FLAG OR A DESCENDING CHANNELIt is sometime hard to interpret a chart pattern because of the complexity.I am 23 years old might be having only few years of experience in the field of research but i have been studying technical analysis since i was 18.Today i am going to share some basic knowledge that i have learned in level-1 of Chartered Market Technician(CMT).
''Now some traders or analyst must have seen some choppy and indecisive movement in the index for a couple of weeks.What is the reason and how to predict/forecast the direction of the index? Here i am going to explain the nifty forecast without the use of wave theory."
"It is visible in the daily chart that the index has managed to form a Lower low and Lower high kind of a pattern in which when we connect the lower points and higher points with a trend line we get a channel.It is visible in the chart i have explained it with points.Before the channel formation we saw that there was a sharp rally from the levels of 9700 market went there 2 times and bounced and was on the verge of breaking out the previous high.The rally was a sharp one and kept on going and in the end started the (LL>LH) next formation.This shows that this might be a Flag formation which is a continuation pattern or a Negative channel which is a trend reversal pattern?How do we confirm which is the pattern?
"
WAY 1
"We trade the boundaries of the channel or wait for a breakout or run a relative strength(not rsi) analysis of the top heavy weights in the index"
That is the way one confirm the pattern"
"If one understands what is a the primary trend then he knows that the index will not turn negative till it crosses below 9000"
Yes that is true, if it crosses below 9700 then one can say the intermediate trend has reversed and turned negative.
"If the channel or flag formation continues till 9700 and eventually breaks below 9700 means that the downtrend has been confirmed"
Before that confirmation of whether its a channel or a flag will depend upon the number of touches on each side of the boundaries already there are 3 touches.Now if the formation continues for another one month then it would be clear that it is a downward channel and not a flag because we will by that time(end of jan) will have more than 4 touches on each side.A continuation pattern does not last for such a long time.
"Now is there any other way to predict the trend reversal or continuation"
Yes there is its one of the best indicators i have seen in my life its the Average directional Index(adx line) and the directional index(+DI)(-DI)
When the adx line begins to moves from levels of 13 to 20 and then till 40 its a confirmation of a trend and so on till reverses till it 13 again.
I won't explain in deep but related to our topic:- adx is currently @16 with a negative crossover between the positive directional index(+DI) and negative directional index(-DI)
SYMBOLIC EXPLAINATION
IF ADX moves from 16 to 20 and still (-DI)>(+DI) then we have to be alert for a possible trend reversal confirmation of "NEGATIVE CHANNEL"
IF ADX moves from 16 to 20 and (+DI)>(-DI) with a positive crossover then we can say that the uptrend will resume it was just a "FLAG CONTINUATION PATTERN"
PLEASE NOTE
"It is always better to let the price tell you what it is doing rather than us trying to force our analysis on the stock"
"I can be wrong its just a educational view point of mine just to share and impart knowledge"
"There are more ways to do forecast and use different ways of trading and investment with the use of technical analysis but that knowledge is for buisness purposes only"
"Those who like my research can contact me"
MANAV KHANDELWAL
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