The HANDLE: During handle formation the stock made a double botton between 870-910 levels which a pettern within a pattern also adding to the confidence.
The DAILY Chart
Now, the stock is confirmed that it is in a directional trend. Samller TF will help us in better entry and exit levels. The same procedure must also be followed in the lower TF because if the trend is distorting it will reflect in smaller TF first. Here,
1. Volumes: Near the neckline the stock has seen low volumes and the price has moved in a narrow range which we can also say an accumulation zone confirmed by a breakout with tremendous volumes.
2. RSI: Since the stock has been accumulating the RSI line rested near 60 zone which is also a support zone.
3. Pattern: As discussed earlier double botton is formed which more vibrant and act as a confirmation on lower TF.