Nifty Break out from Trading Range - 9th sep 09

Nifty Intraday Chart - 5min:

Nifty did break out from the trading range, but it is forming like shooting star. Watch out if it moves up from here then the target is 4860(4840 is intermediate resistance) else if it is Terminal Upthrust then nifty may go to 4785 levels. Watch out price action for next 3 to 4 bars.

Some Patterns from Yesterday (July 01)

These are the some stocks I was tracking yesterday, and I couldnt post on the blog due to lack of time. Posting them now for sake of record and study purpose.

Bearish ABCD Pattern in Reliance, which has perfect AB=CD and the retracements were good. CD is exactly the 100% extention of AB. Below is the 5 min chart of Reliance:

Golden Renuka :), Which was perfect trade for today.

Bearish ABCD Pattern in Renuka sugars. This is the perfect ABCD pattern with golden ratios.

AB is perfectly equal to CD. Below is the 5 min chart of Renuka Sugars:

Failed break out in LT (Wyckoff Terminal Uptrust). Below is the 5 min chart of LT:

Trading the Wyckoff Terminal Upthrust and Spring Method

Trading in trending markets is very easy and on contrary, trading in side ways market is most challenging. Richard Wyckoff's theories may help trading sideways markets efficiently. His methods define the sideways markets, how and why there are formed and how to trade in side ways markets. Wyckoff Terminal Up-Thrust and Swing is one such methods for trading the range bound markets.

Markets tend to move in both the directions based on the relative compatibility between the bears and bulls. After moving in certain trend, it starts moving in sideways direction to catch a breath, for example, consolidations etc. When markets are in the consolidation mode, trading ranges are formed. Wyckoff defined a techniques called Terminal Up-Thrust and Swing, which has a clear entry, stoploss and exit levels.

Initially a trading range is formed as the supply and demand are in certain equilibrium. Where high of the range is treated as supply line and the low of the range is defined as demand line. Now the trading opportunities are formed in certain criteria specifically like price tries to move above the supply line or below the demand line and unable to sustain. They can provide a good trading opportunity as there is a strong probability of returning into the opposite side of the Accumulation/Distribution ranges.

In Up-Thrust, prices break above the resistance line, and failed to move further up. One can go short in the next confirmation bar, by keeping the high as the stop loss. Price target would be the retest of the lower or support line of the trading range. This kind of false breakout above resistance range is called up-trust, and the bearish candlestick indicator is an invoking opportunity to enter the trade. Opposite of this up-trust is spring where prices give false breakdown from the support trend line and bullish candlestick indicator like hammer or few times a bullish engulfing may also confirm the trading opportunity.

Here in the above example trading range is formed between A and B. There was an up-thrust at “C” where the candle broke the highs of the trading range and failed to hold. The failure brings the bears into action, and the other bearish signal from the candlestick shooting star or doji gives a powerful sell signal, which leads us to the target at the support area.

Here in the above example, at the terminal up-thrust a shooting star and a bearish 123 pattern is formed, helping the down move.

Wyckoff Accumulation Schematic in RPL

This is Wyckoff Accumulation Schematic analysis RPL daily chart. I tried to put some explanation in the chart itself so that it will be easy to understand, but each phase is explained in detailed in this post. Wyakoff defines a laundry-load list of terms which you need to understand before following this! Please keep this link handy to refer to the terms and their definations.

RPL Wyckoff Analysis by phases:

Phase - A: Here supply is more then demand so price is moving down. After a lengthy down move, wide spread candles and big volumes represent that down move is reaching Selling Climax (SC) and the panic selling is ON. This panic selling is mostly absorbed by the professional traders. In RPL, selling stops at 69.75 level (10/27/2008). Automatic Rally (AR) comes up as the professional traders start showing some interest, so short covering or a weak rally starts with low volumes compared to the down fall. RPL reached 97.4 levels in this Automatic Rally (11/05/2008). Now, high of AR at 97.4 acts the resistance level and low of SC at 69.75 acts as support level. This becomes Trading Range (TR). When AR reaches climax, price again starts moving down with low volumes and small spread and retests the SC to test the balance in the “demand and supply”, which is called Secondary Test (ST) of the SC. RPL did Secondary Test at 68.25 (11/20/2008). In this down move to ST, I feel low volumes are compulsory because of diminished supply. If supply is high then it’s just a retracement not Secondary test.

Phase - B: Price moves into trading range with higher volumes compared to the down move (SC) as demand increases. Due to this “Cause”, Effect is price moves up and the spread is high. Effect is proportional to Cause. If Cause is high then we see big spreads and high volumes, which give the fast up moves. Due to high Effort (Volumes) Price reaches the resistance levels. Here RPL reaches 94.15 levels (12/22/2008). We can see shooting star, which is bearish signal and the high volumes indicate supply is more. When supply again increases and the price starts moving down. Price mostly moves in the trading range in this phase.

Phase - C: Spring (nothing but bear trap) occurs as prices moves down breaking the previous support on the low spread and volumes. Here we can see 2 bars (2nd and 3rd March 2009) with low spread and high volumes. This is an indication of the absorption of supply going to strong hands, or composite man is accumulating the huge sell-off. Next comes the wide spread red bar (3/5/2009) with comparatively low volumes and the Reaction Bar with low of 68.5 (3/6/09), which is lowest point of the spring. When the retest is done and price retraces into TR, the price starts moving up with comparatively higher spreads and high volumes.

Phase - D: Price starts moving towards Creek and breaks through it with higher spread and volumes. RPL broke out at 99 (4/1/09) and the gap up on next day indicates higher demand, with moderately higher spread and volumes. Here we got green candles with wide spread and high volumes compared to red candles spread and volumes. 

Hopefully we may see some up move in this scrip from here.

Wyckoff's method

Richard Wyckoff is one of the famous Stock Market figures and Technical Analyst in history. Wyckoff's method defines various market trends and the actions associated with the price movements. His method is one of the best price and volume associated theories that we have in Technical Analysis. I have been researching Wyckoff’s Method since couple of weeks and I plan to put my learnings in my blog as I go forward. Hope you will find them interesting, as I do.

This webpage has links to some of the articles to start up the Wyckofff study.