Learn Technical Analysis with Examples & Integrated

Stock Screener
About this Site We aim to provide comprehensive Technical Analysis of stocks starting
from the most basic concept to advance concepts of technical analysis along with their
trading strategy, real life examples and well supporting community. What make us different
from others is that we do not limit it to theory but we have integrated this section with stock
screener of multiple geographical location, so that our visitors get exposure to not only
theoretical examples but to real world behavior of stocks when such patterns/indicators are
observed, so that they are better geared for trading decision in futures.

On daily basis we generate lots of pre-screened reports based on standard

indicators/patterns that help visitors to gain good insight of stock patterns based on its
previous price movement to enable them to take some important trading/investment
decision.

Stock Analysis Stock analysis is a technique to measure the pulse of the stock and
determine the right price to enter and exit stock with handsome return. There are two major
yet very contrasting approaches to do the same. They are Technical Analysis/ Fundamental
Analysis. Since we are primarily into technical Analysis, majority of the tutorials and
screeners are based on it. But to bring it to perspective, we have tried to provide
introduction to both at Stock Analysis Introduction.

Technical Analysis Technical analysis is a study of historical price and volume of the stock
to predict its future behavior.
Technical analysts study these price movements and identify formation of patterns that are
formed repeatedly and the behavior of price after formation of patterns. If probability of
price movement after this pattern, in certain direction, is very high then, analyst can bet on
the buying or selling of the stock. There are three basic principle of technical analysis. Price
Discounts Everything, Price Moves in Trends & History repeats itself.

Charts are most essential and powerful tool in Technical analysis and owing to
advancement in computer science and easy online access to them via site like ours; it has
become handy for lot of part timer traders/investors also.

As we speak, Technical Analysis is a very mature form of stock research and with that being
the case, lots of research is being done and lots of different sub streams have evolved.
Some uses technique like simple over bought/oversold oscillator, while some uses more
advance technique to understand market cycle using Elliot waves. Some draw simple closing
price line chart to find support & resistance, while some use momentum indicator to
measure trend and its strength, while some prefer to draw relatively complex candlestick
chart with multiple points like open, high, low and close.

With this much of choice, novice users often get overwhelmed and are not sure where to
start and often run away or make incorrect trading decision when try to use too many of
them with less experience.

One of the key to success is to select a few of them, they could be simple ones like Moving
Average, or a chart pattern like double top, or simple oscillator like RSI, and read and
observe their behavior using our stock screener and do some paper trading before start
making consistent analysis.

As this is vast topic, we split it into multiple sections and they can be navigated from the
menu but we suggest you to learn more about basic of technical analysis first.
We think it is necessary to make a mention that it takes lot of reading and experience to
trade like a professional using these concepts. So please take caution in taking important
trading decision.

Steps to Start Stock Trading in Indian Market.

The prerequisite list to do online stock trading..

1. Need to have a PAN card. If you don't have one you can take help of agent to get one.
This takes about 2-3 weeks.
2. Need to have bank account. If you don't have one then I would recommend you to
open in one of the big banks like Axis Bank, HDFC bank or ICICI Bank. With this bank you
will have facility of doing online transfer to and from your trading account. This takes a
weeks time.

Understand from bank about minimum balance you should have to avoid any fine.
3. Open Demat Account.You can either get this from your bank directly. Prefer this option
if you want to invest once in a while. They generally charge more commission but is easy for
beginners.OR

If you wish to take regularly then you may want to take service of professional brokers. You
will get following advantage
a. Good Service
b. Low Brokerage
c. Professional trading platform
d. Buy & sell Tips
e. Research reports
f. And many more depending on the broker.
Some examples of the brokers are like Kotak securities, Indiabulls, Sharekhan etc.
Fully understand brokerage, demat charges, account maintenance charges, trading platform
charges, amc charges and any other charges that you may incur.This takes weeks time.
For NRI'S I would recommend to go with ICICI as they can provide you with integrated
solution for steps 1-3.

4. Transfer money from your bank account to trading account. This can be done
either by cheque (2-5 working days time) or by internet transfer (same day).

5. Once you have got all the three, then you can start investment/trade. If you are online
user then you can trade yourself or else you may call your broker to place a trade on your
behalf.

6. Then comes most difficult task is stock selection and their entry and exit point. You can
either do research on your own with technical or fundamental analysis or can take advise of
your broker. But remember most important thing. Nobody care about your money more
than you do so research more before placing a trade.

7. Best way to start investing is to start with mock/Paper trading. Do it for at least a month
before you start actual trading. Increase duration of paper trading till you get full
confidence.

Total time is a about a month. Remember you should have a permanent address to do the
same.

Some examples of permanent address are:

a. Electricity bill
b. BSNL/MTNL land line bill
c. Driving license
d. Passport
e. Voters Identity card

All the best and Trade Safely.

Stock Analysis Introduction

Technical Analysis Tutorial

Stock analysis is a technique to measure the pulse of the stock and determine the right
price to enter and exit stock with handsome return. There are two major yet very
contrasting approach to do the same. They are:

_BLACK

1.Fundamental Analysis

Fundamental Analysis is a study based on company financial past results including sales,
profit, operation, general economic forecast, expected demand, profit margin, sales
forecast, debts, competition, management and many other parameters. Based on these
studies, analyst tries to find right value (intrinsic value) of the stock. A buy or investment
decision is taken and when stock is trading below right value and a sell decision is taken
when the stock is much above its fair value.

Since the focus of the site is on technical analysis we will limit our scope on fundamental
analysis to this level only. Definition from Wikipedia "Fundamental analysis of a business
involves analyzing its financial statements and health, its management and competitive
advantages, and its competitors and markets."
http://en.wikipedia.org/wiki/Fundamental_analysis

2.Technical Analysis
Technical analysis on the other hand do not believe in the finding intrinsic value of the
stock. They rather study equity's price and volume movement to predict the future direction
of the stock price. Technical analysis in a

very simple definition is, study of charts to determine patterns and use them to trade when
such patterns has very high probability of a stock movement in a certain direction.
_BLACK

Both these analysis uses very different ways to analyze stocks and have been quite effective
in producing good results. Both these approach may not always give buy/sell signal at the
same time and may even give strong and opposite signal on same stock. One study may
indicate strong buy where as other may give strong sell. Beginners may get confused and
are strongly advise to study both but follow one, as mixing them could produce undesired
results.

Best of both world: Fundamental analyst look to buy a stock when it is at attractive price
(below fair value) and when technical indicators also support the call.

For Example: Based on fundamentals, the stock is over priced and it suggests exit of the
stock. But, upward trend in the stock is very strong in such case it makes sense to hold the
stock till strength of the trend weakens and thereby maximizing the profit.

Similarly, when undervalued stock is in downtrend then it makes sense to wait for a lower
level than buying the stock at that price.

Caution: Trading with any analysis be it technical or fundamental analysis involves a lot of
risk.

Learn Technical Analysis Basics with Examples

Technical Analysis Definition Technical analysis is a study of historical price and volume
of the stock to predict its future behavior. Technical analyst study these price movement
and identify formation of patterns that are formed repeatedly and the behavior of price after
formation of patterns. If probability of price movement after these pattern, in certain
direction, is very high then, analyst can bet on the buying or selling of the stock.

Basic principles of Technical analysis Technical Analysis is based on these three principles:
1. Price Discounts Everything: Technical analyst believe in efficient-market hypothesis
(EMH). This means the current value of the stock, is fair value of the stock and has correctly
factored in all the information that could affect the price of the stock at any given point of
time.

2. Price Moves in Trends: Technical analyst believes that share price moves in trends
whether upward or downward or sideways. And they will continue to do so in future. They
go by this assumption to trade in stocks.

3. History Repeats Itself: Technical analyst believe that market movement in a certain
situation would be similar to its movement in the past. Or Investors in certain scenario,
even though they are irrational, will behave in similar way as they behaved in past. These
typical movements are studied by analyst and are used to take advantage in trading stocks
for a given situation.

On Analyzing stock movement in greater details, technical analysis helps to find two things.

1. Demand & supply. If technical indicators suggest that there could be surge in demand
then price may shoot up and vice versa. Some indicators like Williams %R gauge over
bought and oversold conditions. If indicators suggest sustained demand/supply, then stock
moves in trend. Some indicators like MACD & Moving Average helps to find beginning of
trend or end or reversal, while some like ADX tells about trend strength, while some tries to
find where and how money is flowing.

2. Possible behavior of traders/investors in certain situation. Price movement of shares tend

to follow certain trends, this is a result of traders tendency to react in certain way after
some news. These behaviors results in typical chart pattern. Chartist carefully observes
price and volume to see strength or weakness of the trends and try to take advantage of
emotional decision taken by the parties. Similar market cycle, accumulation/distribution and
chart patterns like triple top, resistance line are observed again and again.

Minimum Period for Technical analysis In contrast to fundamental analysis, technical

analysis can be applied at any period of time from few minutes to many years. Owing to
shorter time interval, they have become extremely popular with day traders and swing
traders who trade may trade several times a day or may trade in duration of few trading
days to few weeks to few month.

Learn Technical Analysis Basics with Examples: Part II

Tools used in Technical Analysis Technical analyst depending on their generation and
experience various techniques. Among popular once, are Charts, excel and even some
continue with pen & paper to do calculate intra-day support and resistance using Pivot Point.
With sophistication of tools and advancement in computer science and easy access to world
of knowledge using mobile internet, analyst tend to rely on tools and website like ours to do
charting or pattern finding. Charts are most essential tool for the analysts of this generation
and with the advancement of technical analysis, charts have also improved. Some of the
commonly used charts are
1. Line Chart.
2. Bar Charts.
3. Candlestick Charts.

TopStockResearch.com provides range of charts from very simple chart one month EOD line
chart to complex technical charts with moving average and other indicators. It also provides
option to the viewers to create their own charts using interactive chart, chart to compare
with other stocks etc.

Typical Technical IndicatorsQuicker results, more agile way of analysis and lesser
requirement of investment/infrastructure have encouraged lots of research on this stream of
stock analysis. Some of them have made their findings to public while some have kept it as
trade secret. Result is plenty of choice of indicator and plenty of tools, websites, for the
traders to pick and choose their favorite ones. Among the more common ones are

1. Trend Trading. Trends are friends. One of the most common and most successful form of
trading is trading with trend. Key to success if to identify trend and start trading till a trend
reversal is observed. Some of the very common ways to identify trend are Moving
Average , MACD, Trend Strength indicator like ADX.

2. Support and Resistance. These are the point which forms a very importance levels which
stocks doesnt tend to penetrate. Both support and resistance can be together as in case of
chart pattern channel, or a dynamic band like Bollinger Bands. In other cases
only support or resistance may be present. They may be horizontal trend line or rising trend
line or dynamic line provided by Moving averages.

3. Breakout. Stocks when breaks out from support or resistance, they tend to make huge
movement and in that direction.

4. Chart Pattern. These are formation of certain patterns indicating reversal of trend
like Double Bottom (W) or continuation pattern like flag.

5. Candlestick Charts. They are more complex type of chart plotted with open, high, low and
Close. Since it contains more information, it indicates trading pattern in that interval. These
can be as simple as single day pattern like Hammer, to reversal pattern like Bullish
Engulfing or trend continuation pattern like Three White Soldiers.

6. Money Flow. Some Indicators rely on volume to find the phase in market cycle like
accumulation/distribution, and how smart money is flowing. Indicators like ADI, CMF, MFI
utilizes volume to figure out money flow.

Applicability of Technical Analysis Since it studies price volume history of the stocks, it
can well be applied to other financial instruments like Forex, Commodity etc.

Cautions Technical analysis is more of an art than science. It requires lot of experience to
trade using technical analysis. In real life, the pattern formation may not be as clear as
theoretical examples.

Secondly, since they are purely based on past price movement, and prior sequence of
events, they do not guarantee similar behavior in future. Therefore, it is very important to
keep a stop loss when playing in stocks.

Always use stop loss when relying only on technical analysis.

Primary objective of entering into stock market is to make profit. There are different kind of
instruments/strategy one can adopt depending on the risk profile of the individual and
duration of the trade.

For people trading in stocks and who understand stock movement well and are not happy
with the kind of returns stock provide and at the same time do not want to risk huge loss
that stock can incur, on a extremely bad day, then they have another choice called Options
trading. Please note that options are complex instruments and requires lot of expertise and
knowledge to make good returns in the market.

Whats is Options Trading?

Options is a bi-party (Two party) contract that sets the price of financial instrument (like
stock) in such a way that the buyer can buy it at that price at any time on or before the
contract period.

Buyer can also decide not to buy it at all (buyer is not obligated to buy) Well, this looks
highly in favor of buyer, then why seller should sell it or enter in such a contract? To enter
in such a contract, buyer needs to pay seller a price called small portion of the cost (called
premium). In case buyer does not buy (or exercise the option) then the premium is
forfeited.

How does Options Trading work?

For example:
Stock Current Price 100
Buyers One Month Expected Price 110
Sellers One Month Expected Price 102
Strike Price 105
Premium (or Buyers Investment) 2

Various scenarios after one month

Few Important observation

1. Maximum Profit for buyer unlimited. Refer to scenario 4.

2. Maximum Loss to the buyer is premium amount 2. Refer to scenario1 & 5.
3. Maximum Profit for seller is 7, Scenario 2 & 4.
4. Maximum loss to the seller 100% of capital. Refer scenario 5.

Inference - Buying option can give you extraordinary profits but limits your loss. Selling
option can expose your entire capital at risk and the profit is limited.

Does it sound familiar to you now? Do you use this regularly in your life? Still didn't get it.
Let me explain. We do play with option in our life regularly. For example we buy health
insurance and pay a regular premium. In case of any illness, insurance company pays the
bill irrespective of the amount. In such case, you are buyer of the option, insurance
company is the seller and takes all the risk.

Basic Terminology involved in options trading

1.Strike Price. The price at which buyer and seller agreed on option price.
2.Premium. The amount buyer pays to seller to enter into contract.
3.Option Expiry date. It is the date up to which option contract Any time within options
contract period buyer

can exercise option.

4.Option exercise- It is the step in option trading when buyer actually buys the security at
the strike price.

Buyer can buy on or before option expiry date.

5.Underlying Security - Options are derivatives. They derive the value from the
underlier(Stock). Price of option

(premium) fluctuates with change of price of underlier.

Note :We have kept these definition as very simple and added most basic ones. We will
have full fledged explanation in subsequent tutorials.

Trends Explained, Types and Strategies Used with Trends

As we have learnt that one of the basic tenet of Technical Analysis is "Price Moves in
Trends". Here in this section we will understand what is trend, how to identify trend and
how to trade with trend.

What is Trend in stock Analysis? In general terms, the trend is determining some
development taking place in consistent way and getting stronger with time and is
identifiable. It is same in stock analysis, where movement of stocks is analyzed and tried to
determine if it is moving in consistently in one direction and move getting stronger and is
clearly visible. Trend could be continuous upward movement of stocks or may be continuous
downward movement of stocks or in some case movement in a range. Whichever the case
is, once identified, a profitable trade can take place.

As per Dow Theory, once stock is in trend it will continue to move in trend, until an external
factor interrupts it. Some of these factors could be company result, or some exciting
development in company, major local/global, and economic/political factors. Those from
science background can relate trending stock with Newton's second law of motion.

Why stocks moves in trends? As we have seen in market cycle, information about stock
does not reach to masses at the same time. It starts with well-informed traders, then to
little less informed traders and then to the masses. With each participating at different
stages, money is continuously moves in or out of the stock and a unidirectional movement
of stock price is seen.

Other factors could be limited capital/ liquidity with informed trader which restricts huge
amount of capital at one shot. Or traders limiting their risk, and pumping money gradually
to see overall market reaction.
One of the important things to note is stocks does not moves in a purely one direction, even
in an extremely strong trend, there are multiple pullbacks. These are due to profit taking,
honoring intermediate support and resistance and capital availability. Trend interval can be
as small as few minutes to few years.

Also since technical analyst believes that prices moves in trends, they also participate in
them making it to move further sometimes even beyond logical trending period.

Types of trend
Uptrend: In this case stocks continuously moves in upper directions and traders profits by
taking a long position. More details of uptrend with examples are explained in uptrend
section.

Down Trend: Similar to uptrend, the stock continuous make directional move but in case
of downtrend the price falls continuously. Traders make profit by taking short position. More
details of downtrend with example is explained in uptrend section.

Sideways: In case of sideways market, stock price tends to move in within a price band.
Traders take advantage by taking multiple long and short position within the range.

Non-Trending: Though similar to sideways market where stock does not make
unidirectional move, in case of non-trending, no clear support or resistance is seen.
Trading with Trend Irrespective of the direction of the trend, technical analyst can make a
profitable trade. Among the four, uptrend and downtrend gives maximum profit in a single
trade, while sideways market trend to give multiple opportunity but of small profit. In case
of on non-trending stock or volatile market, its better advised to keep away from any trade.

Trends are traders best friend provided you find right one.

Example of Complex Trend Formed By NTPC Ltd

A complex Trend is a trend in which short trends are formed within a Major Trend.

Tools To Identify The Trend Explained With Examples

We have learnt that stocks moves in trend but they are in trends about 30-35 % of the
time. Rest of the time they move in random direction. Therefore, it is essential to identify
the right one and ignore not so clear ones. Here are some of the ways to find trend.

1.Trend-line
Most common form of identifying a trend is to draw a line of support or resistance. We
recommend reading about support/resistance to fully understand this part.
Support trend line is a straight line drawn by joining any two lower points of rising stock.
This line is extrapolated and acts as a support line, and trend is considered to be intact as
long as this line is not breached. In an uptrend, it is must to have each subsequent support
point to be higher than previous one and subsequent higher level is higher than previous
highs. If not then it is not an uptrend. More explained in uptrend section.

Similar to support trend line, Resistance line is drawn when stock is continuously moves
down ward.See downtrend for more.

In case of sideways market, two trend-line one each of support and resistance is drawn.
See sideways section for more.

Trend line form basis of some of the very important reversal chart patterns like Triple
Top , Channel , Head and Shoulder and plays equally important role in continuation patterns
like Triangle , Flag etc.

Trend-line is most valuable tools in technical analysis as other studies heavily rely on them.
Some traders feel comfortable by joining at least three points before entering a trade. Since
any two points can form a trend line, it is important to select points depending upon your
trade duration. For short term traders, points in last few trading interval can do the trick
while for long term traders point spanning across months may work.

Trend lines as illustrated in the figure, can be a rising line or a falling line or a horizontal
line.

TopstockResearch.com also provides screening of stock with trend-line support and

resistance for multiple stock markets. Refer to the links below.

2.Moving average Moving Averages are yet again excellent tool to identify trend. Since
moving average smoothen price movement they provide clearer picture to the direction of
the stock movement. A rising moving average means a rising trend while a falling moving
average means falling trend.

They also indicate start and end of the trend. When price line crosses moving average line
then a trend is considered to be started and on reverse cross, trend is considered to be over
and a counter trend is expected. Though any moving average cross over gives indication
about the trend, short term traders should look for shorter duration MA and long term
traders look for longer moving average like 200 Day MA.

Two Moving average crossovers also indicate start and end of the trend. When a shorter
moving average say 3 days crosses above 13 days moving average then a short term bullish
signal is generated. And when 50 day Moving average crosses above 200 DMA also known
as bullish golden cross, long term bullish signal is generated.
Moving averages also provide dynamic support and resistance similar to trend line but owing
to its dynamic nature they tend to provide better signals.

Example of Trend Formed By Moving Average By Infosys Ltd.

Example of Trend Formed By Moving Average By Pepsico Inc

Similar to trend line, moving averages also form basis of lot of other technical indicators like
MACD, ADX etc.

TopstockResearch.com also provides screening of stock by moving average for multiple

stock markets. Refer to the links below.

3.Price breakout A range bound market means that there is no decisiveness on the
direction of the stock. Both bulls and bears are locked in battle and gradually a strong
support and resistance zone is formed. This at times result in triangle formation, or a
narrow channel or a very narrow price band like Bollinger Bands.

Example of Price breakout Formed By Moving Average By Axis Bank

Ltd.

Upon breaching this zone, a new trend is started in the direction of the breakout/breach. It
is important to note volume participation during the breakout. If the volume is higher at
breakout then trend strength is stronger and if the volume is not high at the breakout then
it may be a false signal.

4.Measuring trend Strength There are indicators to measure trend strength. Among
important ones is ADX. They measure strength of the trend with a easy to understand
numeric value. MACD another momentum indicator indicates trend and their reversals.
Sustained Strong overbought/oversold level also indicates strong trend. Steep short term
moving average also indicates strong trends. Trend tends to get slower near important
support and resistance. They could be moving average, trend line or Fibonacci levels.

5.Divergence. Also it is important to note divergence of price with other indicators. They
could be RSI, MACD, ADX etc. Divergence is a leading indicator indicates weakling or trend
reversal.

6.Measuring market participation Two important things to note in a trend are price and
volume behavior. If either of them is not supportive, then trend may be weakening or a
possible reversal is on the cards. There are quite a few volume based indicators
like ADI, CMF, MFI.
Example of Volume In Trends Formed By BOSCH Ltd.

Learn Strategies of Trading With Trend Explained With

Example
Duration of Trends There is no minimum or maximum period to make a trend. The period
could be a trend in minute charts for an intraday trader called micro trend to a few days
trend called intermediate trend to a super trend spanning over years. More than the
duration of the trend, it is important to know the factors hinting a trend and its validity.

For short term trader they use shorter trend-line / moving average while long term traders
use a longer duration one or even monthly charts. Whichever is chosen, if used correctly will
give good results.

Trading strategies With Trend As important as to find trend and trade, it is equally
important to determine trade target and exit points and risk mitigation strategies. We
strongly recommend using stop loss at all times irrespective of the reliability of trend finder.
Before entering the trade, have a plan. Starting with short term, then on convenience
moving with a longer term is a bad strategy. Majority of losses happens because of no plan.

Once trend is established then depending on the indicators one of the following strategies
may be used

1.Breakout from previous highs In this case there is no immediate known

support/resistance. Price can continue to make a new high/low. In such case it is advisable
to play with trailing stop loss. Some projection of target can be made using Fibonacci levels.
Example of Breakout From Previous High Formed By Nifty

2. Moving Average crossover If trend is established by moving average crossover, then

trend keep in the stock till a reverse moving average crossover happens. However, if
moving average tends to get flatter, then it's time to move out of the trade. Trading with
MA or MACD, make a rule to respect the signals provided by it.

Example of Moving Average Crossover(Uptrend) Formed By State

Bank Of India Ltd.
Example of Moving Average Crossover(Downtrend) Formed By State
Bank Of India Ltd.

3. Break out of trading zone. When the trading with such breakout, it is advisable to start
with a stop loss at 5% of the range below the breakout level. Target in such case could be
the depth of the trading range. However if other factors are supportive, then you may apply
trailing stop loss but we recommend to book partial profit.

Example of Breakout of Trading Zone Formed By Yahoo Inc.

4. Continuation Pattern In case of continuation pattern, trader can be little relaxed on

stop loss and expect to make bigger profit. But it is still advisable to make partial profit as
first weakening signal.
Example of Continuation Pattern Formed By Axis Bank Ltd

Example of Continuation Pattern Formed By BOSCH Ltd

5. Trading in pullback No stock continuous moves in one direction. There are several
pullbacks at important resistance/support levels, Moving averages and Fibonacci
retracement level. This may provide you with more point to trade but be extremely sure of
what you are doing. First of all, since trend is on, pullback/counter trend is shorter and
profit is limited and moreover sudden strengthening of parent trend can incur you severe
losses. This strategy is for professional traders.

Example of Pullback Shown By CNX Nifty.

6. Observe Volume at all times Volume denotes market participation or in general

conviction of trend. If at any time there is sign of distribution or other divergence,
immediately book partial profit and tighten stop loss. It is better to hit stop loss and reenter
on positive signal than to get all profits wiped off.

Example of Volume In Trends Formed By Apollo Tyres Ltd.

This contains some of the trading strategies. We are coming soon with a separate section of
trading strategies.
Learn to avoid Common mistakes by trader during trend
trading
1. Forceful identification of trends. Out of sheer enthusiasm or trading pressure, novice
analyst tries to impose a trend when it does not exist or is not decisive.

2. Switching tools of trend finding. As we have seen that tools of trends are trend-line,
moving average etc. At times, traders conveniently try to switch between them, in some
case it may work, but it is not advisable as different tools measure different aspect of trend.
Most common mistakes traders do is to conveniently look for longer Moving average when
shorter one is broken despite a short term trade plan.

3. Not playing with stop loss Market at times take some news or changing market
conditions too seriously, and a sudden violent trend reversal takes place which at time
wipes out all profit or may even incur loss.

4. Limited profit taking. As we have learnt the, stocks tend to move in trend and in lot of
case it could be a long trend ranging from few days to few years. Depending on trader's
profile, traders can make huge profit when trading with trend rather than a fixed limited
percentage of profit. Trailing stop loss is advisable with trend trading.

5. Ignoring crucial overbought/oversold levels. Extreme overbought and oversold

levels can be identified using oscillators like RSI, Williams's %R etc.

6. Fail to sense weakening trend strength. Any trend once started it ends at some
point. There are indicators like ADX to measure trend strength. A trend is strong as long as
there is enough conviction by majority of market players. This can be measured using
volume along with the price. Other than raw identification of volume, there are some well-
established indicators like ADI, Chaikin Money Flow(CMF), MFI which combines price and
volume and gives indication of mass participation.

7. Trading with counter trends. As illustrated in complex trend scenario, an ascending

channel may give lot of resistance points but since general trend is upwards, profit potential
of such short is much lower and thus risk reward ratio unfavorable.

Uptrend Explained With Examples And Trading Strategies

Uptrend, also known as rising trend, is the trader's favorite trend type. In this trend, stock
price trends in upward directions by making series of higher high and higher lows. Though,
it is safe to make a buy decision anywhere in uptrend, it gives best returns when bought
near pullback or intermittent lows.

As we have learnt in 'tool to identify trends' uptrend can be determined by joining any two
low points of the chart and drawing a trend-line. This trend-line is extrapolated and it act as
support. Trend is considered as long as the trend-line is not breached. Each subsequent
lower point in trend line should be higher than previous one. The steeper the trend line the
stronger the trend.
Other way to identify trend is by its moving average. A rising moving average indicates that
stock is in trend. If the shorter moving average is on the rise, then short term trend is in
place. If a longer moving average is rising then stock is in long term uptrend. As we have
seen in complex trend example where there could be many counter trend in a long term
trend, agile trader spot them and play in both direction to make profit.Strategies with
uptrend This is in addition to the strategies explained in previous section.

Each time the price comes toward trend line, Smart traders accumulate some more and
take partial profit when it goes toward upper end of the extrapolated previous highs.

For every new position, corresponding stop loss need to be placed in.

Trading multiple times in uptrend, it is best to not consider average out. Since,
accumulation happens in chunks, they may consider separate trade for initial term and a
strict stop loss should be placed.

Trailing stop loss would yield maximum result. While there is no fixed rule for putting
trailing stop loss, depending on price movement of the stock and typical trade interval,
previous, one or two days low could act as a good stop loss.

Exit as soon as trend line is breached particularly when with higher volume.
Example of Uptrend Chart Pattern Formed By Bajaj Auto

Learn to understand Downtrend and use it to take short

position

Downtrend also known as falling trend. A downtrend is a series of lower highs and lower
lows. A downtrend line is a descending line and can be drawn by connecting two or more
high points having lower highs. Down trend line acts as a resistance as long as the price
remains below the trend line.

Each high in a downtrend signals a probable selling point. More points in the trendline
indicates more validity and strength of the trend.

Volume like other technical indicators plays a vital role in affirming the trend. In a
downtrend the volume decreases as the trendlines continues downside. An increase in
volume activity signals that the bears are losing is over bulls. One may also pay attention to
other technical indicators like MACD, Relative Strength Indicator (RSI), etc., for
confirmation and strength of the trend.

Now we have understood what Downtrend is. Now its time to look into other trends pattern
and how they are interpreted in real time. Please follow these links to find about trends. We
have explained them in details and provided you with ample real life examples of them.

Example of Downtrend Chart Pattern Formed By Reliance Industries

Ltd.

Sideways market- Trades between support/resistance

lines

What is Sideways Trend? Also known as neutral trend. A sideways line is a horizontal line
and can be drawn by connecting two or more equal lows. Sideways trend line acts as an
support as long as the price remains above the trend line.
Each low in an uptrend signals a probable buying point. More points in the trendline
indicates more validity and strength of the trend.

Volume Like other technical indicators Volume also plays a vital role in affirming the trend.

But in sideways market there is no such pattern for volume documented because bulls and
bears are equally strong however one can see little increase in volume near a support and
not a major decrease in volume near resistance. However a sharp increase or decrease in
volume is an indication of breakout. One may also pay attention to other technical indicators
like MACD, Relative Strength Indicator (RSI), etc., for confirmation and strength of the
trend.

Now we have understood what Sideways trend is. Now its time to look into other trends
pattern and how they are interpreted in real time. Please follow these links to find about
trend. We have explained them in details and provided you with ample real life examples of
them.

Example of Sideways Trend Formed By Reliance Capital Ltd.

Tutorials on support and resistance with examples and

Strategies.
Support Basics Resistance Basics

Support and resistance are one of the important pillars of technical analysis and stock
analysts invariably use them as one of their key technical tools.

Support is a point below which stock price is unlikely to fall below unless a significant
development around the stock takes place and resistance is a price beyond which stock
price is unlikely to rise in the selected time frame.

Why are these support and resistance formed?

Support and resistance are formed at points around high supply or demand zone. If at
support at 100 then in and around that price there are lots of buyers ready to buy causing
the stock not to fall from that price perceiving it to be cheap and same goes for resistance
where lot of traders would like to offload their positions considering that price to be too high
for the stock and good time to book profit.

These points can be static price like a psychological number like 100 or 50, or even may be
previous highs/lows. Or they may even by a dynamic price with Market movement. If the
overall market is moving up, support price may continue to move up and vice verse.

These points validity depends on trend they are in or the time frame. Support and
resistance exist for small interval period like intraday to a multiyear time frame. So it is
important to identify them based on period where traders are performing analysis

Minor Support & Resistance cause trends to slow or pause while major Support & Resistance
cause trend reversal

Parameters Determining strength of Support and Resistance? A number of factors a

trader may want to look around to see the strength and to confirm it. They are:

1.Length: The longer the duration of Support or Resistance the more reliable and stronger
it is. Longer duration shows more points, a price is hitting showing the positive sentiments.
2.Height: The broader the distance between the Support and Resistance the more powerful
it is.
3.Volume: Higher volumes add strength to the Support or Resistance. Higher volumes
indicates more traders have the same sentiment at a particular time frame.

What happens when Support or Resistance Breaks? The market sentiments is not the
same at all the times, as it depends on a lot of factors, results in breakout of Supports and
Resistance. Support once broken acts as a resistance in future while resistance broken act
as a new support in future. The longer the period the support/resistance line holds before
break, the stronger the reversal is.
Example of Support and Resistance With Example

Shapes of Support and Resistance? If you look at the chart patterns traders may come
across different levels of support and resistance. For example in an uptrend it can be a
sloping upwards,or it can be a horizontal in case of sideways etc. Therefore on the basis of
that Supports and Resistance is of two types. They are:

1. Horizontal Supports and Resistance (Equal Highs and equal lows)

2. Slanting or diagonal Supports and Resistance (Higher highs and higher lows or Lower
highs and lower lows)
3. More smoothened lines formed by moving average.
4. Fixed price like pivot or Fibonacci retracement levels.

Ways to find support and resistance levels

Trendline By far most common way to find support and resistance is done by drawing
trend line. If the trendline is drawn by joining lower points then its acts as support. If
trendline is ascending then the support level keeps on rising with time. This would be a best
trade setup as both support level and trend are moving up.
Example of Trendline (support) Formed By Nifty

Moving Average As we have seen in moving average section that moving average also
provides dynamic support and resistance, they can be a good tool for support and
resistance. Moving average levels are easy to use as analyst does not require skill to draw
trend-lines.

Example of Trend Formed By Moving Average By Infosys Ltd.

Previous Highs or lows Previous highs and lows are psychological level. Some consider
them as extreme trading levels and hence acts as support levels.
Example of Breakout From Previous High Formed By Nifty

Fibonacci Retracement. Fibonacci retracement levels of 38.2%, 50 % and 61.8 % acts as

a good support/resistance levels IMAGE

Pivot Point Similar to Fibonacci levels, Pivot point is also used to calculate multiple support
and resistance levels. IMAGE

Overlays Some of the chart overlays like Bollinger Bandprovides dynamic support and
resistance levels.
Importance of Support and Resistance? Support and Resistance are important in
understanding and interpreting the market.
1. Supports and Resistance helps traders to identify trends
(uptrend, downtrend or sideways market).
2. Supports and Resistance are building block of chart patterns like Head and
Shoulder, Double Top, Double Bottom etc.
3. It also give signals to traders when to enter or buy a share, and when to exit or sell.
4. They are helps to place stop loss.
Example of Support And Resistance By Bolliger Band Shown in Bank
Nifty Chart.

Learn Support and how it is incorporated in Technical

Analysis
Resistance Basics Support By EMA Support By Bollinger Band Support By Daily
Trendline

What is Support Level?

Support level is the price from where stocks, slow down, stop moving downwards and they
bounce back. Here bulls sentiments are stronger which push the price upwards.
Support is the level where investors believe that price will move higher and they start
accumulating the stock results in increase in price.
Breakout:The markets sentiments keep on changing and may results in a breakout due to
various reason. It can be fundamental or other market event, etc. While a support gives a
buy signal to the traders, breakout signal that the bulls are losing and the price falls further.

Therefore it is important to look at the other technical parameters

like Volume, MACD, Relative Strength Indicator (RSI), Candlestick Basics etc., when trading
near support.

Once the support is broken its role will be reversed and it will serve as a resistance in
future.
What decides the strength of Support?
A number of factors a trader may want to look around to see the strength and to confirm it.
They are:

1.Length: The longer the duration of Support the more reliable it is. Longer duration shows
more points, a price is hitting showing the positive sentiments.

2.Height: The broader the distance between the Support and Resistance the more powerful
it is.

3.Volume: Higher volumes add strength to the support. Higher volumes indicates more
traders have the same sentiment at a particular time frame.

Now we have understood what Support is. Now its time to look into Resistance. Please
follow these links to find more about Support/Resistance and how it works. We have
explained them in details and provided you with ample real life examples of them.

Learn Resistance Level & how it is used in Technical

Analysis
Support Basics Resistance By EMA Resistance By Bollinger Resistance By
Trendline

What is Resistance Level?

Resistance level is the price from where stocks, slow down, stop moving upwards and they
bounce back. Here bears sentiments are stronger which push the price Downtrend Basics.
Resistance is the level where investors believe that price will go down and they start selling
the stock results in decrease in price.

Breakout:The markets sentiments keep on changing may results in a breakout due to

various reason. It can be fundamental or other market event, etc. While resistance gives a
sell signal to the trades, a breakout gives that bulls are stronger compared to the bears
results in further increase in price.

Therefore it is important to look at the other technical parameters

like Volume, MACD, Relative Strength Indicator (RSI), Candlestick Basics etc., when trading
near Resistance.
If the resistance is broken and the price rises above it, it will serve as a support in the
future.
What decides the strength of Resistance?
A number of factors a trader may want to look around to see the strength and to confirm it.
They are :

1.Length: The longer the duration resistance the more reliable it is. Longer duration shows
more points, a price is hitting the resistance line showing the positive sentiments.

2.Height: The broader the distance between the Support and Resistance the more powerful
it is.

3.Volume: Higher volumes add strength to the resistance. Higher volumes indicates more
traders have the same sentiment at a particular time frame.

Now we have understood what Resistance is. Now its time to understand Support. Please
follow these links to find more about Support/Resistance and how it works. We have
explained them in details and provided you with ample real life examples of them.

Learn basic of Moving Average and interpret its signals

What is Moving Average? It is the average price of a stock over a period of time.
Why are Moving Averages Used? Moving average helps us to understand the trends of
the market. It also gives us buy or sell signal. Moving averages are commonly used to
predict areas of support and resistance. The price movement is also smoothed out so that
the traders can better understand the trends.

What are different kinds of Moving averages ?

a) Kinds of Moving averages are:
b) Simple Moving Average(SMA)
c) Exponential Moving Average(EMA)
d) Weighted Moving Average(WMA)
e) Cumulative Moving Average(CMA)
Though there are dozens of moving averages but the most common moving averages used
by technical analysts is simple moving average and exponential moving average. Therefore
we will limit the scope of this tutorial to simple moving average and exponential moving
average.
Interpreting buy and sell signal using moving averages.Moving average provides buy
or sell signal. A trader can choose whether to buy or sell depending on the crossover of
moving average and the current price lines on a chart.

Long term investor looks for long term moving average and short term trader looks for
short term moving average. A buy signal is generated when the security's price rises above
its moving average and a sell signal is generated when the security's price falls below its
moving average.
What are commonly used moving averages period?

Their are many moving averages right from short moving average to high moving average
but most common of them are 15 days, 50 days, 100 days and 200 days.
How to choose a Moving Average period ?

There is no magical Moving average period. Use of any moving average period will provide
similar result. For example both 60 day moving average and 70 day moving average will
provide similar results but will give buy/sell signal at slightly different time. The key is to
stick to one MA otherwise your trade can get messed up. One of the common way to choose
a MA is to divide the period of interest by 2(two).

For Example, A trader looking at a stock movement for 40 days then he will choose 20 day
moving average is suitable. If you are looking at a stock movement for 20 days then a 10
day moving average is suitable and so on. Generally it is preferable to stick to 15, 50, 100
and 200 days moving averages as they are used by lots of big investors and market
reaction to these averages is more likely.

The convention that TopStockResearch will follow to represent different moving

averages.
a) Red line represents 15 day Moving Average. b) Blue line represents 50 day Moving
Average.
c) Green line represents 100 day Moving Average. d) Yellow line represents 200 day Moving
Average.

Example Showing Price verses Different Moving Averages: SAIL

Disadvantages of Moving Average

Although they are highly simple to use and plot in our system.But like everything, Moving
Average do have certain drawbacks to deal with.Some of the disadvantages of Moving
Averages are:

 Moving averages lags the current price since they are the data from the past.

 It's ineffective in sideways market.

  Since it's slow it misses turning points and trends.

Due to above shortcoming analysts have designed more complicated yet effective way to
deal with price and moving average.One of them is Exponential Moving Average.
Exponential Moving Average: Another kind of moving average is exponential moving
average (EMA). There are certain advantages of EMA like it considers the the importance on
the most recent stock prices than the earlier stock prices.
Our website provides free Stock screening based on Moving Average(SMA/EMA) support,
resistance, crossover. It can be found at: Stock Screening based on SMA/EMA
Support/Resistance and Crossovers

Bollinger Bands, its trading strategy and examples

explained
Example/Case Study Suggestion/Feedback

What is Bollinger Band?

Bollinger Bands, one of the most popular indicators, is an envelop around stock price
indicating price range of the stock based on stock volatility. When price moves towards
upper band it is often considered as overbought and when it is near lower range it is
considered as oversold.

Who created Bollinger Band ? John Bollinger a noted technical analyst invented Bollinger
Bands. His finding was influenced by J.M. Hurst's who came with notion of trading envelop
around stocks.

What are the components of Bollinger band? Bollinger band has three important
dynamic lines
1. Middle Bollinger Band - This is a plot of 20 period simple moving average.
2. Lower Bollinger Band - Middle band - 2 * 20 period standard Deviation.
3. Upper Bollinger Band - Middle band + 2 * 20 period standard Deviation.

Concept of Bollinger Band

Bollinger Band indicates volatility around price of a stock. When price reaches upper band it
is considered as overbought and could be a good exit point and when stock approaches
lower band it is considered as good entry point. These
are highs/lows or support and resistance. When stock has high price fluctuation the band
expands and when volatility is low they contract to adjust with change in price volatility.
In normal distribution, 68% of the time price should be within one standard deviation and
95% of the time it should be within two standard deviation.

Usages of Bollinger Band

a. They provide excellent support and resistance in sideways market . To identify sideways
market look for stocks where 50/100 DMA is flat (parallel to date axis).
b. They can be used for to determine trend reversal. When stock breaks upper band and
stay above it for few trading sessions then it is considered to be bullish and when stock
breaks lower band ans stays below for some trading sessions bearish signal is generated.
c. In strong bullish cycle when stock is moving along with upper band and then moves
towards middle band it can be considered as bullish trend reversal. In the same way when
stock is moving lower band and then moves towards middle bearish trend reversal can be
detected.
d. They gives very good idea of volatility of the stock. The wider the band the more volatility
it has.
e. A very narrowing band means indecision on price movement and a possible break out is
imminent.

Breakout of Bollinger Band

1. When the price break upper Bollinger band and both upper & lower band is expanding
then probability of further up movement is high. If both bands are expanding fast means
trend reversal has happened. If the price breaks below lower band and both upper & lower
is expanding then chances are that it will further go down.
2. When price break upper band and and both bands are not expanding means false signal
of break out.
3. When bands starts contracting after a trend means momentum in trend is loosing.

Our Website provides free Stock Screening Reports on Support/Resistance By Bollinger

Bands at:

Stock Broke Support Stocks Nearing Support Stocks Nearing Resistance Stock
Broke Resistance

Limitation a.They alone do not provide absolute buy and sell signal.

b. In strong trending market, Bollinger bands looses its significance. They tend to give many
wrong signals. Its best to avoid they in such situations.
c. In actual scenario, Price break above Bollinger band is far more than 95% (as per normal
distribution) and not all break gives signal of trend reversals.
d. They often need support of another technical indicator to determine action.

Color Convention of Bollinger Band and TopStockResearch

1. Dashed grey lines which represents bollinger band.
2. Black lines represent price.
Caution for new Traders

Bollinger bands are dynamic and they move depending on volatility. So

the support/resistance to may not be valid on any other day. That is why it is said it
provides relative highs and lows or support/resistance.

Example Showing How to Trade with Bollinger Band

Back to Bollinger Bands Suggestion/Feedback

Example Used Here for Case Study is ITC Ltd.

The chart below is of ITC Ltd for a period from 7th April to 30th June.
The band are expanding with the High Volatility and Volume also above average
shows trend reversal. At point A the price gets resistance from upper Bollinger Band.

It crosses the middle Bollinger Band and at point B it gets support from lower Bollinger
Band.

At point G also it gets support from lower Bollinger Band.

The price moves up with good volume and at point C the price gets the resistance of upper
Bollinger Band.

At point D the price crosses the upper Bollinger Band with heavy volume, and expanding the
Bollinger band giving a good buy signal.

The price after staying above the upper Bollinger band comes down after few sessions. At
point E and F it further gets resistance. Point E and F can be profit booking points.
Our Website provides free Stock Screening Reports on Support/Resistance By Bollinger
Bands at:

Trends Explained, Types and Strategies Used with Trends

As we have learnt that one of the basic tenet of Technical Analysis is "Price Moves in
Trends". Here in this section we will understand what is trend, how to identify trend and
how to trade with trend.

What is Trend in stock Analysis? In general terms, the trend is determining some
development taking place in consistent way and getting stronger with time and is
identifiable. It is same in stock analysis, where movement of stocks is analyzed and tried to
determine if it is moving in consistently in one direction and move getting stronger and is
clearly visible. Trend could be continuous upward movement of stocks or may be continuous
downward movement of stocks or in some case movement in a range. Whichever the case
is, once identified, a profitable trade can take place.

As per Dow Theory, once stock is in trend it will continue to move in trend, until an external
factor interrupts it. Some of these factors could be company result, or some exciting
development in company, major local/global, and economic/political factors. Those from
science background can relate trending stock with Newton's second law of motion.
Why stocks moves in trends? As we have seen in market cycle, information about stock
does not reach to masses at the same time. It starts with well-informed traders, then to
little less informed traders and then to the masses. With each participating at different
stages, money is continuously moves in or out of the stock and a unidirectional movement
of stock price is seen.

Other factors could be limited capital/ liquidity with informed trader which restricts huge
amount of capital at one shot. Or traders limiting their risk, and pumping money gradually
to see overall market reaction.
One of the important things to note is stocks does not moves in a purely one direction, even
in an extremely strong trend, there are multiple pullbacks. These are due to profit taking,
honoring intermediate support and resistance and capital availability. Trend interval can be
as small as few minutes to few years.

Also since technical analyst believes that prices moves in trends, they also participate in
them making it to move further sometimes even beyond logical trending period.

Types of trend
Uptrend: In this case stocks continuously moves in upper directions and traders profits by
taking a long position. More details of uptrend with examples are explained in uptrend
section.

Down Trend: Similar to uptrend, the stock continuous make directional move but in case
of downtrend the price falls continuously. Traders make profit by taking short position. More
details of downtrend with example is explained in uptrend section.

Sideways: In case of sideways market, stock price tends to move in within a price band.
Traders take advantage by taking multiple long and short position within the range.

Non-Trending: Though similar to sideways market where stock does not make
unidirectional move, in case of non-trending, no clear support or resistance is seen.

Trading with Trend Irrespective of the direction of the trend, technical analyst can make a
profitable trade. Among the four, uptrend and downtrend gives maximum profit in a single
trade, while sideways market trend to give multiple opportunity but of small profit. In case
of on non-trending stock or volatile market, its better advised to keep away from any trade.

Trends are traders best friend provided you find right one.

Example of Complex Trend Formed By NTPC Ltd

A complex Trend is a trend in which short trends are formed within a Major Trend.
Tools To Identify The Trend Explained With Examples
We have learnt that stocks moves in trend but they are in trends about 30-35 % of the
time. Rest of the time they move in random direction. Therefore, it is essential to identify
the right one and ignore not so clear ones. Here are some of the ways to find trend.

1.Trend-line
Most common form of identifying a trend is to draw a line of support or resistance. We
recommend reading about support/resistance to fully understand this part.

Support trend line is a straight line drawn by joining any two lower points of rising stock.
This line is extrapolated and acts as a support line, and trend is considered to be intact as
long as this line is not breached. In an uptrend, it is must to have each subsequent support
point to be higher than previous one and subsequent higher level is higher than previous
highs. If not then it is not an uptrend. More explained in uptrend section.

Similar to support trend line, Resistance line is drawn when stock is continuously moves
down ward.See downtrend for more.

In case of sideways market, two trend-line one each of support and resistance is drawn.
See sideways section for more.

Trend line form basis of some of the very important reversal chart patterns like Triple
Top , Channel , Head and Shoulder and plays equally important role in continuation patterns
like Triangle , Flag etc.

Trend-line is most valuable tools in technical analysis as other studies heavily rely on them.
Some traders feel comfortable by joining at least three points before entering a trade. Since
any two points can form a trend line, it is important to select points depending upon your
trade duration. For short term traders, points in last few trading interval can do the trick
while for long term traders point spanning across months may work.
Trend lines as illustrated in the figure, can be a rising line or a falling line or a horizontal
line.

TopstockResearch.com also provides screening of stock with trend-line support and

resistance for multiple stock markets. Refer to the links below.

2.Moving average Moving Averages are yet again excellent tool to identify trend. Since
moving average smoothen price movement they provide clearer picture to the direction of
the stock movement. A rising moving average means a rising trend while a falling moving
average means falling trend.

They also indicate start and end of the trend. When price line crosses moving average line
then a trend is considered to be started and on reverse cross, trend is considered to be over
and a counter trend is expected. Though any moving average cross over gives indication
about the trend, short term traders should look for shorter duration MA and long term
traders look for longer moving average like 200 Day MA.

Two Moving average crossovers also indicate start and end of the trend. When a shorter
moving average say 3 days crosses above 13 days moving average then a short term bullish
signal is generated. And when 50 day Moving average crosses above 200 DMA also known
as bullish golden cross, long term bullish signal is generated.

Moving averages also provide dynamic support and resistance similar to trend line but owing
to its dynamic nature they tend to provide better signals.
Example of Trend Formed By Moving Average By Infosys Ltd.

Example of Trend Formed By Moving Average By Pepsico Inc

Similar to trend line, moving averages also form basis of lot of other technical indicators like
MACD, ADX etc.

TopstockResearch.com also provides screening of stock by moving average for multiple

stock markets. Refer to the links below.

3.Price breakout A range bound market means that there is no decisiveness on the
direction of the stock. Both bulls and bears are locked in battle and gradually a strong
support and resistance zone is formed. This at times result in triangle formation, or a
narrow channel or a very narrow price band like Bollinger Bands.
Example of Price breakout Formed By Moving Average By Axis Bank
Ltd.

Upon breaching this zone, a new trend is started in the direction of the breakout/breach. It
is important to note volume participation during the breakout. If the volume is higher at
breakout then trend strength is stronger and if the volume is not high at the breakout then
it may be a false signal.

4.Measuring trend Strength There are indicators to measure trend strength. Among
important ones is ADX. They measure strength of the trend with a easy to understand
numeric value. MACD another momentum indicator indicates trend and their reversals.
Sustained Strong overbought/oversold level also indicates strong trend. Steep short term
moving average also indicates strong trends. Trend tends to get slower near important
support and resistance. They could be moving average, trend line or Fibonacci levels.

5.Divergence. Also it is important to note divergence of price with other indicators. They
could be RSI, MACD, ADX etc. Divergence is a leading indicator indicates weakling or trend
reversal.

6.Measuring market participation Two important things to note in a trend are price and
volume behavior. If either of them is not supportive, then trend may be weakening or a
possible reversal is on the cards. There are quite a few volume based indicators
like ADI, CMF, MFI.
Example of Volume In Trends Formed By BOSCH Ltd.

Learn Strategies of Trading With Trend Explained With

Example
Duration of Trends There is no minimum or maximum period to make a trend. The period
could be a trend in minute charts for an intraday trader called micro trend to a few days
trend called intermediate trend to a super trend spanning over years. More than the
duration of the trend, it is important to know the factors hinting a trend and its validity.

For short term trader they use shorter trend-line / moving average while long term traders
use a longer duration one or even monthly charts. Whichever is chosen, if used correctly will
give good results.

Trading strategies With Trend As important as to find trend and trade, it is equally
important to determine trade target and exit points and risk mitigation strategies. We
strongly recommend using stop loss at all times irrespective of the reliability of trend finder.
Before entering the trade, have a plan. Starting with short term, then on convenience
moving with a longer term is a bad strategy. Majority of losses happens because of no plan.

Once trend is established then depending on the indicators one of the following strategies
may be used

1.Breakout from previous highs In this case there is no immediate known

support/resistance. Price can continue to make a new high/low. In such case it is advisable
to play with trailing stop loss. Some projection of target can be made using Fibonacci levels.
Example of Breakout From Previous High Formed By Nifty

2. Moving Average crossover If trend is established by moving average crossover, then

trend keep in the stock till a reverse moving average crossover happens. However, if
moving average tends to get flatter, then it's time to move out of the trade. Trading with
MA or MACD, make a rule to respect the signals provided by it.

Example of Moving Average Crossover(Uptrend) Formed By State

Bank Of India Ltd.
Example of Moving Average Crossover(Downtrend) Formed By State
Bank Of India Ltd.

3. Break out of trading zone. When the trading with such breakout, it is advisable to start
with a stop loss at 5% of the range below the breakout level. Target in such case could be
the depth of the trading range. However if other factors are supportive, then you may apply
trailing stop loss but we recommend to book partial profit.

Example of Breakout of Trading Zone Formed By Yahoo Inc.

4. Continuation Pattern In case of continuation pattern, trader can be little relaxed on

stop loss and expect to make bigger profit. But it is still advisable to make partial profit as
first weakening signal.
Example of Continuation Pattern Formed By Axis Bank Ltd

Example of Continuation Pattern Formed By BOSCH Ltd

5. Trading in pullback No stock continuous moves in one direction. There are several
pullbacks at important resistance/support levels, Moving averages and Fibonacci
retracement level. This may provide you with more point to trade but be extremely sure of
what you are doing. First of all, since trend is on, pullback/counter trend is shorter and
profit is limited and moreover sudden strengthening of parent trend can incur you severe
losses. This strategy is for professional traders.

Example of Pullback Shown By CNX Nifty.

6. Observe Volume at all times Volume denotes market participation or in general

conviction of trend. If at any time there is sign of distribution or other divergence,
immediately book partial profit and tighten stop loss. It is better to hit stop loss and reenter
on positive signal than to get all profits wiped off.

Example of Volume In Trends Formed By Apollo Tyres Ltd.

This contains some of the trading strategies. We are coming soon with a separate section of
trading strategies.
Learn to avoid Common mistakes by trader during trend
trading
1. Forceful identification of trends. Out of sheer enthusiasm or trading pressure, novice
analyst tries to impose a trend when it does not exist or is not decisive.

2. Switching tools of trend finding. As we have seen that tools of trends are trend-line,
moving average etc. At times, traders conveniently try to switch between them, in some
case it may work, but it is not advisable as different tools measure different aspect of trend.
Most common mistakes traders do is to conveniently look for longer Moving average when
shorter one is broken despite a short term trade plan.

3. Not playing with stop loss Market at times take some news or changing market
conditions too seriously, and a sudden violent trend reversal takes place which at time
wipes out all profit or may even incur loss.

4. Limited profit taking. As we have learnt the, stocks tend to move in trend and in lot of
case it could be a long trend ranging from few days to few years. Depending on trader's
profile, traders can make huge profit when trading with trend rather than a fixed limited
percentage of profit. Trailing stop loss is advisable with trend trading.

5. Ignoring crucial overbought/oversold levels. Extreme overbought and oversold

levels can be identified using oscillators like RSI, Williams's %R etc.

6. Fail to sense weakening trend strength. Any trend once started it ends at some
point. There are indicators like ADX to measure trend strength. A trend is strong as long as
there is enough conviction by majority of market players. This can be measured using
volume along with the price. Other than raw identification of volume, there are some well-
established indicators like ADI, Chaikin Money Flow(CMF), MFI which combines price and
volume and gives indication of mass participation.

7. Trading with counter trends. As illustrated in complex trend scenario, an ascending

channel may give lot of resistance points but since general trend is upwards, profit potential
of such short is much lower and thus risk reward ratio unfavorable.

Uptrend Explained With Examples And Trading Strategies

Uptrend, also known as rising trend, is the trader's favorite trend type. In this trend, stock
price trends in upward directions by making series of higher high and higher lows. Though,
it is safe to make a buy decision anywhere in uptrend, it gives best returns when bought
near pullback or intermittent lows.

As we have learnt in 'tool to identify trends' uptrend can be determined by joining any two
low points of the chart and drawing a trend-line. This trend-line is extrapolated and it act as
support. Trend is considered as long as the trend-line is not breached. Each subsequent
lower point in trend line should be higher than previous one. The steeper the trend line the
stronger the trend.
Other way to identify trend is by its moving average. A rising moving average indicates that
stock is in trend. If the shorter moving average is on the rise, then short term trend is in
place. If a longer moving average is rising then stock is in long term uptrend. As we have
seen in complex trend example where there could be many counter trend in a long term
trend, agile trader spot them and play in both direction to make profit.Strategies with
uptrend This is in addition to the strategies explained in previous section.

Each time the price comes toward trend line, Smart traders accumulate some more and
take partial profit when it goes toward upper end of the extrapolated previous highs.

For every new position, corresponding stop loss need to be placed in.

Trading multiple times in uptrend, it is best to not consider average out. Since,
accumulation happens in chunks, they may consider separate trade for initial term and a
strict stop loss should be placed.

Trailing stop loss would yield maximum result. While there is no fixed rule for putting
trailing stop loss, depending on price movement of the stock and typical trade interval,
previous, one or two days low could act as a good stop loss.

Exit as soon as trend line is breached particularly when with higher volume.
Example of Uptrend Chart Pattern Formed By Bajaj Auto

Learn to understand Downtrend and use it to take short

position

Downtrend also known as falling trend. A downtrend is a series of lower highs and lower
lows. A downtrend line is a descending line and can be drawn by connecting two or more
high points having lower highs. Down trend line acts as a resistance as long as the price
remains below the trend line.

Each high in a downtrend signals a probable selling point. More points in the trendline
indicates more validity and strength of the trend.

Volume like other technical indicators plays a vital role in affirming the trend. In a
downtrend the volume decreases as the trendlines continues downside. An increase in
volume activity signals that the bears are losing is over bulls. One may also pay attention to
other technical indicators like MACD, Relative Strength Indicator (RSI), etc., for
confirmation and strength of the trend.

Now we have understood what Downtrend is. Now its time to look into other trends pattern
and how they are interpreted in real time. Please follow these links to find about trends. We
have explained them in details and provided you with ample real life examples of them.

Example of Downtrend Chart Pattern Formed By Reliance Industries

Ltd.

Learn Triangle Chart Pattern

Triangle Ascending Triangle Descending Triangle Symmetric

Introduction

Triangle patterns are another very common chart patterns and owing to its easily
interpretable shape , they are very easy to spot. Depending on of how the pattern is formed
and where the pattern is formed, its reliability and possible breakout can be ascertained.
The longer the pattern the better is reliability of its breakout. From bulls and bear tussle
perspective, this pattern shows that neither party is giving up and the stock price squeezes
to a very narrow range. High volatility and market indecision normally leads to formation of
triangle pattern. Though there are many kinds of pattern but reliability of following patterns
is higher.
1.Ascending Triangle In this case the upper price is constant (at a good resistance) and
lower price keeps on moving towards upper price.
2.Descending Triangle In this case of descending triangle, the lower price of stock is
constants (near strong support) and upper price is making lower lows.
3.Symmetric triangle. In this case both upper price and lower price are converging
towards each other.
Spotting reliable triangle formation. Each of the trend line(leg) should have at least two
bounce from Support Basicsand Resistance Basics. The more the better reliability. In other
words, the upper line (resistance) should be formed with at least two points and similarly
lower trend line should have at least two points. Volume during pattern formation is lower
then normal volume but it should not dry completely. This signifies a strong fight between
bulls and bears. Each of them not giving up and pressure building continuously. And in case
of breakout , pressure releases in form a strong movement in the the direction of breakout.

On breaking down this pattern , it is an additional supporting factor over and above a simple
trend-line resistance/support. Therefore this can also be viewed as an additional
confirmation of trend-lines for those who trade solely on trend-lines.

Aggressive trader anticipate the breakout early and keep a strict stop loss, while
conservative traders wait for confirmation of break out.
Now we have understood what Triangle pattern is. Now its time to look into some of the
most commonly formed triangle patterns. We have categorized them into following
categories. Please follow these links to find about these patterns. We have explained them
in details and provided you with ample real life examples of them.

Ascending Triangle Introduction

Ascending Triangle is formed when the stock fluctuates in a band such that upper price
range is near its Resistance Basics and and lower price is moving up (higher bottom)
continuously and there by reducing the price gap of highs and lows. From Bulls and bears
perspective, bulls are continuous trying to move the price up but are facing strong supply at
resistance but bears are failing to bring price down. Therefore, the bottom line is
continuously moving up forming lower part of triangle or a trend line and upper resistance
forms upper portion of the triangle (upper trend-line).

It takes few weeks to few months for Ascending Triangle pattern to formed, Usually it
occurred at an Uptrend and it is a continuation pattern of high reliability. This pattern
consist of four parts:
1. Upper Horizontal(flat) trend line: It forms the Resistance and generally have at-least
two points, more the better.
2. Lower Ascending(rising) trend line: It forms the Support in the pattern and have
atleast two points, more the better.
3. Base: It is the vertical line drawn between Upper Horizontal(flat) trend line and lower
Ascending trend line, the point at which the pattern started. The value of base is used to
keep the minimum target amount.
4. Apex: It is the point where Upper Horizontal(flat) trend line and Lower Ascending(rising)
trend line meets. Some traders used apex as the time in which the minimum targets is
achieved.
Spotting & Trading Ascending triangle.Ascending triangle is highly reliable pattern when
it forms during a uptrend and the direction of breakout is in direction of its original trend,
therefore it is a continuation pattern. As mentioned in previous section, upper and
lower trend-lines should be formed with
at least two points each. While reliability of this pattern is high, occasional false breakout is
also observed at times. Therefore, strict stop loss is advised.

On further analysis of this pattern, it can be seen as an additional confirmation of a trend-

line breakout at resistance. Ascending lower line indicates that bears are fast loosing the
battle and there is a strong bias towards upward move. Previous uptrend prior to formation
of this pattern, tells general sentiments about the equity and tells a small roadblock in
uptrend. Although this itself is quite a reliable pattern, there are occasions of false breakout.
Therefore it is important to keep a stop loss when trading with this pattern. Also a
supporting technical indicator like Volume, Candlestick Basics pattern etc should provide
more confidence in decision making.

Descending Triangle Introduction

Descending Triangles is an another popular chart pattern used by traders. It takes few
weeks to few months for this type of pattern to formed Usually it occurred at a Downtrend
Basics and it is a continuation pattern of high reliability. This pattern consist of four parts:
1. Lower Horizontal(flat) trend line: It forms the Support Basics and generally have at-
least two points, more the better.
2. Upper descending(falling) trend line:It forms the Resistance Basics in the pattern
and have atleast two points, more the better.
3. Base: It is the vertical line drawn between lower flat trendline, at which the pattern
started to the trend line opposite to it. The value of base is used to keep the minimum
target amount.
4. Apex: It is the point where lower horizontal line and upper descending line meets. Some
traders used apex as the time in which the minimum targets is achieved.

Descending Triangle also known as bearish descending triangle as they are

giving bearish signal with upper trend-lines is descending or falling towards the apex. This
trend is formed when the stock is showing a good support at a downtrend and having a
continuously lower and lower highs. This is simply because the struggle between the sellers
and buyers is being slowly win by the sellers and giving a breakout where the support is
broken giving traders a sell signal. Normally the breakout is seen before the apex is
reached, almost after 2/3 length of the pattern is formed.

With the descending triangle pattern formation there is a reduction in the Volume, and at
the breakout point there is an increase in the volume.Therefore one have to pay attention to
the volume movement for further confirmation.

One can also calculate the Breakout range, or the minimum price target for the price
movement which should occur after the triangle is completed. It is the same as the height of
the triangle.

Again integrating this pattern with other technical indicators maximize the profit and
increase the confidence in placing yourself at the right position of the market. Like Pattern
formed at the oversold condition further strengthen the sell signal. Similarly one can
incorporate studies of MACD, Bollinger etc., to further enhance the pattern reliability and
finally the profit.

Symmetric Triangle Chart Pattern

Symmetric Triangles is an another types of triangle chart pattern used by traders. Again like
ascending and descending triangle it takes few weeks to few months for this type of pattern
to formed. It is also a and it is a continuation pattern of high reliability giving bearish signal
in a Downtrend Basics and bullish in an Uptrend Basics. This pattern also consist of four
parts:
1. Lower Ascending trend-line: It forms the support and generally have at-least two
points, more the better.
2. Upper Descending (falling) trend-line: It forms the resistance in the pattern and
have at-least two points, more the better.
3. Base: It is the vertical line drawn between lower trend-line, at which the pattern started
to the trend-line opposite to it. The value of base is used to keep the minimum target
amount.

4. Apex: It is the point where lower Ascending line and upper Descending line meets. Some
traders used apex as the time in which the minimum targets is achieved.

This Trends Basics is formed when there is a good completion between Buyers and sellers,
no body is giving up as a result there is formation of lower highs and higher lows. Price
continues to move in the direction of the trend. Like other Triangle pattern the breakout is
seen before the apex is reached, almost after 2/3 length of the pattern is formed.

With this pattern formation there is a reduction in the Volume, and at the breakout point
there is an increase in the volume. Therefore one have to pay attention to the volume
movement for further confirmation.

Again integrating this pattern with other technical indicators maximize the profit and
increase the confidence in placing yourself at the right position of the market. Similarly one
can incorporate studies of MACD, Bollinger etc., to further enhance the pattern reliability
and finally the profit.

Our website provides free Stock screening based on Triangle Pattern for Indian Stocks. It
can be found at:
Related Technical Stock Screener

Triangle Ascending Triangle Descending Triangle Symmetric

Triangle Ascending Triangle Descending Triangle Symmetric

Symmetric Triangle Chart Pattern Formed By Bharti Airtel Ltd -
Example

Next

Tutorial On other Triangle Pattern is at:

Double Top, a bearish reversal chart pattern explained

Double Bottom

What is Double Top Pattern ?

Double top is a trend reversal chart pattern formed after good bullish price move (a
continuous price move for a good duration) where the upward price movement looses its
steam (first top) and it retraces a bit (to neck line or mid point). Then again it moves in
direction of original trend and reaches the first top level there by forming second top. It
again cannot move above first top and start moving to neckline. Once the neck line is
broken its fall in price is steep.

Understanding Double top in details

Double top is formed when the stock moves up for many days and the movement is steep
towards the end. And then it falls from there by about 10-15 %. After this it again tries to
move up and reaches level of previous high but cannot cross its previous high. After this it
again starts falling to a level of neckline. Once it retraces below neckline a downtrend starts.
Please note that in actual practice, the two top may not be exactly at same level.
Generally, second top is a slightly lower level but 1-2 % higher then first level is also
acceptable. A significant higher second top may be dealt with lot of suspicion as it may
indicate continuation of uptrend.

Volume in double Top has a lot of significance as it can help to confirm formation of the
pattern. Volume during first top should generally be much higher than volume during
second top formation and volume during midpoint formation should be much lower than
volume during neckline break out. Please avoid aggressive positioning when volume is not
supporting the move. For aggressive traders a strict stop loss is recommended.

It is very fairly common to see a pullback near to neck line after formation of the pattern.
It should generally be seen as a healthy thing as it gives better confirmation of neckline
as resistance. In some case the pull back may happen few times. If this happens too many
times then it may not be typical double top pattern. In case of pullback, it is recommended
to keep a stop loss of about 3% above neck line.

Understanding Double Top Pattern

Double Bottom

Double top formation generally happens when knowledgeable investor sense value in stock
and start accumulating thus resulting in slow and steady rise in price with gradual jump in
price. Seeing the trend many more people jump in to make quick bucks. This leads to higher
jump in price.

Once this is known to lot of uninformed people, they jump in and moves the price to a very
high level (Top 1). But this price is unsustainable and smart investors starts booking profit
resulting in fall in price to a level of midpoint.

To lot of uninformed people who missed the boat during first rally, jump in considering it
'buy on dips' opportunity and raise the price to previous high but this time Volume is less.
As the higher point is unsustainable, the price falls to neckline where it may get some
support. Once the neckline is broken with good volume a typical trend reversal starts to
reach a fair value but the downward momentum can take it to below fair price range and
thereby making a classic double top pattern.

Gap between the two tops should be at-least 5-10 trading period. In case of short term
traders it can be as low as few mins and few months for long term traders. For traders who
trade based on Daily closing price may want to have at-least 5-10 trading session between
two tops. In TopStockResearch.com,we try to identify double top pattern based on at-least
three different period with gap varying from 5 days to a month. If the gaps are too close
then it may indicate a short term resistance in longer term uptrend move.

Double top pattern is a bearish reversal pattern. What it means is, the relevance is high
only when the stock is in Uptrend Basics and has no or little meaning when the stock is in
consolidation zone. Traders are strongly advised not to get confused
with consolidation zone.
It is one of the most commonly formed pattern and easy to identify. Its reliability is as
good as 70-85% when volume is taken in consideration.

Reports on TopStockResearch.com

We at top stock research try to screen stock movement to find possible candidates for
double top formation. We deliberately identify these stocks slightly before there formation to
give heads up to potential traders and not after their formation thereby limiting the scope of
returns for them. Please note that not all screened stocks actually form double top. All we
want our investors to keep these stocks in their radar. With our site please also note that
we do mention, price and volume of the stock at both the tops and at the midpoint.

The high end report of Double Top Chart Pattern Double Bottom Chart Pattern

Reports based on Double Top/Bottom patterns for short, medium and long term can be
found at:
Double Top Report Double Bottom Report
As you have now learn better about the double top pattern, with this double top stock
screener, we hope you will be able to take advantage of it in much better way.

Double Top Chart Pattern Formed By Sesa Goa- Example

1
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Our Website provides Reports based on Double Top/Bottom chart patterns for short,
medium and long term can be found at: Double Top Report Double Bottom Report
Double Top Chart Pattern By Aditya Birla Nuvo - Example
2
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Double Top

Double Top Pattern Formed By HCL Technologies Ltd-

Example 3
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