chart technical analysis

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Lesson : 01_Introduction_

Share Market Technicals

With this domain we start our first lesson with an introduction - what is fundamental analysis and technical analysis,what are the differences between these two and more... In the curriculum, we revealed many new techniques

developed by our analysts. So, we hope at end of study, you will be in a position to trade on your own analysis.

Fundamental Analysis

Fundamental Analysis is the oldest way of examining the underlying forces of industries or companies. The reason

we specify both, industries and companies is that the fundamental analysis differs in both the cases unlike technicalanalysis though the ultimate goal is to find the future price. In company particular analysis, parameters like

competition and financial information are taken in to consideration along with normal price ratios where as in

industry particular analysis, supply and demand forces does the work. In FA, analyzing might be done on sector tosector or on company. For example, a reality company may be compared to another reality company or sometimes a

reality sector may be compared with telecom sector. Though there are many inputs, some of important potential

inputs are cash flow, cash on hand, current ratio, earnings, market share, price/book value, price/earnings, revenuesetc. As always, there are strengths as well weaknesses when considering fundamental analysis. Long term trends andvalue spotting are the strengths whereas long time consuming, sector specific and subjectivity stands as drawbacks.

Technical Analysis

Technical Analysis (Pure Technical Analysis) never deals with ratios, earnings or sectors. Mid half of 19th century

gave much more importance to technical analysis. Though the ultimate goal is to find the future price, lot ofdifference involved when compared with fundamental analysis. There is nothing called easy rule/formula neither in

fundamental nor in technical analysis. Technical analysis helps investors to predict the future trend using time period

on X-axis and price on Y-axis (mostly). Most advantage with technical analysis over fundamental analysis, charts andcharting techniques never look whether they are from equity, commodity or forex. In addition, fundamental analysis

can not be applied to day trading as they can not influence minor time periods but thats all not the case with

technical analysis. Different charts and charting software provide wide range of technical studies like indicators,overlays, oscillators etc. Using the said instruments, traders can analyze markets for intraday, short term and long

term. Various trends, support and resistance levels, historical price movements can be almost easily predicted using

technical analysis. Last but not the least, controversies group together as said by many experts, by the time chartidentifies a trend, much of the portion will be moved.

Basically there are two types of trading styles One is going with the market trend and the other being against the

market trend. All thousands of studies, techniques or strategies must fall in either of these two styles. Going againstthe trend is best suited in consolidating markets as over bought markets start falling which is against the trend and

oversold markets start rising. Trading with the trend is obviously best suited in good volatile markets as the trend

carries for a long period, where a falling markets may fall more and rising markets may rise more. While goingthrough each of our chapters, traders should know the study is of which style as said before; it would be easy to apply

different trading methods in different kinds of market.
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Lesson : 02_Bullish Patterns

Nifty Chart

In this domain we learn about history of candlesticks, types of chart patterns - bullish patters and classification of

bullish patterns. Also, in detail, we study how to prredict market trend and market reversals using hammer, morning

star, morning doji star and bullish engulfing patterns.

History of Candlesticks

The present candlesticks which are used in many parts of the world were developed by Japanese in the 17th century.The present day candlestick has been modified when compared to the one initially developed. A good trader who uses

candlestick patterns must know what exactly a candlestick is and what it indicates us.

The lines above and below the body are Upper shadow and Lower shadow respectively. By looking at the candle, saynifty chart, the analyst must be in a position to tell where the candle opened and closed. Simple rule, if the candle of

nifty chart is green (or white as per the settings), the bottom of the body is opening whereas the top of the body is

closing which means closing price is above the opening price which is a bullish one. As well, if the candle of niftychart is red (or black), the top of the body is opening whereas the bottom of the body is closing which means closing

price is below the opening price of the particular period representing a bearish phase.

Based on the candlesticks, future trends can be predicted. Below are some of the important candlestick patterns. All

the patterns shown are reversal patterns after the end of bull/bear phase
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Bullish Patterns Beari sh Patterns

Hammer Shooting Star

Morning Star Evening Star

Morning Doji Star Evening Doji Star

Bullish Engulfing Bearish Engulfing

Hanging Man

Harami

In this chapter, we are going to learn about bullish patterns whereas in the next article, we will explain you about

bearish candlesick patterns.

Select each of the bullish patterns below to read them in detail along with special trading techniques defined by ourSM technicals team.

Lesson : 03_Bearish Patterns

Nifty Live

In the previous chapter, Nifty chart (.in), we have seen how bullish patters form during trend reversals. In this lesson,

we are going to learn about bearish candlestick patterns like hanging man, bearish engulfing and evening star thatform during market phase change, bullish to bearish.

Following are some of the important Bearish patterns

Shooting Star Hanging Man

Evening Star

Bearish Engulfing

Harami Evening Doji Star

Let us discuss all of them in detail:

Shooting Star:

Shooting star is a candlestick pattern which forms a reversal trend from bullish to bearish. This looks like an inverted

hammer in shape with body at the lower end and body at the higher end. As discussed in our previous article, bullishpatterns here too colour of the candle should not be considered. Once again, logic remains same - for a red candle, the
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low stays almost at the bottom which tells us that the markets are falling. As well, green candle too indicates a bear

phase as the long body shows that the markets are not likely interested to stay long though the overall phase ifpositive.

Trade technique by SM Technicals

First candle - Inverted hammer shape formation (no matter whether its green or red) Confirmation candle - red candle with the formation of lower lows (closing below the previous candle's close)

Trade initiation candle - shorting with a stoploss of first candles high and target of 3 to 5 periods


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Lesson : 04_Bollinger Bands

Intraday Nifty Chart

In Intraday nifty chart.com domain, we are going to discuss on an overlay called Bollinger bands which was

developed by John Bollinger in 1980s. This is specially used to track breakouts and trend reversals. Also, in this

domain, Intraday Nifty Chart(.com), we show you the strategies of W-Bottoms and M-Tops which stands as the bestapplications of Bollinger Bands.

Bollinger bands are one of the most commonly used indicators based on volatility. There are two bands, Upper and

Lower bands which are placed above and below the moving average respectively. Normal moving average used withBollinger band is 20 SMA. The way how Bollinger band differs from other indicators is that the bands widen when

the volatility is more and narrow when the volatility is less. The volatility is based on Standard Deviation.

In the chart shown, Bollinger bands can be seen with upper, lower and middle bands. The middle band is a simplemoving average
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Effective Strategies used with Bollinger bands

W-Bottoms

M-Tops

W-Bottom:

W-Bottoms can be used with Bollinger bands to identify the upcoming bull phase after a bear market bottom. Fourpoints to remember for the confirmation of W-Pattern: In the first step, the fall starts and makes up a contact with the

lower band. It may or may not cut the lower band.

Second step, the candles travel towards the middle band to form an intermediate rally. Third and most important step,the fall continuous but this time cutting the previous low. Its important to notice the second bear and new low phase

ends above the lower band without cutting the lower band which indicates that the stock is less weak. Fourth and final

step, wait till the previous high for confirmation of bull phase and buy after the breakout.


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M-Tops are exactly reverse to W-Bottoms. It helps in finding the upcoming bear phase after a bull market. Lets put

it in the other way, it helps in finding the M-Bottom (M Pattern bottom) which confirms a bear market. Once again,four points to analyze while predicting the M-Top Forming first high, intermediate fall towards the middle band,

making new high (importantly not cutting the upper band), breaking the previous low.


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Lesson : 05_Moving Averages

Intraday Nifty Chart

In this domain of intraday nifty chart, we deal with "Moving Averages" topic which is extremely helpful during high

volatile markets. Also in intraday nifty chart (.in), we discuss various moving averages available and applications

of moving averages.

First thing we would like to expose about moving averages is that they do not predict the future prices but instead

shows the trend of the running markets using past prices. Simple Moving Average (SMA) and Exponential MovingAverages (EMA) are the most familiar moving averages where as Weighted Moving Average (WMA) is not well

known.

Simple Moving Average:

The name itself mentions the calculation part of this type moving average. For instance, a 5 day simple moving

average is calculated by adding previous 5 day closing prices and dividing it by the number of periods taken (5). Thiswill be the calculation on 6th day.

For the calculation on the seventh day, the number of period remains same as we are calculating for a 5 day SMA

whereas the sixth (previous) day is taken into consideration dropping the first day. Same continuous on the 8th day.

How Moving Averages are used:

Moving averages can be used solely or in combination with other MA. Normally used Moving averages are

5,10,20,50,100 and 200.

In general, 50 periods moving average is used for medium term whereas 200 moving averages are said to holdultimate support/resistance levels. If the stock cuts 200 Day moving average, it shows that the market is very much in

a weak trend. As well, it the stock breaks 200 DMA on the upper side, it means that we are heading towards a strong

bull phase.
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Price Crossovers:

In the chart shown, the moving average is solely used with the closing prices. If the closing market price if above the

moving average, we may head towards an upward trend which indicates bullish phase. If the closing price is below

the average moving price, it indicates that markets are weak.

Double Crossovers


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Many analysts also go with 2 averages along with cmp candles, waiting for double confirmation. But this method issaid to have a disadvantage of showing the trend after much of the part is completed.

When a shorter period moving average crosses longer period moving average in the upside, its said to a bullish

crossover, also termed as Golden cross. When a shorter period moving average crosses longer period moving averagein the downside, its said to be a bearish crossover, also termed as Dead Cross.

Moving averages can also be used with combination of both SMA and EMA. Point to remember while analyzing with

both the moving averages, that movement of EMA is faster than the movement of SMA. In short, if both averages are

plotted over a chart, SMA curves only after EMA does.

It is said that longer the analyzing period, longer the moving average to be taken. For instance, for a long term period,a moving average of 100 may suit though there is no well proved strategy for picking the averages. The reason is that

the longer moving average is not affected by the short term movements, giving more clarity towards the long term.


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Lesson : 06_Parabolic SAR

Parabolic SAR: (Developed by welles Wilder)

Parabolic SAR not only deals with price but also with time. SAR stands for Stop And Reverse. Very important point

we would like to expose here - if you have read our previous article, introduction to technical analysis, in that we

have released a statement, trading against the trend is one of the two types of trading which would be done preferablyduring consolidated markets. But this study contradicts our statement as this is a reverse trade going against the trend

and at the same time not preferred during dull markets. It works well in good volatile markets. This only feature

differs this overlay method with others.

In simple, if the parabolic indicator is below the price, markets are said to be in buy position. If the parabolic

indicator is above the market price, bearish trend might start.
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Specialty of SAR trade is that it also delivers trailing SL in case of volatile markets. In the chart shown, after an entrypoint, the indicator carries with the time and allows us to trial the stoploss till the bullish signal starts. A good volatile

market gives less and accurate signals whereas a range bound markets give plenty of signals with no good accuracy.


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Lesson : 07_Trend Lines

If you believe, I can tell, technical analysis can be done using no indicator, oscillator or overlay. Yes, I mean just

trend lines. This exceptionally works well for positional traders (short, medium and long terms). Unlike otherindicators, these are not pre-arranged option in any charting software but a tool is dedicated only for drawing trend

lines. Support Resistance lines too come under this category which will be discussed in our next chapters.

A trend line is a straight line touching 2 or more points to define a trend likely to follow in future.

Points to remember while drawing a trend line

The more points a trend line connects, the more respect market shows towards the trend.

Points connecting the trend line should have good enough distance. Points of less distance may not be effective as

they are not the real trend exposing points.

Though trend lines can be used in many ways, basically trend line can be classified in 2 ways. It serves as a support

line when markets are rising and a resistance line when markets are bearish. Former line named as Uptrend line and

later as Downtrend line.
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Uptrend Line

An uptrend line is a straight line connecting the lows in a bullish market. This is also known as positive slope. It actsas a support line during a bull market. Its obvious to see the lows connecting the trend line exceeds the previous low.

If the lows connecting the line are more, the trend is said to be a strong one. As long as the line keeps going with the

prices above that, bulls may drive the trend. The moment prices misbehave with the slope, trend may take a reversal.


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Downtrend Line

This is a straight line as well heading downside connecting the highs especially in a bear phase. This can also be

called as negative slope. This line kisses the highs of every low (lower highs) and serves as a resistance line. One can

go with a bearish view till the prices are below the trend line (Resistance line). Once if the prices break the above saidline, it may result in a trend reversal.


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Lesson : 08_DMI - ADX

Average Directional Movement Index (DMI - ADX)

Let's put some questions before proceeding into the topic.

What is DMI (Directional Movement Index)?

What is ADX (Average Directional Index)?

What is the difference between DMI and ADX?

Many traders may have a wrong assumption that both DMI and ADX are same. Not exactly, but ADX is used incoordination and conjunction with other indicators (DI) to complete DMI.

Directional Movement Index (DMI) is an indicator consists of Positive Directional Indicator (+DI), Negative

Directional Indicator (-DI) and Average Directional Index (ADX). ADX oscillator is derived from +DI and DI.
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In short and in real, DMI is an indicator which has directional indicators (+DI and DI) with ADX oscillator orwithout ADX oscillator. As Welles Wilder, developer of DMI/ADX finds that the combination of these three delivers

great results, he prescribed the same.

ADX is an oscillator which indicates the strength of the market. To some extent, it serves the purpose of volatility

indicator. We would like to stress on a point that ADX does NOT tell us the direction of the market, whether bull orbear. It only indicates the strength of the market. As we said before, many traders have a wrong view on ADX. Let us

clear that initially before going deep into the study.

Average Directional Index (ADX) Oscillator

ADX has a value from 0 to 100. If the reading is below 20 it means that trend of the market is weak and remains

sideways (literally tells only about volatility). If the reading is above 40, a strong trend is the indication. In detail, if

the line move from below 20 towards 40, markets are likely to enter into a trending zone. If it moves from 40 to 20,the volatility may end and market tries to consolidate.


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Note that if the oscillator is around 20, it doesnt mean that the markets are bearish and if the indicator is around 80, it

is not a bullish market. It only delivers the strength of the trend. For instance, a strong falling market may also give areading of 60+ as the trend is very strong. As well, a strong bull market may also give the same reading of 60+. So, it

doesnt really matter whether the market is of bullish or bearish. And finally, if the markets are not in a good

movement, it would give a reading around 20 or 30.

Directional Indicators (DI)

As said above, there are two DIs Positive and Negative. +DI measures the force of up moves whereas DI measures

the force of down moves. The crossovers of +DI and DI gives us the buy and sell signals. If +DI is over (crosses)

DI, a buy signal is formed and if DI is over (crosses) +DI, it is said be a sell signal. General setting of this would be14 periods. These signals are used when ADX readings are good enough above 40 which indicate that the DMI

signals are true and trend is strong. Oscillators are recommended to use in conjunction with other indicators, not

relying on just one oscillator.


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Lesson : 09_Average True Range(ATR)

Before explaining about ATR, we have to discuss a bit on Volatility as the whole concept of ATR depends on market

volatility.

What is volatility?

Technically, if the difference of High and low is large, the volatility is more which means that the market movement

is large IRRESPECITVE OF DIRECTION in the given period of time. So, whether its a bull, bear market, if therange of the current period in respect with the previous period is large, it is said to have a good volatility (Shown inthe chart below). To say in general, if the zigzag movement is more, volatility is more and if the whipsaws are less,

that seems to be a less volatile market.

Its pretty clear in the above chart that the markets are falling and ATR rising in the first half and in the second half,

when markets are recovering from its low, ATR showing weakness in the trend.

ATR is an indicator which uses absolute true ranges for calculating the volatility. It is therefore one of the famousvolatility indicators. Though we are not concerned about the calculation part of the ATR as of now, we should know

that its impossible to get the ATR value for the first day as ATR calculation takes the previous days close intoconsideration. This is the reason; we can get ATR value only from the second day of the given period.Certain

drawbacks are said to be involved in ATR as they are non-comparable. The reason being, the stock with high price

may have high ATR and a stock with low price would have low ATR. Also, it doesnt show any interest in findingthe direction of the moves.
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Lesson : 10_Chaikin Oscillator

Chaikin Oscillator:

To know about chaikin oscillator, first we need to learn about Accumulation/Distribution line which was also

developed by chaikin.

Before that, lets put a question ourselves. For instance, if you want to invest in a particular stock, which of the

following cases would you prefer?

A. Stock rising gradually with reasonable volume for a certain period of timeB. Stock rising phenomenally with very less volume.

Its obvious that we pick A though the rise is comparatively less just because the volumes are good in the former

case. Even institutional buying follows the same. This tells us that volumes play a vital role while picking up a stock.

This is where chaikin acted smart while all other dealt with price and time. He included volume in calculatingAccumulation/Distribution line. Unlike other oscillators, chaikins line methodology takes price opening, closing and

volume into consideration. First it calculates the Close Location Value (CLV) based on closing prices and multiplies

that with volume to form an Accumulation/Divergence line.

CLV is calculated in the following manner:

If the stock price closes at the top of the candle, CLV is +1.If it closed above the half of the candle and below the period high, it is given a value from 0 to 1

If the stock price closes exactly at half of the candle, it is rated as 0If the stock value closes anywhere in between halfway and above the candle low, then it is calculated from 0 to -1

Lastly, if the closing price is at the bottom, the value is -1.

The values obtained from the above method are now multiplied with volumes to get Acc/Dist Line. Based on this,

chaikin Oscillator is developed.
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Just similar to MACD (discussing in the next chapters) which takes the difference between the moving averages ofthe prices, chaikins Oscillator too takes the difference of moving averages but of Acc/Dist line. Finally an oscillator

with volume as an ingredient was done. Even if any intermediate rise occurs in the strong falling trend, this oscillatorignores that if the volume is less (which generally happens) and tends to show the down trend. So, traders who uses

chaikins oscillator may not take volumes into consideration again as it is already included. This indicator has a zeroline above which the trend is considered as positive and below which markets may experience bearish shower.Importantly, unlike other oscillators, the reading is also not constant and it differs with the volume and price.

Trade applications:

Crossover of Zero Line


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This is one of the most common applications used to trade. If the oscillator swings above the zero line, it is treated asa bull security and buying can be seen with good volumes. If the chaikin oscillator is below the zero line, sell trade

can be initiated.


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Divergence

This application remains same as in the other oscillators. Above chart is the perfect example. If the markets move

upside and oscillator shows a downward movement, a bearish divergence is said to occur and the stock is expected to

fall from thereon. If the stock price fall and chaikin indicator moves up, we call that as a bullish divergence with ahope of security to move upside.


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Lesson : 11_MACD

Moving Average Convergence Divergence (MACD)

MACD was developed by Gerald Appel. If you remember our Moving Average chapter, we have discussed double

crossovers where one average crosses the other to give a buy/sell signal. MACD exactly deals with the same but in a

different overlay using a histogram.

MACD is developed using a simple calculation. The difference of lower EMA and higher EMA is plotted as MACD.

Three strategies can be followed while using MACD.
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Centerline Crossover

MACD oscillator consists of a center line with a value 0, positive values (0.5, 1) above and negative values (-0.5,-1)

below. When MACD is above zero/centre line, bullish trend is said to be arrived and when the MACD is below thezero line, it is treated as a downward trend.


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Signal Line crossover

In addition to MACD, a signal line is introduced in to the oscillator to predict the bull/bear phases. In general, this

signal line will be of 9 periods EMA. Leaving histogram and center line, when MACD cuts and moves below the

signal line, its a bearish crossover. When the signal line cuts and moves below MACD, we call it a bullish crossover.


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Divergence

Divergence is another effective strategy used in MACD method. Divergence is further divided into bullish divergence

and bearish divergence. As shown in the figure, if the stock price makes lower low and MACD makes higher low, we

call that as Bullish Divergence which indicates that markets may take reverse turn and start to move upside. Keep inmind, while taking stock prices, closing prices should be taken into consideration.

As well, if stock price makes higher high and MACD indicator makes lower high, it is known as Bearish Divergence

indicating markets may move down. A sell signal can be taken at this point of time when breakout or signal crossoveroccurs.


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Lesson : 12_RSI

Relative Strength Index

RSI is no way a different one when compared with other oscillators in look and feel except in its application and

calculation. Average loss and average gain are taken into consideration for calculation of RSI. General setting of RSI

is 14 periods. If RSI moves below 30, it is treated as bearish trend and if it is above 70, it is considered as bullishphase.

Like MACD, RSI too explains 3 strategies to predict the trend of the future market.

Trend Identification

If RSI is in 50-70 region, one can assume that as a bullish trend and if RSI roams around 30-50 region, probably it

can be said as a bearish trend.
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If RSI dances at the overbought zone touching 70 several times without coming to its lower region, the bullish trend

is said to be formed whereas in bearish phase, RSI touches 30 repeatedly without daring to come up.


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Divergence

Just as explained in our previous article MACD, if the stock closing price makes higher highs and RSI makes lower

highs, a trend reversal may take place and a bearish period may come. When prices show lower lows and RSI shows

higher low, probably markets may look at bullish side.

Failure Swings

This is the area where RSI stands different with other indicators. Failure swings in the market can be predicted usingRSI where market reversals are said to take place.

In divergence, we have taken both stock price as well as RSI direction and predicted the market movement whereas

in failure swings, we take only RSI oscillator and finds the future movement. Failure swings are classified as Bullishfailure swing and Bearish failure swing.


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Bullish failure swing takes place in 4 stages. When RSI moves below 30, bounces back a little, again pulls back to 30and breaks the previously made high, we call that as bullish failure swing and markets are estimated to move up

strongly. Point to remember, second low made around 30 should be above the previously made low (higher lowshould be formed).


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As well, if RSI Moves above 70, pulls back, again rises to 70 and finally breaks the previously made low, a bearishphase is said to be taking place shortly with a trend reversal. Here, Second high around 70 should be below the

previously made high (Lower high).


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Lesson : 13_Stochastic

Stochastic Oscillator:

Stochastic Oscillator is an oscillator which delivers the signals based on momentum of the stock. The indicator

swings between 0 and 100 which are its extreme boundaries. Like RSI, Stochastic too have observable levels of 20

and 80. Whenever the oscillator reaches 20, it indicates that the stock is undervalued and reached it oversold zone.This gives raise to a view that the security may take U-turn and move in the opposite direction (towards 80 levels)

from thereon. As well if the stock reaches 80, it may be under overvalued stocks and have high chances of moving

down. This theory works well in consolidated markets.

There are 2 types of stochastic oscillators in use. Though the original version developed is fast stochastic, later when

it was smoothened with Simple Moving Average, slow stochastic became more familiar in predicting the

overbought/oversold securities.

Fast stochastic Oscillator
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As always, for fast stochastic oscillator too, selection of time periods hold key and the recommended time frame is 14

periods. Doesnt matter whether its fast or slow stochastic, both have %K as well %D lines in their oscillators asshown in the above chart. %K is calculated as per the time frame selected. Once after %K is calculated, certain value

of Simple Moving Average is applied to %K to get %D. Its obvious that %k moves faster when compared with %D.

Slow stochastic Oscillator

This is a smoothened fast stochastic oscillator. The initial %K value which was derived in fast stochastic is againsmoothened with certain value of simple moving average and %K of slow stochastic is extracted (exactly same

procedure how %D was calculated in fast stochastic). This is the reason; both %D of fast stochastic and %K of slow

stochastic holds same value provided both are smoothened with same SMA. Now the left parameter to be calculatedis %D of slow stochastic oscillator. Once again, SMA is applied to %K of slow stochastic to get %D


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Calculation procedure goes as follows:

First, %K of fast stochastic oscillator is calculated

Second, %D of fast stochastic

Third, %K of slow stochasticFinally, %D of slow stochastic oscillator is derived.

Fast Stochastic Oscillator:

Fast %K = %K basic calculation

Fast %D = 3-period SMA of Fast %K

Slow Stochastic Oscillator:

Slow %K = Fast %K smoothed with 3-period SMA

Slow %D = 3-period SMA of Slow %K

No reason to learn the above calculation as everything is done by software but need to learn the application part.

Application

Three applications can be used with the help of these stochastic oscillators:

1. Overbought/Oversold2. Crossover of %k with %D

3. Divergence


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Overbought/Oversold

As discussed above, if %K (No need of second swing line, %D) of a particular security reaches 20, it is assumed that

the stock is oversold and enters into bull phase again. If %K touches 80 or nearby, the stock is said to be at

overbought zone and selling volumes may start increasing. If the oscillator is in between 20 and 80 without touchingeither, it seems to be that the stock is in the sideways.


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Crossovers

In this type of application, both %K and %D comes into the picture. If %K cuts %D in the downward direction, it is

said that the security may fall and if %K cuts %D in the upward direction with good volumes, then the stock may

enter into the bull zone.

Note: Combination of both first and second applications may give better results in most of the cases.


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Divergence

Divergence remains same as we have discussed in our previous articles. When the stock price is making higher highs

(New highs) and the oscillator in the stochastic indicator is makes Lower highs, it gives a sign that the security isinterested to move in the upper direction pointing the future trend downwards which generates a sell signal.


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When the security closing price is making lower lows and the swing oscillator makes higher lows, it throws awarning signal that the stock is not tending to move downside more and at this point, the stock may start moving

upward generating a buy signal.


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Lesson : 14_Ultimate Oscillator

Ultimate Oscillator

This is not different with others except that it combines three time frames during its oscillation. Like other, this too

has a range from 0 to 100 in its values with 50 as centre line. When oscillator is below 30, stock is said to be in

oversold and when indicator is above 70, overbought phase is said to occur.

This oscillator can be used with intraday, short, mid or long term as its mixture of three different time frames. Only

thing to remember is that, it is not that the security starts moving up if it reaches oversold in this indicator. It is only

confirmed when the oscillator starts moving up again, particularly above 50 region. As well, selling to be done oncethe oscillator line comes below 50.

Applications of ultimate Oscillator

Divergence
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Even this application doesnt really differ with others. When the stock makes new high and oscillator descending in

its way, its a sign for coming downfall. Here, sell the scrip only below 50.


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If the scrip closing prices fall by making new low without its corresponding indicator line making the same low, thenits said that, stock may look at reversal trend. Buy the stock once it crosses the center line, 50.


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Lesson : 15_William %R

Williams%R is same as other indicators once again except in its reading. Unlike other normal readings, it has typical

negative readings on its scale. The indicator oscillates from 0 to -100. Same as stochastics, even Williams%R too has

an overbought as well oversold regions for getting the stock movement at any point of time.

The recommended time period for this oscillator is 14 periods. It also had a centre/mid line containing a value -50

with it. Indicator line remaining above -50 for certain period of time indicates that markets are in bullish mood andthe consistent closing periods below -50 indicates that the security is in the bearish phase.

Application

Just like Stochastic and RSI, if the stock reaches -20 i.e. top of the indicator, it gives us an indication that the stockmay fall with a view of overvalue. But touching the top of the indicator does not necessarily mean that. To confirm

the trend reversal, let the line comes back and cut the -20 to travel towards -80.
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If the stock moves to -80 it might take a pull back to the top of the oscillator again. Once again, not necessarily verysoon it touches -80. Wait till it bounces back above -80 before taking up a bull trade.


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Lesson : 16_Support-Resistance

Support price of a security is the price which holds the stock from declining further.

It is assumed that the stock fails to go below the support level. Also, it is said that buyers will come into picture when

the price is at its support level and a considerable amount of buy volume is estimated to come in the stock. If thesupport level breaks, the security may go further down looking at its next support level.

Resistance

Resistance of a stock is nothing but just contrary to support level. It holds the stock from rising further
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Sellers may enter in to the stock once it reaches the resistance level. Once if the stock goes beyond the resistanceprice, it is said that the stock may look for its next resistance.

Support price is generally at lower side of the stocks current price and resistance at upper side. Once the stock cuts

the support level, the same is turned into resistance level with a new support at its lower side.

Lets try to understand more in a laymans style. For instance, support and resistance are like two walls for a birdtrying to fly high one at lower side (support) and the other at its upper sider (resistance). As the bird misses its

balance, it feels like support level not to get break, the reason being very simple that it may fall more down once if

the support breaks. As well, once if it starts flying high, it wants the upper wall (resistance) to get break so that it canfly high. This instance tells us, a trader who takes a long/buy trade does not want the support level to break but only

waits for the resistance price to break.


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Lesson : 17_Fibonacci Retracement

Fibonacci retracement is a special theory which carries many controversies with it. It is said that a Vedic formula too

involved in Fibonacci retracement which has relation with the whole universe in one or the other way. Above all this,

its a very successful theory in high volatile markets.

Some ratios are defined in Fibonacci retracement where after a drastic rise of markets, stocks may correct partly, take

support at these ratios and again continue its upward trend. In case of drastic fall, stocks may rise take resistanceand continue its travel towards bear side. Widely used retracements are 38.2%, 50% and 61.8%. Also 23.6% and

76.4% are used rarely by some analysts and traders.

Note: Special tool (Fibonacci tool) is provided with charting software with predefined levels 0%, 23.6%, 38.2%,

50%, 61.8%, 76.4% and 100% as shown in the above chart.

There are 2 major applications of Fibonacci retracement where the 2nd one stands tall in its race.

1. Trend reversal

2. Trend continual
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Trend Reversal : As said above, after a drastic fall, it is expected that the stock may take a short reversal till38.2%, 50% or 61.8% Therefore, in case of trend reversals, these levels are taken into consideration to find how long

the reversal is going to last (Below chart). Same with bull markets too.

Trend Continual

This is an extension for the above application. This believes in a concept Upper markets always goes upper and

lower markets always goes lower. In detail, after the above short pull back from 38.2% or 50%, the stock continues

its original trend to fall further breaking all its support levels 50%, 38.2%, 23.6% and 0%, tries to make newlow(Ref. above chart). Short trade can be taken up at every support break. Especially when the stock cuts its final

support level 0%, high chances for the stock to fall much more.

In case of long bull market, market takes a short pull back till 38.2%, 50% or 61.8% as discussed in our firstapplication, again starts flying cutting all its resistances including 0% to make a new high.

Note that these 2 applications are best suitable when the stock declines or advances heavily.


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Lesson : 18_Gap up-Gap down

Gaps

Gaps are price differences between present periods opening and previous periods closing. Certain gap is said to be

formed based on its volatility and strength in the volume. As per the gap theory, gaps formed in any kind of markets,

irrespective of time period has to be filled.

Gap Types:

1. Common

2. Runaway3. Exhaustion

4. Breakaway
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Common gaps (Trading gaps)

This generally occurs in day to day trading periods or early morning gaps when differed with previous days closing.

These gaps may fill quickly as they do not have much significance in nature. This may be due to over excitement oftraders, sudden increase of volumes or any other insignificant reason.


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Runaway gaps (Towards the trend)

When markets are taking a good trend, one can find a sudden gap in the price candles due to sudden entry volumes

which has taken effect because of good trend. Also, traders who wait for a good correction may not find that on thecharts and as a result, sudden buying may enter into the stock. As this is a gap towards the trend, the trend may

continue to travel failing to fill the gap soon. Generally, this type of gap is not that easy to get filled. It may take

months or even years to get filled.


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Exhaustion gaps (Trend reversal gaps)

This occurs almost at the end of a bear or bull phase. The gap that forms in this area will be filled very soon as thetrend changes immediately after the phenomenon formation. If a gap is filled at the top after a long bull market by

taking a trend reversal, once may expect bear market ahead as investors tend to sell their stock. If this happens at thebottom after a bear market, a bull market is said to be started.


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Breakaway gaps (Consolidated market gaps)

When a gap forms after a consolidated markets or congestion area, it is said to be a breakaway gap. After manyweeks or months of trade, the stock starts breaking in the either way giving rise to a trend. Investors who waits for a

much longer time, puts sudden volume into the stock resulting in the gap formation. As the trend starts newly, the gap

may or may not get filled immediately. It might also take months to get filled depending on the strength of the trend.


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Lesson : 19_Chart Patterns

Patterns are of two types - Trend reversal patterns and trend continuation pattern. All of our indicators and studies

must fall in to either of these two patterns. These patterns work best in combination with lower indicators. Some of

the patterns are as follows:

Reversal Patterns Continuation Patterns

Double top Pennant PatternDouble bottom Flag Pattern

Head and Shoulders Top Symmetric Triangle

Head and Shoulders bottom Ascending triangle

Falling wedge Descending triangle

Rising wedge Rectangle

Rounding bottom Price Channel

Rounding top Measured move Bullish

Triple top Measured move Bearish

Triple Bottom Cup with handle

Note: Clicking on any of the above links will take you to the a ppropriate topic

Reversal patterns

Reversal patterns

In reversal chart patterns, all the shapes which are formed on the charts might lead to a trend reversal. In today'ssession, let us discuss more on types of reversal patterns and their formations in detail:

Double Top
http://www.bsecharts.com/http://www.bsechart.in/http://www.bsecharts.in/double-bottom.htmlhttp://www.bsechart.in/flag-pattern.htmlhttp://www.bsecharts.in/double-bottom.htmlhttp://www.bsechart.in/flag-pattern.htmlhttp://www.bsecharts.in/head-and-shoulders-top.htmlhttp://www.bsechart.in/symmetric-triangle.htmlhttp://www.bsecharts.in/head-and-shoulders-bottom.htmlhttp://www.bsechart.in/ascending-triangle.htmlhttp://www.bsecharts.in/head-and-shoulders-bottom.htmlhttp://www.bsechart.in/ascending-triangle.htmlhttp://www.bsecharts.in/rising-wedge.htmlhttp://www.bsechart.in/rectangle-pattern.htmlhttp://www.bsecharts.in/rounding-bottom.htmlhttp://www.bsecharts.in/rounding-top.htmlhttp://www.bsecharts.in/http://www.bsechart.in/cup-with-handle.htmlhttp://www.bsecharts.in/triple-bottom.htmlhttp://www.bsechart.in/measured-move-bearish.htmlhttp://www.bsecharts.in/triple-top.htmlhttp://www.bsechart.in/measured-move-bullish.htmlhttp://www.bsecharts.in/rounding-top.htmlhttp://www.bsechart.in/price-channel.htmlhttp://www.bsecharts.in/rounding-bottom.htmlhttp://www.bsechart.in/rectangle-pattern.htmlhttp://www.bsecharts.in/rising-wedge.htmlhttp://www.bsechart.in/descending-triangle.htmlhttp://www.bsecharts.in/falling-wedge.htmlhttp://www.bsechart.in/ascending-triangle.htmlhttp://www.bsecharts.in/head-and-shoulders-bottom.htmlhttp://www.bsechart.in/symmetric-triangle.htmlhttp://www.bsecharts.in/head-and-shoulders-top.htmlhttp://www.bsechart.in/flag-pattern.htmlhttp://www.bsecharts.in/double-bottom.htmlhttp://www.bsechart.in/http://www.bsecharts.in/http://www.bsecharts.com/


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As the name itself describes, the security forms a top makes a small correction turns back to make second topsame as the first and finally makes a new low. Technically speaking, the two tops formed at the top indicate the

strong resistance. As a result, the stock failed to cross the same and returned to its low. This normally forms at the topof the stock giving a trend reversal from bullish to bearish.

More important patterns are as follows:

Double Bottom Head and Shoulders Top Head and Shoulders Bottom

Falling wedge Rising Wedge Rounding Bottom

Rounding Top Triple Top Triple Bottom
http://www.bsecharts.in/triple-bottom.htmlhttp://www.bsecharts.in/triple-top.htmlhttp://www.bsecharts.in/rounding-top.htmlhttp://www.bsecharts.in/rounding-bottom.htmlhttp://www.bsecharts.in/rising-wedge.htmlhttp://www.bsecharts.in/falling-wedge.htmlhttp://www.bsecharts.in/head-and-shoulders-bottom.htmlhttp://www.bsecharts.in/head-and-shoulders-top.htmlhttp://www.bsecharts.in/double-bottom.html


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Lesson : 20_Continuation Pattern

All the patterns we are going to discuss from here on are continuation patterns which takes a break during its

rally/downfall, gives a shape and continuous its journey in the same direction again. These are best suitable in case of

heavy fall/rise markets.

Pennant pattern

This looks like an isosceles triangle with a converging shape. After a good bull move, the security forms this shape

throwing a sign of rest after which it tends to continue its original move. During this period, market shows a dullmovement with minimum volumes. Breakout of this pattern might result in the trend continuation. Target taken for

this type of trade is equal to the rally which took place before the Pennant formation. It is said that these types of rest

shapes are formed in the middle of the journey and as a result, the target would equals the previous rally once again.

More important patterns are as follows:

Flag Pattern Symmetric Triangle Ascending Triangle

Descending Triangle Rectangular pattern Price Channel

Measured Move Bullish Measured Move Bearish Cup With Handle
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