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Chart Patterns

How do the Breakout traders get trapped? Part- IIPsychology and Behind the scenes stuff: 1. At the BO, there was a massive bullish candle with a very high volume. This took out the previous resistance level. 2. The retailers saw this opportunity because the price closed above the previous resistance. Hence, they entered Longs. 3. The BO was followed by a Doji and then a Bearish candle. This indicated no Bullish follow-up. 4. The next candle was the last try to trap more longs before breaking down. This is indicated by the good volume on this candle. 5. Finally the price broke down with back-to-back bearish candles and reached the previous swing low. Warning candles: 1. Doji + Big Bearish candle indicating that there is no follow-up on the BO 2. Relatively good volume on doji indicates significant selling pressure. Never a good sign for a breakout. 3. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:BANDHANBNKEducation
by johntradingwick
34
TRIANGLE PATTERN BREAKOUT- HOW DOES IT WORK? NAVIN FLUORINE - A beautiful triangle pattern breakout. A symmetrical triangle had formed between the support and resistance trendlines. A minimum of 2 peaks and 2 troughs are needed for a triangle formation. A bullish breakout occurs when the resistance line is broken upwards by a green candle closing above the line. This is also confirmed by good volumes of stock traded. After the breakout, the script price usually retraces ( a setback before the rally). The previous resistance line for the script will now act as a support line. The maximum height of the triangle will usually be the first target. Fibonacci extensions to 2.618, and 3.618 can be 2nd and 3rd targets respectively. All the best! Happy trading...
NSE:NAVINFLUOREducation
by Stock-Holmes
3
Trend Continuation PatternBullish Flag Chart Pattern: Tata Chemicals Description: The flag represents a brief pause in a dynamic market move & one of the requirements for a flag pattern is that it should proceed by a sharp and almost straight-line move. It represents situations where a step advance or decline has gotten ahead of itself, and where the market pauses briefly to "catch its breath " before running off again in the same direction. Construction of Flag & Pole pattern: The flag resembles a parallelogram or rectangle market by two parallel trendlines that tend to slope against the prevailing trend. The flag usually occurs after a sharp move & represents a brief pause in the trend. The flag should slope against the trend. Volume should dry up during the formation & built again on the breakout . How to trade flag and pole patterns: The sideways period is often followed by another sharp rise. This is where the trading opportunity comes in. Once the flag pole and a flag or have formed, traders watch for the price to breakout above the upper flag/trend line. When this occurs, enter a long trade. Conclusion: 1-Flag patterns are a commonly used technical analysis tool and majorly a choice of breakout traders and swing traders. 2- Flag is formed when there is a minor profit booking in either an uptrend or a downtrend. 3- The pole is formed by a line that represents the primary trend in the market. 4- It is important that flags are preceded by a sharp advance or decline.
NSE:TATACHEMEducation
by Indrajit08
3
Nifty 2001-2021: A complete thread on 2 decadesHi everyone, I have tried to provide a holistic view of all the market cycles of Nifty from 2001-2021. This post may or may not make sense, hence just read without any predefined notion. This post took me a few days to get rolling, so please show some appreciation. We will be talking about the following parameters: 1. Corrections after each cycle 2. Price versus RSI 3. The 3 major crashes from 2001-2021 4. Market structure 5. Date and Price range of each cycle 6. Mean value of RSI 7. Candlestick patterns formed before the reversal 8. Nifty vs US Dollar index(DXY) 9. Current Situation Corrections after each cycle: After each bull run, the market corrected anywhere between 0.382 to 0.786 Fibonacci levels. Normally, the correction was shallow, from 0.382 to 0.5 Fib levels. But in rare cases, when there was some external driving force, it corrected to 0.618 to 0.786 levels. At the end of each Bear run, the market rallied about an average of 167%, from the low of the Bear run to the high of the Bull run. In the current cycle, we have rallied about 110%. Price versus RSI If we look at the RSI levels of each cycle from 2001-2021, we can see that the maximum RSI at the peak was around 85 and the minimum RSI at the peak was 66. The RSI of the current cycle is 74. The 3 major crashes from 2001-2021: 1. UPA 1 election crash of 2004 – The price fell spontaneously and corrected till 0.618 Fibonacci level, where it found support from the 50 simple moving average. 2. The Great recession of 2008 – At this time, the markets all over the world saw heavy selling pressure due to the collapse of the housing industry in the US. Nifty plummeted to around 2k, which coincided with 0.787 Fibonacci level. This level was also supported by the 100MA. 3. The Covid Pandemic of 2019 – The market witnessed a steep fall from 12k to 7k within 2 months. Again, this level was a confluence zone of 0.786 Fibonacci level and 100MA. Like I said in the beginning, the market only had a deeper correction to 0.618 and 0.786 Fibonacci levels only in the times of some external driving force. In all others cases, the market only dropped to 0.382 or 0.5 Fibonacci level. Market structure: Since 2001, we are in a continuous Bullish market on the monthly time frame. The price has been forming a continuous series of Higher Highs and Higher Lows. Date and Price range of each cycle: The market rallied about an average of 167%, from the low of the Bear run to the high of the Bull run. In the current cycle, we have already rallied to about 110%. Each swing on average took about 1008 days for the formation. On this note, the present swing is the shortest swing till now and took about 486 days for the formation. Who knows, what might we see next? The cycle from 2004-2008 lasted about 1338 days and gave about 392% gain and only had a few shallow corrections on lower time frames. Mean value of RSI: We can see that the maximum RSI at the peak was around 85 and the minimum RSI at the peak was 66. If we calculate the simple mean values of the 5 swings from 2001-2011, we get the mean value of the RSI at the swing high as 75 and the mean value of the RSI at the swing low as 40. Currently, we are already standing at 73. Candlestick patterns formed before the reversal: Although there are plenty of reversal patterns out there and any of them can occur at any point in time. But in the case of Nifty, we have seen only a few patterns in a repetitive manner. These include – Hammers, Dojis, and Bearish Engulfing. If you want you can see the names in a more specific fashion, you can call them as shooting stars, hanging man, spinning top, etc. In the current cycle, we saw a series of hammers from January to April. But in May, a good Bullish candle was formed which broke out of the range of hammers. This invalidated the bearish bias. A small doji was again formed in June. Hence, we will have to observe in the coming months as to what type of candlesticks gets formed. This may help us in assessing the future direction of the market. Nifty vs US Dollar index(DXY): For the majority of the time, Nifty and DXY show a negative correlation sometimes they also exhibit an inverse relationship. A negative correlation is a relationship between two variables in which one variable increases as the other decreases, and vice versa. When the Nifty rises, DXY falls and when the DXY rises, Nifty falls. For a brief time period, we can also a positive correlation between the two when they both moved in tandem. At the moment, we are seeing an inverse correlation since the NIFTY is at a high and DXY is at a low. Current Situation: Lastly, if we observe, the price is currently sitting at the 1.618 Fibonacci extension level of the previous swing. If we are able to break through this level with good follow-up, we can see 18k level in the coming months. And if we fall from here, then we head to 14500 and ultimately 12500. I hope you find this post useful. I may be wrong at some places, after all, I am just learning. Also, if anyone is interested in getting a consolidated PDF version of this thread, then you can message me, I'll provide it. P.S: This is NOT investment advice. This post is meant for learning purposes only. Invest your capital at your own risk. Happy learning. Cheers! @johntradingwick
NSE:NIFTYEducation
by johntradingwick
139
How Breakout traders get trapped? Underlying logic: 1. The market already gave 11% in the impulsive move and created a high. Obviously, the momentum was fading out. 2. If you recall my lecture on market structure, you already know that after the creation of a high, we must come down to create a new higher low. The market cannot keep making new highs without creating a higher low. 3. There was a Bearish divergence. The price was moving up and up but the RSI was creating an equal high indicating that there isn't enough buying pressure. (I have already covered this in my older posts) Psychology and Behind the scenes stuff: 1. At the point of BO, there was only a round bottom, so nobody would have thought of it as the cup & handle pattern. 2. After the BO failed and the price dropped and formed the handle, the retailers thought of it as a cup and handle pattern. Only after the formation of the pattern, you would think of it as a pattern. 3. But the BO traders already got trapped at the top. You aren't aware of this if you don't have knowledge 4. So, in the end, nobody really paid attention to the manipulations done by the institutions. This is how retailers are trapped. Warning candles: Doji + Hammers + Bearish candles indicating that there is a problem with the follow-up. Relatively good volume on hammer & doji, which is never a good sign for a breakout. It indicates significant selling pressure. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:GRANULESEducation
by johntradingwick
248
Bearish Engulfing TCS A bearish engulfing pattern is a technical chart pattern that signals lower prices to come. The pattern consists of an up (white or green) candlestick followed by a large down (black or red) candlestick that eclipses or "engulfs" the smaller up candle. Bearish Engulfing Potential Sell Signal: Three ways for selling using the Bearish Engulfing Pattern from most aggressive to most conservative: 1. A Aggressive trader might sell at the close of candle 2. If there is a substantial increase in volume that accompanies the large move downward in price, a trader might view this as an even stronger indication to sell. Also, a trader might sell after the Bearish Engulfing Pattern occurs; by waiting until the next candle to sell, a trader is trying to verify that the bearish reversal pattern is for real and was not just a one candle occurrence. In the chart of TCS, trader would probably entered after the Bearish Engulfing Pattern because the selling continued. Usually trader’s wait for other signals, such as a price break below the upward support line (see: Resistance), before entering a sell order. However, in the case of TCS in chart, the Bearish Engulfing Pattern occurred at the same time as the trendline break below support. stay with me, learn with fun mcpriceaction
NSE:TCSEducation
by mcpriceaction
How to avoid Fake Breakout? A lot of retailers may have gotten caught in this fake breakout in TCS. I provided that rough path (which I anticipated it would follow) in my original idea because I believed the conditions were not right for a breakout at the moment. The majority of the time, we cannot avoid getting trapped in fake breakouts. But in the recent case of TCS, the fakeout could have been avoided. Underlying logic: 1. The market already gave 8% in the impulsive move and created a high. Don't you think it needed a little rest before the next leg up? 2. If you recall my lecture on market structure, you already know that after the creation of a high, we must come down to create a new higher low. The market cannot keep making new highs without creating a higher low. 3. There was a Bearish divergence. The price was moving up and up but the RSI was creating a lower high indicating that there isn't enough buying pressure. (I have already covered this in my older posts) Warning candles: As soon as there was a breakout, there was a series of Hammers + Doji indicating that there is a problem with the follow-up. There was a significant volume on hammer & doji, which is never a good sign for a breakout. It indicates significant selling pressure. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:TCSEducation
by johntradingwick
24
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NSE:MOTILALOFSEducation
by Kuldeep_Share
Trading Patterns 101 - The Cup & Handle patternWhat is a Cup and Handle pattern? • The pattern resembles a cup with a handle, where the cup is in the shape of a "u" and the handle has a slight downward drift. • This drop, or “handle” is meant to signal a buying opportunity. When this part of the price formation is over, the stock may reverse the course and reach new highs. • It is a bullish continuation pattern i.e. it extends the existing uptrend Parts of a Cup and Handle pattern: The cup and handle chart has 3 main components: • Cup • Handle • Neckline/Resistance Important aspects: 1. Prior Trend: The cup and handle pattern is a bullish continuation pattern, hence the prior trend should be an uptrend. 2. Cup length: Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. It should resemble a rounding bottom. This ensures that the cup is a consolidation pattern with valid support at the bottom of the “U”. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case. Avoid cups with sharp "V" bottoms because there is almost no consolidation in that case. 3. Cup depth: Ideally, the cup should not be overly deep. In practice, the cup depth can be up to 60% of the last swing move. In my opinion, the best cups often have a depth of about 50% of the last swing. 4. Handle: Avoid handles that are overly deep also, as handles should not exceed 50% depth of the cup. The best cup and handle patterns have a shallow retracement on the handle (not more than 1/3 of the cup). However, in some situations, the price may retrace up to 0.618 Fibonacci level. 5. Breakout: Bullish confirmation comes when the pattern breaks above the neckline made using the prior highs with a good volume. 6. Volume: Volume should decrease as prices decline and remain lower than average in the base of the bowl; it should then increase when the stock begins to make its move higher, back up to test the previous high. 7. Target: The profit target is equal to the depth of the cup. It can be measured by the distance between the bottom of the cup and the neckline and extending that distance upward from the breakout level. 8. Stop-loss: Ideally, the stop loss is placed at the lowest point of the handle. But if the price oscillated up and down a number of times within the handle, the stop-loss can also be placed below the most recent swing low. Examples of the Cup & Handle pattern: Like always, if anyone is interested in getting a PDF version of this thread, then you can message me, I'll provide it. Happy learning. Cheers!
NSE:SAIL1!Education
by johntradingwick
18