Volume Analysis Patterns

Volume is one of the tools professional traders use to find clues about possible market movement as well as confirmations to trends.Volume data is most accurate in stock, future, and commodity exchanges. This is due to the fact that all of these are regulated exchanges. While most of the trading that happens on these exchanges is electronic nowadays, every order still has to be cleared with the exchange in the end, so no matter how large or small the quantity traded is, it is registered in the database.

In Forex trading things are different. Volume data is measured by how many ticks are registered in time frame chosen in the chart. For those who don’t know what a tick is, it is a transaction (filled order) made in the underlying instrument regardless of the quantity traded. A tick charts draws bars based on the predefined number of trades conducted (if you have a 50-tick chart then each bar is closed at the end of the 50th trade, regardless of how much time it takes to conduct these trades. This means a transaction of 1 mini lot is a tick and a transaction of 10 standard lots (buying or selling 10 lots together as 1 single order) is also a tick.

With the absence of a single exchange that processes all orders in Forex, each broker calculates volume based on their own ticks taken from there trades database.

The bottom line is, the following patterns are best applied to stock and future contracts and not of much value in the Foreign Exchange trading.

To produce meaningful signals, volume is coupled with price data in these patterns.

Accumulation

Accumulation, which indicates that buyers are loading up on a certain stock or a futures contract, is signaled by a slowing in the downtrend (or price going nowhere) while the volume stays high.

Distribution

The opposite of accumulation is indicated by a slowing in the uptrend (or price going nowhere), while volume stays high. Which means that sellers are starting to takeover in the underlying market.

Confirmation of Trend

For a trend to be healthy whether it is an uptrend or a downtrend, volume has to be increasing in each up or down swing. The volume data acts as a confirmation of the trend in this case. A decreasing volume means that the trend is nearing its end or at least about to stall.

Volume Spikes

Sometimes volume spikes, accompanied with other reversal signals with gaps or candlestick patterns, signal the end of a decent run in price. This can be very aggressive and needs extra precaution.

Breakout Signals

To gauge the interest and therefore determine the probable direction of the breakout of a trading range, determine the trading range that you want to monitor, then watch the overall volume in the duration of the trading range. 

Generally speaking, higher volume leading to the breakout (whether up or down), gives more value to the breakout. There is also the follow-through volume, which is high volume after the breakout has occurred. This also adds to the strength of the breakout.

Notes of Precaution

• Volume is relative so when dealing with volume bars I found the best way to put things in context is drawing trend lines across volume bars. This helps understanding the story that volume tells.
• Volume signals aren’t enough by themselves, instead they act to confirm your other signals or refute them. Don’t rely on volume alone to produce signals.

Read more »

Butterfly and Bat Chart Patterns

Butterfly and Bat Chart Patterns

Chart patterns are among the most important tools we can use to predict the market direction, take a position and make some money. So far, I have talked about triangles, wedges, flags, pennants, rectangles, head and shoulders, and cup and handle patterns. In this article, I am talking about some other kinds of patterns that are very important in predicting the market direction, specially when there is a possibility that the market changes its direction.

Butterfly which is also known as W, is an important reversal pattern that usually forms at the top of an uptrend. Of course, you have to notice that this pattern doesn’t always cause the market to reverse, and sometimes the trend will be continued after that. I will tell you what to do to stay away from taking wrong positions.

Bat pattern is so similar to butterfly pattern. It is a reversal pattern too. In fact butterfly and bat patterns are almost the same, but just their shape is a little different. Sometimes it becomes hard to say if the pattern is a bat or butterfly pattern, but this doesn’t matter at all. The only thing we have to learn very well is that we understand that the market is going to an indecision status for a while and it is possible that it reverses, so that we take a position and make some money.

Experience shows that bat pattern usually forms at the bottom of downtrends, but butterfly patterns form at the top of uptrend. Bat patterns look like capital M, whereas butterfly patterns look like capital W.

Please let me show you some examples and then I will tell you how you can trade using these patterns.

This is a beautiful butterfly pattern formed at the top of a strong uptrend on GBP/USD daily chart:

 And this is another butterfly pattern on the same chart:

 And this is another butterfly pattern formed on EUR/USD four hours chart:

 This is a bat pattern formed at the bottom of a downtrend on EUR/USD four hours chart. As you see it really looks like a bat and also capital M. Also you can see that the downtrend reverses and goes up very strongly after this bat pattern:

 How to Trade Using the Butterfly or Bat Patterns?

Like all the other patterns, this pattern also has a support and resistance line. My strategy for trading this pattern is the same as my trading strategy with the other patterns. I consider the rules, but I always wait for breakouts. This is what I have always emphasized on.

For example, although it is said that butterfly and bat patterns are reversal patterns, I do not go against the trend when I see that these patterns are formed at the top of an uptrend. I wait for the market to break below the support line and then I go short.

Here below I am showing you an example. As you see a strong butterfly pattern is formed on EUR/USD four hours chart, and finally it worked strongly as a reversal pattern and the price went down. However, in order to go short, we had to wait for the market to go down and break below the butterfly support. The breakout occurs when a candlestick closes below the support line or above the resistance. The stop loss has to be placed above the candle which has broken below the support:

Read more »

World Stock Exchanges Comparing

Largest World Stock Exchanges Comparing

 The Oldest Exchange: Of the top 20 stock exchanges on the above list, the oldest can be found in Frankfurt. Originally the location of medieval trade fairs in the 11th century, Frankfurt quickly became an important center for commercial and monetary transactions. The “birth” of the stock exchange is said to have happened in 1585 when fair merchants decided to establish fixed currency exchange rates.

The Most Listed Companies: Established in 1875, the Bombay Stock Exchange was actually Asia’s first stock exchange. It has 5,749 listed public companies, which is the most of any of the top 20 exchanges. The majority of companies listed on the BSE are small caps, with an average market capitalization of just US$292 million per company.

The Largest Market Cap: As mentioned before, the NYSE takes the cake here with close to $20 trillion in market capitalization. There is a steep drop-off after the NYSE, which is followed by NASDAQ ($7 trillion), London Stock Exchange ($6 trillion), Tokyo Stock Exchange ($4 trillion), Shanghai Stock Exchange ($4 trillion), and Hong Kong Stock Exchange ($3 trillion).

In fact, only 16 exchanges have market capitalizations over $1 trillion. Here are those visualized by market cap on a map from our previous infographic that showed all of the stock exchanges in the world.

 

Read more »

Intraday Trading Knowledge 9, Importent Summary

Read more »

Glossary, Stock Market Basic, Share Market Basic

Whether you are a beginner at investing or seasoned investor being familiar the basic term of the stock market is essential. Expanding your stock market vocabulary will enable you to be a better investor, so that you can trade successfully. Given below is a basic glossary of terms that 

you must know as an investor:-

•     Agent: In the stock market, an agent refers to a brokerage firm which buys or sells shares on behalf of the investor.
•     Ask/Offer:Lowest price at which an owner agrees to sell the shares.
•     Assets:Assets refers to the property owned by the company such as cash, equipment, land, technology etc.
•     Bear Market: It is a market situation where the stock prices fall consistently.
•     At the money:A situation at where the options strike price is same as the price of the underlying securities.
•     Beta: It is a measurement of relationship between stock price of any particular stock and the movement of whole market.
•     Bid: The highest price that a buyer is willing to pay for a particular stock.
•     Blue Chip Stock: Stock of well-established and financially sound companies that have a market capitalization in thousands of crores.
•     Board Lot:A standard trading unit which is defined by a particular exchange board. The Board lot size depends on the per share price. Some common board lot sizes are 50, 100, 500, 1000 units.
•     Bonds: It is promissory note issued by the government or a company to its buyers. It illustrates the specified amount held for a specified time period by the buyer.
•     Book: It is an electronic record that is used to manage all the pending buy and sell orders of particular stocks.
•     Bull Market: A market situation where the price of the stocks increases rapidly.
•     Call Option: It is an option given to investor the right to buy a particular stock at a specified price and time which is not an obligation.
•     Close Price:The final price at which the stock is sold or traded on a particular trading day.
•     Convertible Securities: A security (bonds, debentures, preferred stocks) by an issuer that can be converted into other securities of that issuer are known as convertible securities.
•     Debentures: A form of debt instrument which is not secured by physical assets or collateral.
•     Defensive Stock:A type of stock that provides a constant rate of dividends even in the periods of economic downturn.
•     Delta: The ratio that compares the change in the price of the underlying asset to the corresponding change in the price of a derivative.
•     Face value: It is the cash value or the amount of money the holder of a security is going to earn from the issuer of the security at the time of maturity.

    One-side

Read more »

Share Market Basic, Dividends

Important Facts to Know about Dividends

As discussed, shares comprise a certain portion of an organization. Several profit-making companies listed on the share market share their profits among shareholders, which is the primary objective of paying dividends. Companies distribute a small component of their profits as dividends to the investors. This becomes an important source of earnings for investors who stay involved in the share market for a longer period of time.

Because dividends are a minor portion of company profits that are returned to the investors, they provide additional incentive for individuals to hold on to their stocks even if the company is not growing at high rates. This is an important share market basic, which all investors must remember.

Companies utilize dividends to share the annual profits directly with the shareholders. Generally, it is paid as cash; the organization pays a small percentage of the earned profits to every shareholder. Sometimes, this profit share could be in the form of offering additional stocks to the investors.

• Important Facts to Know about Dividends

    Periodic Payments: Most companies pay an annual dividend based on the total profits made during the year. In certain instances, organizations may pay quarterly dividends or special one-time dividends if exceptional profits have been earned through unique events.
    Taxable: Investors need to bear in mind that income earned from dividends is taxable as per the Income Tax Act, 1961. An accountant should ideally be consultant for clarifications and more details on this.

• Types of Dividends
  

Companies can either pay fixed rate, referred to as preferred dividends, or they can pay variable dividends based on the earnings, known as common dividends.

Investors should remember one thing about share market investment — companies are not obliged to make these payments by any regulatory guidelines. However, preferred shareholders are more likely to receive these pay-outs, unless the companies are going through exceptional financial difficulties.

• Dates to Remember
  

    Declaration Date: This is the date when the company determines the payment date for the dividend, the ex-dividend rate, and the dividend amount.
    Record Date: The companies compile the list of all the shareholders as on the record date. All these investors are eligible to receive the declared dividends.
    Ex-Dividend Date: This is often a few days before the record date. The primary objective of this date is to ensure pending transactions, if any, are completed prior to the record date. Any investor who does not own company shares before the ex-dividend date will be ineligible to receive the dividends for the said period.

• Benefits of Dividends
  

    For Companies: Organizations on the share market pay dividends to retain investors by keeping them happy. It is often perceived that dividend-paying organizations have progressed from the growth stage, which means they cannot keep pace with the rate of growth expected by the markets. Organizations that do not reinvest their profits to grow their companies pay dividends to shareholders. Regular dividends make the stock appealing to investors, which, in turn, helps in increasing the price of the share.
    For Investors: Dividends provide investors a stable return on their investments, which is low risk. Individuals who are risk-averse can be assured of investing their money in stable companies with low growth but with almost no risk of a fall in share prices, which can then risk their capital investments. In addition, as the organizations continue to grow, the dividends increase, which raises the value of the stock for the investors.

Investors need to bear in mind that bigger dividends do not always mean better. It is generally seen that companies paying high dividends are unable to sustain these rates in the longer period. Thorough research and exercising caution while choosing dividend-paying companies will help sustain periodic returns on investments in the share market.

Read more »

Intraday Trading Knowledge 8, Do & Don't for Intraday Traders

Dos & Don'ts for Intraday Traders

Day traders Buy or Sell Stocks several times every day and close out all positions before the market closes.
The expectation of Traders is making small profits with as little risk as possible and they simply look for potential price movement Based on Technical Analysis. 

• Plan your trade. Trade as per your plan.

Select your Stock, Decide the Quantity, Decide the entry and exit price and Decide the amount of money you can loose if the trade goes against you.
Trading in Opening and Closing hours of the market is Risky but Rewarding.

• Use a Stop Loss

Always trade with Stop Loss. Set Stop Loss Sell Order just below the low of the day or Support level and Stop Loss Buy Order just above the high of the day or Resistance level.

• Never Trade too many stocks at once

Always trade in High Volume Index based Shares.
Select Three or five stocks for Trading.

• Get the price movement between the bottom and top

It is not possible to Buy at the Bottom and Sell at the Top.
Try to trade between the Bottom and Top.

• Buy a stock

Always buy a stock that is going Up. Buying level is just above the previous closing price.

• Short the stock

Always sell the stock that is going down. Selling level is just below the previous closing price.

• Don't average Your Position

One common mistake by Traders is averaging Loss making position. You must exit if the trade goes against you.   

• Take control of your greed

Book Profit and leave the trading hall and enjoy the day.

• Take control of your fear

Cut your loss - Relax – Forget your loss quickly. Wait for next Opportunity. You can Win.

• Keep records of your trading results.

Always record details of your trades and mistakes. Accept failure as a step towards victory.

Read more »

Intraday Trading Knowledge 8, Stock Selection Idea For Intraday Trading

Tips on How to Pick Stocks for Intraday Trading

One of the big questions that come to every intraday trader’s mind every single day is to find the right stock for intraday trading. After all, the key to successful trading is the right selection of stocks. There are a number of factors that should be taken into consideration at the time of stock selection. There are so many listed shares but it isn’t necessary that they can be chosen for intraday trading. Take a look at a few tips mentioned below which highlight on
 

how to pick stocks for intraday trading? :
 

Shares Volume

One of the main criteria while intraday trading is the volume of the stocks. The total number of shares that are traded in a particular market at a given time reflect volume. It is mostly recommended to purchase stocks that are high in volume.
 

Stocks of the day

Depending on good news, a few stocks are expected to perform well. Such stocks are anticipated to move in either direction with good volume. These shares can be used for intraday trading.
 

Week’s movement

Study the movement of stocks that are constantly closing in negative or positive for the previous one week. An analysis of this movement will help you in selecting the stocks for intraday trading. 
 

Resistance level

Some of the stocks to watch out for are those that have broken resistance levels and which move in an upward direction. Such stocks are one of the favorite choices.
 

Trading in few stock lists

A few intraday traders involve in trading only in particular shares. This is because these traders engage in detailed study of share movement. This is one of the main intraday strategies that are followed by traders.
 

Top gainers and losers
While some shares come under top gainers, others come under top losers.  Such shares may provide fairly good movements. However, keep a close watch on these them in order to begin trading.

Read more »

Intraday Trading Knowledge 7, Intraday Trading Time Analysis

Intraday Trading Time Analysis

When it comes to intraday trading, daily charts are the most commonly used charts that represent the price movements on a one-day interval. These are beneficial for analyzing short and medium-term time periods; however, some traders may use these for long-term analysis. The thumb rule states that usage of daily charts is used for analysing periods exceeding six weeks. They help in assessing stock movements in a better way, thus giving clear picture about stock performance. This helps in planning the trading strategy effectively.six weeks.

Intraday Trading Charts

These charts are quite popular in the trading world, they help to illustrate the movement of the prices between the opening bell and closing of the daily trading session. There are several methods in which intraday charts can be used. Below are some of the most commonly used charts while intraday trading on the Indian stock market:

    Hourly Charts: These charts depict the price movements of a particular stock for a specific period of time. These include detailed information within the confines of a single trading day. Each candlestick or bar is representative of the opening, closing, high, and low of every hourly interval for the time period being analysed. These are generally used for short-term trades, which last from a few hours to a few days.
    15 - Minute Charts: These show the opening, closing, high, and low price movements at 15-minute intervals for a particular stock. The 15-minute charts are often used for day trades lasting from an hour to a few trading sessions.
    Intraday Five-Minute Charts: This is one of the most widely used charts by traders. It represents the price movements of the index or stocks over a particular period of time. Every bar on the chart represents the opening, closing, high, and low of five-minute intervals during the chosen time frame. These charts are frequently useful for quick scalps lasting from several minutes to several hours during a trading session. This kind of chart is also used by long-term traders to identify and select the most efficient entry and exit points while initiating trades over a longer period of time. Using the intraday five-minute chart for long-term share market investment can be a beneficial intraday tip for longer period investors.
    Two-Minute Chart: This is another intraday chart that is popular among stock market traders. This type of chart often depicts the price movement over some hours on the same trading day. Each candlestick shows the opening, closing, high, and low at two-minute intervals during the selected period of time. These charts are most beneficial for day trades or scalping, which can range from some minutes to several hours during one trading session.
    Tick-Trade Charts: These are line charts representing every trade that is executed on the stock market. While using these kinds of charts, traders need to bear in mind that time is of no essence and every point on the chart represents an actual completed trade. In case the markets are illiquid, the chart is depicted as a flat line. Highly liquid market charts show constantly moving ticks. The chart is beneficial while intraday trading in tracking every executed transaction with a line across time, which moves up or down to immediately show the upward or downward movement in the stock price. The tick charts are used by traders for scalping and to keep track of ‘out of money’ trades that need correction.

Based on the traders’ perspectives, market conditions can change, also depending on the period of time being analysed. To be successful, analysis of the accurate time period is important and is a vital intraday trading tip that must always be borne in mind.

Read more »

Intraday Trading Knowledge 6, Intraday Trading Indicators

Intraday Trading Indicators

Be it a beginner or an established trader, following the basic intraday tips is a common practice before starting the trading day. However, your trading strategy changes with time, and the concurrent events play a huge role in its working. In order to maximize returns, it is essential to understand the market. For this purpose, there are trading indicators. Trading indicators are beneficial tools that are used with a comprehensive strategy to maximize returns..
Information Offered by Intraday Trading Indicators

•     The direction of the trend to determine the movement
•     The lack of or existing momentum within the investment market
•     Profit potential due to the volatility
•     Determine the popularity through volume measurements.

These are the vital pointers shared by trading indicators. These basic, but beneficial pointers help in assessing the market conditions and allow traders to take better decisions with respect to trade positions.

Useful Intraday Trading Indicators

    Moving Averages: Traders often hear about daily moving averages (DMA), which is the most common and widely used indicator. The moving average is a line on the stock chart that connects the average closing rates over a specific period. The longer the period, the more reliable the moving average. This indicator will help you comprehend the underlying movement of the price, as prices do not move only in one direction. Stock prices are volatile and the moving average indicator smoothens the volatility to provide an understanding of the underlying trend of the price movement.
    Bollinger Bands: This intraday trading indicator is one step ahead of the moving average. This band comprises three lines—the moving average, an upper limit and a lower one. All these are representative of the stock’s standard deviation, which is nothing but the amount by which the price increases or decreases from its average. This provides traders an understanding about the stock’s trading range.
    Momentum Oscillators: Stock prices move up and down. There are short-period cycles that are unrelated to the bullish or bearish market trends. In such cases, it is easy for day traders to miss out on such changes, which is when the momentum oscillator is beneficial. This indicator is depicted within a range of 0 to 100, and is advantageous when the price has achieved a new high or low, and one wants to determine whether it will further rise or fall. In other words, the momentum oscillator helps to understand when the market sentiments are undergoing modifications.
    Relative Strength Index (RSI): The RSI is one of the useful intraday trading tips to compare the share price’s gains and losses. This information is then formulated in an index form, which further helps in narrowing down the RSI score ranging between 0 and 100. This index increases with price rises and vice versa. Once the RSI increases or decreases to a specified limit, you can modify your trading strategy.

Decoding the Intraday Trading Indicators

    Moving Averages: If short-term averages are exceeding the long-term averages, it indicates a bullish market trend. Traders may take a buy call with specific strategies like stop loss either at the long-term moving average or retracement support, and vice versa. This intraday tip can help traders earn decent profits through intraday trading.
    Bollinger Bands: If the stock is trading at a price below the Bollinger Band lower line, there is potential for the price to increase in the future. Traders can choose to take a buy position. On the other hand, if the current stock price is over the upper line, traders can sell the share.
    Momentum Oscillators: If the share price has reached a historical high, and the level of the oscillator is not the same as the price, it is indicative of slowly decreasing demand. This also indicates the possibility of a stock price fall. And the opposite is true for stock price rise.
    RSI: Most analysts will recommend traders to sell the stock when the RSI touches 70 and a buy recommendation when it falls to 30. However, all stocks may not adhere to this pattern, so it is important to analyse the volatility and RSI history before making a decision.

Using intraday trading indicators help in averting risk and placing appropriate trades based on technical analysis and market sentiments.

Read more »

Intraday Trading Knowledge 5, How to Make Profit in Intraday Trading

How to Make Profit in Intraday Trading

Intraday traders always face inherent risks that exist in the stock markets. Price volatility and fluctuating daily volume are a couple of factors that affect the stocks picked for daily trading. Ideally, Traders should not risk over two per cent of their total trading capital on a single trade to ensure the right risk management. However, the desire to earn higher profits often compels traders to risk more. In order to balance the risk taken, while achieving higher returns, here are some tips to follow:

• Opening Range Breakout (ORB):

 This intraday trading strategy is widely used by professional traders as well as amateurs. To maximize the potential of this strategy, combining it with the optimum use of indicators, accurate assessment of market sentiment and stringent rules are recommended. ORB has numerous variations; some traders may opt for trade on large breakouts from the opening range and others choose to place their trades on the opening range breakout. The time window for the trades ranges between 30 minutes and three hours.

• Mapping Resistance and Support:

Every stock price fluctuates within a range from the initial 30 minutes of the start of the trading session, which is known as the opening range. The highest and lowest prices during this period are assumed as the resistance and support levels. It is advisable to buy when the share price moves beyond the opening range high and sell if the price falls below the opening range low.

• Demand-Supply Imbalances:

An important intraday trading tip for beginners is to look for stocks where drastic demand-supply imbalances exist and opt for these as entry points. The financial markets follow the normal demand and supply rules—price reduces when there is no demand for higher supplies and vice versa. Users must learn to identify such points on the price chart through research and studying the historical movements.

• Opt for 3:1 Risk-Reward Ratio:

Traders, especially beginners, must understand the appropriate risk-reward ratio. Initially, finding stocks that provide a potential risk-reward ratio of at least 3:1 will be beneficial in earning profits in share market investment. This strategy will allow them to lose small while giving them the opportunity to earn big even if they have losses on most of their trades.

• Relative Strength Index (RSI) and Average Directional Index (ADX):

Combining these two intraday trading strategies to find buy and sell opportunities can help traders earn profits. The RSI is a technical momentum indicator comparing recent losses and gains to determine over purchased and oversold stocks. The ADX is beneficial and used to determine when the prices are showing strong trends. In most scenarios, if the RSI crosses the upper limit, it is indicative of a sell trade and vice versa. However, when you combine the RSI and ADX, intraday traders buy when the RSI crosses the upper limit and vice versa. The ADX is used as the trend identifier to help users take their buy or sell decisions.

Intraday trading involves same-day trade settlements. Most traders try to achieve smaller profits through their trades. The golden intraday tip is to ride with the market trend to help make profits.

Read more »

Intraday Trading Knowledge 4, How to Choose Stocks for Intraday Trading

How to Choose Stocks for Intraday Trading

To succeed as a day trader, it is important to know how to pick stocks for intraday trading. Often people are unable to make profits because they fail to select appropriate stocks to trade during the day.

Tips to Choose the Right Intraday Trading Stocks:

• Trade Only in Liquid Stocks:

Liquidity is the most important intraday trading tip while choosing the right stocks to trade during the day. Liquid stocks have huge trading volumes whereby larger quantities can be purchased and sold without significantly affecting the price. Generally, lesser liquid stocks do not provide traders the opportunity to purchase and sell larger quantities due to lack of too many buyers. Some traders may argue that illiquid stocks offer bigger opportunities with rapid price modifications. However, statistics show that volatile stocks show greater movements in a short period of time. Thus, most of the possible gains dissipate while the downside risk still looms. Nonetheless, the liquidity of the stocks depends on the quality of the trades placed by the traders. For example, a volume of 50,000 to 75,000 shares is sufficient if the trade is for 50 or 100 Rs; however, if the volume is few hundreds or thousands, volume requirements significantly become larger.

• Stay Away from Volatile Stocks:

It is commonly noticed that a low daily volume of traded stocks or those where some huge news is expected move in an unpredictable way. Sometimes, the stock may show volatility even after the announcement of the big news. Traders are recommended to avoid intraday trading in such stocks. A few volatile stocks are in the mid-size segment while most stocks traded in the low-cap categories like S, T, and Z are highly chaotic. In addition to being volatile, these stocks have low daily volumes, making them illiquid.

• Trade in Good Correlation Stocks:

An intraday tip for choosing the right stock is to opt for those that have a higher correlation with major sectors and indices. This means when the index or the sector sees an upward movement, the stock price also increases. Stocks that move according to the sentiment of the group are reliable and often follow the expected movement of the sector. For example, strengthening of the Indian Rupee against the Dollar will generally affect all information technology companies dependent on the US markets. A stronger rupee implies lower earnings for the IT companies and weakening rupee will result in higher export incomes for these companies.

• Follow the Market Trend before deciding the Right Stock:

One of the most important intraday trading tips is to remember that moving with the trend is always beneficial. During a bull run in the stock market, traders must try to identify stocks that can potentially rise. On the other hand, during the bear run, finding stocks that are likely to decline is advisable.

• Pick the Stock you are most confident in after Research:

Undertaking quality research is one of the most vital intraday tips that traders must always remember. Unfortunately, most day traders avoid doing their research. Identifying the index and then finding sectors that are of interest is recommended. The next step is to create a list of several stocks with these sectors. Traders need not necessarily include sector leaders, but rather identify stocks that are liquid. Technical analysis and determining the support and resistance levels along with studying the fundamentals of these stocks will help traders find the right stocks to profit through intraday / day trading.

Read more »

Intraday Trading Knowledge 3, Intraday Trading Guide for Beginners

When's the Right Time to Invest in stocks?

Intraday means ‘within the day’. Hence, intraday trading refers to trading stocks and ETFs during regular trading hours within single day. You can buy or sell shares within a short span of time, without having to undergo the tedious process of availing physical share certificates. Intraday trading works on the concept of price movement. You buy shares when the price is low and sell them when the price rises, The difference in both the prices amounts to the profit earned.

To begin with, Traders use real-time charts to identify the intraday price movement. Along with price monitoring, there are several other tools that help in making your initial trades successful. Here is a guide of moves and strategies that will help you profit:

Enter and Exit intraday trading at an Ideal Time

A great tip for intraday trading is to trade with the prevalent intraday trend. It allows low-risk entries and potential for greater profit if the trend continues. Such trends provide useful entry and stop-loss strategies. An intraday trading strategy must have entry and exit signals, i.e. when to get into a particular position and when to withdraw. Once the system generates an entry signal and the position is taken, the exit position has to be decided. You can exit if either of the two conditions is met—you have achieved your desired profit or maximum loss is reached. Once the desired profit is achieved, it is advisable to exit the trade. You must set profit and stop-loss targets before the trade and must not let impulsive behaviour get the better of you.

Choose stocks after historical research

The main aim of intraday trading should be to create the best stock picking strategy which preserves capital and, at the same time, controls risk. Start by trading a single stock and learn the characteristics, trends and risks associated with the stock. Once you’ve understood the behaviour of stocks, you will have a better understanding of the best-performing stocks.

Choose highly liquid stocks, i.e. stocks with a high average daily volume. These stocks can be bought and sold in sufficient volumes without causing much impact on prices. Also, trade in stocks that have good correlation with major indices and sectors. Avoid unpredictable stocks, which tend to trade in a volatile manner.

Have a per-defined target

New traders may feel discouraged with their ability to reap profits and may fail to do important things necessary to succeed in day trading. It is important to have a day trading plan to avail of the numerous opportunities in the Stock Market. Beginners need to use trading strategies to take advantage of these opportunities. Set profit and stop-loss price targets before you trade so as to limit your potential loss and to prevent yourself from being too greedy. Also, conduct trade in a disciplined manner. Don’t let impulsive behavior get the better of you. Instead, stick to your day trading plan and don’t expect to get rich in a single trade.

Pick the intraday market direction

You can pick an intraday market direction using the ‘value area’. The value area is the range where almost 70% of the previous day’s trade took place. If the market opens below or above this value area, and remains in this area for two consecutive half-hour periods, then the market has an 80% chance of filling the value area. This parameter helps in gauging the market direction. Once you get used to the concept of value area and the 80% rule, trading can be profitable.

If the market opens higher than the value area, enter a short position closer to the top of the value area. Similarly, if the market opens at a value lower than the value area, enter in a long-term position towards the bottom of the value area.

Read more »

Intraday Trading Knowledge 2, Tips, Strategies, Basics

Intraday Trading: Tips, Strategies & Basics
Intraday trading is riskier than investing in the regular stock market. It is important, especially for beginners, to understand the basics of such trading to avoid losses. Individuals are advised to invest only the amount they can afford to lose without facing financial difficulties.

• A few intraday trading tips discussed below should help investors in making the right decision.

Choose Two or Three Liquid Shares
Intraday trading involves squaring open positions before the end of the trading session. This is why it is recommended to choose two or three large-cap shares that are highly liquid. Investing in mid-size or small-caps can result in the investor having to hold these shares because of low trading volumes.

Determine Entry and Target Prices
Before placing the buy order, you must determine your entry level and target price. It is common for a person’s psychology to change after purchasing the shares. As a result, you may sell even if the price sees a nominal increase. Due to this, you may lose the opportunity to take advantage of higher gains because of the price increase.

Utilizing Stop Loss for Lower Impact
Stop loss is a trigger that is used to automatically sell the shares if the price falls below a specified limit. This is beneficial in limiting the potential loss for investors due to the fall in the stock prices. For investors who have used short-selling, stop loss reduces loss in case the price rises beyond their expectations. This strategy ensures emotions are eliminated from your decision.

Book Your Profits when Target is reached
Most day traders suffer from fear or greed. It is important for investors to not only cut their losses, but also to book their profits once the target price is reached. In case the individual thinks the stock has a further possibility of rising in price, the stop loss trigger must be readjusted to match this expectation.

Avoid being an Investor
Intraday trading, as well as investing, requires individuals to purchase shares. However, factors for both these strategies are distinct. One kind adopts fundamentals while the other considers the technical details. It is common for day traders to take delivery of shares in case the target price is not met. He or she then waits for the price to recover to earn back his or her money. This is not recommended because the stock may not be worthy of investing, as it was purchased only for a shorter duration.
Research your Wish list thoroughly
Investors are advised to include eight to 10 shares in their wish lists and research these in depth. Knowing about corporate events, such as mergers, bonus dates, stock splits, dividend payments, etc., along with their technical levels is important. Using the Internet for finding resistance and support levels will also be beneficial.
Don’t Move against the Market
Even experienced professionals with advanced tools are not able to predict market movements. There are times when all technical factors depict a bull market; however, there may still be a decline. These factors are only indicative and do not provide any guarantees. If the market moves against your expectations, it is important to exit your position to avoid huge losses.
Stock returns can be huge; however earning smaller gains by adhering to these intraday trading tips should be satisfactory. Intraday trading provides higher leverage, which effectively provides decent returns in one day. Being content is crucial to succeeding as a day trader.

• Rules for Intraday Trading

Most traders, especially beginners, lose money in intraday trading because of the high volatility of the stock markets. Generally, losses occur due to fear or greed because, while investment is not risky, the lack of knowledge is.
Basic Rules for Intraday Trading

    Timing the Market:
Experts often recommend individuals avoid trading during the first hour, once the markets open. Taking positions between noon and 1pm can increase the possibility of earning profits.
    Plan Investment Strategy and Stick to it:
Every time users initiate a trade, it is important for them to have a clear plan of how to do intraday trading. Determining the entry and exit prices before initiating the trade is crucial. One of the most important intraday trading tips is to use the stop loss trigger to reduce the potential loss on your position. Moreover, once the stock achieves the target price, users are advised to close their position, and not be greedy and expect higher profits.
    Exiting the Position under Unfavourable Conditions:
For trades that provide profits and price-give reversal (price expected to show reverse trends), it is prudent to book the profits and exit open position. In addition, if the conditions are not favourable to the position, it is advisable to immediately exit and not await the stop-loss trigger to be activated. This will help traders reduce their losses.
    Invest Small Amounts that Won’t Pinch:
It is not uncommon for beginners to get carried away once they make some profits during day trading. However, markets are volatile and predicting the trends is not easy even for seasoned professionals. In such situations, beginners can easily lose all their investments. This is why an important intraday tip is to invest smaller sums that a user can afford to lose. This will ensure individuals do not face financial difficulties in case the markets do not favour them.
   Research and Choose Liquid Stocks: 
Before commencing intraday trading, it is recommended to understand the basics of the stock market, and the fundamental and technical analyses. There is plenty of research available on the Internet and taking the time to read it will be advantageous. Moreover, there are hundreds of stocks that are traded on the equity markets and traders must trade only two or three liquid stocks. Liquid stocks are those shares that have high volumes in the intraday market. This allows traders to exit open positions before the end of the trading sessions.
    Always Close All Open Positions: 
Some traders may get tempted to take delivery of their positions in case their targets are not achieved. This is one of the biggest errors and it is crucial to close all open positions even if traders have to book a loss.
    Spend Time:
Day trading is not for professionals who are employed in a full-time job. Traders must be able to monitor the market movements throughout the market session (from opening bell until its closing) to enable them to make the right calls as required.

• Intraday Trading indicators

When it comes to booking profits in intraday trading, you will require to do a lot of research. For the same purpose, you need to follow certain indicators. Often intraday tips are believed to be the Holy Grail; this, however, is not entirely accurate. Intraday Trading indicators are beneficial tools when used with a comprehensive strategy to maximize returns.

• How to make profit in intraday trading

Intraday traders always face inherent risks that exist in the stock markets. Price volatility and daily volume are a couple of factors that play an important role in the stocks picked for daily trading. Traders must not risk over two per cent of their total trading capital on a single trade to ensure the right risk management. So here are a few tips shared to make profit in intraday trading.
Intraday Time Analysis

When it comes to intraday trading, daily charts are the most commonly used charts that represent the price movements on a one-day interval. These charts are a popular intraday trading technique and help illustrate the movement of the prices between the opening bell and closing of the daily trading session. There are several methods in which intraday charts can be used. Below are some of the most commonly used charts while intraday trading on the Indian stock market. Know more about intraday trading time analysis.

• How to Choose Stocks for Intraday Trading

To succeed as a day trader, it is important to know how to pick stocks for intraday trading. Often people are unable to make profits because they fail to select appropriate stocks to trade

Day trading, if not managed properly, can have drastic results on the financial well-being of users. The temptation of earning huge profits in a short period of time can entice traders. However, with incomplete understanding and knowledge, intraday trading can be harmful.

Read more »

Intraday Trading Knowledge 1, What is Intraday Trading

What is Intraday Trading
Intraday trading involves buying and selling of stocks within the same trading day. Here stocks are purchased, not with an intention to invest, but for the purpose of earning profits by harnessing the movement of stock indices. Thus, the fluctuations in the prices of the stocks are harnessed to earn profits from the trading of stocks.

An online trading account is used for the purpose of intraday trading. While doing intraday trading, you need to specify that the orders are specific to intraday trading. As the orders are squared off before the end of the trading day, it is also called as Intraday Trading.

Intraday Trading Tips

Intraday trading is riskier than investing in the regular stock market. It is important, especially for beginners, to understand the basics of such trading to avoid losses. Individuals are advised to invest only the amount they can afford to lose without facing financial difficulties. A few intraday trading tips will help you learn the art of trading. Know now more about intraday trading tips.
Intraday Trading indicators

When it comes to booking profits in intraday trading, you will require doing a lot of research. For the same purpose, you need to follow certain indicators. Often intraday tips are believed to be the Holy Grail; this, however, is not entirely accurate. Intraday trading indicators are beneficial tools when used with a comprehensive strategy to maximize returns. To get a detailed understanding of intraday trading indicators, and its effect on trading strategy, visit…


How to make profit in intraday trading

Intraday traders always face inherent risks that exist in the stock markets. Price volatility and daily volume are a couple of factors that play an important role in the stocks picked for daily trading. Traders must not risk over two per cent of their total trading capital on a single trade to ensure the right risk management. So here are a few tips shared to make the profit in intraday trading.
Intraday Time Analysis

When it comes to intraday trading, daily charts are the most commonly used charts that represent the price movements on a one-day interval. These charts are a popular intraday trading technique and help illustrate the movement of the prices between the opening bell and closing of the daily trading session. There are several methods in which intraday charts can be used. Know about some of the most commonly used charts.
How to Choose Stocks for Intraday Trading

To succeed as a day trader, it is important to know how to pick stocks for intraday trading. Often people are unable to make profits because they fail to select appropriate stocks to trade during the day. Choosing the right stocks to book profits is an art that you will learn with experience. For beginners, here get some tips to choose stocks for intraday trading.

Read more »

Dow Theory Expended

Dow Theory Expended  
    

1. Introduction

Any attempt to trace the origins of technical analysis would inevitably lead to Dow theory. While more than 100 years old, Dow theory remains the foundation of much of what we know today as technical analysis.

Dow theory was formulated from a series of Wall Street Journal editorials authored by Charles H. Dow from 1900 until the time of his death in 1902. These editorials reflected Dow's beliefs on how the stock market behaved and how the market could be used to measure the health of the business environment.

Due to his death, Dow never published his complete theory on the markets, but several followers and associates have published works that have expanded on the editorials. Some of the most important contributions to Dow theory were William P. Hamilton's "The Stock Market Barometer" (1922), Robert Rhea's "The Dow Theory" (1932), E. George Schaefer's "How I Helped More Than 10,000 Investors To Profit In Stocks" (1960) and Richard Russell's "The Dow Theory Today" (1961).

Dow believed that the stock market as a whole was a reliable measure of overall business conditions within the economy and that by analyzing the overall market, one could accurately gauge those conditions and identify the direction of major market trends and the likely direction of individual stocks.

Dow first used his theory to create the Dow Jones Industrial Index and the Dow Jones Rail Index (now Transportation Index), which were originally compiled by Dow for The Wall Street Journal. Dow created these indexes because he felt they were an accurate reflection of the business conditions within the economy because they covered two major economic segments: industrial and rail (transportation). While these indexes have changed over the last 100 years, the theory still applies to current market indexes.

Much of what we know today as technical analysis has its roots in Dow's work. For this reason, all traders using technical analysis should get to know the six basic tenets of Dow theory. Let's explore them.

2. The Market Discounts Everything

The first basic premise of Dow theory suggests that all information - past, current and even future - is discounted into the markets and reflected in the prices of stocks and indexes.

That information includes everything from the emotions of investors to inflation and interest-rate data, along with pending earnings announcements to be made by companies after the close. Based on this tenet, the only information excluded is that which is unknowable, such as a massive earthquake. But even then the risks of such an event are priced into the market.

It's important to note that this is not to suggest that market participants, or even the market itself, are all knowing, with the ability to predict future events. Rather, it means that over any period of time, all factors - those that have happened, are expected to happen and could happen - are priced into the market. As things change, such as market risks, the market adjusts along with the prices, reflecting that new information.

The idea that the market discounts everything is not new to technical traders, as this is a major premise of many of the tools used in this field of study. Accordingly, in technical analysis one need only look at price movements, and not at other factors such as the balance sheet.

Like mainstream technical analysis, Dow theory is mainly focused on price. However, the two differ in that Dow theory is concerned with the movements of the broad markets, rather than specific securities.

For example, a follower of Dow theory will look at the price movement of the major market indexes. Once they have an idea of the prevailing trend in the market, they will make an investment decision. If the prevailing trend is upward, it follows that an investor would buy individual stocks trading at a fair valuation. This is where a broad understanding of the fundamental factors that affect a company can be helpful.

It's important to note that while Dow theory itself is focused on price movements and index trends, implementation can also incorporate elements of fundamental analysis, including value- and fundamental-oriented strategies.

Having said that, Dow theory is much more suited to technical analysis.  

3. The Three-Trend Market

An important part of Dow theory is distinguishing the overall direction of the market. To do this, the theory uses trend analysis.

Before we can get into the specifics of Dow theory trend analysis, we need to understand trends. First, it's important to note that while the market tends to move in a general direction, or trend, it doesn't do so in a straight line. The market will rally up to a high (peak) and then sell off to a low (trough), but will generally move in one direction.

Figure 1: an uptrend

An upward trend is broken up into several rallies, where each rally has a high and a low. For a market to be considered in an uptrend, each peak in the rally must reach a higher level than the previous rally's peak, and each low in the rally must be higher than the previous rally's low.

A downward trend is broken up into several sell-offs, in which each sell-off also has a high and a low. To be considered a downtrend in Dow terms, each new low in the sell-off must be lower than the previous sell-off's low and the peak in the sell-off must be lower then the peak in the previous sell-off.

Figure 2: a downtrend

Now that we understand how Dow theory defines a trend, we can look at the finer points of trend analysis.

Dow theory identifies three trends within the market: primary, secondary and minor. A primary trend is the largest trend lasting for more then a year, while a secondary trend is an intermediate trend that lasts three weeks to three months and is often associated with a movement against the primary trend. Finally, the minor trend often lasts less than three weeks and is associated with the movements in the intermediate trend.

Let us now take a look at each trend.

• Primary Trend

In Dow theory, the primary trend is the major trend of the market, which makes it the most important one to determine. This is because the overriding trend is the one that affects the movements in stock prices. The primary trend will also impact the secondary and minor trends within the market.
Dow determined that a primary trend will generally last between one and three years but could vary in some instances.

Figure 3: an uptrend with corrections

 Regardless of trend length, the primary trend remains in effect until there is a confirmed reversal.
For example, if in an uptrend the price closes below the low of a previously established trough, it could be a sign that the market is headed lower, and not higher.

When reviewing trends, one of the most difficult things to determine is how long the price movement within a primary trend will last before it reverses. The most important aspect is to identify the direction of this trend and to trade with it, and not against it, until the weight of evidence suggests that the primary trend has reversed.

•  Secondary,  or Intermediate, Trend

In Dow theory, a primary trend is the main direction in which the market is moving. Conversely, a secondary trend moves in the opposite direction of the primary trend, or as a correction to the primary trend.

For example, an upward primary trend will be composed of secondary downward trends. This is the movement from a consecutively higher high to a consecutively lower high. In a primary downward trend the secondary trend will be an upward move, or a rally. This is the movement from a consecutively lower low to a consecutively higher low.

Below is an illustration of a secondary trend within a primary uptrend. Notice how the short-term highs (shown by the horizontal lines) fail to create successively higher peaks, suggesting that a short-term downtrend is present. Since the retracement does not fall below the October low, traders would use this to confirm the validity of the correction within a primary uptrend.

Figure 4: a secondary trend w/ a primary uptrend

In general, a secondary, or intermediate, trend typically lasts between three weeks and three months, while the retracement of the secondary trend generally ranges between one-third to two-thirds of the primary trend's movement. For example, if the primary upward trend moved the DJIA from 10,000 to 12,500 (2,500 points), the secondary trend would be expected to send the DJIA down at least 833 points (one-third of 2,500).

Another important characteristic of a secondary trend is that its moves are often more volatile than those of the primary move.

• Minor Trend

The last of the three trend types in Dow theory is the minor trend, which is defined as a market movement lasting less than three weeks. The minor trend is generally the corrective moves within a secondary move, or those moves that go against the direction of the secondary trend.

Figure 5

Due to its short-term nature and the longer-term focus of Dow theory, the minor trend is not of major concern to Dow theory followers. But this doesn't mean it is completely irrelevant; the minor trend is watched with the large picture in mind, as these short-term price movements are a part of both the primary and secondary trends.

Most proponents of Dow theory focus their attention on the primary and secondary trends, as minor trends tend to include a considerable amount of noise. If too much focus is placed on minor trends, it can to lead to irrational trading, as traders get distracted by short-term volatility and lose sight of the bigger picture.

Stated simply, the greater the time period a trend comprises, the more important the trend.

4. The Three Phases Of Primary Trends

Since the most vital trend to understand is the primary trend, this leads into the third tenet of Dow theory, which states that there are three phases to every primary trend – the accumulation phase (distribution phase), the public participation phase and a panic phase (excess phase).

Let us now take a look at each of the three phases as they apply to both bull and bear markets.

Primary Upward Trend (Bull Market)

The Accumulation Phase
The first stage of a bull market is referred to as the accumulation phase, which is the start of the upward trend. This is also considered the point at which informed investors start to enter the market.

The accumulation phase typically comes at the end of a downtrend, when everything is seemingly at its worst. But this is also the time when the price of the market is at its most attractive level because by this point most of the bad news is priced into the market, thereby limiting downside risk and offering attractive valuations.

However, the accumulation phase can be the most difficult one to spot because it comes at the end of a downward move, which could be nothing more than a secondary move in a primary downward trend - instead of being the start of a new uptrend. This phase will also be characterized by persistent market pessimism, with many investors thinking things will only get worse.

From a more technical standpoint, the start of the accumulation phase will be marked by a period of price consolidation in the market. This occurs when the downtrend starts to flatten out, as selling pressure starts to dissipate. The mid-to-latter stages of the accumulation phase will see the price of the market start to move higher.

Figure 1: the accumulation phase

A new upward trend will be confirmed when the market doesn't move to a consecutively lower low and high.

Public Participation Phase
When informed investors entered the market during the accumulation phase, they did so with the assumption that the worst was over and a recovery lay ahead. As this starts to materialize, the new primary trend moves into what is known as the public participation phase.

During this phase, negative sentiment starts to dissipate as business conditions - marked by earnings growth and strong economic data - improve. As the good news starts to permeate the market, more and more investors move back in, sending prices higher.

This phase tends not only to be the longest lasting, but also the one with the largest price movement. It's also the phase in which most technical and trend traders start to take long positions, as the new upward primary trend has confirmed itself - a sign these participants have waited for.

Figure 2: the public participation phase

The Excess Phase
As the market has made a strong move higher on the improved business conditions and buying by market participants to move starts to age, we begin to move into the excess phase. At this point, the market is hot again for all investors.

The last stage in the upward trend, the excess phase, is the one in which the smart money starts to scale back its positions, selling them off to those now entering the market. At this point, the market is marked by, as Alan Greenspan might say, "irrational exuberance". The perception is that everything is running great and that only good things lie ahead.

This is also usually the time when the last of the buyers start to enter the market - after large gains have been achieved. Like lambs to the slaughter, the late entrants hope that recent returns will continue. Unfortunately for them, they are buying near the top.

During this phase, a lot of attention should be placed on signs of weakness in the trend, such as strengthening downward moves. Also, if the upward moves start to show weakness, it could be another sign that the trend may be near the start of a primary downtrend.

Figure 3: the excess phase

Figure 3: the excess phase

 Primary Downward Trend (Bear Market)

The Distribution Phase

The first phase in a bear market is known as the distribution phase, the period in which informed buyers sell (distribute) their positions. This is the opposite of the accumulation phase during a bull market in that the informed buyers are now selling into an overbought market instead of buying in an oversold market.

In this phase, overall sentiment continues to be optimistic, with expectations of higher market levels. It is also the phase in which there is continued buying by the last of the investors in the market, especially those who missed the big move but are hoping for a similar one in the near future.

As was the case in the accumulation phase, the distribution phase can be difficult to spot in its early stages. The reason for this is that it may be disguised as a secondary downward trend within the primary upward trend.

From a technical standpoint, the distribution phase is represented by a topping of the market where the price movement starts to flatten as selling pressure increases . The mid to latter stages of the distribution phase will see prices start to fall as more and more investors, anticipating weakness, exit their positions.

A new downward trend will be confirmed when the previous trend fails to make another consecutive higher high and low.

 Public Participation Phase

This phase is similar to the public participation phase found in a primary upward trend in that it lasts the longest and will represent the largest part of the move - in this case downward.

During this phase it is clear that the business conditions in the market are getting worse and the sentiment is becoming more negative as time goes on. The market continues to discount the worsening conditions as selling increases and buying dries up.

This is also the point at which most trend followers and technical traders start to dump their positions and take short positions as the new downward trend has confirmed itself.

The Panic Phase

The last phase of the primary downward market tends to be filled with market panic and can lead to very large sell-offs in a very short period of time. In the panic phase, the market is wrought up with negative sentiment, including weak outlooks on companies, the economy and the overall market.

During this phase you will see many investors selling off their stakes in panic. Usually these participants are the ones that just entered the market during the excess phase of the previous run-up in share price.

But just when things start to look their worst is when the accumulation phase of a primary upward trend will begin and the cycle repeats itself.

Read more »