Tuesday, October 6, 2009

A dip is a correction of the main trend

I did write again about Idea Cellular, earlier today. You can read it here .

This is about dips.
The main trend should be up. Without even looking at the charts, we can say with assurance that we are in an uptrend.
A dip can then be described in many different ways. For example:
--> A 1-2-3 pullback. Prices see lower lows for three days signalling that stock is in a minor correction.
--> A fast moving oscillator (RSI2 or CCI5 or Stochastics5-3-3) reaches oversold levels, as also a dip occurs in the price.
--> prices pullback to touch the 20 Day moving average.
--> Prices decline to a fibonacci retracement
Many many more....
Now, in each of these cases, what is the common theme? The trend is up, but prices are falling. That's a dip or retracement - a buying opportunity.

This is what I said - in my opinion Bharti and Idea are in uptrend, so a dip is a buying opportunity. Now, you may have a different analysis on the trend , and you are entitled to your analysis. But, understand, that so far I practise safe trading, I can define the trend as well as dip, in my way.

Readers understand that the market is not perfect. Far from it. So, while in textbooks, pullbacks look good, in reality they are often quite messy. The trader has to make a judgement on the pullback and take or not take the trade. That's ok.

To each of us, the trend as well as the shape of the dip may have different definitions. In fact, in different phases of the market, these will change. This is simply to state the obvious : all paths lead to the same objective.

Think carefully on what I have written here. Your feedback will be appreciated.

3 comments:

suseem said...

ur response appreciated sir
there was a major decline in tele cos 2day which could be classified as a buying opportunity for a day or two.
but accrding to me these stock dont qualify as buys for long term coz they have been underperforming,so a buy only for a small bounce but the medium term trend seems -ve to neutral till we spot some heavy accumulation or upward momentum.
will keep posting my views on the same
thnx

gulshan said...

To be on long side for short term, which will yield more profit (assuming all other factors are constant)?

1. Buy a Call

2. Sell a Put

Thanks

Tushar said...

Sir you say "in my opinion Bharti and Idea are in uptrend"

I don't know about bharti, i don't have it's data.
But can you show the uptrend in idea..?
Because my analysis shows down-trend in idea..
I wanted to learn
your analysis on the trend.. it will help develop my analysis..

-tushar