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.

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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:

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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.

 

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Intraday Trading Knowledge 9, Importent Summary

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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

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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.

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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.

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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.

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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.

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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.

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