Apr 16, S. Goodreads helps you keep track of books you want to read. The Calls made herein are for informational purpose and are not recommendations to any person to buy or sell any gujrxl. Important Documents Disclosure Document. Insights Insights, Account, Orders. Best book for a novice Or Semi-professional trader to become a Professional Trader. Hp rated it it was amazing Jul 04, Shopping is made easy through the easy checkout process with High Security offerings like Bit SSL Certificate provided by Global Safe Security Providers-Verisign so that your online transactions are absolutely safe and secured.
Two wooden branches of 2 meter length,. A saw to cut the wood. A nail. A pair of pliers. A lighter. A shovel. The normal bar on a chart consists of the open, high, low and close prices. The open belongs to the amateurs; the high of any bar belongs to the bulls and depicts how much force they had; the low shows the maximum power of the bears; and the closing action is set up by the professional investors. Since most major movements in the market are determined by the professionals, it pays to follow them.
I am not at all suggesting that traders should blindly follow what they perceive professionals to be doing. But just waiting till the last one hour can sometimes help you avoid taking false trades that you might otherwise get into. During the day the market gyrates in both directions, i. In either case, my experience is that out of the hundred trades I might have taken in the beginning of the trading session, I would have avoided taking at least sixty had I waited for the last halfhour.
This makes a huge difference to your trading equity; you not only avoid overtrading, but this also allows you to follow the market in its truest sense without having to base your trades on predictions.
And, believe me, trading is both about reducing losses and increasing profits. The same applies even to weekly bars. Trends Contrary to what a lot of people think, technical analysis is the art of trend following rather than one of predicting prices and turning points. Trend following remains the single most effective strategy for making big trading profits in the stock markets:.
A trend is a series of rising or declining prices over any length of time. An uptrend is a market which seeks consistently higher prices over time.
A downtrend is a market which seeks consistently lower prices over time. At any given time the market is comprised of three trends, namely the primary, secondary and minor trends. Primary trend can be either a series of rising or declining prices. Primary trends can last from one to several years.
Secondary trends are intermediate corrective trends to the primary trend. These reactions generally last from one to three months and retrace one-third to two-thirds of the primary trend. Minor trends are short term movements lasting from one day to three weeks. Market movements can be characterised by two distinct types of phases.
In one phase, the market shows trending movements either up or down. Trending movements have a direction bias over a period of time. In the second phase, the market shows trading range movements or consolidation, where the market shows no consistent directional bias and trades between two levels.
These two different phases of the market require the use of different types of technical indicators: Trending markets need the use of trend following indicators, such as the moving averages, MACD, etc. Trading range markets, on the other hand, need the use of oscillators, like the RSI, stochastic, etc. So identifying the phase of the market is extremely critical, for that would decide the methodology a trader needs to follow. The ADX, or the Average Directional Movement Index, fills this need for identifying whether market is in the trending or the trading phase.
Welles Wilder developed the ADX, which to my mind is his most useful but least understood innovation. The concept of trends is central to the idea of ADX.
The ADX can tell the strength of the move that a market may be in and thus help you keep you out of a whipsawing market and by keeping you in long enough during a trending market to make huge profits. ADX forms the core of my trading style since my trading is based on trend following. The ADX is a standard indicator available in all technical analysis software. Traders would do well to incorporate the key aspects of ADX in their trading style.
ADX defines the degree — or strength — of the directional movement and not its direction. The directional movement system is a trading system based on the use of ADX, and gives timing information based on the strength of the underlying trend.
We will now discuss the interpretations of ADX reading, and timing signals provided to the trader by the Directional Movement System. Directional movement is defined as the difference between the high and the low of a particular bar on a chart that falls outside the range of a previous bar. This analysis can equally be applied to monthly, weekly, daily or intraday data. Figures 2. In Figure 2. Figure 2. As there is no directional bias achieved on this day, there is zero DM.
As absolute difference in price movement fails to take into account the proportion of the movement, Welles Wilder developed the directional indicator DI. To make the DMs consistent across all stock prices, Wilder decided that price movements are best described as ratios rather than absolute numbers. Since no trend is determined in a day, so the DIs are calculated over a number of days.
Wilder decided to use 14 days for this purpose. The DIs provide the timing signals in the Directional Movement System, and their understanding provides the background for interpretations of ADX and effective use of its timing signals. ADX was developed from the DIs, and we will move straight to the use of this indicator without going into any more calculations.
This indicator has been programmed into most popular technical analysis software. The first step in using ADX is to identify a security with a high ADX since that would offer enough directional movement to allow trend following trades: A high ADX value defines a strong trend; the trend could be either up or down.
A low ADX shows a consolidation, such markets are generally difficult to trade. If bearish patterns develop and trending move. The success of this timing methodology depends on the strength of the trend determined by the ADX. The greater the strength of the trend, the greater is the directional movement.
The stronger the trend, the fewer the whipsaws given by the DIs. Wilder noted that important turns are indicated when ADX reverses direction after it has moved above both the DIs. Divergence between the ADX and the price is an important indicator of an impending reversal. Profits should be booked at every level once the ADX tops out. Conversely, when the ADX is at very low levels, Wilder recommended not using trend following systems.
The way I use the ADX is that I trade lighter volumes during consolidations and substantially higher volumes during trending moves. The drop in volume during consolidations could be of the order of two-thirds of the trending volume. This effectively means taking substantial profits off the table as the trending market turns into a trading market.
The most effective signals from ADX are received when it rises from a very low level to above 15, and continues on beyond ADX can also be used as filter for various trend-following indicators, such as MACD and moving averages which otherwise give whipsaws in consolidating markets. Another option is to use credit spreads or covered calls to take advantage of time decay.
The ADX indicator and the directional movement systems are possibly the most useful tools in technical analysis. I believe that technical analysis always works best when there is a confluence of indicators and patterns.
I would advise all traders to use ADX in conjunction with other technical patterns and indicators. Chapter 3 Technical Methods. Indicators As technical analysis has become more and more computerised, several indicators have become fairly popular. I find it useful to divide technical indicators into two categories, namely:. Also, more than the nuances of various indicators, what is important is to understand when to use these indicators. Trend following indicators are used in trending markets — and oscillators are used in trading markets.
Typically, I use trend following indicators such as the MACD and moving averages when the ADX is rising over 16 to 20 which indicates a trending market — and oscillators when the ADX is declining, thus indicating consolidation.
Using either type of indicator in the wrong market context can be lethal as described in the previous chapter on ADX. Traders should remember that MACD is a trending market indicator and thus gives the best signals only when the market is trending.
Buy and sell signals are given when the MACD line crosses above or below the signal line. My preferred MACD settings are 3,10, This is the slow signal line. Most novice traders make the mistake of using MACD in all types of market conditions. Whether the market is trending or not can be ascertained by using ADX as described earlier. In trading range- bound markets, MACD is likely to give many whipsaws and frustrate the trader.
See Figure 3. It not only-shows whether it is the bulls or bears who are in control but also whether they are growing stronger or weaker. If the fast line is above the slow line, the MACD histogram is positive and is plotted above the zero line.
Conversely, when the fast line is below the slow, the histogram is plotted below the zero line See Figure 3. When the two lines are closer together, MACD histogram becomes smaller shallower. The slope of the MACD identifies the dominant market group. A rising MACD shows that the bulls are becoming stronger. A falling MACD shows that the bears are becoming stronger.
The MACD histogram confirms a trend when, together with prices, it reaches new highs or lows. Moving Averages A moving average is the average of a pre-decided number of data points, where with each new data point the first data point is rejected. The moving average is an indicator that is most effective in a trending market. The reason for using a moving average in technical analysis is that it eliminates noise and tends to show the underlying trend of prices indicators. One of the most common complaints against moving average is that it gets you into the trend rather late.
I have always found this charge funny. There is no perfect number to use for a moving average. Moving averages often provide support to prices in an uptrend and resistance to prices in a downtrend. The moving average that works best for you can only be discovered by trying it out often; it also depends on the time frame you want to trade.
I prefer to use the day and day moving averages to get a feel of the broad long term trend. If the shorter moving average is above the longer moving average, the trend is up. Conversely, when the longer moving average is above the shorter moving average, the trend is down.
These are two of the most important moving averages, and a stock or the market closing below the 30 DMA often signals the beginning of a larger correction in an uptrend. Closing below the DMA is the beginning of a downtrend. No long positions should be held once a stock or a market closes below its DMA. Conversely, closing above the DMA signifies the beginning of an uptrend. Another way I use the day and day moving averages is using the turnings of the moving average — from down to up, or up to down — to book profit or to change my view from bullish to sideways or bearish to sideways, respectively.
I have always found moving average crossovers leading to large moves in the direction of the crossover Figure 3. Figure 3. The number used for the moving average is not important here. Sometimes two moving averages are used for the purpose of short term trading, the averages selected would depend on the time frame of trading. For example, for short term trading it could be 10 and 50 DMAs. For longer term trading, it could be 30 and DMAs.
When the shorter term moving average moves above the longer term one, traders can go long. Conversely, when the longer term moving average goes below the shorter term moving average, traders can go short.
Another combination to achieve the same result could be 13 and 30 DMAs. Again these combinations are not important, almost any two moving averages will do. Moving averages do an excellent job of providing support and resistance so they should be used to put stops. Any decisive close below a moving average should be taken as a breach of that support. Similarly, any decisive close above a certain moving average should be taken as breach of resistance.
I also like to use a period moving average on all time frames that I look at because it provides the relative position of the market at that point. The period moving average indicates the prevailing bias of the market, particularly in shorter time frames, such as the minute chart.
It also provides great entries into existing trends in all time frames and buying options once the price goes below the period moving average and then comes back above it, signifying that a reaction in an uptrend may be over. This is one of my favourite entry methods. Also, the number of bars above and below the period moving average give a fair indication of both the prevailing intraday trend and also when it starts changing [Figure 3. This can be addressed using three moving averages, involving 5, 8 and day moving averages.
When the 5 and 8 DMA cross the day moving average, go long. When the 5-day average crosses back below the 8- day average, you get an exit signal. These methods are available in most technical analysis books Figure 3. All of these methods can be used on any time frame.
Traders need to remember that both MACD and moving averages fail miserably in trading sideways markets. These tools should only be used when there is a discernable trend. Trend lines, as the name suggests, are lines used to identify the presence of a trend. In addition, the breakdown or breakout of the lines suggest reversal of an existing trend. There would be hardly any trader in the world who does not use the trend line in one form or another. It is critical to grasp the essence of a trend line in order to use it in more innovative ways.
A trend line can be used on any chart starting from yearly, quarterly, monthly, weekly, daily, minute, 5-minute, etc. Support Line A line running under the prices and connecting three non-consecutive turning points on a bar chart, and which is either horizontal or slanting upward. Resistance Line A line running above the prices on a bar chart connecting three non-consecutive turning points and which is either sloping downwards or is horizontal.
Interpreting Trend Lines However there are certain rules to be followed while drawing trend lines and in interpreting the signals they throw up: 1. There should actually be a line which shows a trend, the breakdown or breakout of which should show some kind of reversal.
The longer a trend line, the more will be the consequences of its breakdown. In fact, the length of a trend line is critical in determining its significance. For example, a two-year trend line is more significant than a two-month trend line, and a two-month trend line far more significant than a two-day trend line. The flatter the trend line, the more significant is its breakdown.
Trend lines with higher slopes are known to be broken easily. So a breakdown or breakout of a flatter trend line is much more significant as it would show huge selling or buying having taken place at that level. The more tested a trend line is, the greater is its significance. A trend line which has provided support or resistance in the past needs to be respected. Not only is it likely to provide support again, its breakout or breakdown provides a tradable move in that direction.
Another important application of the trend line is that it provides a reference for placing stops. Traders should use only closing prices to assess if a trend line has been broken.
Often the breakout or breakdown of trend lines are at well-advertised levels. Media analysts repeat those levels often enough. Contrary to what they think, however, this is not a service to the trader; in fact, it works to his detriment. This is because the large traders and institutional investors create the particular intraday breakout or breakdown, leading other investors and traders to believe that a significant change has occurred. When individual traders take positions, the market is conveniently reversed and such a breakdown or breakout is called false.
At the end of the day the market closes at a level higher than the trend line, and the trend line still remains valid. This is most likely to happen in illiquid and small stocks.
Traders should not pre-empt a breakdown or breakout till it actually occurs and the closing prices confirm it for at least a couple of sessions. Trend line breakdowns should occur with volume. A warning that a particular breakdown or breakout is false is the kind of volume that accompanies it because breakdowns generally occur when a much higher than average volume is traded.
I would be very cautious on a breakout or breakdown that occurs on low volumes. Trend lines should be extended into the future. All trend lines should be extended into the future as they often continue to provide support and resistance at those levels even at a future date.
Trend lines work beautifully on intraday charts for all those interested in day trading, and it is the one technique which is consistently proven.
In real life, it is not only critical that a trend line break occurs and is supported by volume, it is also important for the market to show strength in the direction of the break. I identify pivots on a chart and would like to see these too violated along with the trend line violation and volume breakout See Figures 3. A pivot is a bar on any time frame which is a turning point on a chart, also called the swing high or swing low. For example, an upward pivot bar will have the two adjoining bars with highs below the high of the pivot bar.
A downward pivot bar, will have two adjoining bars with lows higher than the low of the pivot bar See charts in Figures 3. Generally, two of the above conditions are sufficient to enter the trade. It is also advisable to enter the trade in the direction of a trend identified in the higher time frame. This further increases the probability of a successful trade. The procedure for entering a trend line breakout trade is to take the trade as prices break a trend line and close on the other side.
Sometimes there is a pullback to the trend line, and some people like to buy or sell the pullback. A stop can be placed on the valid side of the trend line. Once in the trade, traders should draw a fresh trend line and continue to hold the trade till the new trend line is broken.
You will be amazed how many big trends you can catch using this method. Trend lines can also be used by traders to scale their position. This means you can keep adding a certain quantity of stock as more downward sloping trend lines are broken in a rally or vice-versa see, for example, the accompanying intraday Satyam Charts: Figures 3.
Scaling in would further help manage risk, as positions will get added as the market gains strength. It could be the classical chart patterns on the current time frame. It could be market action on the higher time frame. If the market action on the higher time frame is supporting market action on the current time frame, it suggests a very high probability of profitable trade.
We will discuss this aspect further in later pages. Oscillators or Momentum Oscillators Oscillators identify the emotional extremes of market crowds. They help in determining unsustainable levels of optimism and pessimism. Professionals trade these extremes by betting against them, i.
So long as oscillators keep making new highs, it is safe to hold long positions. Correspondingly, so long as they keep touching new lows, it is safe to hold short positions. When an oscillator reaches a new high, it shows that an uptrend is gaining speed and is likely to continue. When an oscillator traces a lower peak, it means that the trend has stopped accelerating and a reversal can be expected from there, much like a car slowing down to make a U-turn.
The two oscillators which I use most extensively, and which work well, are the RSI and the stochastics. An oscillator becomes overbought when it reaches a high level associated with tops in the past. An oscillator becomes oversold when it reaches a low level associated with bottoms in the past. When an oscillator rises or falls beyond its reference line, it helps a trader to pick a top and a bottom. Oscillators work splendidly in a trading range, but they give premature and dangerous trading signals when a new trend erupts from a range.
An oscillator can stay overbought for weeks at a time when a new, strong uptrend begins, giving buy signals. It can also stay oversold for weeks in a steep downtrend, giving premature buy signals. Types of Divergences There are three types of divergences as defined by Dr. Alexander Elder in his book, Trading for a Living. Class A divergences identify important turning points and are the best trading opportunities. Class B divergences are less strong, and Class C divergences are the least important.
See: Figures 3. Divergences can take weeks to work out, and sometimes they do not work out at all; remember, there is no holy grail in technical analysis.
These divergences serve as excellent points to tighten stops and take some profits off the table. Remember, momentum measures trend acceleration, i. Class A Bearish Divergence: Prices reach a new peak while an indicator reaches a lower bottom. This is the strongest sell signal. Class A Bullish Divergence: Prices fall to a new low while an indicator is corrected above the earlier low. This is the strongest buy signal. Class B Bearish Divergence: Prices trace a double top while an indicator reaches only a lower peak.
This is the second strongest sell signal. Class B Bullish Divergence: Prices trace a double bottom while an indicator traces a higher bottom. Prices reach a new peak while an indicator traces a double top. This is the Class C Bearing Divergence: weakest bearish divergence. Class C Bullish Divergence: Prices fall to a new low while an indicator makes a double bottom. This is the weakest bullish divergence. Class A divergences often identify good trades.
Class B and C divergences lead to whipsaws, and are best ignored. Triple Bullish or Bearish Divergences These consist of three price tops and three oscillator tops, or three price bottoms and three oscillator bottoms. They are even stronger than the regular divergences. But again, do not buy based on divergence alone. Myth: Bullish and Bearish Divergences Give the Strongest Buy Signals: Divergences between RSI and prices do not give the strongest buy and sell signals although these tend to occur at major tops and bottoms.
They show up when the trend is weak and ready to reverse. While this is theoretically true, in actual fact it is very difficult to trade divergences. The reason for this is that the market continues to move up long after the bearish divergence is visible on the charts. So, too, is the case with a bullish divergence.
What these divergences help in is providing a warning signal that the trend is weakening. Accordingly, at such times stops need to be tightened and profits protected. Myth: Overbought and Oversold Levels Can be Used to Buy and Sell: Overbought and oversold levels cannot be used to buy and sell under all circumstances. In trending markets, RSI tends to become overbought and oversold for long periods of time. Using it make buy and sell decisions can be disastrous in such markets.
Even when trading range-bound markets, RSI can be prone to whipsaws and trading volumes should be reduced while using it in such markets. These levels should be used for the range-bound market and for re-testing trades. Nevertheless, RSI remains one of the most popular indicators in technical analysis and can be used in a variety of useful ways as described below.
Charting Patterns Chart patterns like head and shoulders breakouts, trendline breakouts, support and resistances work well with RSI which often completes these patterns in advance of prices, thus providing hints of likely trend changes.
Zone Shift Since RSI indicator is based on closing prices of a security or an indicator, it tends to travel between the bullish and the bearish zones. It can be used to assess the trend of the market as this zone shift takes place. This means that once the weekly trend is identified, whether up or down, the daily RSI is used to enter trades in the direction of the weekly trend. When the weekly trend is up, an oversold level of daily RSI is used to enter long trades.
When the weekly trend is down, an overbought level of daily RSI is used to enter short trades. Profits can be taken when the daily RSI moves to the other extreme, i. Perfect levels of entry are impossible to predict but generally an oversold or overbought region can be identified.
Actual trading signals are taken when a significant pivot is broken. Trading is all about keep your losses small and riding your profits big. One who have borrowed money or sacred money like money saved for children education, marriage or money saved for retirement, you must not put that money into equity market.
Never create any assumption that Market will give you any Fixed Monthly Income or can be a substitute to your regular job or business. You should not compare equity market with other investment like bank deposits as every year there can not be a fixed return in equity market.
0コメント