An Excellent Collection of ST's Posts.

[candle]

Originally Posted by Nihilistic
Dear Smart Trade,
I've been looking at your posts, and I have same kind of mindset as yours, quick entries and exits on breakouts. Many a times, it
doesn't materialize, and I lack disciplined approach, hence my losses have deepened to the level of making me literally go broke.
I request you to post the proper methods one must have to achieve desired goals with such outlook. Even a strategy perhaps
would be really give me some hope toward realizing at least a 1/4 of capital I've lost.
Expecting your kind reply.
Regards,

Hello Nihilistic,
Try the following...they might help you to improve your success rate and profitability :

1) Use a higher timeframe which should be about 5-6 times your trade timeframe for deciding the direction in which you will take the trades.
So if you are trading on 3 min bars, use 15-20 min bar as higher timeframe to give you a trade setup. For 5 min bars the higher timeframe
will be 20 or 30 min bar. If higher timeframe is trending down, take all short trades...and vice versa

2) If the breakout/breakdown fails and the market closes in the range which it broke then it is a breakout failure and better to get out of
your position without waiting for stoploss to hit ......

Wait for clearly set up trades....that will help. Trading bothways requires good understanding of market action...dont attempt that initially.
Smart_trade

 

[candle]

GAME OF WINNING AND LOOSING

Everyone comes to the market for winning......but most end up loosing...why does this happen ? To answer this question we need to peep into earlier part of our trading career.

We start trading most predictably on some tips given by some friends....we make some money and then some more and we get convinced that we are into world's best business.....no efforts, no work....only make money....this illusion soon vanishes as the reality dawns....

In initial period we have no method....later we latch on to some method....it may be moving averages, camerilla pivot points, indicators, swings....etc and we get into a stage when we make money on 50-55 % trades but small money as we are too scared to let the small profits turn into losses so we grab it.....our losses are also small most of the time because market gives us a chance to get out of loosing trades with scratch trade/ small loss. But very few trades the market does not favour us and kepps going against us inflicting a cripling loss on us which cripples our trading account and our confidence. This has happened to all of us.....

Just think about an imaginary opponent who is taking the other side of all our trades....this guy has made all the money we lost and he is happily smiling. Why ? because he has never lost big ( ie we never waited for our profits to grow big ) ...he has his share of small losses and small profits and few bumper profits trades ( which are crippling loss trades for us ) .So if you reverse the role and take small profits/small losses....few largish profits by allowing profits to run anf few very big profit trades then you will do much better than this imaginary opponent in his earlier role.....It is the large loss you have to eliminate and get some large profits trades in your bag and you make it.....

You need to have a competent method which need not be complicated.....it is a myth that good methods are complicated .Your method should stack the odds in your favour.It could be a simple method that you take all trades in the direction of larger timeframe moving average.....put your stoploss points, add points, profit taking points and backtest that method....if you like that method chances are that method goes well with your psychological setup and belief systems. Then you have your holy grail up and running for you.....

Posting a chart which works on a simple method which trades in the direction of a moving average slope and colour.....all trades taken have valid reasons ....so are profits taken at various points......every trade is not a big winner but the last trade is a big winner....

Posting this just to illustrate that simple method with proper position sizing, adds, profit taking.....stops ...can make money in daytrading....you cannot eliminate loosing trades....loosing trades are unavoidable evils and you have to accept them as a part of your job.....but let the winning trades be your friends and let them overpower the loosing trades....

Smart_trade

 

[candle]

Originally Posted by niftytaurus View Post
Good Evening ST sir
I have a query..Suppose we get short trend, & now we want to enter on pullbacks..
a)We are in shot trend & we get a pullback in form of rally..how do we know that now rally is finished & downtrend decline will start..I tried to enter on break of Pivot low..but then entry would be late..
b) sometimes pullback can be oneleg, 2 leg or 3 legs ...how do we know that now pullback is finished?
c) sometimes we enter on retrace, but how do we know that is it retracement or reversal?
thanks

After the pullback, short the immediate minor pivot low break with minor pivot high as a stoploss.There is no guarantee that this entry will work.Many times 2 or 3 entries are to be taken to get us in the trend. Initially we have to be very watchful of our entry and if trade is going against us, get out and look for another entry.

In reversal the market starts trading above ERL and starts making higher bottoms and tops.

Smart_trade

Thanks ST Da for your reply.
A)what do you mean by IMMEDIATE MINOR PIVOT?
B)EX We are in visual down trend/htf downtrend ,after a minor downtrend, then market starts making higher Minor pivot lows & higher Minor pivot high..a minor up trend...then minor uptrend will finish at some point ,when pullback finish & a minor downtrend will start...so how do we decide that now PULLBACK( CONTRA MINOR UP TREND IS FINISHED) & minor downtrend will start..
we can not short minor pivot low of minor up trend,so should we wait till a minor pivot low formed & then we short that minor pivot low? but till than market moves some &entry is bit late..so how to solve that?
c) As you said, we need to take entry 2-3 times..so it means we need to take 2-3 chances to enter..means we have to take 2-3 SL & then if in 4 entry ,we get profits, those 2-3 SL have already eaten our profits & damaged our psychology?
I am sure, you dont give 2-3 sl in a day..so how do you manage those entries?
thanks

Your Points A and B : Let me try to explain with the help of actual Nifty Fut 3 min chart.

A,B,C,D is a visual downtrend . After point B a minor uptrend in the form of a corrective rally starts which proceeds through minor pivots 1,2,3,4,5. We enter into short position when minor pivot low 6 is broken and keep our stoploss at the high of point 7. This is because C is now a lower VPH and visual downtrend is likely resuming .Can the market stop us out above point 7 and go above C and continue the uptrend ? Yes it can but then it will also mean that we are now in some kind of visual uptrend ( does not matter even it it could be of a lower degree )as the market is now making higher VPL and VPH and we would anyways not like to remain short till final VPH is made.

So after the minor uptrend the visual downtrend reasserts and we get a low risk entry in a visual downtrend.

Your point C : 2-3 entries pertain to discussions on swing trade.Most swing traders dont get their first entry right.They try for 2 nd and 3rd entry....incurring losses of 20-25 points in each but when they catch a trend, they make 200-300 or even 500 points so 2-3 stops of 25 points dont harm much for a swing trader. Swing trading 2-3 stops in a day are rare.But they are needed for finetuning the entry.Else dont take small losses and keep 100 points stoploss in Nifty Fut which is not uncommon in swing trades and if it is hit, so it be.

There are no failproof solutions in trading....we are trading probabilities .

Smart_trade

Da, thanks a lot for this nice chart and explanation.

Will you short 4 if points 6 and 7 were not formed?

Yes ,short 4 in that case.

Smart_trade

 

[candle]

TR bhai.. how do manage your Sl with wide range bars.. initial and trailing.. ?

In my view there are 2-3 ways of managing it.

1) If the stops are at a large distance then trade smaller quantity so that the risk as % of our capital remains same and if after the WRBs market moves further and at fast speed, with small quantity also we make our profits.

2) Keep our stops on a smaller timeframes but then there is a possibility of getting stopped when market retraces after a WRB.

3) Use 2 bars entry or aggressive pivot entry for getting into a position with smaller stops, but here also the trade off is few premature exits.

I start doubting the continuation of a trend after WRB if the market retraces 50 % of wide range bar....just a thumb rule.

Smart_trade

 

[candle]

Originally Posted by XRAY27 View Post
Good points for trader to remember on WRB

If WRB comes in the beginning of a trend or after breakout of a range, it is likely to be breakout or continuing WRB but if it comes after the trend has played out with 2-3 earlier WRBs and then a steep move, that is most likely to be ending WRB and the trend reverses.

Smart_trade

 

[candle]

Originally Posted by Krishan86
ST Sir,
Can you please recommend some good books on:
1. "Volume Analysis"
2. "Price Action" based Trading
3. "Stochastic Indicator"

This information is scattered in so many books,articles,interviews. I donot trade price action as given in Al Brookes or YTC. I read both but I was not successful in understanding and trading with those methods, must be my shortcoming.

My price action is understanding each bar and asking whether it gives some information on supply/demand and how to use this information in trading.That to me is very important than some rules like "do this when this happens" as the market will do different things everytime.

Smart_trade



In my thread "Ideas on day/swing trading" I have discussed many trading ideas.One of the ideas discussed there is my favourite...I have learnt it from Saint and the credit goes to him.We called it Virtual High/low.

I have done some thinking on this pattern and I find that it is a high success rate pattern with a solid price logic.This pattern is a form of Test pattern.

NF is in downtrend, it takes a rally and makes rally top at A. Then the decline starts and the market goes down.The market gathers strength at the decline bottom and stages another rally and goes to B....now observe carefully.Bar marked B is a bullish candle and it closes in the wick or tail area of bar A....this means that the bulls tried their best to take the market up and break top A but they lost their power and could not push it up any further. This is virtual high and when low of bar B is cracked, it means the market is reversing its direction....so we sell short.

The same pattern happened at the bottom. Look at C and D and there reversal was indicated. This gives a very high RR trade and one can catch the reversal at almost high/low point.

In my next post I will post this pattern worked in NF yesterday...

These are reversal patterns so make sure that there is some price move before a reversal is likely and dont try to fit this pattern to every alternate bar...also see to it that A,B are at some distance and not consecutive bars.

Smart_trade

Look at A,A' and B and see how at a resistance zone a reversal is indicated.B is closing in the wick/tail of A and A' and triggering virtual high reversal once low of B is cracked.

Smart_trade

Originally Posted by patrader View Post
ST sir why didnt we short A' low ?

Because at A' this pattern did not happen. A' bar did not close in the wick/tail of A.The bar had to close in the wick and at the same time should not break top of A.....if it breaks the top,then it is a case of Rejection and Failure.

It happened at B as B closed in the wick/tail of A and A'

ST

Originally Posted by patrader View Post
Thank you ST sir.
Would you please explain your thought process/logic behind whant difference a bar closing inside thd wick makes from a bar closing below the wick?

The bar closing inside the wick is very important. It shows that the bulls failed to break the top but by closing inside the wick, bulls are giving a false impression of strength as it closed above A bars close (upclose for faking strength )...so in next bar or max in subsequent 2 bars the top has to crack or if the bottom of the bar is cracked that means that the bluff of strength by the bulls is recognised and the bears will now pounce on them for a kill...

We get atleast 10-15 such trades in a month and that is enough for making a good living from trading.

Smart_trade

 

[XRAY27]

ST da post on naked option buying

Dear St Da
Please put some light on intraday option trading ( plain buying options)..?
what are the high probability setups can we use for option trading intraday?as option needs a fast move on one direction to get good profit?
thanks

As a general rule, buy options when the price move is accelerating .Buy Options when the market is breaking out/breaking down from the consolidation /distribution.We should get out of long positions when price move starts loosing speed /momentum.

Will post a chart showing the above in the evening.

Smart_trade

Posting 3 min NF chart. The sideways consolidation marked by magenta lines and a breakout is a place to buy options ( buy calls).

Also see a red trendline drawn from the top of the pivot bars.When market breaks this trendline, it means that it is accelerating on the upside...so buy calls there. The profit to be taken when market after breakout looses its momentum and goes sideways and unable to take out the tops.

Smart_trade

 

[candle]

Source : http://www.traderji.com/day-trading/49521-thoughts-day-swing-trading-13.html#post595540

SQUEEZE THE LAST DROP OF THE JUICE ........GO FOR THE KILL

This is one trading technique which I use very regularly and I wanted to share the same with all. At 2:40 -45 I was long in Nifty Futures and the market was looking strong. I had to take a decision whether to book some profits there or wait till the end.

We play on simple technique that find out which is a side which is trapped and how much are they under water. At 2:45 the weighted average of Nifty future was showing 5035-40 whereas NF was quoting at 5085....a clear gap of 40-45 points. This means that the market is heavy at the bottom or lots of trades have happened below 5035 ......and the longs are comfortable but shorts are now feeling the heat. They will come for covering their short positions......also at 3:10 the brokerages will square off all loosing positions which are not covered by margins. So here instead of booking profits add on every dip ......the bears are dieing to cover their short positions.

After 3:10-3:15 there is panic in bear camp.......the die-hard bears come to cover after 3:20 and it is adding fuel to the fire. We just have to watch market going up like a rocket.....last 20 min give us a very quick move up.......and we get best price when the bears say " damn.....cover at any price...." and that is where we liquidate our long position built up anticipating this to happen.........it is a fun to trade this move.......

Smart_trade

Posting a 5 min Nifty Futures chart with TDST lines marked on it. When the market was in uptrend, the blue resistance lines were getting taken out, red support lines were successively higher.

When the trend is down, the reverse process takes place, market finds it difficult to break the successively lower blue resistance lines and it breaks successively lower red support lines.

Today also nifty futures found it difficult to cross blue resistance lines....but broke red support line and then came a free fall.

At around 3:00 the VWAP difference indicated that bears are in full control and bulls getting squeezed.....and that continued till the end and the bears really exploited the advantage they had over the trapped bulls.....and in the end there was a stampede of trapped bulls giving good prices for bears to cover their short positions.

Smart_trade

Originally Posted by timepass View Post
I think ST is talking about this..

ST, was the situation same for the longs today ? Weighted avg was about 5103 when the CMP was around 5070 near the end.

.

Yes today market opened high and it made many attempts to hold the high prices. But in the later part of the session Nifty Futures sold off and the bulls were trapped today and they came for liquidating their long positions in the end......we just have to be on the opposite side of the bulls / baers whoever is trapped....

Make sure that there atleast 35-40 points gap else the heat of covering the position is not intence......some may even think of postponing their covering to the next day. Remember that we make maximum money when there is fear and urgency to cover in the opposite camp...

Smart_trade

Originally Posted by bikashkumar11 View Post
St sir.
that was something....but unfortunately could not grab all as i fail to understand the weighted nifty (@ 5035-45 ) gap with nifty 5085 which gave you confidence how...i lost yesterday heay and trapped.
i want to understand though i am learning but something happens.. and i loose confidence completely.
Regards

Originally Posted by balasoft80 View Post
Hi ST,
The same scenario for me. I couldn't get what weighted average and how to apply this? Could you please help us on this? Is there any material that we want go through?

Thanks
Bala

Bikashkumar /Balasoft,

You get this average price on your trading terminal....in some front end softwares it is called Weighted Average, or Day's Average or Average Price it keeps changing throughout the day.....this is one very important figure for a daytrader to understand which side is strong and which side is trapped. This figure is summary of all trades happened till that time on that day because it takes volume and price traded of all transactions actually traded.......

Dont try to take positions when the average and current price difference is small 10-15 points....that gets reversed anytime and no one feels the heat....but when we have sudden reversal in the day and towards the end the gap is 35-40 points or more, this is sure shot trade based on psychology of maeket players......I normally book 50 % of my position in the end when there is visible panic and keep 50 % for gap open the next day ( I had kept some position for todays gap open )and this strategy gives me 30-35 points by EOD and another 20-25 points in the next day gap open.......

I have shared one of my best techniques...hope all will find it useful or atleast avoid getting trapped in the loosing side.......

Smart_trade

Originally Posted by balasoft80 View Post
Thank you so much for detailed explanation ST. But this has to be considered only to hold the position for the next day or for day trading too? Thanks

If you daytrade and do not want to carry over any position overnight, then book profits on all your positions.....as it gives you quick 35-40 points in last 1-1.5 hours. You can book 50 % and keep 50 % for next day's gap open where you will generally get 15-25 points more but then overnight risk is there .....the choice is yours.

ST

Originally Posted by murthyavr View Post
Dear ST,

At the end of the day, there could be one of these two situations:
(With specific reference to NIFTY FUT)

1. Close greater than VWAP by 35 - 40 points

2. Close less than VWAP by about 35 - 40 points.

Can we expect a Gap Down in the first case and a Gap Up in the second case,
when the next day opens up for trading?

Since huge gap up/down have become common nowadays, can you please
throw some light on the alert signals which fore-warn on such gaps?

Thanks..

We expect gap up open in the first case and gap down open in the second case. This is so because afternoon session is determined by Europe and Dow futures....so we expect the trend to continue the next day open barring some unexpected reversal in US markets in the evening.You will see that 70 % of the time the gap will be in direction of the late afternoon trend and the late afternoon trend is generally durable..

Smart_trade

Originally Posted by poortrader View Post
On VWAP
Dear ST
Let me briefly scribble my understanding here and tail them with a few queries.


1) First aspect of this theory is that we need trapped trader (bulls/bears)
2) That can happen only when there is a reversal esp all of a sudden , i.e trend reversal
3) And if turnaround is sharp and background is suitable like an important level is crossed then we can add positions or get in because on Break Out many will be getting in adding to the surge, which means the situation is compounded
4) Now if situation is not compounded we can go for 20+, if compounded we may get quick fire 30

5) Today at 2.55pm to 3pm there was difference of 35-40 points between VWAP and Nifty
6) When the market broke the high of 5158, there was new enthusiasm, and the market went off in the break out mode. The VWAP added, the squaring off added, closing of the positions on account of settlement added - to the bull run.

Questions
1) Would we carry Nifty knowing that it is at a premium of 50+ points
2) Do we check for Vwap only around last hour or is it equally effective in day time
3) Is there any other important point to note on an expiry day like today in case of rollover with this theory?

Thanx in Advance

Good observations poortrader.

1) Carrying Nifty positions over 2 days holidays is indivisual call. I normally liquidate all my positions and I will enter again after our market opens for trading. I am confident that I will get into the trend again at a very good price and ride the trend.

2) VWAP climax comes in the last hour of trade because of forced short covering /bull liquidation. I know a few very large traders who continously monitor the current price and VWAP after every 30 min or so. But I found that market may criss cross over and below the VWAP but when the difference is large , it adds pressure on the loosing side.

3) Expiry day moves are fast and violent....one needs to be very fast in taking a reversal if the price action so warrants.

Smart_trade

Originally Posted by mangup View Post
Dear ST Da,

I have some query regarding VWAP,

1. What is a diff betn ATP(Avg Traded Price) & VWAP (Vol Weighted Avg Price)?
2. Which one is more significant?
3. Whether this strategy needs to be adopted for last 1-1.5 hrs for day traders & positional traders can carry the position after checking the day ending VWAP vs the then closing price(may be at 3:25 hrs).
4. what i have understand is -
a. If VWAP is more than Closing price & with a gap of more than 35-40 pts, then it means longs are trapped, will try to cover their longs near the end of the session or as per their SL or as per their risk appetite. This long covering will lead to supply & prices will decline to fill this gap of 35-40 pts apporx. Hence we need to take short position till this gap is filled. I have not understood if price will come down again will it not further increase the gap between VWAP & closing price?

Reverse is the case for shorts.

Kindly confirm what i understood above is correct.

5.Also kindly explain if this gap remains there till that day end, meaning those trapped longs have also carry forwarded their long trade to next day. Do we also have to carry forward our short trade that we have taken in anticipation of price will be declined, for next day?

6. Can we trade on this strategy throught the day. offcourse the trade will be initiated once we have a gap of 35-40 pts.
7. I read that there is no historical data available of VWAP that would have helped to monitor the trend of average gap which creates imbalance between the bulls & bears & lead price to move to equilibrium.

Regards,
Dear mangup,

I am putting down my views in the same order as per your questions :

1) and 2) I guess there is no difference between ATP(Avg Traded Price) & VWAP (Vol Weighted Avg Price) , some front ends call it ATP and some call it VWAP.

3) Dont consider this as a trading strategy. I had give this as an observation which helps me to decide whether to hold my winning positions till the end ( and preferably add to them ) ....this is a way of finding out which side bulls or bears is loosing and which side is winning and which side is likely to panic and rum amuck in the end. Your positions should be taken on whatever methods one follows.

4) One has to understand the difference between the large gap between futures and cash nifty one sees in the current settlement period ( this gap is almost constant throughout the session)and the gap between weighted average and the futures because of the price swing in one direction. This gap is not constant throughout the session. If the current price of Nifty futures is less than its VWAP by 35-40 points in the last 1 hour , then that means that the bulls are trapped and they will come for liquidating their loosing long positions and this will drive the prices lower and the gap to get wider.......

5) Some longs may decide to carry their loosing positions to the next day but the leveraged day trading long positions will try to go flat at the end of the day. Also the excessive positions taken with the brokerages will be compulsorily squared off between 3:00 to 3:15 and that puts further pressure on the market.

6) One can trade this strategy anytime in the day when the difference becomes 35-40 points...but the strong effect will result into a fast and furious move only in the last 1 hour as the day end nears.....we can square off our daytrading positions in profit when there is atmost panic in the bulls camp....that is when we get the lowest rates to take our profits.

7) There is no historical data available...so you have to test these in real time when action is actually happening.

Hope I have answered all your questions....

Smart_trade

 

[candle]

...........Professionals go broke by taking small profits.

I keep getting many pms and though I do not consider that I have answers /solutions for all trading problems I try to help because I had similar questions when I started out in trading many years back as full time trader and I had no one to ask these doubts.

One such pm came today and I am quoting the same without disclosing the name of the sender ....as I thought many will have this question in their minds.

Dear Smart_trade,

"I am having problem managing my trades. I have been able to make consistent profits of about 500 Rs to 1000Rs in 1/2 lots of Mini-nifty.
I don't want to go for nifty because i am not yet fully confident.
But i have a problem now, even though my profits are good, due to STT/brokerage and other charges are high for futures.
So my account has been in negative even though profits are positive due to multiple entries and exits.

Is there any advice? I know basics of options . Seeing futures , can i trade in option?
I have traded options before.
Your advice on the same would be helpful.

Thank you "

My reply to him is as under :

Hello ****,

I do not accept that because of STT and brokerage,the account goes into loss. It goes into loss due to too many small trades,and ocasional large loosing trades......avoid both these. When you take a Nifty Futures trade you should normally expect atleast 10-12 points minimum run ( unless you are scalping ).The STT and other charges will take away Rs 2 to 2.5 max......you should also catch some trades which will give you 30-35 or 40 points.

There is no problem in trading with options. But that is not a solution to your problem as 10 points move in futures will give you only 5 points move in options.....so trading futures is no way restricts the profitability as out of 10 points move we make 8 points in future ....but in options the same move will give you 5-.05 or 4.5 points profits....

Your problem is not STT/brokerage but too many trades and small trades...try to overcome that and you will be fine.

But if you so desire, you can trade options.But make sure options do not give you false sense of security and you dont make large losses by overstaying in options positions.

We must have some big trades to take care of small profit/loss/scratch trades we will always have.

My signature which says "While amateurs go broke by taking large losses,professionals go broke by taking small profits...... William Eckhardt in New Market Wizards aptly describes the problem which is very basic problem in trading........every trader has to address this before he achieves trading success.

Smart_trade

 

[candle]

Rejections and Failures




Rejections and failures of price breakouts are very important for alert traders as these set up very good trading opportunities in the opposite direction. So it pays to keep an eye on such breakout 'breakdown failures particularly if they come after sustained move earlier and when the market is near important support/ resistance levels.

Catching these reversals is extremely profitable as the traders trapped because of failed breakout/breakdown come to our help when they get out of their loosing positions in desparation and thereby lending us a helpful hand.....

it pays to listen when the failures speak loud and clear.....and these are the kind of failures which will make alert traders successful ....

Smart_trade

Originally Posted by pav View Post
Dear STsir,
what is difference between Rejections and Failures ?

Regards

Price breaks out above a Pivot High , closes above it and in next few bars, the price is unable to hold above the pivot high and closes below it .....that is Rejection.

Price breaks out above a Pivot High , and the same bar is unable to close above the pivot high and sells off and closes below the pivot high ....that is Failure.

So yesterday's price action was a Rejection of pivot high breakout as the market closed above the pivot high and in subsequent bars there was rejection of pivot high breakout. On 16th Aug 2012 both examples are of breakout and breakdown Failures .....

Smart_trade

Originally Posted by murthyavr
Dear ST,

How to trade the rejection or a failure?

After such rejection/failure to break above, few possibilities are there.

1. Price may come down a little and may make a second attempt to break-out

2. Price may consolidate along that level for some time, all the while making
attempts to break out of that level.

3. After the failure, price may come vertically down without waiting.

So, is there a safe way of entering into a successful trade, without falling into
the trap of consolidation? Do we have any other confirming indicators like
volume or stoch etc?
Murthy,

What the market does after the breakout/breakdown is important for trading it. I find following 4 scenarios to be common, I am taking example of the Pivot High breakout :

1) After the breakout the bar closes strongly above the pivot high.....and in subsequent bars continue going up.....this is is clear successful breakout....trade from the long side.

2) After the breakout , the bar closes strong and then the market goes a bit sideways, and continues in the direction of the breakout without closing in the range / below the body high of the Pivot high it broke....then again the breakout is successful...trade from long side.

3) After the breakout the bar closes above the Pivot High...and the next 1-2 bars show that the market is struggling to go up....it makes doji, small bars, long upper tail inverted hammers.....but still closing above the body high of the pivot it broke......then market is unable to go up and the bears get into the action. The bar closes below the body high....short the low of that bar. Your stoploss should be at the swing high......or if trading too aggressively, the high of the bar which closed below the body high.

4) The breakout bar unable to hold and the price retracts and closes below
the body high of the pivot bar......it is failure and short the low of this bar with stoploss at swing or new pivot high.

This gives early entry in the reversal move with small stoploss giving a very good Reward to Risk ratio.

Hope that the above helps....

Smart_trade

Originally Posted by sanjn84
sir,in 2 and 3 scenerio is behaviour of volume or any indicator is change or can we get help from volume or any other indicator in distunguising b/w these two scenerio.

Yes, the volumes give good clues....observe the volumes on each of the bar in various scenarios and you will find that the volume supports our market analysis and views.On breakout bars volume increases....on next 2-3 small bars low volumes and on rejection bars we get high volumes again.

Smart_trade

Originally Posted by balasoft80
Dear ST,
Could you please throw some light on to identify valid breakout? For example a bar is breaking pivot high or consolidation. Now how should I enter into the trade? Above the pivot high or consolidation? Or I have to wait to see how that breakout bar and subsequent are reacting and enter the high of the breakout bar? Thank you

Bala
Dear Bala,

Every breakout is considered to be a valid breakout unless it proves otherwise. So on breakout, you have to trade in the direction of the breakout and buy above the pivot high or high of consolidation. The market generally moves very fast after the breakout, so if you wait for bar to close above the pivot high then your entry will be away from your stoploss.....and even after closing above the pivot high,the breakout can fail as it does in rejection.

But if the market is breaking out above the pivot high which is at previous resistance level, it has failed on earlier occasions or the market has travelled a lot of distance from its recent low as it comes to break the pivot high...then it is better to wait for bar to close above and make a sideways base above the pivot high .....and then we buy.

Smart_trade

Further reference here at Source : http://www.traderji.com/day-trading/72827-thoughts-day-swing-trading-part-2-a.html#post715730