Some Good Steals...

Originally Posted by AMITBE

During the day I had been referring to 'phases of a breakout' for the various scrips. I am bringing up a piece I had posted recently, in case it has been missed by any one as explanation:
Breakouts almost always occur at points of discord and divergence: levels of support and resistance. On either side of these levels, a lot of price action is generated, but no one is quite sure just how much force is required to carry price into a sustainable trend. Any position one takes near a breakout level comes with a fair deal of risk, regardless of how perfect a pattern may appear.
Price action responds in different ways to a breakout. First, it may carry through successfully to higher levels. Second, it may generate whipsaws (volatile and choppy price swings through support or resistance levels), resulting in losses on both sides of the market. Third, it may trap buyers in a false move and start a trend in the opposite direction.
It is believed by some technical analysts that a successful breakout occurs in three phases.
It begins when price breaks through resistance on increased volume. This is called the Action Phase. Price increases by a few points, and then reverses as soon as buying interest fades.
From here begins the Reaction Phase. The market will sell off, and propagate the first pullback, where fresh buyers see a chance to get in close to the breakout price. If everything goes well, a second rally kicks in and raises the price above the initial breakout high.
This marks the Resolution Phase where the price creates new highs.
For the three phases of a breakout to succeed, much depends on certain volume action:

Originally Posted by neeraj4u

Hi Amit Nice explanation of the breakout's.
Keeping all these points in mind how many points you will give to the breakout that occured in Ajant pharm on 1st sep. After that it pulled back on low volumes. Today was it's first up(not a big one) after the pullback.
Can it be entered here???regards Neeraj

Originally Posted by AMITBE

REI Agro is making a new breakout after several months of consolidation.
High Tech Gears can be a dark horse. 185 can be sticky so a little caution here.
REI is good and will make steady gains.
Good spurts in UCAL and Cen Enka are possible.
UCAL Fuel Systems CMP 270.75
CENTURY ENKA CMP 249.05
REI Agro Ltd CMP 188.60
High Tech Gears CMP 173.55

From the above calls this morning, REI closed 196.75, intra high 200.
CenEnka ended 254.90 intra high 258.
UCAL ended 279.95, intra high 282.
High Tech ended 182, intraday high 185.

During the day I had been referring to 'phases of a breakout' for the various scrips. I am bringing up a piece I had posted recently, in case it has been missed by any one as explanation:
Breakouts almost always occur at points of discord and divergence: levels of support and resistance. On either side of these levels, a lot of price action is generated, but no one is quite sure just how much force is required to carry price into a sustainable trend. Any position one takes near a breakout level comes with a fair deal of risk, regardless of how perfect a pattern may appear.
Price action responds in different ways to a breakout. First, it may carry through successfully to higher levels. Second, it may generate whipsaws (volatile and choppy price swings through support or resistance levels), resulting in losses on both sides of the market. Third, it may trap buyers in a false move and start a trend in the opposite direction.
It is believed by some technical analysts that a successful breakout occurs in three phases.
It begins when price breaks through resistance on increased volume. This is called the Action Phase. Price increases by a few points, and then reverses as soon as buying interest fades.
From here begins the Reaction Phase. The market will sell off, and propagate the first pullback, where fresh buyers see a chance to get in close to the breakout price. If everything goes well, a second rally kicks in and raises the price above the initial breakout high.
This marks the Resolution Phase where the price creates new highs.
For the three phases of a breakout to succeed, much depends on certain volume action:
Demand must exceed supply during the initial breakout. Volume should drop sharply during the pullback of the Reaction Phase. And finally, fresh buyers should come in to successfully trigger the Resolution Phase.

A false breakouts occurs when these forces fall out of balance.
Whipsaws will prevail when a breakout can't generate an efficient reaction phase. This failure need not necessarily trigger any major reversal, though the pullback will purge out weak hands and push the price back into resistance.

If there is a good number of buyers in the scrip throughout the choppy price action, they will repeatedly support the price, and as soon as the whipsaw fades out, the price stablises resulting in a loss of volatility.
A voluminous sideways movement in a tight price-band will then come into play, which itself acts as a trigger for a buy signal for the experienced traders. This would then start a bounce up in price to carry it beyond the last high.

Mainly then, once the first lot of buyers enter at the initial breakout point, much depends on the behaviour of the successive hoards of buyers.
A false breakout occurs when this second crowd fails to appear for any reason, whether it’s a failure to spot the breakout, or a disagreement with the price pattern. Without the support of fresh buyers, the scrip gets stranded in an overbought zone and falls from its own weight.
To extend this further, every new low will trigger s/l points, building momentum to the down, drawing with it new short-sell traders as more key supports are broken. Here a sharp reversal is now under way.

Originally Posted by AMITBE

Hi Neeraj...the significant breakout in Ajanta Pharma in recent times happened in end April where it took off at 56 to 81 (86 intraday high) in a short time, followed by another spurt from 72 to 96 soon after. Following a double top at 96 levels around mid June, slipped to 86 a few days later, then up again to 96, and down again to 86 in July where a double bottom happened (at 86).
It's in an intermidiate uptrend for now and having reacted at 108 early this month, dipped to 96 (support now as against resistance earlier) and has bounced back up to 97 off today.
There is no direct relationship to a breakout currently, and I walked it through the past few months to point out the importance of certain key levels, an awareness of which is so vital to trading.
Regards.

Originally Posted by avinash

Hi Amit, Thanks for that education.........always look forward to these pearls of wisdom in your posts and Saint's.Thank you so much.......was a super explanation!! Regds, Avinash

Originally Posted by neeraj4u

Thanx Amit for explaining the things. It's really great to have seniors like you to guide us. regards Neeraj

Originally Posted by naga2054

Aptly written.. some examples which i observed..
Dlink after months of consolidation gave a breakout at 128 levels went till 156 levels with avg of 8 lakh volumes.. - action Phase
then there was a pull back to 146 levels at volumes close to 1lakh - ReactionPhase
then the final resolution phase with huge volumes of 20 lakhs is taking it upto 170+ levels..
Excellent post Amit, These "Gyan" sessions help us understand the logic behind the game.. I feel we juniors should concentrate more on learning the tricks than going only after tips..
Also from ur article.. i was guessing how to calculate the support levels..
Pls. correct me if i am wrong..
In the reaction Phase, if the price drops from the levels of the breakout price.. we should quit the trade... effectively making the point of the breakout a stopLoss.. or does it become a support ?( then where do we put the S/L?) Nagzu

Originally Posted by karthikmarar

Hi

After all the knowledge we have gained about BREAKOUT, It would be quite interesting to monitor some the recent breakout candidates and see it they turnout to real breakout or false breakouts. We will see in which phase of breakout these stock are presently.

1. Ajantha Pharma. It broke through the resistance of 98 with a volume 0f 300K (not really Impressive) on the 1st and closed at 104.8 next day. Then the Reaction phase started . The stock has dropped to 99.9. Volume has also dropped. It will be interesting to see whether it will drop through the support of 98 or it will go to the resolution phase.

2. Mahindra Ugine – Shotup nicely from 105 to 126 in two session breaking the earlier resistance of 120. Then reacted now at 119. False Breakout?...not yet..I think so...

3. KCP – Still in Action phase. Dropped a tad in between , don’t know if we can consider it as a reaction.

4.IVP – broke through the resistance 0f 66. But since then it dropped trough the support of 66. False breakout ??.... Looks like one...

5. Eicher – Gapped up nicely from 110 to 124. In the reaction phase. Let us see if it takes the historical support at 121

It would be interesting to see how theory relates to practice. I will try to post more/Better examples later. Your comments please..

Best regards

karthik