Stock Market Trading Updates

The Advantage of learning Mt4 as the Main tool for trading makes your trading easier, and when advanced indicators are used in Mt4 platform we can minimise our losses and increase our profits 1:3 to 1:5. 1:7 etc., But it really depends on which indicators you are using. I use the best indicators so very simple- very small stop loss and a bigger profit ratio using advanced Mt4 Indicators,

If any trader who wants to be a successful trader needs to trade with a small stop loss and the profit ratio has to be bigger and mainly -don't book your profits early and let your profits run = ways to Success.

After making Gap up opening and sharp upmove towards our target of 21300, Banknifty moved much higher to 21619 but reversed very sharply in last hour closing @ 20940. 

Banknifty crossed the first hurdle of 20400 and closed above it. 20400 is a significant number for Banknifty as it is a 3-digit Gann Degree Number for Banknifty.

Time Calculations: Based on Trading Days

Banknifty opened Gap up @19728 near Gann No 19700 and made a big move. Faced resistance in the zone of 20100 making top @ 20225 and consolidated. 

Futures Data 

The signal for Big Move Today:

The following chart shows various time cycles on Nifty.

What Happened?

• In 2019, Gann 90 year cycle completed. This cycle comes from 1839 depression followed by 1929 depression.
• In Feb-2020, 20-year cycle completed from Feb 2000 Top
• In Jan-2020, 144-month cycle completed from Top made in Jan-2008 before the 2008 financial crisis.
• In Dec-2019, 3-year cycle completed from Low made in Dec-2016 post-Demonetisation.

So we saw a big fall as major cycles came together.

What next for Nifty?

• In Oct-2020, 144-month cycle from Low made in Oct-2008 during the 2008 financial crisis, will complete
• In Nov-2020, 10-year cycle from Top made in Nov-2010 will complete
• In Dec-2020, 288-month cycle from Low made in Dec-1996 will complete
• In Feb-2020, 60-month cycle from Low made in Feb-2016 will complete
• In Feb-2020, 13-month cycle (it is observed Nifty makes Bottom from Top in 11-13 months) from Top made in Jan-2020 will complete
• In Sep-2021, 20-year cycle from Low made in Sep-2001 will complete
• In Dec-2021, 10-year cycle from Low made in Dec-2011 will complete.

So the probability of bottoms formation as per time cycles is Oct-Dec 2020, Feb 2020, and then Sep-Dec 2021 if the bear market continues for long.

Looking at the possible economic impact of the pandemic, the possibility of Oct-Dec low does not seems feasible; it may be a mid-term low. Only "TIME" will tell!

My Experience:

I was expecting a bottom in 2019 below or nearby Mar-2018 low, due to 90-year cycle completion. When the market started falling after the Corporate tax cut rally, I was almost sure that a low would form in 2019. But it did not happen, and the market went up. I was still bearish on the market and expecting fall. I was expecting a sharp fall but never thought it would be of such magnitude. 

So 90-year cycle impact I knew from the past, but experienced the first time and will not be alive to experience again. So knowing something and experiencing something is a quite different phenomenon altogether. That's Big learning!

Bharti Airtel performed very well in the last 2 months. How this move was captured on Gann Angles and RSI set up is what this post is all about.

Here I am posting the 3M chart of Bharti Airtel. RSI @ 3 months closing candle of Mar 2020 took support @ 60 zones. This was the starting point for a possible bullish move in the next 3 months. So we will evaluate on a lower time frame i.e. monthly charts.

At the end of Mar, Monthly RSI was taking support @ 60 zones (actual value @ 58.67). So this reinforces 3M chart bullishness.

Gann Angles:

On Monthly Gann Angles Mar candle shows a sharp reversal from 45 degrees (1/1) angle, strong confirmation of bullishness.

So based on 3M and M-RSI and Monthly Gann Angles, we should take a bullish view and then look for an opportunity to enter on a weekly/daily time frame.

This is just a case study on how Gann Angles and RSI gives good trade set up. I found this opportunity in the middle of Apr, kept watch on it. I did not took trade in Bharti airtel.

What Next for Bharti Airtel?

It looks there is a strong resistance zone @ 620-640 where channel and trendline are present. So one needs to be cautious.

Indicators

The categorisation of Indicators:

• By what they tell.
• By the data they use.
• By lagging vs leading types.
• Oscillators and Non-Oscillators.

Indicators By what they tell:

• Trend Indicators
• Momentum Indicators
• Volatility Indicators
• Volume (Market Strength) Indicators
• Support & Resistance Indicators
• Cycle Indicators
• Trend: persistence with which prices move in any direction. (sustainability)
• These indicators show how strong a trend is, whether it is weakening on strengthening.
• Examples:
• Trendlines, MAs, MACD.
• Aroon, Directional Movement.
• Envelopes & Channels.

Momentum Indicators

• High Momentum
• Slow Momentum
• Momentum: the speed at which prices move over a given time.
• Changes in momentum often lead to changes in price.
• Examples:
• Momentum (ROC), Stochastic, RSI.
• MACD
• Ultimate Oscillator. (Popular oves)
• Much slow momentum & Strong Trend.

Volatility Indicators

• Volatility: the magnitude of “day-to-day” fluctuations in prices.
• Volatility is independent of direction.
• Changes in volatility tend to lead changes in prices.
• Examples:
• VIX may help as it uses option data. A rather other Indicator in this group uses mostly prices.
• Bollinger Bands, Ketner Bands
• Standard Deviation, Standard Error.

Volume (Market Strength) Indicators

• Volume strength or lack of it for a price can often indicate future price moves.
• Examples:
• Accumulation / Distribution.
• On Balance Volume (OBV), Positive (Negative) Volume Index, Price Volume Trend (PVT).
• MA (Volume Adjusted).
• Indicator trends give an Idea of what happened at a certain time.

Support & Resistance Indicators

• Prices tend to rise/fall to certain levels and reverse: this is Support & Resistance.
• Examples:
• Andrews Pitchfork, Envelopes
• Fibonacci, Trione, Gann.

Cyclical most useful in commodities.

• Agri (Definitely)
• Base metals

Cycle Indicators

• Securities often show cyclical behaviour.
• Useful in predicting price changes.
• Examples:
• Fourier Transform,
• Detrended Price Oscillator (DPO),
• Fibonacci Time Zones.
• Pro
• Used to find out when & where it might turn in another direction.
• Corn
• To use it in a short period, e.g., Intraday – pro highly impossible.
• Indicators give warning something is going to happen.

Divergence

What is a Divergence?

Interpretation in different market phases common mistakes

Divergences

• When prices and indicators move in the same direction, then are “in line”
  • The price trend is likely to continue
  • There is NO divergence
• When the indicator moves in a different direction to price then BEWARE – the indicator and price trend and Diverging
  • The divergence indicates that the velocity of the advance or decline is decelerating.
  • The prevailing trend MAY be about to reverse.
  • Can the trend velocity increase again?

Negative / Bearish Divergence

• Price – return line
• Momentum – Indicator Trend

• In an Uptrend:
  • The Up Trend Line connects the Bottoms of Price Action, BUT when checking for Divergences, you should connect the TOPS of an Up Trend.
• In a Downtrend:
  • The Down Trend Line connects the Tops of Price Action, BUT when checking for Divergences, you should connect the BOTTOMS of an Down Trend.

Positive / Bullish Divergence

• Price
• Momentum

In Divergence

Observing the momentum so that something going to happen in the price.

Divergence Strength: Points to note…

• Point A – point of maximum velocity of the price.
• Points B & C – price continues to rise (or fall) but at a slower pace.
• Divergence – the conflict between price and momentum (i.e. velocity of price)
  • Rising or Falling prices are supported by weaker momentum
  • Deterioration in Momentum is an early warning of weakness in the price trend itself!

Divergence Strength:

• Greater the Negative Divergence:

Greatermeans – the longer durations of the trend (How many Tops & Bottoms.)

• Fewer informed investors are buying while more of the uninformed buyers move in – Distribution? – when the weak buyers also start to sell then sharper the fall.

• Greater the Positive Divergence:
  • More and more informed investors are buying – Accumulation? – when the uninformed move in the price rise is mostly to be faster.
• Most mkt bottoms have at least one Positive Divergence
  • If the market is reaching a bottom and one does not see a positive Divergence then may be the market is NOT bottoming!
  • The above does not necessarily apply for tops.

Divergence Strength: Number of Divergences

• Greater numbers are indicative of longer & more significant weakening of the underlying trend (esp at mkt tops)
• When the confirmation (something happened in the ‘Price’) occurs, the reversal is likely to be sharper and faster.

Divergence Strength:

Most Recent Divergence around Equilibrium…

• Closer the last point of the Indicator is to be Zero level the more significant the Divergence.
• Mid point cent----
  • Negative Divergence: point C is at / below the midpoint of the indicator.
  • Positive Divergence: point C is at / above the midpoint of the indicator.
• Refer to the charts on Pos & Neg Divergence,

Divergence Strength:

Time between divergence

• Greater the time gap between the price and momentum (indicator) greater the significance.
• Keep in mind the time frame one is looking at: short – Intermediate – long term?
  • Short time frame settings have importance for the subsequent intermediate trend.
  • Intermediate time frame settings are important for the next primary.
  • When comparing peaks and bottoms of an indicator then compare like time frames. (Comparing the peak / bottom of a short time frame with an intermediate time frame indicator is wrong!)

Confirmed Divergence

• Divergences on their own do NOT signal a price trend reversal
• When Price Reversal signal is formed then any pre-existing divergence is said to be Confirmed.
  • Egs of price reversal: Trendline break, MA Crossover, Price pattern completion, etc.
  • Until the price reversal happened then it is a “Tentative Divergence”.

Divergence Trap

• A Point where price reversal is expected
• Price eventually breaks down and initial divergence is confirmed
• Indicator moves to a level higher than the previous one or more tops.

Divergence Trap

• A trader who is not aware of Divergence Trap will give up on his bearish view at Point A – where a fresh rally starts (and is also likely to be confused about divergences!)
• Eventually the confirmation happens and the price reverses.
• Exercise: Draw the Bullish Divergence Trap.

To check the strength of the Divergence check with the shorter, medium, longer and in all the three then it is more evidence.

Complex Divergences

• Price trends are determined by Interaction of many different time frames.
• Indicators look at only one time frame.
• Good practice to have 2 (or more) different indicators with different time settings.
• Various scenarios can occur with such a study.

Complex Divergences

• Price and indicators more in same direction – a very healthy trend.
• Shorter time cycle indicator peaks and falls while the longer time cycle one continues to rise – cycles are out of important sync – beware!
• Both indicators show divergences – body of evidence of a price reversal is stronger.
• Always wait for confirmation with price trend reversal.

All reversal does not / need not to come with the Divergence

Complex Divergences

• Ensure that the different time cycles are separated properly. Eg 10d vs 20d is fine but 10 vs 12 is not.
• Longer term indicator should be peaking when shorter term indicator is close to equilibrium point –
• Exercise: Illustrate Complex Divergence at tops and bottoms.

Strong Momentum BUT Weak Price

• Price
• Strong momentum BUT respectively weak price move
• Momentum
• Sign of a mature trend – May not he a aggressive reversals.

Divergences.

Common Errors…

• Divergences can be misleading in a strong trend.
  • Many (mild) bearish divergences before a price top materializes in a strong uptrend.
  • Many (mild) bullish divergences before a price bottom forms in a strong downtrend.
  • Alternative Interpretation of this…
• Getting too excited about divergences.
• Always confirm with a Price Reversal!

Price Patterns

The Indicator chart itself can provide clues to future price moves.

When studies together with the price chart, one can get better insights into market movements.

TA Principles on Indicators

• The concepts of trend, patterns, MAs etc can be applied to Indicator charts
• Such a study can offer advance notice of impending price trend changes.
  • And of the Indicator itself.
• Price confirmation is always required!

Trendlines

• One of the most reliable indicators of trend of momentum
• Importance based on
  • Number of points on the TL
  • Duration of the TL
  • Angle of the TL
• Once a TL is broken, extend it for it may become a future Sup / Res of the Indicator.

Tops & Bottoms

• Uptrends with HTs & HBs and Downtrends with LTs & LBs occur in Indicators also.
• The principles of the tops & bottoms NOT holding indicating deterioration of the trend apply to indicators also.

Advance BOs and BDs

• Price – Subsequent high is often the high of the market
• Higher High Advance BO
• Lower Low – Advance BD
• Momentum
• Subsequent low is often the low of the market.

Price Patterns

• Indicators may sometimes show patterns (H&S, Triangles, Rectangles, Double, Triple Tops & Bottoms)
• CAUTION – a reversal in Momentum does NOT necessarily mean that there IS price reversal also.
• However, when reversal is confirmed by a price break, it almost always has important consequences.
• Trends in momentum are generally less sustainable than trends in price.

Price Patterns

• Usually there is a time lag between completion of a pattern in the indicator and the similar pattern completing in the price – with the indicator usually giving an advance warning.
• A reversal pattern forming at the extremes: OB and OS levels is more important than one at equilibrium point.
• On the other hand it is much better to ignore UP side breakouts at OB and DOWN side breakdown at OS levels.