Monday, July 9, 2012

Buying at Support

As traders we are aware of the concept: Buy at support, sell at resistance. This is a fine idea as far as theory goes. We also know that this concept works well when (a) markets are in a trading range (b) markets are in an uptrend in which case prices should bounce off support.

Then again, Support will be broken if the Market decides to go down. This can get confusing. When does the market hold support and when does it break down from support?

Like most other technical methods, there are no straight forward answers to this question. A lot depends on the context, the current market environment, short term and long term. Finally, it is about probability. Not all buy at support decisions will work out. Enough should work out to justify this theme as a trading method.

I am discussing this concept today because the Nifty came down to 5270 support. Should we buy here?  There is no certainty that a buy will make money tomorrow. But, we did buy, and, this trade was discussed on CNBC at around 3 PM.

There were two reasons to buy: First, Nifty was standing at a well recognized support level, and, we are in an uptrend. Second, there were two days of declines. Again, if we are in an uptrend, then a bounce is possible. If the market opens weak tomorrow, we should be exiting without delay. The actual decision will depend on the open.

Readers are welcome to provide insights into the concept of buying at support.

29 comments:

gourv said...

Dear Sir,

You are 100% correct.We are not fortune teller,we are trader.We deal with probability.If the probabilty does not go in our favour our StopLoss takes us out.
We might not be right in all the probable trades we take,it is not required also.The import thing is over a period of time even if our 50%of trade goes in our favour we make good profits,provided the size our win is greater then the size of our loss.Buying at support is a very less risky probable trade as the SL is very near.

Regards
Gourav

Deepesh Sonavane said...

Good Evening Sir,
this is my secound inning in market
i start the trading 1.5 year ago that time i lose about 150000/-
Now i m trading as per yours trading Ideas and i cover about 10-15% (25000/-) of my loss in just in a week Thanks for your ideas and stock recomandasion, m hoping that if any one follow your ideas he can make money.

LJ said...

Hi sir,

buying @ support and selling @ resistance ! always hearing the same for long time but i never made money by buying at support ( as far as i remember ) selling at resistance made me money some time !!

It may be because i don't know how to trade it, ok then i left the concept and begin to make money by buying on upside breakout and selling on down side break out...

Kuldeep.rk said...

Dear Sir,
In My Opinion, SBI has formed inverted H&S on daily. Took long today, with stop below 2175. Your confirmation would be motivating.

rgds,
kuldeep

Dinesh said...

Dear Sir,
I am novice in front of you as well as otherwise also.
My feel is that currently we are in sort of a downtrend taking into account last couple of days, advance / decline ratio and also international cues/markets.
Is it possible to explain - why do you think we are in uptrend and it is not the reversal of the uptrend even if from a short term perspective?
Looking forward to your response.
Regards,
Dinesh

Dinesh Rishi said...

Respected Sir

As you said

"I am discussing this concept today because the Nifty came down to 5270 support. Should we buy here? There is no certainty that a buy will make money tomorrow. But, we did buy, and, this trade was discussed on CNBC at around 3 PM."


I also bought back the part booked
and my initial long is still intact.

Reason trend is still up and has not given confirm signal of reversal

As you said

" If the market opens weak tomorrow, we should be exiting without delay. The actual decision will depend on the open."

I will also do the same
as its at reversal point

Holding position overnight in direction of trend is if it opens against our expectation what we lose is profit earned.

But the loss making positions we keep on dragging but hesitate to carry profit making positions

Rajveer said...

Friday was a Inside Bar day, Monday we open gap down and a lower close. I think this is the first sign of bullish reversal pattern and start of a downtrend. Confirmation will come if we open lower tomorrow. After 100 points rally on 29/06/2012, nifty closed higher for 3 consecutive days. This itself is a bearish sign because the nifty never got into consolidation. Tomorrow is most important day. Since rest of the world markets are negative. I think low of 5257 must hold if nifty is to move higher. Tomorrow could be a narrow range day possible.

Pratik Mukasdar said...

Sir i think we are in a chopppy and sideways market and i think we should not carry overnight positions and simply buy&sell according to supports and resistances speciallly wen we r so much affected by global cues or can hold stocks with a swing trading point of view...I have no experience as u have this is just a view sir pls correct me wherever i am wrong..thanxxx

Jitender Yadav said...

Respected Sir,

While buying at or near the support, the stoploss point is closer in comparison to other buying methods like a breakout buy, hence risk is low. We enter a trade if (a) risk is low, (b) profit probability is high or ideally if (c) both the above conditions are met.
Also buying at support implies buying on a pullback or a minor dip, which is psychologically more comfortable.
Your Fan
Jitender Yadav

Technotrader said...

I agree sir, but it needs a lot of courage and conviction. This type of trade can be done by a professional like you but for amateurs like me we look for confirmation i.e. breakouts and in doing that we lose the larger move of a breakout.

daytrader said...

Dear Sir

in ur book u have explained that nifty has a cycle of 53days (page no-177),would pls explain how u come to this particular period or the rationale behind this,
(in my thought some thing like making swing .)pls explain also how can we calculate for stocks

follower

Yousuf said...

iam regular reader of your blog, thanks for your nice explanation abt mkt. iam dealer in a broking firm so i use your ideas for my clients. now i request you to conduct some seminars of you ATA at south indian region. i want to take CTA ,but the fee is ver big, i looked your ATA site. how much year validity for this CTA certificate? my email eyousufe@gmail.com
thanks& Regards
YOUSUF E
Kerala

gourv said...

Dear Sir,

Yesterdays idea of buying at support worked.I was already long with SL @ 5263(price should go below that in Hourly chart).The idea that you shared yesterday was to buy at support and sell at resistance.But Nifty sucessfully closed well above the previous resistance of 5333.I listned to you in CNBC saying you closed all your long.Could you please share with us at what price.I am still long in NIFTY with SL below last high of 5333.In Fact I have added once 5333 was broken.Yesterday we buy at support because support was held by nifty.As per my knowledge profit should be booked if resistance holds.But today resistance did not hold.

I hope today I will see discussion on this in this Blog by You.

Regards
Gourav

Unknown said...

Dear sir,
You went long at 5270,and nifty finally broke out the 5270-5320 range with a gud volume..but today at 2:30 pm you told to book profit..why u didnt add more position to take the advantage of gap up next day which is obvious minimum 25 point as Eu market was strong.kindly sugest.
Akash sinha

Technotrader said...

Sir, I would like to ask what many learning traders would like to ask. Sometime (ex Bgr energy, IDFC etc) a stock gives breakout from a range moves sideways for next 4 to 5 days or hit the stoploss (low of the breakout candle) and then starts moving up again i.e. in the direction of the breakout. So which way is it better to buy a breakout next day or wait for a pull back which may or may not come. I know its a very tricky question as it depends on the market condition, breakout volume etc. But still like to hear from you.
Thanks Sir

Sujit Patil said...

buying at support work when market is uptrend on

Dinesh Rishi said...

Sir

Loss in momentum seen

& a Harami Candle

I wont short tom but will book my profit which is running from
4830

Reason not to short is Price is above all its SMAS except 5 SMA

SantoshG said...

Heres my idea of identifying high probability Buying at support opportunity-
Once the support is identified I check if it has any relevance on 60 min and Daily TF, if the oscillators there are oversold and divergence if any. That gives me some extra confidence once I am convinced I would switch to 5 or 15 min TF and would catch the breakout there. I then get into a great intraday trade but I have a tendency or weakness to book intraday rather than converting it to positional trade- I need to work on that- please comment on approach identified above. Thanks in advance.

SantoshG said...

I validate the support on 60 min and Daily TF and catch intraday breakout on 5-15 min TF - please comment on this approach

daytrader said...

i hope u will revert on this soon
Dear Sir

in ur book u have explained that nifty has a cycle of 53days (page no-177),would pls explain how u come to this particular period or the rationale behind this,
(in my thought some thing like making swing .)pls explain also how can we calculate for stocks

follower

Shahii said...

I saw you predicting on CNBC that we will go to 5100 in this down swing, I have a different view, this trend line has already arrested nifty downfall.

http://rideniftywithshahi.blogspot.com/2012/07/13-july-buying-opportunity-in-larger.html

Uttam Nayak said...

Dear sir,I have been reading your trading advice for 1 year.But on the context of buying at support i have some question which i couldn't solve myself.As you have said earlier when we are in a uptrend the market bounce off from support againg if the market will decide to go down it will break the support.i do agree.but now the question arises when the market are forming lower highs and lower lows i.e. consider present scenario in Nifty Future , should we sell the price at Resistance/hurdle or wait for the price to break the support,then we should sell ?Another question is how can we know that the trend is over or how many days we should wait for the price to make lower highs/lower lows pattern ?I will eagerly wait for your answer sir.

Regards
Uttam

Vasant kumar said...

Sir, On stock front SAIL seems to be forming a long base for a huge upmove...Ny view sir?

Unknown said...

please can you comment on the long term charts of Natural Gas.

Prashant Sarnaik said...

Sir,

Please write something its hot time now sir. Your blog is extremely useful and educative please please write regularly.

Thanks Sir

Raj said...

Hello Sir pls start your blog its great for TA students

Raj said...

Hello Sir pls blog

Raj said...

Hello sir pls continue your blogs its good for TA students

Khush said...

I have a question regarding opening gaps in the Nifty or even stocks. Whenever there is an opening gap up or down, Is it necessary that the gap will be filled up at some point in the future? If, yes does it have any relation with the trend.

There was a wide gap in the markets during the 2009 elections when the sensex was up 2000 points. This gap has not been filled up Do you think nifty has to drag to those levels?