Rounding Bottom patternHey everyone! 👋
Today we are going to share a quick write-up about the “Rounding bottom” formation, along with a few examples that may help you solidify your understanding of this chart pattern.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
The post will shed some light on the following topics:
➡ Basics and identification of the pattern
➡ Components
➡ Important aspects
What is a Rounding bottom pattern?
• A rounding bottom is a bullish reversal pattern that resembles the shape of the "U".
• Rounding bottom pattern occur at the end of long downtrends and indicate a potential reversal.
• The pattern is also referred to as a saucer bottom due to its resemblance to a saucer.
• Although, the volume and price move in sync but in practice, this can vary widely.
• When the price moves above the neckline, it indicates strength and suggests that the stock may begin a new uptrend.
Components of a Cup and Handle pattern:
A rounding bottom pattern can be divided into three main parts.
• Decline
• Formation of the base
• Advance
Important aspects:
1. Prior Trend: Since it is a bullish reversal pattern, the prior trend must be a downtrend. The low of a rounding bottom should ideally mark a new low or reaction low. The stock may trade sideways or flat for a long duration before the formation of the pattern.
2. Decline: The sell-off or decline that leads to the formation of the low, can take a variety of forms. Sometimes, the down move has many whipsaws while other times, the stock may just trade flat.
3. Low: In general, the pattern resembles a "U" shaped bottom. However, it can also resemble a "V" or a "W," but the low should not be too sharp. In addition to this, there is always a possibility of a new low due to a selling climax.
4. Advance: In general, the formation of the right half of the pattern should take about the same amount of time as the left half. This means that the up move off the lows should take about the same time as the down move. Moreover, the advance shouldn't be too sharp, or else there is a possibility of breakout failure.
5. Breakout: The pattern is confirmed once the price breaks and sustains above the neckline. The price may return to the neckline to test for the demand before continuing upwards.
6. Volume: In general, the volume levels should be
➡ High during the down move
➡ Low during the formation of the base
➡ Rising during the up move
However, these are only guidelines and should not necessarily be taken at face value.
7. Target: Using the measurement objective, the target comes out to be equal to the depth of the base. It can be measured by calculating the distance between the bottom of the base and the neckline.
8. Stop-loss: Ideally, the stop loss is placed at the lowest point of the base. But if the price oscillated up and down a number of times near the neckline, the stop-loss can also be placed below the most recent swing low.
Exhibit: Rounding bottom pattern with a failed breakout
Thanks for reading! As we mentioned before, this isn't trading advice, but rather information about a tool that many traders use. Hope this was helpful!
See you all next week. 🙂
– Team TradingView
Feel free to check us out on Instagram and YouTube for more awesome content! 💘
Community ideas
CHOOSING OPTIONS STRIKEChoosing wrong strike prices can lead to big losses even when our analysis is right. It's due to Theta decay.
So Lets understand some basics of options strike price.
There are three types of strike prices based on their moneyness.
1)ATM (At the Money)
2)OTM (Out of the Money)
3)ITM (In the Money)
FOR CALL OPTIONS :
Lets assume Stock ABC is trading at 150 (spot price). Then,
Spot price = 150
ATM Strike = 150
Any strike above spot price is OTM for call option.
Ex : 160 ,170,180 etc.,
Any strike below spot price is ITM for call option.
Ex : 140, 130, 120 etc.,
FOR PUT OPTIONS :
Stock ABC is trading at 150 (spot price).
Spot price = 150
ATM Strike = 150
Any strike above spot price is ITM for put option.
Ex : 160 ,170,180 etc.,
Any strike below spot price is OTM for put option.
Ex : 140, 130, 120 etc.,
HOW TO CHOOSE THE STRIKE AMONG THE ABOVE THREE MONEYNESS
1)Follow a simple rule, Buy a strike price which is closer to the spot price. "OTM STRIKES ARE BIG NO" .
2) Remember! when we are buying an option, the stock / index needs to move up / down with a good momentum. So that our option will gain some value & we will be in profit.
So it doesn't make sense to buy a OTM call / put. Because if a strike price is far away from spot price, it won't give us much movement due to time decay.
I have even shared my option strike rules as follow.
Friday, Monday & Tuesday = ATM strikes
Wednesday & Thursday = ITM strikes
This is how I used to pick strikes for intraday. The reason is simple because, if we are closer to the expiry (Thursday) the effect of theta decay is very high. Due to which our premiums will not move much even if the stock / index has moved pretty well. By following these rules, our chances of losing money will drop drastically.
Happy Learning & Earning :)
- DivyaaPugal
Different Methods to Identify Perfect Entries with ConfluenceBasics of Trading and the areas of interest of every trader to have minimum knowledge to understand the market and its movement.
Volume Based Entries
Basics of Volume When the price is trending volume will be above volume moving average that will be considered as trend, when volume is too high in a session thats higher than 3x to volume moving average that will be considered as climax which means maximum orders are filled in the exsisting trend. Apart from stocks if such Climax pattern in volume in any format is seen then consider there might be a reversal soon. If one is trading in the stocks you get to see this ultra high volumes in gap ups and gap downs, now you will have to know what sort of gap it is to take entries which we will discuss in the Gaps later.
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Gaps
Gaps theory needs to be understood properly, over 4 kinds of Gaps are found in charts. Simple understanding follows :
Common Gaps : Normal gaps that happen every day with in a ranging market
Break Away Gaps : If a range/pattern/Support or Resistance is broken with a gap that is called break away gap. This sort of gap happens in the early stages of trend.
Running Gaps : After breakaway gaps rest of the gaps if happened towards the trend is called running gaps. as long as there is an exhaustion gap.
Exhaustion Gaps : This Exhaustion Gap happens either up or down after an up trend or the same in a down trend. These gaps gets filled giving an idea that the trend has ended.
Consolidation Areas
Consolidation areas or the trading ranges are to be considered as Support & Resistance areas to identify for patterns like Triangle, wedge, flag, pennant, or rectangle patterns. good areas to look for gap up or down and volume to identify breakout for the next move or plan for the next session.
Fib Extension & Retracements
Fibonacci extention and retracements is the basic knowledge that any trader who is willing to learn about technical analysis should be considering learning in depth, its a basic tool that gives you a lot of info, Basic knowledge to know is Fibbonacci Retracement is used to identify the entry and Extension is used to identify the exit. levels of interest are called the golden ratio i;e: 38%, 50%, 62% this is where majority of the reversals happen, these can be considered as Support & Resistance zones to look for breakout entries
Support & Resistance
Every traders nightmare is to understand or identify S&R in the initial days of your trading is not because you cannot ... it is because you are too curious, anxious, exited to enter into a trade, once you calm down and try to understand the market its not that hard to identify them ... S&R areas are the reversal zones or breakout zones it is going to be a big topic if tried to explain the whole concept so lets just stick to basics and use pivot high and low and FIB levels as your support and resistance zones for now.
Trendline Breakout
These are first thing that any trader learns try to master them, a perfect trendline is considered a strong support in uptrend or resistance in downtrend when it has respected this line for least 2 times from its start point. A breakout gives you and opportunity to enter in to a trade.
Elliott Wave
This is not considered as entry point in the initial stages of learning but one should know the basics of elliott wave to identify the trend we are in by looking at the leg we are in and you can calculate the trend by given wave length through fibonacci ratios. Only thing that you need to know is that market doesnt move in a straight line like you see in elliott wave picture above there will be waves with in waves.
Try to bring all these together as confluence to understand the market move and take entries.
Note : Train the eye to identify the structure, then comes the logic and explanation.
#Nifty spot : Strong support at 17300-17350#Nifty spot
18.10.2022
Dont be suprised if nifty comes
around 17300-17350 in next 2-3 trading session
and reverses up from these levels..
making a new highs.
(Imp tip - Dont miss buy entry
around 17300-17350 for 17450/17550)
Strong support at 17300-17350
Cmp 17490
Double Bottom pattern in ACCACC stock was trading in Falling wedge pattern for last few days on 1h timeframe. This stock has given a reversal entry from support level and reversal target is above 2285+(up to resistance level ) In case this stock is given a breakout then take breakout entry on the resistance level so this can be extended for up to 2360+.
Gap up / gap down intraday strategy with simple entry / exitI get queries from a lot of people who don't want to study technical analysis much.
They're just focused on getting a predefined trading strategy, which they can use effectively in the market without looking much at the charts .
So, in this video, I share a strategy which has been given really good results and it works a lot of times and I believe the probability of this particular strategy is close to around 65 to 70%.
It has simple entry and exit rules, and you can only apply this particular strategy when the market opens gap up or gap down.
See, whenever the market opens gap up or gap down, there is high volatile period of the market during the beginning half an hour or an hour.
And in that period of time,if you place a trade, then you have a good probability if market moves as per expectation.
As you can see these days, nifty and back nifty have been creating gap up and gap down opening almost on a daily basis.
In this case, the first rule is that if the market opens gap up by more than half a percent.
So for example, if bank nifty opens gap up by more then 200 points. , then only you can apply this strategy.
And on the other hand, if nifty opens gap up or gap down by more than 50 or 60 points, then only you should think of applying this particular strategy.
Small gaps do not count in this strategy.
So if bank nifty gaps down or gaps up by only 50- 60 points, then avoid this strategy altogether.
See, whenever the market is opening gap up or gap down, there are two possibilities.
The market might continue the current trend.
For example, if the market opens gap up, the chances are that the market might move higher, or the other possibility is that the market might go sideways the whole day.
So ,in this case, whenever you see the market opening gap up or gap down by more than half a percent, just have to follow this simple procedure.
Just plot the 15 minute chart with a 20 exponential moving average.
Why 20 exponential moving average because the market usually gets good support and resistance around the 20 moving average.
You can expect the market to stall around the moving average for a lot of times if you take a trade.
So ,you just have to plot the 15 minute chart, and if the market gaps up or gaps down, you just have to watch the first 15 minute candle.
So if the market opens gap up and it forms a bullish candle.
Then , what you can do is you can sell puts if price breaks the first 15M candle high. You can sell puts with the stop loss at the low of the candle.
If the market comes below the low of the candlestick the first 15 minute bar, then you exit your position and book the loss.
Why sell puts?
The idea behind selling puts is that during the first 15-30 minutes, the volatility is on a very higher side during that period.
And if at that point of time you start to sell options, then with the passage of time, as the market starts to move sideways, the volatility reduces.
And, what occurs is a concept called IV Crush.
The volatility starts to reduce very quickly and that will give you a benefit if you sell a put, even if the market goes sideways.
So for example, the market formed a very big bullish candle, and the criteria is if it crosses the high of the candle ,sell puts .
So, the whole day, if the market is moving sideways/upwards , the volatility crush will start to happen.
And with the passage of time, you'll start to see the benefit of the IV Crush and the time decay.
So this is a very handy strategy which you can apply.
Always remember, keep the stop loss below of the first 15M candle.
It's a very effective technique, and it's based upon gap openings.
And ,the first 15 minutes usually tell us who is on the stronger side, who's winning , buyers or sellers.
So make sure the gap is big and whatever bar is being formed in the first 15 minutes.
If the bar is bullish, you sell a put If the price crosses the high of that candle stick, and stop plus below the low of that candlestick.
It's an effective rule based strategy and you can back test it on nifty and bank nifty.
And you can also check its reliability, its effectiveness, you can also add this particular strategy in your tool kit.
So I hope this strategy will provide some sort of value to you in your trading.
And if you find the video helpful, don't forget to like this and share it and also comment your thoughts.
Thank you very much and take care.
GOLD BREAK OF BULLISH MARKET STRUCTUREXAUUSD just broke bullish market structure. It failed to break Higher high and created a double top which will be confirmed as it breaks below 1705.
Will be entering short as it breaks below 1705 and confirms it on hourly chart TP 1 will be 0.5 Fib which is 1672.05 and TP 2- 1658.42. will go for TP 3 1617 if it breaks below golden pocket of 0.618.
My SL will be 2%
I'll be entering short only if it actually confirms the double top by breaking below 1705. that will confirm market has actually flipped to bearish
BankniftyThe global market indicates a neutral start. The market nature is slightly range bound to bearish. if the market rejects around (nifty 23% & banknifty 38%), we will expect a minor pullback to the previous day high. On the other hand, if the market breaks that support zone after the pullback, we expect the correction to continue.
UPL - Multi time frame AnalysisPlan A : Price is still below the trend line resistance and sustaining 688 - 692 will make the price to move towards 696,702.
Plan B : Near by resistance 700 - 704. Price should sustain this zone to move to 710, 716 and 722.
Plan C : If price shows bearish strength below 686 - 690, then price will move to 682,677, 672 and 666.
Note : Understand the trend strength before taking any trade. If you are bullish look for bullish strengh and if you are bearish look for bearish strength. Dont change your view with each candle.
'SWING' your losses into profits with 'SWING' trading strategiesIn prior posts, we have covered some great teachings about the market and,
in this post, we will elaborately cover the swing trading strategies. Let's start !!
->Definition of swing trading -: Swing trading is generally referred to as a trade carried out for a short time. Swing traders do not wait
till the price action opposes their direction, they are known for their prior moves.
They are good at identifying the shifts in market trends with the help of various techniques which are explained throughout this idea.
Swing trading strategies include the use of Fibonacci, Bollinger Bands, Channel Trading, Moving Average, MACD crossover, and better
understanding of chart patterns like Head & Shoulder, Flag, and Triangle Patterns.
We will discuss chart patterns, later on, now let's focus on the indicator strategies.
- >Swing trading strategies -:
->Fibonacci Retracement: The stock price tends to retrace, and swing traders use this retracement as an opportunity to enter a trend.
The retracement levels could be identified using Fibonacci Retracement, all you need is to identify the prior trend and if the price retraces to the 0.618 level and
again resumes the trend jump on it and ride the position till it reaches 0.236 level.
->Bollinger Bands : Most probably, the stock price tries to move in the Bollinger band, which is used by swing traders to initiate and terminate their position.
Firstly you need to identify the major trend, let's suppose it's bearish than when the price reaches the upper bound and there is a formation of a bearish candle
you could initiate a short position also when a bearish candle is formed at the median, there also you can initiate a short position.
->Channel Trading: Sometimes, stock price trades in a channel now this channel is used by swing traders i.e. when the trend is bullish they try to take long
position at the lower range of channel and book partial profits on median and wait for the price to reach the upper end.
->Moving Average: Here traders identify the major trend and take position according to it, with help of crossovers they generally prefer 10DEMA crosses 20DEMA.
->MACD : This is a simple strategy where the trades are initiated when there is MACD crossover but the cross should correlate with the trend.
My Observation-: These strategies could be more accurate if used to trade with the trend, i.e. if the stock is in an uptrend only take positions for a positive signal and just avoid negative signals.
Another basic strategy is to take a position when a script moves above the swing high or below the swing low, here the only thing to ponder is to manage your risk. Don't take over positions understand your risk appetite then take positions.
The Top 3 Elements found in all good trading plansHey everyone! 👋
This month, we have been theming our posts around the concept of building a solid trading plan. Our first post asked you to think about the kinds of factors that can predict long-term success. Our second post looked at why trading plans are so important. Both of these posts you can find linked at the end 👇
Having talked about the *what* and the *why*, it’s time to talk about the *how*.
Today we will be taking a look at the top 3 elements found in all good trading plans!
1️⃣ Element 1: Every good trading plan knows why it wins.
In trading, there are two variables that matter: Bat Rate, and Win / Loss.
► Bat Rate describes what percentage of the time a trade ends up as a win. A trader with a 90% bat rate wins 9 out of every 10 trades.
► Win / Loss describes how big the average win is, relative to the average loss. A trader with a 0.5 Win / Loss takes losses twice the size of his wins.
If you multiply these numbers together, you will get an “Expected Value”.
For example, a trader with a Bat Rate of 50% (wins half of the time) and a Win / Loss of 1 (Losses the same size as wins) is a perfectly “Breakeven” trader.
In order to make money in the long term, all you need to do is make the multiplication of these values be a positive value. The breakeven trader above only needs to win 51% of trades to begin making money, if his W/L remains constant.
☝🏽To get these numbers into positive “expected value” territory, every good trading plan needs to devise a way to systematically find trading opportunities that it thinks have an edge. The inputs of this system are completely up to the trader, but they are typically rooted in repeating price patterns, fundamental observations, macro trends, or other patterns and cycles. Backtesting can be useful here for getting a general idea of whether or not an idea for a trading strategy has borne out to be true over time.
In short, no matter what it looks like, good trading plans identify their edge before risking capital. Why start a business without a business plan?
2️⃣ Element 2: Every good trading plan takes into account the emotional character of the trader.
This is the hardest element to quantify, but also arguably one of the most important pieces of a good written trading plan - the ability to work around a trader’s individual strengths and weaknesses. This is less important for banks and hedge funds, as decisions are typically made with oversight, but for retail traders, there is no-one around to temper your personal flaws.
You can do whatever you want! - but it’s a double edged sword of responsibility that your trading plan needs to prepare you for.
In short, you can best get an idea of where you are emotionally weakest by looking at your trading history. Nobody can do this for you, so it requires quite a bit of self-awareness. However, the rewards of removing emotional risk from a trading plan make it worth the effort.
😱 All trading is based on fear. You need to understand which fear is stronger - the fear of missing out, or the fear of losing capital. Figure out which is stronger, and plan accordingly.
Just because you understand a certain strategy and other people make money trading it, doesn’t mean that you will be able to. Executing with 100% consistency at 30% efficiency is more important than finding a strategy with 100% efficiency that you can only trade with 10% consistency. Make life easy on yourself!
3️⃣ Element 3: Every good trading plan outlines risk.
Whether you have one thousand dollars or one billion dollars, ignoring risk is a sure way to experience massively increased monetary and emotional volatility , which can have a huge negative impact on long term profitability. Here are a few simple-to-implement mechanisms that Banks, Hedge Funds, and Prop Firms use to reduce risk significantly - good trading plans don’t skip these.
💵 Total Account Stop
Exactly what it sounds like: once you lose a certain percentage of your capital, you stop trading, liquidate your positions, and assess what went wrong. Only once you’re satisfied that you have fixed the issue are you allowed to re-enter the market. In the industry, this number is commonly 10%.
💵 Per Theme Risk
This ensures that you aren’t too concentrated on a single “bet”, even if the bet is spread across multiple instruments. For example, if you own multiple companies in the same sector, their performance will likely be correlated to some degree even if they have different products or services. Adding a hard cap to this type of risk can massively reduce risky or over concentrated allocations.
💵 Per Position Risk
Many successful Professional Traders and Hedge Funds use the concept of “Free Capital” in order to manage risk. “Free Capital” is the amount of money in hard dollars that makes up the buffer between an account’s current equity, and the total account stop number.
For example, If a currency trader at a bank has a 10% total account stop out, and runs a $10,000,000 currency book, then he can really only “lose” $1,000,000 before his bosses pull him aside to have a talk. His “Free Capital” is $1,000,000. He will then size his positions to where he only risks 1-5% of his Free Capital per trade. This way, he has room to be wrong a minimum of 20 times in a row before any negative consequences come his way. Implementing a “free capital” risk limit per position ensures that you have a TON of room for error.
Yes, this typically prevents you from doubling your account overnight, but again, that isn’t the goal. Long term profitability is.
Some people call this per position risk “one R” (one risk unit).
☝🏽Whatever it looks like, including a plan for managing your risk is essential for *actually* managing your risk. If these plans aren’t written out and acted upon, they’re also a lot easier to ignore.
🙏🏽 Thanks for reading! Hope this was helpful!
- TradingView Team ❤️❤️
Make sure you follow us on Instagram and YouTube for more awesome content! 💘
NIFTY in 3-3-5 Corrective Elliot Wave- Overall Bull Trend IntactNIFTY 50 Analysis based on Elliot Wave Theory
1) 5-April-2022 to 17-June-2022: NIFTY 50 formed a 5-wave bearish impulse wave down from 18,100 to 15,175
2) 19-June-2022 to 13-Sept-2022: NIFTY 50 formed a 5-wave bullish impulse wave up from 15,175 to 18,075
3) 18-Aug-2022 to 13-Sept-2022: Waves (4) and (5) of the 5-wave bullish impulse wave were also the beginning of an A-B-C (3-3-5) corrective wave that often forms after a 5-wave impulse wave. On closer viewing, you will notice that Waves (A) and (B) of such A-B-C corrective wave also form 1-2-3 sub-waves wherein sub-waves 1 and 3 were bearish and wave 2 was bullish, thereby confirming the pattern.
4) 13-Sept-2022 to Present Day: Wave (C) of the A-B-C Corrective Wave has formed an Expanded Flat Pattern, i.e. Wave (C) has extended beyond Wave (A). As per Elliot Wave Theory, Wave (C) usually extends to between 100% to 162% of Wave (A), and most often to around 123%, marked by the 1 and 1.618 Fibonnaci Levels drawn.
5) Projection (29-Sept-2022 onwards, possibly 2-3 weeks): For this theory to be confirmed, it is likely that NIFTY 50 will bounce from the 200-EMA support level of around 16,850 towards the 55-EMA (17,100) or 89-EMA (17,200) forming sub-wave (D) of the (C) wave of the A-B-C Corrective Wave, and then re-test the 200-EMA support forming sub-wave (E) of the (C) wave of the A-B-C Corrective Wave.
6) Conclusion: In this manner, a double-bottom off the 200-EMA would also be formed, before NIFTY continues its overall bullish trend with a re-test (and possibly 6th time lucky) or break above 18,100 levels.
Nifty 50 - Educational Analysis on why the 7% drop - ConfluenceThis is an education post of understanding some possible reasons when a correction happens
_____________
Few Reasons for Nifty's Bearish Outlook (Short term)
1. Negative RSI Divergence - Price goes up and RSI goes down
2. Break of Rising Wedge Pattern
3. Break of previous swing low (17160)
4. Previous peak rejection making the 18100 as a double top
5. MACD divergence and crossover
_____________
Daily
Hourly
On hourly Time frame
6. Broke a major trendline
7. With a Head and shoulders
8. A rounding top
So multiple factors and views indicating - A confluence View
Would You Stake Yourself?Hey everyone! 👋
Last week, we took a look at a hypothetical scenario, where a rich acquaintance of yours needed help deciding between two traders he's thinking about staking. This led to the question: "Who would you stake?".
This post will continue right where that one left off.
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After getting the contact info, you reach out to interview the two traders.
You speak with Trader #1 , and he appears to be quite intelligent, with wide and deep market knowledge. He’s shown you a few market predictions that he’s already gotten correct, and walks you through how he finds opportunities. You’re impressed.
You speak with Trader #2 , and he also appears to be quite intelligent, with broad market knowledge, in addition to a history of profitable investment/trade ideas. He walks you through how he finds opportunities, and, similar to Trader #1, you’re quite impressed. In addition, he also presents you with written details about how he plans to manage risk, his maximum drawdown, and a whole litany of other clearly defined rules that keep risk under control and quality trade ideas coming.
Assuming we are still in the position of choosing which trader to stake, most, if not all, individuals in this situation would pick Trader #2 because of his attention to preparation and risk control, in addition to having a ‘business plan’. Trader #1 may be smart and highly capable, but he’s shown no evidence that he has a process to continually generate good trade ideas while ensuring that he doesn’t lose everything. Trader #2 has “done the work”, and proven that he’s worthy of the capital.
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Whether they know it or not, anyone who manages their own money is constantly faced with the same decision. If you step outside of yourself, are you more like trader #1 or #2? Is your trading plan worthy of investment? Would you invest in someone else who’s taken the same trades that you have? Does that person have a plan? Have they “done the work”?
Keeping yourself honest about what is working and what isn't is a superpower!
Hopefully, this emphasizes the importance of building a trading plan. Next week we will take a look at what factors are typically needed in order to build an effective one.
If you’re not like Trader #2, comment below about the steps you’re taking to become better prepared for what the market throws at you!
-Team TradingView
If you missed last week’s post, you can catch up here: