Nifty 50 IndexEducation
Unit_of_Technical_Analysis: Chapter 3: Bull Cycle
Unit_of_Technical_Analysis:
Chapter 3:
Bull Cycle: how to identify prior phase,
The Bull Cycle,
How to trade the Bull cycle.
Tools used:
1. Fibonacci
2. Relative Strength Index (RSI) (36)
3. Moving Average Convergence Divergence (MACD) (18, 36, 9)
4. Moving Average (MA) (36)
Time Frame: Daily
Method:
1. Bullish Divergence & Falling Wedge (or Consolidation/Accumulation) for identification of uptrend along with Fibonacci
2. Bullish Divergence for Uptrend along with Fibonacci + Trendline Breakout
Cycles within the Cycles:
1. Phase 1: Bullish Divergence
Dates: 13/03/20 – 24/03/20: Pre-Phase of Bull Cycle
We have seen in previous chapter that there was a bullish divergence at the end of 2008-09 Bull- Bear Cycle. Again it’s not necessary that we see a clear visible Divergence for a long period of 4-5 months like during 2008-09 cycle. It can also be for a short period like for 3-5 days also.
In 2020, we continue with our Bear trend, and then from 2/01/20 to 12/03/20, we identify a Bullish divergence in Daily Chart. On 13/03/20 RSI(36) is 25.56 while on 19/03/20 RSI(36) is 22.69, and on 23/03/20 RSI(36) is 24.16 over a period of this 12-14 days, we identify a sharp increase in RSI (of around 3-4 points in terms of units), while the price is still creating Lower Highs (LH) & Lower Lows (LL) patterns these difference of Price moving downwards while Indicators moving in upward direction is called as Bullish Divergence.
Falling Wedge: The price typically follows a pattern where it is moving downwards but with small and limited lows then the previous (swings) ones, the length of the swings are reduced which can be identified from the falling wedge. (Falling Wedge: an inclined line less than 45degree, where the price touches the bottomline of the wedge and starts moving upwards again)
These Indicators/ Oscillators only give us Signals, while we can start getting confirmation from Fibonacci retracement, where price starts creating Higher High (LH) & Higher Lows (LL) after the 1st Range formation (check 1st Fibo with low of 7511.1 on 24/03/20 and High of 9038.9 on 27/2/20), we get a 50% retracement. The best part is to terminate your short calls if we don’t move and sustain below these 50% retracement.
There are other methods too like trailing your SL to previous Highs, or Fibonacci retracements.
Bullish Divergence in Daily charts are strong and should be taken very seriously, if we are in Short calls we should keep on trailing our SL to previous Highs/ trail SL after the High or wait for completion of Range, then trail your SL to High, and further trail SL to 0.5 level or 0.236 level of range thereafter. Idea is to keep maximum profits in your pocket and get ourselves prepared for the Bull Trend.
2. Phase 2: Start of Bull Phase
Dates: 24/03/20 – 18/05/20: Start of Bull Cycle:
At the start of Bull Cycle, Price, RSI & MACD are moving in same upward direction, i.e. with every upward movement in price, RSI & MACD are also moving upwards. We can see continuous Higher High (HH), Higher Low (HL) patterns in the Bull Market. The confirmation of getting into Long Bull call signal is important.
Signal: RSI & MACD are moving in upward direction in tandem with Price after the Low of Bear cycle
Confirmation to get into Long Calls for Bull Trend: The best part is to get into buying streak in Long calls is when we start moving above the 50% retracement in Daily. We apply the same method as seen in Chapter 1 & 2, we draw a range from Low of 7511.1 (Level 0) on 24/3/20 to High of 9038.9 (Level 1) on 27/03/20 and wait for a retracement upto the 0.5 level or range, we can get into smaller time frame and look for intraday/15 minutes price action where we get a signal on Fibonacci for an Entry or get an Entry once the market starts moving above 0.5 level with small SL we can enter into a trade as per price action. (We will work on detailing again in coming Chapters with smaller time frames, currently we moved from chapter 1: monthly time frame to Chapter 2, 3 & 4 Daily Time frame)
(On 1/4/20 & 2/4/20 price closed below 50% level and on 7/4/20, it started moving above and also closed above 50% level of the range).
After moving above 50% level, price further moves above 0.786/ 1 levels and hits a target of 1.272/ 1.618. This completes formation of the 1st leg {(0-1 range), (reversal to 0.236/0.5 levels) & (extension to 1.272/1.618) of daily chart in total is the 1st leg as called as Unit of Technical analysis}.
Market may give a 50% retracement after completion of this 1st leg
Always remember that after completion of 1st leg, market gives a 50% retracement or a small reversal, these short reversals at regular levels signifies a strong uptrend. These small reversals are again as per Unit of Technical Analysis pattern.
The Downward trendline of Bear Cycle is also broken during the Bull phase yet another confirmation of Bull Trend.
Trendline: From the market high of 20/2/20 to next lower high of 5/3/20, the line joining these 2 points will be our 1st trendline, please remember, there can be slight change in trendline or formation of new trendline after a period of time.
The trendline breakout is generally followed by back-testing (after breakout with good bullish candle/s): (marked with highlighted portion in yellow)
a. 17/4/20 & 20/4/20 breakout from Trendline
b. 21/4/20 backtesting of Trendline
c. 22/04/20 further upmove of bullish uptrend and again breaking the previous high of 20/4/20 and market started moving up again. (That’s how the fight between Bulls & Bears goes on) subsequently we keep on creating Higher High (HH), Higher Low (HL) pattern and the uptrend continues.
3. Phase 3: Bull Trend continuation
Continuation of Uptrend
The uptrend is continued by forming new Higher Highs (HH) and Higher lows (HL),
After completion of the 1st leg, market had given a 50% retracement (Refer Fibo 2 on right)
Important thing is to look for patterns creating an uptrend, followed by Bullish Divergence and most important Price moving and sustaining above 50% level. If price doesn’t sustain the 50% level/ 0.236 level, we are in reversal.
These is the most important aspect that we saw in Chapter 1, where Bull Cycle follows a pattern of creating a Range from Low (0) to High (1) and Price taking a support at 50% levels (0.5 level of the range) or 0.236 level of the range.
There can be small reversals seen during the cycles, these maybe followed as per Fibonacci levels (will be covered in Chapter 4: Trading Fibonacci Levels of the Bull cycle) or ever as per Gann 90/120 days cycle for High’s and lows, here knowing the start point is very crucial.
Even if we can make out from the chart later on that, the price was the lowest on 24/03/20 of 7511.1, the real test is studying the market after 24/03/20 and finding out when we can expect a reversal and catch the trend during the time period. After the market has completed a downtrend, that marks the start of Bull Phase. (Remember, during live trading, we are not sure what will happen next but trade on the basis of price action, signals, indicators and probabilities)
We can also refer to 2008-09 bull trend formation in Chapter 2, which will again give an idea of the consolidation formed during the Bull cycle.
Subsequently, we see channel breakout, backtesting and price making further HH-HL pattern.
Observations:
The price movement during the Bull phase is systematic and moves in phases as described above,
Identification of uptrend can be best identified with Bullish divergence and confirmation with price action in the form of Fibonacci Retracement and vive-versa for Bullish Divergence.
For continuation of trend, Price, MA, RSI & MACD are moving is tandem.
Conclusions:
1. Fibonacci retracement can be best used along with RSI & MACD.
2. We can identify signals when small Fibonacci (in 15/30/hourly charts) gives retracement @ 0.236/0.5 levels and Long Buy signal for Weekly/ Monthly calls with 50% Fibonacci levels are described above.
3. Reversal patterns can be best identified with Fibonacci when Higher-High :Higher-Low patterns are formed.
Notes:
What is Bullish Divergence & Falling Wedge, Moving Average, there are various YouTube videos available.
Chapter 3:
Bull Cycle: how to identify prior phase,
The Bull Cycle,
How to trade the Bull cycle.
Tools used:
1. Fibonacci
2. Relative Strength Index (RSI) (36)
3. Moving Average Convergence Divergence (MACD) (18, 36, 9)
4. Moving Average (MA) (36)
Time Frame: Daily
Method:
1. Bullish Divergence & Falling Wedge (or Consolidation/Accumulation) for identification of uptrend along with Fibonacci
2. Bullish Divergence for Uptrend along with Fibonacci + Trendline Breakout
Cycles within the Cycles:
1. Phase 1: Bullish Divergence
Dates: 13/03/20 – 24/03/20: Pre-Phase of Bull Cycle
We have seen in previous chapter that there was a bullish divergence at the end of 2008-09 Bull- Bear Cycle. Again it’s not necessary that we see a clear visible Divergence for a long period of 4-5 months like during 2008-09 cycle. It can also be for a short period like for 3-5 days also.
In 2020, we continue with our Bear trend, and then from 2/01/20 to 12/03/20, we identify a Bullish divergence in Daily Chart. On 13/03/20 RSI(36) is 25.56 while on 19/03/20 RSI(36) is 22.69, and on 23/03/20 RSI(36) is 24.16 over a period of this 12-14 days, we identify a sharp increase in RSI (of around 3-4 points in terms of units), while the price is still creating Lower Highs (LH) & Lower Lows (LL) patterns these difference of Price moving downwards while Indicators moving in upward direction is called as Bullish Divergence.
Falling Wedge: The price typically follows a pattern where it is moving downwards but with small and limited lows then the previous (swings) ones, the length of the swings are reduced which can be identified from the falling wedge. (Falling Wedge: an inclined line less than 45degree, where the price touches the bottomline of the wedge and starts moving upwards again)
These Indicators/ Oscillators only give us Signals, while we can start getting confirmation from Fibonacci retracement, where price starts creating Higher High (LH) & Higher Lows (LL) after the 1st Range formation (check 1st Fibo with low of 7511.1 on 24/03/20 and High of 9038.9 on 27/2/20), we get a 50% retracement. The best part is to terminate your short calls if we don’t move and sustain below these 50% retracement.
There are other methods too like trailing your SL to previous Highs, or Fibonacci retracements.
Bullish Divergence in Daily charts are strong and should be taken very seriously, if we are in Short calls we should keep on trailing our SL to previous Highs/ trail SL after the High or wait for completion of Range, then trail your SL to High, and further trail SL to 0.5 level or 0.236 level of range thereafter. Idea is to keep maximum profits in your pocket and get ourselves prepared for the Bull Trend.
2. Phase 2: Start of Bull Phase
Dates: 24/03/20 – 18/05/20: Start of Bull Cycle:
At the start of Bull Cycle, Price, RSI & MACD are moving in same upward direction, i.e. with every upward movement in price, RSI & MACD are also moving upwards. We can see continuous Higher High (HH), Higher Low (HL) patterns in the Bull Market. The confirmation of getting into Long Bull call signal is important.
Signal: RSI & MACD are moving in upward direction in tandem with Price after the Low of Bear cycle
Confirmation to get into Long Calls for Bull Trend: The best part is to get into buying streak in Long calls is when we start moving above the 50% retracement in Daily. We apply the same method as seen in Chapter 1 & 2, we draw a range from Low of 7511.1 (Level 0) on 24/3/20 to High of 9038.9 (Level 1) on 27/03/20 and wait for a retracement upto the 0.5 level or range, we can get into smaller time frame and look for intraday/15 minutes price action where we get a signal on Fibonacci for an Entry or get an Entry once the market starts moving above 0.5 level with small SL we can enter into a trade as per price action. (We will work on detailing again in coming Chapters with smaller time frames, currently we moved from chapter 1: monthly time frame to Chapter 2, 3 & 4 Daily Time frame)
(On 1/4/20 & 2/4/20 price closed below 50% level and on 7/4/20, it started moving above and also closed above 50% level of the range).
After moving above 50% level, price further moves above 0.786/ 1 levels and hits a target of 1.272/ 1.618. This completes formation of the 1st leg {(0-1 range), (reversal to 0.236/0.5 levels) & (extension to 1.272/1.618) of daily chart in total is the 1st leg as called as Unit of Technical analysis}.
Market may give a 50% retracement after completion of this 1st leg
Always remember that after completion of 1st leg, market gives a 50% retracement or a small reversal, these short reversals at regular levels signifies a strong uptrend. These small reversals are again as per Unit of Technical Analysis pattern.
The Downward trendline of Bear Cycle is also broken during the Bull phase yet another confirmation of Bull Trend.
Trendline: From the market high of 20/2/20 to next lower high of 5/3/20, the line joining these 2 points will be our 1st trendline, please remember, there can be slight change in trendline or formation of new trendline after a period of time.
The trendline breakout is generally followed by back-testing (after breakout with good bullish candle/s): (marked with highlighted portion in yellow)
a. 17/4/20 & 20/4/20 breakout from Trendline
b. 21/4/20 backtesting of Trendline
c. 22/04/20 further upmove of bullish uptrend and again breaking the previous high of 20/4/20 and market started moving up again. (That’s how the fight between Bulls & Bears goes on) subsequently we keep on creating Higher High (HH), Higher Low (HL) pattern and the uptrend continues.
3. Phase 3: Bull Trend continuation
Continuation of Uptrend
The uptrend is continued by forming new Higher Highs (HH) and Higher lows (HL),
After completion of the 1st leg, market had given a 50% retracement (Refer Fibo 2 on right)
Important thing is to look for patterns creating an uptrend, followed by Bullish Divergence and most important Price moving and sustaining above 50% level. If price doesn’t sustain the 50% level/ 0.236 level, we are in reversal.
These is the most important aspect that we saw in Chapter 1, where Bull Cycle follows a pattern of creating a Range from Low (0) to High (1) and Price taking a support at 50% levels (0.5 level of the range) or 0.236 level of the range.
There can be small reversals seen during the cycles, these maybe followed as per Fibonacci levels (will be covered in Chapter 4: Trading Fibonacci Levels of the Bull cycle) or ever as per Gann 90/120 days cycle for High’s and lows, here knowing the start point is very crucial.
Even if we can make out from the chart later on that, the price was the lowest on 24/03/20 of 7511.1, the real test is studying the market after 24/03/20 and finding out when we can expect a reversal and catch the trend during the time period. After the market has completed a downtrend, that marks the start of Bull Phase. (Remember, during live trading, we are not sure what will happen next but trade on the basis of price action, signals, indicators and probabilities)
We can also refer to 2008-09 bull trend formation in Chapter 2, which will again give an idea of the consolidation formed during the Bull cycle.
Subsequently, we see channel breakout, backtesting and price making further HH-HL pattern.
Observations:
The price movement during the Bull phase is systematic and moves in phases as described above,
Identification of uptrend can be best identified with Bullish divergence and confirmation with price action in the form of Fibonacci Retracement and vive-versa for Bullish Divergence.
For continuation of trend, Price, MA, RSI & MACD are moving is tandem.
Conclusions:
1. Fibonacci retracement can be best used along with RSI & MACD.
2. We can identify signals when small Fibonacci (in 15/30/hourly charts) gives retracement @ 0.236/0.5 levels and Long Buy signal for Weekly/ Monthly calls with 50% Fibonacci levels are described above.
3. Reversal patterns can be best identified with Fibonacci when Higher-High :Higher-Low patterns are formed.
Notes:
What is Bullish Divergence & Falling Wedge, Moving Average, there are various YouTube videos available.
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