Market Phases - Every trader must knowMarket Phases -Stock prices may appear random, but there are repeating price cycles, which are predominantly driven by the market participation. Below are the four types of market phases that occur.
Phase 1: Accumulation - The accumulation phase is a stage of consolidation. There is no clear trend, and the stock is usually trading in a range. It's a span of time in which traders and institutions are slowly accumulating shares, but the market has not broke out yet. Trend traders finds difficulty to trade.
Phase 2: Advancing - During the advancing phase, price breaks out of range (comes out of the accumulation phase) and begins a sustained uptrend. This stage is when the price begins moving up. The big money has established a position and retail investors are now invited to join in the profit party. This is the most profitable time to own the stock – an opportunity to let your profits run.
Phase 3: Distribution - The distribution phase begins as the advancing phase ends and price enters another range period. The shares are being sold over a period of time—the opposite of accumulation. This time, the sellers want to maintain higher prices until the shares are sold.
Phase 4: Declining - During the declining phase, price breaks out of the range (comes out of the distribution phase) and begins downtrend. This stage comes after distribution when price begins moving down.
Now lets understand them one by one in detail :-
1.)Accumulation phase where trend traders find difficulty to trade
Accumulation usually occurs after a fall in prices and looks like a consolidation period.
Characteristics of accumulation phase:
It usually occurs when prices have fallen over the last 6 months or more
It can last anywhere from months to even years
It looks like a long period of consolidation during a downtrend
Price is contained within a range as bulls & bears are in equilibrium
The ratio of up days to down days are pretty much equal
The 200-day moving average tends to flatten out after a price decline
Price tends to whip back and forth around the 200-day moving average
Volatility tends to be low due to the lack of interest
Examples of Accumulation -
How To Trade Accumulation ??
1.)Sell At Resistance
2.)Buy At Support
Do not go blindly short at resistance, wait for any reversal candle or look for any negative price action in smaller TF. Look for reversal candles
Never buy blindly on support. Look for reversal candles. Switch to smaller Time-frame find a bullish price action/ bullish chart patterns.
Never Ever Trade At Midpoint In A Range Market. You never no where it will head, to the the support area or to the resistance area.
2.)Advancing phase which trend traders love — Best trading strategy is to long the uptrend
After price breaks out of the accumulation phase, it goes into an advancing phase (an uptrend) and consists of higher highs and lows.
Characteristics of advancing phase:
It usually occurs after price breaks out of accumulation phase
It can last anywhere from months to even years
Price forms a series of higher highs and higher lows
Price is trading higher over time
There are more up days than down days
Short term moving averages are above long-term moving averages (e.g. 50 above 200-day ma)
The 200-day moving average is pointing higher
Price is above the 200-day moving average
Volatility tends to be high at the late stage of advancing phase due to strong interest
Examples of Advancing
How To Trade Advancing ??
1.)Breakout Trading - Where you above the highs
2.)Pullback Trading - Where you buy support which was earlier a resistance. This is called change in polarity.
Avoid Trading against the trend. If you trade then take small profits. You will get max with the trend.
3.)Distribution phase- - Distribution usually occurs after a rise in prices and looks like a consolidation period.
Characteristics of distribution phase:
It usually occurs when prices have risen over the last 6 months or more
It can last anywhere from months to even years
It looks like a long period of consolidation during an uptrend
Price is contained within a range as bulls & bears are in equilibrium
The ratio of up days to down days are pretty much equal
The 200-day moving average tends to flatten out after a price decline
Price tends to whip back and forth around the 200-day moving average
Volatility tends to be high because it has captured the attention of most traders
Examples of Distribution :-
How To Trade Distribution ??
1.)Sell On Resistance
2.)Buy On Support
Do not go blindly short at resistance, wait for any reversal candle or look for any negative price action in smaller TF. Look for reversal candles
Never buy blindly on support. Look for reversal candles. Switch to smaller Time-frame find a bullish price action/ bullish chart patterns.
Never Ever Trade At Midpoint In A Range Market. You never no where it will head, to the the support area or to the resistance are.
4.Declining phase - Best trading strategy is to short the downtrend
After price breaks down of the distribution phase, it goes into a declining phase (a downtrend) and consists of lower highs and lows.
This is the stage where traders who do not cut their loss become long-term investors.
Characteristics of declining phase:
It usually occurs after price breaks out of distribution phase
It can last anywhere from months to even years
Price forms a series of lower highs and lower lows
Price is trading lower over time
There are more down days than up days
Short term moving averages are below long-term moving averages (e.g. 50 below 200-day ma)
The 200-day moving average is pointing lower
Price is below the 200-day moving average
Volatility tends to be high due to panic and fear in the markets
Examples of declining :-
How To Trade Declining ??
1.)Breakdown Trading - Where you sell below the lows
2.)Pullback Trading - Where you sell on rise after a breakdown. Supports turned into resistance. This is called change in polarity.
Avoid Trading against the trend. If you trade then take small profits. You will get max with the trend.
Hope you all learnt from this post. Share with the community if you liked it.
Regards
Omahto
Marketanalysis
A Comprehensive Guide to Rectangle Formation.Introduction:
Price trends do not usually reverse on a dime. uptrend and downtrend are typically separated by a transitional period or trading range, and trading range formation signal trading opportunities for traders.
The trading range separating rising and falling price trends discussed here
is a pattern known as a rectangle.
This post will cover these questions:
1. Types of a trend reversal.
2. Rectangle formation.
3. consolidation rectangles.
4. Significance of a rectangle pattern.
5. Retracement moves
6. What when a rectangle fails?
1.Trend reversal
The turning point between the bull and bear phases is termed a reversal pattern.
# Reversal patterns at market tops are known as distribution because the security is said to be “distributed” from strong, informed participants to weak, uninformed ones.
# Price patterns, including rectangles, that develop at market bottoms are
called accumulation formations where the security passes from weak, uninformed participants to strong, informed ones.
a.Horizontal or transitional reversal.
An oil tanker takes a long time to slow down and then go into reverse. The same is normally
true of financial markets. Generally speaking, the longer the trend, the more
time spent in the reversal (turnaround) process. This transitional or horizontal phase has great significance
because it is the demarcation between a rising and a falling trend.
b. Reversal on a dime without warning.
This type of reversal is the exception to transitional reversal and they are the highly emotional market that changes without warning.
2. Rectangle formation.
The figure shows the price action at the end of a long rising trend. price starts to move in a trading range between Point A and Point B.
Point A can be identified as a resistance area after the price backed of two times from Point A.
Point B can be identified as a support area after the price moved up two times from Point B.
one can draw horizontal trendlines or Box on the chart to mark the level.
At this point, the demand/supply relationship comes into balance in favour of the sellers whenever the price
reaches A, and the demand/supply relationship comes into balance in favour of the buyers when the price reaches B.
Finally, prices fall below point B signals a trend reversal and the sellers are dominating the market.
3. consolidation rectangles.
If the rectangle following an uptrend is completed with a victory for the buyers as the price pushes through the upper line A , a reversal does not develop because the breakout above A reaffirms the underlying trend. In this case, the corrective phase (trading range) associated with the formation of the
rectangle temporarily interrupts the bull market and becomes a consolidation pattern.
In the figure, a breakout to the upside makes this pattern a continuation rectangle.
#the prevailing trend is in existence until it is proved to have been reversed.
4. Significance of a rectangle pattern.
i. Time Frames
The longer the time frame, the more significant the pattern. A pattern that
shows up on a monthly chart is likely to be far more significant than one
on an intraday chart, and so forth.
the longer a pattern takes to develop in a particular time frame, the greater its significance within that
time frame.
# Most of the time the larger pattern will be more important, but not every time. In technical analysis, we are dealing in probabilities, never certainties.
ii.Volume Considerations.
volume is an important independent variable that can help us obtain a more accurate reflection of crowd psychology. volume shrinks during the formation of pattern and blastoff on successful breakout/breakdown of the price.
iii. Measuring implications:
The depth of the pattern is projected in the direction of the breakout from the breakout point
5. Retracement moves.
Many times when the price breaks out from the rectangle, the initial move is followed by a corrective move back to the breakout point. This is known as a retracement move, and it offers an additional entry point for left out players who pushes the prices again in the breakout direction.
6. What when a rectangle fails?
One of the first things that should be done upon entering any business venture is to weigh the possible risk against the potential reward. the same is true in the financial markets.
*Amatures on breakout only focuses on potential profits.
*Professionals always consider the risk as an equal.
this means when opening a new position you have to consider the risk to reward ratio and decide prior to opening the position what type of price action would cause you to conclude that the breakout was a whipsaw.
Some price action to consider to identify a whipsaw (fake breakout).
a.50% rule.
It very much depends on the chart. If there are no obvious support points, many traders believe that a penetration of the 50 percent mark is the place to exit. In this case, the 50 percent mark is the central point between the two horizontal lines that make up the rectangle.
b. Trendline support
using price action trendline to identify if the trend is valid or has been breached.
c. Stop below/above the opposite line of breakout/breakdown.
one can set a stop above the resistance line if the short-sell position is triggered.
or set a stop below the support line if the long position is triggered.
d. False breakouts:
Shrinking volume on an upside/downside breakout.
Hope you found this helpful and I sincerely hope you find a ton of good rectangle formations to trade-in!
Happy Trading!
Long/Short Swing Trading On Basis of Market Behaviour Swing Trading in the current Market:
1) Buy Zone: Here we can make the fresh position on confirmation of reversal from support.
2) Sell Zone: Here we can either book our long side profit or make new short position after confirmation near the resistance level.
3) Breadown Zone: When the market gives a breakdown of this parallel channel then possible strong bearish move in the market. After this breakdown, we can exit all long position and make a new fresh short position for a new low.
4) Breakout zone: If market trading above this parallel channel then expected strong bullish movement in the market for new heigh so we can exit from all short side position after the breakout. Also, We can find new breakout in stocks for the long side.
Short15 min chart is showing 2 Top which means if it reaches 1800 and won't be able to break 1800 resistance level then fallback to
1st Support lvl and if it break 2nd support lvl too. then there is perfect short opportunity.
Disclaimer:
- The view expressed here is my personal view
- Use this for educational purpose
- Any decision you take you need to take responsibility for the same
- It's your hard earned money. Treat it wisely
- Trade / Invest keeping in mind your trading style, goals and objectives, time horizon & risk tolerance
- F&O trading involves risk
- Do take proper risk management measures
- Do your own analysis and consult your financial adviser if need b
Short term view on NIFTY 07/08/2018Nifty is trading it's all-time high, but only large caps participation in this rally till now. We haven't seen any value buying in Midcaps & Small Caps till now.
Yes, Bias is good and shorts not advisable but CAUTION note is there. and the first thing we need to do is we should hedge our long positions. Because We may see a sharp downfall from here. So Buy some PUTs along with your long positions to protect your profits and safeguard your capital.
