Technical Trading - Practicing the Theory

Dear Friends,
Thanks for your well wishes. As discussed by you, the strengths and weaknesses of the day trading have many faces. And I am happy that you all agreed the unlimited potentiality of making money in day trading.

Now we will straight approach towards attacking the weaknesses.

The first and foremost enemy is in us- we all know it is our psychology.

Remember friends, the only solution for successful day trading is a trade plan which comes out of home work. Once the plan is ready, please implement it. And I assure you you are the winner in the long run and here long run I don't mean ages- it is hardly one month.

Here are a few observations I generally make while doing my home work to short list the stocks to be focussed for the next day of trading. These are just to give you some idea.

1. Look for stocks which have more volume than the previous day and have price move within the range of previous day's price range which is generally called an inside bar.

This generally signifies either acumulation or distribution. And trade above or below the previous range either long or short depending on the breakout. And in this your stop is the other end. Design your quantity as per your stop value. And if the stop seems to be a ridiculous stop, just leave the trade. No harm.

2. Look for a low range -generally 60% of the previous range- and price action above the median of the previous price range- where the previous day necessarily be a rally day. Here the volume need not be more than pr. day's volume. But a good volume is better say atleast 70% of the prev volume. This generally represents an accumulation pattern after the rally. But your long should always be above the high of the small range bar and stop below the bottom.

Friends, all analysis is just common sense. You don't require to read tons of material. Where the price is happening and how the volume is behaving?
This question is enough for you to understand the whole trading mechanism.

Friends, I will post a few other price machanism which make the securities eligible to trade intraday sometime tomorrow or day after. I will try posting the smart money actions also.

Thanks and happy practicing technicals.

AJAYKUMAR

Thnx for the wonderful writeup Ajaybhai.

Aahh.. waiting 4 that.

Hi Ajay,

Great start again. Hope all is well with health. Could u please explain this in more detail. Maybe graphically would make it easier. Are we saying

- 1st we have a great rally day( lets say XYZ moved from 100-115)
- 2nd Day price action should be above the median( that would be the half point of the rally day i.e the price should be above 106-107).
- 2nd days price action should be around 60% of the previous range( so it remains above the previous days median and price range 60% i.e between 106.5 to 116 approx)
- Volume is not necessary but volume of 70% on 2nd day compared to that on 1st day is welcomed


Would that be right. Ok now some queries on this....

will it make a difference if all rules are met but on 2nd day close is below the open....for eg in above case opens around 112 moves to 116 and closes around 107. above rules would have met but close is below open. That would mean a piercing candle which is a warning sign.

If above rules are met but price opens around 115 moves within the range it should and closes again around 115 giving us a doji. Which as per japaneese candlestick is a warning sign.

Sorry for going into so much detail. But i wanted to understand if all these situations would reflect accumulation or does it have to be a up move on 2nd day also to qualify as accumulation.

Regards

Rahul

Hi! Rahul,
Thanks for your good wishes on my health. Except the understanding on the second day price action, everything is right. The price action on the second need not be in the same range of the rally day. But the difference in High and Low should be less than 60% of the difference between High and Low of the Rally Day. Hope it is clear. Because of not keeping that focus on my homework front at this juncture, I am not carrying quality data at home now. So only I cannot post any charts now. If any one of you use Metastock I will post the exploration which can be copied. And then explore and post it here so that I can give my views on it.

Hopefully will keep my data ready soon.

Thanks and Happy Practicing Technicals

AJAYKUMAR

never got a chance to appreciate ur work before...even though i read quite a few of ur postings...it is people like u who spend ur time and effort to help traders like us to improve our trading a bit more..a little bit more and then some more again. thanks a lot

Thanks for your appreciation dear Beginner AV. But when compared to the service done by our Great Karthik, Amitji, Saint etc( this list is big in our forum though the names are not mentioned), what I am doing is not at all countable. Pl read their threads.

And Friends,

One more entry for the intraday trading longs - according to me is 1.618 level. I will go a little in detail.

In this process we have to take the 1.618 value to the previous High - Low range and add that value to previous Low. And when prices cross this value during the trading session, ,you may try initiating the Long Trade. And you have to leave this trade open till the end of the session. This generally gives you good big money. Here- while practicing I observed- we generally don't get stopped in case we make a small practice. And that is try adding one more position in case by any chance the price comes around previous day's high. And as I shouldn't say 100%- in atleast 95% of the times you will get atleast a breakeven exit. And when the price is approaching your breakeven, you may take a decision whether to continue your position till the end of the session or exit, depending on the price behaviour.

Friends, this generally gives very less number of trades and more scope for bigger profits where smart money is already in.

I'll give a small logic here. In case the stock reaches above 1.618 of the previous price range from the previous Low, generally the price goes out of noise and generally only big fish entries in that stock will take it upto that level. So it is for sure that in case even it returns a little, there will be definite buy orders at the high of previous day which again push the stock to highs. So generally this steam in the security helps you in getting your breakeven exit. Thus you are with the institution, perhaps with a little delay for confirmation of their entry.

Secondly generally this price move fills out the volume of the previous day's total volume in the first half of the session itself. Now think about the chances of price coming back. They are very bleak. And on the otherside of the coin, despite this price behavious if the security cracks further, we can presume that the high could be a major top for sometime on intraday charts as whole move can be presumed as manipulated. But the chances for this are very less.

And last but not the least is that general public who trade using market watch screen won't come to trade in this type of moves - just for the reason that they feel it already rallied a lot. This clear road helps the big fish to take it to good highs with ease.

Much to my pen. Can't write anything more further for the time being. Catch you up again later.

Thanks and Happy Practicing Technicals

AJAYKUMAR

HI Ajay,

Sorry did not get it yet.

What did u mean by the price action above the median of the prvious price range

But please if possible paste the exploration here and maybe it will make more sense once i see the charts it selects for me. Also if u could attach the explorer for inside day trading. The exploration for 1.618 will have to be done real time isnt it? and that too only on securities that we get live feed for by our data service??


Rgds

Rahul

Dear Ajay,
Could u pl explain this 1.618 level trading with an example for clear understanding?
ranga

Hi ranga,

Ajay if u dont mind......Ranga I think it is related to fibonacci level. if u have a price move of 100 to 110. you subract 110-100. U get 10. Now multiply 10*1.618 and u will get 16.18. now add this to 100 and u get 116.18. u buy above this price. and your stop will be a couple of ticks below 110 and if price retraces after moving up u add more position at 110 as smart money will not let price go below 110.

Is that alright ajay????


Rgds

Rahul

Ajaybhai... though it maybe trivial, but plz throw some light on when to book profits. I mean how to decide reasonable targets.
I have particularly found that difficult when I tried to daytrade when prices break away from a cluster(eg. penant) with gud momentum. Also how advisable is such type of trading for intraday players.