Monday, August 31, 2009

Chart Patterns and Trading Ranges

Vinod asks:

"Is the pattern in Sun Pharma a Symmetrical Triangle? If yes how will you trade it now. It looks like a breakout is on the cards. what is the target."


Yes, the pattern does suggest a contracting triangle, ready to break out. I am giving the chart below. Trading tactics can vary: 1. buy now in anticipation. Keep a stop below the lower line. 2. Wait for breakout. Buy at breakout point - around 1240. 3. Buy after breakout, on a pullback. How you trade depends on your aptitude.



Trading Range in Nifty


On Thursday, in my post, I had identified a range in the Nifty, suggesting that a move out of the range will be tradeable. Shazia asks: "How to determine the boundaries within the contraction? The first breakout apparently looks on the upside.. 4730 was the upper boundary which was broken on friday."


I was tracking the range on 60 minute charts, which give finer support/reistance levels. The chart is given below. Notes on the chart are hopefully self explanatory.




Pi says, "Can you write a post on the post 4700 breakout. Technically we did see a 2009 high, but it didnt really seem like a strong breakout to me. Maybe we might have it on monday - or maybe not. Can you suggest, when we can say with confidence that we have a breakout (though with so many ppl anticipating i doubt it will happen). Or it might turn out to be a false breakout. How/when does one decide that the breakout was a false one and to distinguish any pullback from a deeper correction of the Mar-Aug bull run ?"


My Notes: A breakout is a breakout. The only way to challenge it is to wait for it to fail. Minor support comes at 4600, so a close below this level is required to suggest that the breakout may not be working. For short term traders, the levels may be different. Please see chart above.




10 comments:

Viral Rajnikant Dholakia said...

Dear Sir,

With reference to the follow-up of Sun Pharma Triangular pattern breakout... from what I have read online, they say that the breakout should ideally occur between 2/3rd (66%) to 3/4th (75%) of the width of the triangluar pattern. If the breakout occurs near the apex, the breakout could be said to be "No so Effective" or may as well prove out to be a "False Breakout"

In the case of Sun Pharma, the price movement seems to be stretching more towards the apex (85-95%). Do you feel such minor aspects are significant?

Viral Rajnikant Dholakia said...

Dear Sir,

Reference: Determination of NR7 Pattern

Can you clarify in detail abt the pattern of 'NR7'. Is it simply related to last 7 sessions & effective only when the 7th session chart pattern is lowest in size among the previous 6?

Whether the candles are white or black for all the 7 sessions... is immaterial in determining NR7 pattern ?

Shazia said...

Thank you sir for explaining the breakouts. How does one calculate the level of nifty like 4650 to verify the failed breakout?

thanks
shazia

piyush sharda said...

as per edwards and maggie-we can also use volume as an indicator to guess whether a breakout is prone to fail or not. successful breakouts are on higher vol. As per the book" volume for an analyst is like a thermometer to a nurse"
piyush_sharda@rediffmail.com

Junaid said...

"Five things To look For in Stock Market BreakOut".Dr. Brett Has A Post. Here is the link.

http://traderfeed.blogspot.com/2009/06/five-things-to-look-for-in-stock-market.html

Junaid said...

TICK, MARKET DELTA AND TAPE.
All the three confuse me a lot when i see them being used frequently by all US traders. They grab a lot of info from these. I tried to learn them abt what they are. Succeeded a little but not fully. had many confusions.
Tape:- Used to determine the Order flow, by having a keen eye on market BIDS/OFFERS. Ur job is to find important levels.
But do u have a separate software for that or u get it from ur trading terminal. Confusion.

Similarly, Market Delta and Tick tells u abt the Sentiment, real time buying/selling and many more..
But how to use them, where can we get them. Separate soft or some other..????
Confusion...

Sir, You doesn't seem to be using those, as u never had a talk abt these in ur Blog. Why so..??
I hope u myt have read abt these... I request u to Plz share any valuable talk u know abt these. Thanx.
JUNAID.

Junaid said...

Indeed, from their site (www.marketdelta.com), its very clear that it is a Software.
But what about Tape and Tick..??? Not getting any clues..

Junaid said...

O ya, Market Delta, I got it..

U get all info abt market delta here.
http://portal.knowledgebase.net/display/2n/index.asp?c=15572&cpc=JpRoH52EF7NTdA03B2IfYF5uwLEKur40r5a5pW2mn&cid=12729&cat=&catURL=&r=0.4387018

What a coincidence. I asked u earlier today abt that and i got today only.. I think they have added that link to their site today only.. I wasn't able to get it earlier..
Do comment abt TAPE AND TICK..!!!
Thanx..

Junaid said...

I posted many long comments through-out the day. Sorry for the inconvenience..!!! But it finally helped...

Gaurav said...

The current pattern on Nifty daily charts suggest a triple top or ascending triangle? Both these patterns have a opposite interpreation. On a longer term basis we also see a inverted heads and shoulders with neckline around 4700. Sir what is your opinion on all these patterns?