Wednesday, July 1, 2009

Understanding different time frames

wildeazoscar refers to a chart showing a bullish head & shoulder in the Nifty, says "A bullish head and shoulder at the market top!! what does it indicate? i think we look for bearish reversals after a rally and bullish reversals after a fall.....please let me know if i am wrong."

The chart was for 60 minute Nifty. The time frame is different. In this smaller tme frame, the Nifty has seen a sharp decline from 4700 to 4200, therefore, the development of a bullish pattern after a decline is not surprising. There was a fall and then we had a bullish reversal pattern. While the larger time frame may see one bullish or bearish cycle, a lower time frame inside that cycle may actually see many bullish and bearish cycles. Day traders & swing traders should be aware fo these smaller cycles which are more relevant for their trading.

H&S confirmation
JSKservices says "Sir I was at the Inv Camp on Saturday. There you did mention that Inv H&S was confirmed. Actually the text books say that the confirmation comes when the prices move abt 1-3% from the neckline. In our "emotional" mkt 3% would be a good assumption for confirmation. Of course your note now is another great learning."

My Notes: Yes, Edwards and Maggie suggests a 3% move away from the neckline is confirmation of the pattern. But, we are looking at a 60 minute chart and the same percentage rules cannot apply on a lower time frame. 3% means almost 125 points, which is half way to he possible target! Then, how do we confirm? I simply take a close above the neckline. See, there is a trade-off between confirmation and early entry. Sometimes confirmation can be too late to enter.

men talks about 9 to 11 hour power cuts in Bangalore, the IT capital of India. In the last month, we had 4 to 6 hours of power cuts in Delhi with temperatures at 44 degreees C. The Ramcharitmanas says: "Whoever is king makes no difference to us. We will have the same days and the same nights."


wildeazoscar said...

sir,i think u never pondered over what i said.....

if inverted head and shoulder is taken as a bearish trend reversal signal(from bear to bull that is), it must logically arrive at a target which must hint weakly at a new high and strongly at a SEALED OFF LOW which could not have been the case with the hourly pattern. Or is anyone getting a reading from the chart that says 4220 would not be broken on the downside??

What i am really pondering is why are you not hinting at taking a short position with 4693 as the initial stop loss reduced to the 4092-4143 neck line, once 4092 is broken? U surely cannot miss the bearish head and shoulder pattern after the bloated almost 100% rally.....

to add to it, i already painted the garish picture with all the sentiment indicators, especially the alarmingly low PCR( price weighted ratio of OI) and the 4 month low of MACD adding to the bearish mood.....

or is it, that you are getting some other indications from the chart that justifies the buy on dip during this imminent reversal?

i already posted my logics for the 550 target almost a month ago, and if a bounceback from the 3400-3600 level occurs, the bull-trap seems to be catching up for the next couple of years....

(sorry for the lengthy post and repeatative arguments, but repeating helps to sink in)

men said...

Mr. Sudarshan,
Sorry I beg to differ from you, just because Delhi/karnataka does not have power is no comfort for Mumbai to have a power cut. More over don't forget YOU IN DELHI ARE getting much cheaper PETROL AND DIESEL.
The point is DID a change of guard make life any easier for the common man OR A SELECT FEW.

saket said...

the 15 min rule we have discussed so often is it applicable for only gaps or all kinds of openings.
do we take opposite positions once our stoploss is triggered in the 15 min set up.
has the system been backtested if yes can u please share the results.

Vicky said...

Thanks for your good work sir.
My analysis suggests a short term up move for M&M stock sir.If u have time please visit my page and have your say on my analysis.

Brij Mohan Kajaria said...

Hello Sir,

I have an account with Sharekhan Ltd. There through your blog I have been studying the charts since last six months. Please let me know which one of the following are best suitable for our stock market so that I can get best result out of it.

Hope you will answer my queries.


Engulf for the day
Piercing Line for the day
Three Inside Up
Three White Soldiers
Abandoned Baby
Gap up
Dragonfly Doji
Gravestone Doji
Morning Doji Star
Three Outside Up


Engulf for the day
Dark Cloud Cover for the Day
Three Inside Down
Three Outside Down
Three Black Crows
Abandoned Baby
Gap Down
Dragonfly Doji
Gravestone Doji
Evening Doji Star
Evening Star
Hanging Man

TOOCOOL7610 said...

dear sir

thank you for your answer of my "how to trail sl and book profit when trade move in my favour" question, i am still in the process of understanding of what you have told me will leave a comment in sometime, ritenow i can see a bearish head and shoulder pattern completed in which rightshoulder is not equal to left{left is at 4337 and right is at 4377} and intersestin point is that it made right after bullish hs pattern, kindly share your thoughts in view of this event


men said...

Mr. Sudarshan,
Your prebudget moves are wanted by us.
Thanks in advance.

Pi said...

@ Brij - Candle stick patterns by themselves are not a great way to trade. Use them with other indicators like overbought/oversold RSI or a trend line break etc. They have limited use per se. Ones most frequently used are Doji - after a major trend they might signal trend exhaustion and reversal especially if followed by a reversal engulfing bar.
Else people also use hammer, dragonfly etc a little bit and inside bars. Despite all this its of limited use.

@vicky - i tried to backtest this strategy. maybe my setup details were erroneous but it only generated losses in my case.

@men - who are you and why in the world are you wasting your and everybody elses time by posting random comments here. Do something useful with your precious time, read about how to trade. You'll find many ebooks online. Atleast it will improve ur trading. STOP POSTING RANDOM STUFF !!!

@wildoscar - good analysis, just it doesnt make much sense to me. but yes i am bearish. and if you have such conviction in your analysis go and trade it rather than look for confirmation. its the best way to confirm. if you are wrong mkt will prove you wrong. get out with small loss. if right exit with big gains :)