Double Top or Bottom
WHAT HAPPENED WITH MARUTI? 10000 to 6800 Journey!Maruti reached its 52W high at 10,000 and has been faaling continuously since then. The way Maruti % fell shocked alot of people, However it was not all that difficult to determine the fall and I will share, how I proceeded and made money in Maruti 5.71% .
On 25 July, Maruti reached its prior top weeks high zone of 9900-10000 again. It was a good resistance and If it is broken with Good volumes, Maruti can go upto 12K-13K, The next day Maruti reversed from the resistance zone and created a Double Top (as shown in the chart), also the Day Candle formed a Bearish Engulfing Pattern which indicates the start of the downfall.
Double Top Pattern is a fairly successful pattern and Share is expected to reach the neckline at 8200-8300 zones before changing its direction.
Maruti immediately the next day formed a large 500 points Bearish Candle which gave me good profits, And I continued waiting for my Initial target of 8200 (Neckline). In the meanwhile share gave a lot of green candles, But I since I was already in profits, I had margin of bear some green Candles.
Each time Maruti showed a couple of green candle, a Big Red candle wiped out gains forming Bearish Engulfing Pattern repetitively, which posted my confidence. Share reached up to 9000 after that Rose 250 points.
I though of squaring off position but the prior experience showed that there has not been 3 consecutive green candles in the past 9 months, So I decided to wait for the next day. Maruti reversed and showed red candles for the next 3 days and formed a 3 Blacks Crows pattern, which is sign of huge fall coming.
Near 14 September One Gap Up for formed, but the next day there was a Gap Down thereby forming a Evening Star Pattern.
On 19 September, Share finally reached my initial target of 8200 after I squared off and decided to play a LONG STRANGLE, to up my possibilities of winning. I took a Put and a Call at 3% Difference.
Soon The share broke the neckline and started to go more downwards, I squared up my call and waited for gains in Put.
Every person has different way of Analyzing. But the idea is to hold onto your faith and continue with your strategy. Even the basic Candlestick patterns have the ability to reap you awesome results.
Thanks, i hope this is Helpful.
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MINDTREE for Swing TradingMINDTREE can be bought for swing trading.
It formed double top and it came down to previous rejection/support point.
It broke out the support line and looks like it is Breakout failure.
Just for observation and education purpose only.
DOUBLE BOTTOM : REVERSAL PATTERN1. The Shape of The Double Bottom –
A double bottom occurs when prices form two distinct bottoms on a chart. A double bottom is only complete, however, when prices climb above the highest high point between the two bottoms. The double bottom is a reversal pattern of a downward trend in a stock’s price. Sometimes called a “W” formation because of the pattern it creates on the chart, the double bottoms are also one of the most frequently seen and common of the patterns along with double tops Because they seem to be so easy to identify, the double bottoms should be approached with caution by the investor.
2. Formation of The Double Bottom –
Leading to the formation, prices trend downward over the short to intermediate term (3 to 6 months) and usually do not fall below the left Bottom. There should be at least a 10% upside between the two bottom, measured from low to high. Two distinct Bottoms with a price variation between peaks of 4% or less. This is not crucial except that the two Bottoms should appear near the same price level and not be part of the same consolidation pattern.
3. Duration of The Double Bottom –
The Double Bottom has a minimum duration of 3 weeks and it rarely exceeds 3 or 4 months long. Anything less than 3 weeks of duration likely to be a pennant formation, not a Double Bottom.
4. The volume inside The Double Bottom –
Usually higher on the left bottom than the right.
5. Pre-mature or False Breakout –
Because volume is usually low at the time of breakout, it takes very little activity to bring about an erratic and false movement in price, talking the price below the neckline and bounces back again.
6. Breakout –
The confirmation point is the highest high between the two Bottoms, neckline, Prices closing above the neckline confirm a double Bottom and the breakout.
HOW TO TRADE THE DOUBLE BOTTOMS
Trading Rules.
1. Entry –
Buy the stock day after Prices closing above the highest high point between two bottoms. If you miss it, wait for the throwback then buy when price resumes the breakout direction after the throwback completes. When you missed and, If you Don’t Get a throwback around the neckline then Don’t Chase The Stock for buying.
2. Price Target –
Compute the formation height by subtracting the lowest low from the highest high in the formation. Add the difference to the highest high between the two bottoms. The result is the expected minimum price target.
3. Taking Profit –
For short-term traders, sell the stock when the price reaches near to the minimum price target computed as above. For intermediate and long-term traders, hold the stock as per your risk & capital management applied before entering into a trade.
4. Stoploss –
Usually, price closing below the second bottom is a stop-loss. But very often, The gap between the second bottom and neckline price is very high. So it will be an unfavourable risk-reward ratio. Ever felt you are getting enough trading calls right, but aren’t still making significant profits? An unfavourable risk-reward ratio could be the answer.
You may be adept at reading chart patterns but if you trade with an unfavourable risk reward ratio, you are headed for big losses on your trading portfolio.
RELIANCE A POSSIBLE DOUBLE TOPIf one watches reliance closely the stock may form a typical double top chart formation
and the leading indicator over here is the volumes traded on the stock which if we watch we can see is less as compared to the previous time the stock reached this level what it means is "last time when the stock reached this price the demand was met with higher amount of suppliers"
in this case 8 million(approx)/(TOP 1) volume in which supply was more than the demand.
Now at peak two the volume has decreased to 6 million which please "note does not matter unless the demand(buying) is more than the supply(selling/shorting)".Here it is clear that the stock crossed its previous high of 957.80 to 959.50 and saw heavy offloading supply to traders who thought the price will break above.
"This is a lesson never to buy at higher levels no matter what analyst say on TV/Big Brokerage Houses".God knows what they are planning.
"A close above the previous high is more important or a confirmation that the demand is greater than > supply".
Such a confirmation is a indication of new price range because it forces Short Covering in the stock.And continues till the demand Dry's out and reaches a level of absolute satisfaction that there are no more buyers at higher levels and the price begins to drop there are indicator's for such research or analysis is the 'Open interest' and the 'volumes'.
MY TRADE VIEW ON RELIANCE
"please note that there is a possibly i might be wrong because reliance is one of the most liquid stocks in India and demand can pick up easily
but according to the analysis and volume indicators i have come to this conclusion"
SHORT POSITIONAL TRADE ON THE STOCK
Short @ 950-955-959.50
Stop @ 965
Target @ T1-935
T2-915 (condition that the stock closes below 931)