Wining Chart Patterns Every Day Trader Needs To Know

Transcription

1 Wining Chart Patterns Every Day Trader Needs To Know Table of Contents Introduction Trading with Charts Previous Day High Breakout Long Previous Day Low Breakdown Shorts Bounce After Multipoint Drop To Yesterday s Low Drop After Multipoint Rise To Previous Day s High Open Gap Reversals & Gap Continuation Intrarange Cups Combination

2 INTRODUCTION "Day trading can be a real pain in the ass, at first." "Day trading gives real pleasure of trading once you master in Day trade, but it takes huge, consistent action to achieve your goals." Day trading believes in today merely. This ebook is one of ongoing practical day trader training that helps active trader like you learn how to trade effectively. By sharing my own personal favorite NIfty stocks daytrading chart pattern setups with you, I hope you will learn to profit as I have in the market. Trading is tough, it's hard work. Do you remember your early trading wins? The losses? What have you learned from them? Has it helped improve your trading? Think now of the exhilaration, the frustration, the stops and and learning curve. Hopefully, you've become more cautious, more accurate at clearly identifying the chart patterns and indicators that work out. I hope you'll let me share some of what works for me in my personal trading activities with you. My method: most of my trades are from 2 to 15 minute round off trades done in the 9:45-11am timeframe each trading day. Why I write this I remember my first year or two of trading - it was a lot of hard work. I read a lot of books and visited a lot of websites, most were not nearly detailed enough to help me when I was in front of the monitor trying to decide whether to buy or sell. So then I tried to follow calls from tv show. Most were "buy it now" places, with a lot of off topic conversation and a lack of real time training in the technical details of how to day trade. I didn't know why this analyst was saying to buy a stock where they were. Momentum trading is like gambling, and I do not gamble. Off topic conversation, while entertaining, was not helping me become a better trader. So, I decided to learn how to trade my own methods. After having tested many techniques and methods out there, and experimenting heavily for more than five years. This ebook is a sample of my methods - you will learn some of the chart patterns that I have personally found to be the most successful in it.

3 The reason I developed this book was #1) to share with you what I've found works and #2) to continue to build credibility with you and other traders who may want to learn about other resources, like day trading course. Fair enough? Even if you don't decide to get anything else I offer, I provide this ebook to you as my gift, and hope that it will help you identify more profitable trading setups. Put the Trading Odds in Your Favor There's an overwhelming amount of information that exists online for today's active trader. Where to begin? How to get down to business? Let's "filter the noise" out and focus on chart patterns for Nifty daytrading... Become a technical trader - make sure you have specific reasons for every entry, not just "it looks like it's going higher". That will have your trades fade out on you often. Make sure to keep the tiniest of stops possible - I like to use.2 to.3 type stops, and let the wins go from 1/2 to 1.2 or so type trades. Trade stocks in the Rs1000-Rs3000 price range with at least 10Lk shares average daily volume at first. Do Not trade cheap Below-Rs1000 stocks or low-volume stocks. Do not let bad daytrades or blown stops turn into "swingtrades Personally, I think it's a good idea to papertrade for at least a Month prior to risking live capital in the market, and use 100-share trades for the next 2 months etc. Take your time - this is a profession, like any other. Rushing into trading has left the vast majority of impatient people broke and back at a day job. Don't go there. A few words to the wise: Be very cautious, and test out all the methods and techniques you read about. Be sure to daytrade with a good multimonitor setup (1-2 monitors minimum) and a fast internet connection (56k won't do) as well as a direct access broker. This is a profession for well-trained and prepared people only. Treat it like a "War for survival" approach, and you will likely join the ranks of the broke. Treat the markets with respect, learn it professionally, and your opportunities are unlimited. Please be cautious out there, and take your time learning how to trade. Have a Good Trading

4 Trading with Charts What you Need to Know About Chart-Based Daytrading Here's a few tips: - I typically spend a lot of time waiting and watching for a chart after market hous. to emerge that looks powerful enough to yield a healthy profit. _ Be always doubtful - always look for reasons to not to trade the stock. Become sensitive, look for specific indicators. _ Integrate the market signals, look for relationships. Example: Make sure the sector charts are making new highs along with your stock chart for safest long entries. Don't trade "too late" in a trend, eg the market may run for minutes max in a single direction on initial moves, don't be buying 10 minutes into the trend, especially for 9:30-10am trading. _ Make sure you are using the technical indicators correctly eg the stochastic & Moving Average crossovers Always exit at Moving Average Right side(use for exit signals). Also, pay close attention to: #1) the broad market charts (Nifty) and sector charts (Banknifty,CNX Infra,CNX Reality etc). Making new 1-day highs? 2-day highs? By 2-day, I mean today and the previous day. Important to gauge the market relative to previous day's trading range, trend and OHLC values (open/high/low/close). #2) the stock chart pattern for the one you're trading, eg cup pattern? 2day high? In trading range? short/long? #3) time and sales for the stock: what's the story of the buy/sell pressure? "A chart is like a map, the more information each one provides, the better the chance of reaching your destination safely." - Common Mistakes to Avoid in Trading & Reading the Charts Failing to use charts as part of a system: You need to see the big picture of the market each day, eg is it a red or green day, is it a volatile or choppy day First... then, use the chart patterns to help you identify profitable entries and exits. Also know the time of day patterns, eg best trading is done from 9:40 till 11am each day. Not trading within the reversals - get your timing right: Market has reversal times, eg roughly every 10 minutes during the first half hour, also 9.45am, 10:30, 11:15, 12:30pm, 2.30, 3 typical reversal times. So, don't go long into 10-minute long run during the first half hour etc, wait for a consolidation and cup breakout for next Buy(Long) or sell(short) entry

5 Other Tips Avoid the noise: I do neither watch the financial news nor any show on television after 9:00 am IST. Keep your Trading room at Pin drop silence because Trading requires strict concentration. In your first month day trading of Nifty stocks, just focus on learning how to correctly enter stocks making new highs over the previous day's high, especially if these follow consolidation or bullish breakout patterns. Let's move on... Limit your attempts at "bottomfishing" and "shorting tops" to zero percent your first month, 20% max your subsequent month. If I were to give myself advice as a new trader, this would be a top priority. Make an 80/20 rule, buy breakouts as 80% of your trades, there are plenty of cup breakouts to trade, limit bottom bounce attempts to no more than 20% of your trades. Try it and see! Affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions.

6 Previous Day High Breakout Long "Mastering the chart patterns and being able to instantly spot micro support/resistance & trends is essential for successful day trading" Day Trading Winning Chart Pattern #1: Previous Day High Breakout Long - After Cup Pattern On the Open Let's start with our basic "power chart" that I encourage every trader to learn. Want to trade with smart money? Professional traders know this - here I will share the tip with you. Institutional buy programs use the previous day's open/high/low/close data as part of their algorithms, in addition to Premarket /fair value and other data. Like most gems, it's easy to spot, once you know how. It's revealed here now publicly for you. As a side note, by showing you all this one, it's validity won't diminish - it will continue to be my favorite entry criteria. You know a cup pattern, right? Looks like the letter U. Basic enough, you buy cup breakouts. Here's where it gets interesting: Step by Step Directions: 1. Use a Five-day 5-minute time interval candlestick chart as your primary day trading chart & Focus it by Two-Days chart, I mean have a chart that shows today and the previous day's trading ranges and activity, along with volume. 2. Scan through your basket of core trading stocks, and look for a stock that is about to move above it's previous day's high for a long entry. You want to avoid buying "in the range" of the previous day's trading for this play. This is because pro money flow isn't in as strongly. Pro money flows into or out of stocks once they have gone over the previous days high (longs) or under the previous days' low (shorts). 3. These trades are always executed in the 9:30am till 11am timeframe, and last from 2 to 15 minutes max. round off.

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8 How t o Use this Chart Pattern Correctly Be sure to wait until the stock has cleared at least.2-3 points above the previous days' high. For example, if SBIN S high was 2087 yesterday, you would wait for it to get to 2091 for the long breakout entry today. Moderate these entries with the following two factors: a) Know the stocks' average daily trading range, and avoid buying 3/4 of the way into its' range. For example, if SBIN S has a point average trading range, hold off on a breakout long if its' already moved 30 points on the day in the direction of your trade; b) Do not enter late in a run, eg if the SBIN S has already just moved for the last minutes in one direction without a pullback, you should be careful about a new entry in the same direction - timing is key. _ Use time & sales to help you gauge the buy/sell pressure prior to any day trading entry. Chart reading is a skill that must be practiced to help you determine the net buying in the stock. Use this to help Support or cancel out your trading decision Of all the patterns I train traders in, this one is the single most important to master. It is my "bread and butter" pattern that I use to help me identify a large percentage of correct long entries for. You can go long for a stock that's trending to make a 2day high breakout as well. By the way, a cup isn't required, but it does add solid strength to the pattern as it is "seller tested", vs just a buying continuation.

9 Day Trading Success Secret #2 Patience is needed for breakout trading. You may well go a day or two before you see a setup like this one. Avoid the temptation to Overtrade and try riskier intrarange trades. It's better to be bored than broke, and you don't want to trade because you're tired of waiting for a breakout. Simply turn off the pc and wait for the next day. Capital is hard to replace, your time is best spent looking for successful entries, not trading everything that "looks like buyers are there", only to get stopped out. So, wait for breakout trades - it's worth it. Let's take a look at the next pattern... "..identify a change of trend in a market as early as possible, take your position, ride the trend, and close your position before or shortly after the trend reverses again" Day Trading Winning Chart Pattern #2: PREVIOUS -DAY LOW BREAKDOWN SHORTS The inverse of the previous chart, we look for stocks that are trending or making cup breakdowns below the previous days' low. As with the prior example, the basis for this one is that the stock has triggered buy program weighting on loss of the OHLC Low value, and is getting weaker. Step by Step Directions: 1. Use a Five-day 5-minute candlestick chart, as in the previous pattern. 2. Look for the stock to dip below the previous day's low. Also check that

10 the the stock has not made a "sudden drop" of 2 or more of a point, to get under the previous days' low. As always, make sure your sector charts are headed down and that we're in a "red day", eg sectors are negative, eg NIFTY < -1.0%, before entering these, for added safety. 3. These trades can be done in a longer timeframe, and off known reversals, eg shorting off a 10am reversal, or shorting into lunch selling weakness. Here's an example trade : How to Use this Chart Pattern Correctly _ Be sure to wait until the stock has cleared at least.2-3 points below the previous days' low. For example, if HINDUNILIVER low was yesterday, you would wait for it to get to 526 or 525 for the short long breakdown entries today. _ Moderate these entries with the same factors as the longs in the previous example: a) Know the stocks' average daily trading range, and b) Do not enter late in a run _ Use time & sales as well, it's used for all trades, along with the market, sector and stock charts.

11 These are much higher percentage than trying to short a stock that's just run up a lot, thinking you're "shorting the top", remember to sell/short weak stocks and buy strong stocks. Do Not fade (go against) the trend unless you are very experienced at reversal pivot trading and can read a stocks' MOVE on the daily Basis. Even then, limit fades to 20% of your trade attempts max. Let's take a look at the next pattern... Day Trading Success Secret #3 Breakdown shorts requires experience in trader - practice order routing extensively prior to shorting. Shorting is an effective daytrading strategy for experienced traders. Since you have to have an uptick to short into, your risk is slightly higher than with long entries. Be sure to spend plenty of time learning how to trade long prior to attempting shorts, so you don't get frustrated by poor fills and short squeezes.

12 "For technical analysis to work for you, you must be totally disciplined: as soon as the reason that you entered the trade is no longer there, you must exit as quickly as possible." Day trading Winning Chart Pattern #3: Bounce After multipoint drop to yesterday s low Breakouts are the best of all trades, and should account for 80%+ of your trading activities. There are also those occasional fibonacci bounce plays that can be profitable to enter, when selected carefully. This chart pattern is presented to help you identify the best entry for a long bounce play, again using the 2day chart. Step by Step Directions: 1. In this trade, we're looking for a fast multipoint drop (over 2-3 point) down to the previous day's low, followed by a cup pattern long reversal bounce. You do not want to "catch a falling knife" by guessing at a bottom. Make sure that there is a cup pattern, a decent "U" of at least 3 to 5 point off the bottom before trying a long bounce entry. You don't want to buy a downtrending stock til the trend is broken on cup pattern bounce off the previous days' low. 2. Look for volume and time & sales strength accompanying the reversal. Volume reversals are powerful, the initial short covering spurs new buyers and a short squeeze, both of which support our long entry decision. 3. Now, once in, set your trade expectation no higher than 38% (first exit) or 50% (second exit) of the range of the drop, using these Fibonacci retracements as guidelines for exit targets. Stocks will often fall and bounce to half their initial range, so trail closer stops as the stock recovers to the fibo areas. 4. Your max stop loss is the previous low, once the stock has dropped past this your reason for entering the trade is gone, and so should you be. Typically, good trades are good from the start, and I give them very little "space", eg. 2 or 3 points max on any single trade, often less.

13 Here's an example trade using SBIN How to Use this Chart Pattern Correctly _ Bounce plays are risky - be cautious and only enter bounce back large fast multipoint drops, not stocks that are slowly grinding down, those are most likely shorts. _ Confirm these with time & volume on a reversal. Make sure that there's solid buying volume on a reversal. You can only determine this if you've been watching the time & sales for the 10 minutes of so prior to where you'd look to go long on a bounce, so you can detect a shift in the trend, a reversal. Needs at least a year experience, so don't try this, new traders. _ Use candlestick dojis to help spot pivots and reversals. Candlestick books are required reading, Now days most of the trading softwares provide candlestick patterns _ For Nifty day trading, be sure to look for the bottom bounce off the previous days' low following a sharp multipoint drop, nothing less is strong enough. Bounces are tricky, and require faster order routing and trailing stops than breakout trading. Once mastered, they are a useful addition to your trading skills, and are fun to trade, when done right.

14 When I was just starting out, I'd always guess at bottoms and "try to beat the crowd in" and buy the bottom. If I had it to do over again, I'd have just focused on breakout trading my first year, and added bounce attempts only in next year and beyond, limiting them to just 20% of my trade attempts. Let's take a look at the next pattern... Day Trading Success Secret #4 Self-control is needed to avoid making too many bounce trade attempts each week. Of all my discipline issues, this one is still up there as a top one. I'm great at keeping small stops, but resisting the occasional bottom fish is a much tougher job. What I've found is that these follow through much less often than the breakouts do. So, to minimize risk, minimize the number of "bounce attempts" you make. "You cannot reasonably expect a pullback rally to climb all the way back to a trendline that is ascending at a very steep angle" Daytrading Winning Chart Pattern #4: Drop After Multipoint Sudden Rise To Previous Day s High It's a trade in which you look to short the failure of a double top to breakout.

15 Step by Step Directions: 1. On your two-day chart, you look for buying up to the previous days' high. 2. Typically, the faster the move, the faster it will attract a reversal/pivot. So the best types of patterns are those where it shoots up say from 9:45 til 10am and starts to fade/sell back down at 10am, right under the previous day's high, this is where a short entry can be considered. A steep slope is preferred to a gradual climb, which indicates a strong stock. 3. Look to short only after a small bear cup pattern on volume is seen. This looks like an upside down, eg the letter A... let the stock lose at least 2-3 POINTS before firing off the short. Enter at the 2 or so under the previous days high when you see sellers and time & sales in favor of sellside bias. Here's an example trade using SBIN How to Use this Chart Pattern Correctly _ Don't try to guess tops or bottoms, make sure you have chart and time & sales confirmations. _ As with all "Swing" trades, eg pivot type trades, you look to close the position as it approached a fibonacci retracement value, 50% of the range max. You trail closer and closer stops,, yes even with decimal trading, keeping it tight, as it approaches a fibo retracement value. _ In the example above, there's a STRONG support at 2255 on the previous day, a high of 2278, so the 50% fibo retrace value is 2260, at which point the stock consolidates/chops, so we cover out the short for a nice profit. Let's take a look at the next pattern...

16 l Day Trading Success Secret #5 Dynamic Position Sizing: In any of these trades, you should become familiar with how to incrementally add to and get out of your positions, building them when you're proven right, and getting out with trailing stops to lock in profits on the trades that work out. Order Technique? Start your position with the largest size first, then add 50% increments to it. In this example, we could for example short our first 1000 shares SBIN at the , then short an additional 500 at the 2276, and cover out the whole 1500 when it starts to bounce at the 2260 or so. You would have earned assured Intraday profit of Rs on margin of Rs.3,20,000.(assume 10% Margin)

17 "Every time you look at a chart...the first two questions that should pop into your mind are Where is support? Where is resistance?" Day Trading Winning Chart Pattern #5: OPEN GAP REVERSALS & GAP CONTINUATION These are well-known, and are occurring less often (as of 2008) since the market makers know that day traders predict them. But, they still do pop up on the scanner now and then (I've found only 4-6 tradable opportunities each month, for example), so they're worth learning about. I'll share some specific tips here to help you make the most of gap open trades, with a few subtle entry tips that should help you with these high-percentage trading opportunities, when they do occur. Step by Step Directions: 1. Be sure to check premarket chart to measure capability of the stock. This provides a powerful edge, so you can see what the stock is doing once it's gapped up or down. The trend and the cup pattern need to be spotted. 2. Look for stocks that have gapped at least a 3-4 point, over Yesterday s close, It's preferable to see stocks gap over 1.5% in either direction premarket, well outside of the previous day's trading range. Then, you set your entries above the whole point over the current gap up/down for both continuations and reversals on the open. I do not buy stock premarket, I'll wait til the market's opened and gotten some initial direction before deciding when to enter, eg after 9:45 am. If you're fast, you can trade premarket and on the open. 3. Be ready to buy large gap down recoveries that are making a new cup pattern high over the previous premarket high, or, short a premarket gap up on a bear cup pattern breakdown under the previous premarket low. You should be equally prepared to short continuation breakdowns as well. Smaller gaps are generally continuations of trend but large gaps are mostly reversals. Here is example

18 How to Use this Chart Pattern Correctly _ Gap plays are for experienced traders only. Your criteria should be: a) must gap at least a point or more premarket on heavy premarket volume (eg over 50K shares by 9:30am) and b) must be in the Rs250+ per share price range. _ Your first job is to determine premarket micro-support and resistance lines. For example, in Jet airways, it would be roughly 352 and 357. _ Your second task is to watch the chart premkt and into the first minutes of the open to determine whether it will be a GAP REVERSAL or GAP CONTINUATION type of play. Watching the chart is critical to this, and using your support/resistance lines to help determine your entry. _ Because of the added volatility, experienced traders can consider stopping out and reversing if their first trade was in the wrong direction. Let's say we had bought SBI as soon as it got over 2265 Yesterday s High Breakout. This didn't happen, it got sellers instead. An wise trader could have sold and fired off a short into an uptick and covered out as the stock continued on down for a nice profit. Adding position to this, we could consider shorting another 50%+ shares under the 2252 on a continuation, covering over the 2230 support later in the session. The gap reversal and continuation trades are difficult to master, and, like "buying bottoms and shorting tops", should wait until you have successfully mastered breakout trading. Even experienced traders should limit reversal/pivot types of trades to no more than 20% of their trade attempts, and focus instead on microbreakout type trades, as explained in the first two chart patterns.

19 Day trading Winning Chart Pattern #6: Intrarange Cup Combination Let's look at intrarange cup patterns Step by Step Directions: 1. Identify the previous day's high, low and any "inside cup patterns" from the FIVE days trading chart. See the cup below 232 level, in the previous trading day? I've drawn a line to indicate this. I've drawn a second line to show the previous day's high, which as we know, we use as resistance/exit area for current day's trading. 2. Set your current day's BUY entry trigger just above the cup pattern that was formed in the previous day's trading. In this case, that would be just over the 232 area. 3. Be ready to exit into the Five days high, as a resistance area. In this case, that would mean for example, I'd be selling in the 244 area. 4. "2nd move on breakout": if waiting for a breakout entry, it would be just over the 231.6, previous day's high. In this case, however, you can see that it would stop out, since it barely made it over the previous day's high prior to retracing. So, keep both strategies, intrarange cup breakouts, as well as 2-day high/low breakouts, in mind as you're seeking trade opportunities. Same pattern can be utilized for Breakdowns. Here's the chart, see if you can spot these patterns as described above:

20 CONGRATULATIONS! You've seen many of the patterns I like to use. For more, contact me to help you apply these day trading techniques. Thanks for taking the time to study this E-book. I hope it will continue to serve as a good reference tool for you in the months ahead. Feel free to refer back to it anytime you wish. Have a Good trading, Umesh Kadam Best wishes for success in your trading! Contact me anytime at upk0@rediffmail.com with questions or comments. I reply to every .