Volume Spread Analysis

[karthikmarar]

TRADABLE BASES

Accumulation bases can be found in various shapes and sizes. The most common recognizable one is the one where the stock moves sideways in a narrow range and the volume has dried up.. However we will also find rectangular bases where the stock moves up and down but restricted within a wider range. You will find weakness coming in at the top of the range and strength at the bottom of the range.

Many of the ranges are easily tradable. For a trader or investor with longer term view the idle time to get in would be when the stock bounces back from the support line. This way it the stock breakout he would have the idle entry point. He also has the option to quit at the stock fails to cross the resistance at the range top, For a short term trader who is adapt in trading the long and short this kind of base provides good opportunities to go long at the support line and go short at the top of the range.

Just like the Trend channels described before we can find a zone in the middle of the range which I call the conflict zone where many reactions take place.

Here is just an example of tradable base. More tradable bases will be covered in my other threads.

 

[rajaram.dilipkumar]

between 3rd june to 22nd july 08 we had such base in BHEL also ...but often there is a problem with s/l attimes it cracks the lower end of the channel comes back in and again brakes down or cracks the lower end with a huge gap down at the opening bell itself like the nifty did when it was trading between 4200 - 4550 for some weeks...yes these are exceptions though and hence i usually take the second retest of support to entar and not the third or fourth retest ..
karthik , any advice on where we can keep the s/l for this tradable base...

 

[karthikmarar]

NIFTY chart is very interesting. A tradable base within a downward Trend channel. Provides a whole lot of possibilities and opportunities.

 

[karthikmarar]

Rajaram


Agree, the stop loss for Tradable base is quite a tricky issue. There can be many temporary violations of the support line and the stock would bounce back into the base. Even the example of ABB you can see many time the stock would dip below the support line only to close into the base. Of course the SL should be below the support line. Most tend to keep it at the support line are thrown out of the trade unnecessarily. But how much below is the crucial question. This would depend on one risk potential.

Personally I keep a variable percentage. The down moves volume and spread normally gives me a good idea of the chances of the impending break of the support. Moves with higher volume and wider spread warn of the impending break. In such moves I tend to tighten my SL. If the move is on lower volumes and smaller spread I tend to give a wider SL. Of course the market would at times fool me on this approach. One more one should remember is that it is always better to acts on signals in the same time frame one is trading. Like a positional trader trading on EOD taking a decision on a intraday move would only be out of the trade too soon.

In case of ABB you can see large support coming in at 725 and again 721 both temporary violation of support line. Hence in future we can expect support at these levels.

regards

 

[karthikmarar]

Hi Friends

A Basic AFL for the volume spread analysis and a pdf version of the post is now available for download from my blog. A belated dewali gift

vpanalysis.blogspot.com

Karthik

 

[Prabhjeet]

between 3rd june to 22nd july 08 we had such base in BHEL also ...but often there is a problem with s/l attimes it cracks the lower end of the channel comes back in and again brakes down or cracks the lower end with a huge gap down at the opening bell itself like the nifty did when it was trading between 4200 - 4550 for some weeks...yes these are exceptions though and hence i usually take the second retest of support to entar and not the third or fourth retest ..
karthik , any advice on where we can keep the s/l for this tradable base...

Rajaram I think there is a very nice strategy I have read about trading these large ranges.

First of all you should keep the Sell or Buy order that is 0.10 * Height of range + high/low.

I mean if ABB has been trading b/w 850 - 720 we will calculate the Height of range, i.e 130 in this case.

So our Buy/Sell stop is at 850 + (0.1 * 130) = 863/ 720 - (0.1 *130) = 707


This will take care of most false breakouts, even if the move is false you should be on an Alert always. If after the Breakout we do not have atleast 2-3 bars in the same direction, we should immediately reverse our position and start to draw a new range again because after a True Breakout the move tends to be swift and not a weak one

 

[Cactus]

Kartik,

how will u rate this........?

 

[karthikmarar]

Cactus

Looks interesting...but...hard tocomment without having even the slightest idea what it is....Maybe you can throw some light....

regards

 

[vvvv]

kartik ,
thanks so much for ur afl.how to plot the average vol on the vol chart which will go with ur afl to show high & low volumes.

 

[Saint]

Have been an avid follower of this thread .....hope Karthik continues his work here.

Looking fwd to the revival and continued education via this thread.

Thanks,

Saint