Hello Friends,

As the famous Chinese Proverb goes, "Give a man a fish, you feed him for a day. Teach a man to fish and you feed him for a lifetime."
This thread is a result of multiple emails from fellow members with a desire to learn how to trade, rather than to just take the calls here and there. This thread may not catch the interest of many, as the "many" are always interested in the 'fish' rather than learning how to. But this thread is intended for the few the few that want to learn or at least make a beginning to learn how to trade, the few that do not wish to bow to any other indi!idual or organi"ation as authority when it comes to decision making but instead wish to come to these decisions by himself#herself. This thread will be of no help to those who make trading decisions based on fundamentals. This thread will be of no help to the many that wish to know what this company did or what was the news when a stock broke out. This thread is for the newcomer to charts and who has that desire to learn. $t is for the student of the market by a student of the market. $ am no master, no teacher, no e%pert, all words that $ abhor this thread is to my friends who want to learn from a friend who is just sharing what little he knows. Before we get started, please ha!e a back up in anything and e!erything related to trading. $f you trade online, at least two computers, two internet access, cable and dsl. $n $ndia, think you guys better ha!e an $n!erter as well. &ll this of course for the $ntraday traders. 'f course, your broker's phone no. must be easily accessible as well if you ha!e to take that route. Basically a back up in e!erything. 'f course, your charts as well, the greatest weapon of the trader(( 'kay, let's get started )ust ha!e a look at the attachment at the end looks like a familiar story for many of us. The successful trader does e%actly the opposite as stated below He has something that gi!es him an edge o!er the others. He has that something that tells him when to get in, when to stay out and when to accept a mistake He has his charts and the knowledge of how to use it. What are these charts? & chart of *eliance is not the chart of the company, but the chart of the in!estor and trader emotions in that company. & chart tells us about the whole play of fear and greed, again and again, all o!er again. The chart of a particular time frame is therefore a study of fear and greed in the particular company or market in that time frame. Various types of traders based on their time frame Day Trader: He trades intraday. He buy and sells, shorts and co!ers within that day. He closes all positions by the end of the day. He takes no risks o!ernight. He basically uses the + and ,- min charts for his trading with the ,+min and the .- min charts as backdrop. !ing Trader: & trader who trades the daily charts, fine tuning his entry using the .-min charts. His trades last / 0 + days. Position Trader: 1early e2ui!alent to in!esting, but nearly can be an important distinction. He trades the weekly charts which means he holds trades from weeks to months.

Most important thing that we all have to remember, Trading is very simple. Our minds being complicated is the reason why we try to over complicate a simple thing. So as in anything simple, we try to leave it as simple as we can.

There are various types of charts 3ine 4harts Bar 4harts 5 )apanese 4andlesticks 4harts Basically your preference, whate!er you are most comfortable with. $ personally use the 4andlestick charts because it makes it more !isually ob!ious to me. $ ha!e to strain to see the same in a bar chart. But basically upto you ... 6hether we take a bar chart or a candlestick chart, each bar#candle tells us of the 'pen, 4lose, High and 3ow of that particular time frame. Therefore, in a daily chart, the high is the high of the day, the close being the close of that day. But in a ,+ min chart, each bar represents the trade in a ,+ minute time frame, therefore the high of that bar is of course the ,+minute high ... so on so forth.

We have three trends

"PT#$%D7 &n uptrend on a chart of any time frame is nothing but a series of higher highs and higher lows. D&W%T#$%D7 & downtrend on a chart of any time frame is nothing but a series of lower highs and lower lows. 'D$WA( T#$%D7 & sideways trend is nothing but relati!ely e2ual highs and lows. T#$%D)'%$ &n "PT#$%D)'%$ is nothing but a line that connects two or more 3'68, in a chart in an uptrend. The more points that meet up to this line, the stronger this line is. This trendline acts as support, as prices blast off, then pullback to this line before taking off again. Therefore, in an 9:T*;1<3$1;, the /nd point is always higher than the ,st point, and the =rd higher than the /nd.

& D&W%T#$%D)'%$ is nothing but a line that connects two or more highs in a downtrend. 'nce again, the more number of points that connect, the stronger the line is. This downtrendline acts as resistance. ;ach down mo!e is followed by a pullback rally to this trendline which acts as resistance only to be met with more selling and lower prices. $n <'61T*;1<3$1;, the /nd point is always lower than the ,st, and the =rd lower than the /nd. & break in the 9:T*;1<3$1; signals a possible change in trend. 8o too with the break in the <'61T*;1<3$1;. )ust ha!e a look at the attachments below nothing like a picture to make things look better

"PT#$%D )'%$

D&W%T#$%D T&C*

6e had discussed yesterday that trend has three directions, that is7 9ptrend, <owntrend, 8ideways Trend. &n e%ample $ had gi!en many times just has to be repeated here 3ook at your right hand with the palm facing you. First we ha!e the little finger. The *ing Finger takes out the high of the little finger and therefore makes a higher high and low as compared to the little finger. The middle finger makes a higher high and higher low as compared to the ring finger. 6e ha!e therefore an uptrend. The inde% finger makes a lower high and a lower low as compared to the middle finger. The thumb makes a lower high and low as compared to the inde% finger. 6e ha!e therefore a downtrend. +ust as a trend can be c,assified according to the direction, so too can !e categorise trends into - categories ./ 0A+&# 1/ '%T$#0$D'AT$ 2 -/ %$A# T$#0 T#$%D 8imply put, major trends last for greater than . months. $ntermediate trends last between = weeks to . months. 1ear term trends last from a few days to =weeks. From a charts perspecti!e, the major trend is seen by looking at the monthly charts. The intermediate trend from the weekly charts, and the near term trend from the daily charts. 6hat is seen as a downtrend on the daily charts may be nothing but a pullback on the weekly charts, and is not e!en e!ident on the monthly charts. 6hat is seen as a downtrend on the weekly charts and a catastrophic crash on the daily may be nothing but a monthly pullback.

$t is important as traders to know these different time frames and trade accordingly. The practical aspects of profiting from this knowledge, we can come to later. For now, we don't know much but a step at a time for now. 6e ha!e our charts. &ll we know is that in any chart of any time frame, we can ha!e only = possibilities in direction, and only = possibilities in categorisation. The eye can only see what the brain knows these early days are to be spent in teaching the brain so that the eye sees the pattern from a mile. :our o!er your charts and train yourself in detecting which trend the stock is in currently. $t is a first step but an important first step. +ust a fe! charts 3 Below is the chart of :'3>:3;? 4'*: just denoting how the trendlines are drawn. The 9ptrendlines therefore act as 8upport, once cracked to the downside, notice how the <owntrendlines act as resistance. $n what way does this knowledge help us in our trading@ 6e detect a change in downtrend, and we enter the stock, once again using all that we ha!e learnt so far. The trendlines allow us to stay in that trade as long as the trendlines hold. The moment we get a close below the 9ptrendline, we are out. $f you are looking to short, wait for a feeble rally towards the former uptrendline. That's an area to short. Aice !ersa for the downtrendlines Ha!e a look at the /nd chart of :'3>:3;?, self e%planatory.

&nother thing that one has to keep watch for is the gradient of the pullback. Take a look at the chart of B;B3. &ll are pullbacks before the stock mo!ed on to new highs. But look at the angle of the present pullback. 1ot saying that B;B3 will not see new highs, but that B;B3 will take more doing unlike before to see new highs again. &ll the other pullbacks, B9> the declines. But pullbacks like these, best to stay away until it does something that will make us interested again.

T#$%D
P#'0A#( T#$%D The :rimary Trends are what we in common parlance state as "Bull market" or "Bear Barket". )ust as a 8ecular 9ptrend is made up of se!eral primary uptrends and downtrends, the :rimary 9ptrend is made up of se!eral intermediate uptrends and downtrends. Aice !ersa for the :rimary <owntrend. &s we had discussed before, a :rimary 9ptrend is of greater magnitude and duration if in the broader picture, we are also in a 8ecular 9ptrend. & :rimary <owntrend would be of shorter magnitude and duration if it happens in a 8ecular 9ptrend. 8o too, in a 8ecular <owntrend, the :rimary <owntrends are of greater magnitude and duration as compared to the :rimary 9ptrends. )ust take a look at the two charts of the 1ikkei and 8ense% in the CTrend Duestions by BembersE page to get things clear. & :rimary Trend lasts anywhere between Fmths and / ,#/ yrs. '%T$#0$D'AT$ T#$%D 8o too, an intermediate uptrend is made up of se!eral short term trends. &gain, if we are in a :rimary 9ptrend, the $ntermediate 9ptrends are of greater magnitude and duration as compared to the $ntermediate <owntrends. Aice !ersa in a :rimary <owntrend. &n intermediate trend can last anywhere between . weeks to F mths.

4"$ T'&%
$ ha!e been following this thread since the beginning and as a beginner i ha!e a learnt a lot. But $ ha!e difficulties in recogni"ing the trend. 8ome charts are so messy, $ cannot get any clear pattern. ,G For e%ample, please ha!e a look at the chart of Bank of $ndia which is below $n the chart, the stock makes higher lows which might be an uptrend but again it makes lower highs which can be a downtrend. 6hat kind of trend is this@ $ think as long as it will not break the support, itHs in an uptrend. &m i correct@ &nyway is it ad!isable for an in!estor to enter that stock which is forming lower and lower highs. /G 1e%t 2uery is on &ndhra Bank. :lease see the chart $t was in a downtrend since late )uly and recently there is a small rally but it did not still cross the downtrend line no. , I the one in red which is drawn from the high of )uly to the high of )anuaryG But if we consider another downtrend line no. / I the one in black from the high of )an to the high of late FebG then there is a breakout abo!e the downtrend line. 1ow which trendline should an in!estor consider. 'r should the in!estor take into consideration another trendline Iin redG which is below trendline no. / considering the fact that 'more the points which connect a trendline the more stronger the trendline' as u said in a pre!ious post.

#$P)( 5( A'%T
&s for B&1J 'F $1<$&, you are right. There really is no clearly discernable trend on the daily charts. $n sideways trend. For a clearer perspecti!e, open up your weekly charts of B'$. 6e are still in an uptrend, still higher pi!ot highs and lows. The week ending Feb ,-th, we got a pi!ot low there at ,,K.8o far that is our pre!ious pi!ot low. That would be where our stop would be if you are in this trade. I&lways, gi!e it some room, so the stop is at ,,K0,L,,MG. & break of ,,M and this uptrend is in 2uestion. 8o long as this area holds, B'$ is still in an uptrend. 1ow, as for new entries into B'$ is another matter, watch for a pullback or more sideways pattern to enter. 3ook out for that trendline. $f that trendline holds, good area to buy. 4racking that trendline to the down, and again, this uptrend on the weekly charts is in 2uestion.

Being an in!estor, you are looking at medium to long time frame. For a clearer perspecti!e, always look at your weekly charts. 6e ha!e lower pi!ot highs and lows ,basically still a downtrend on the weekly. Trendline , as drawn by you is more or less correct. 1ot Trendline / the more points, meaning the more pi!ot highs that it connects in a downtrend line the stronger that trendline becomes. Trendline / is connecting all the highs, not the pi!ot highs, so inaccurate from a daily#weekly chart perspecti!e. But for an intraday to few days perspecti!e, not wrong. That trendline can be traded a break abo!e that trendline is a buy. But that doesn't mean we are in an uptrend. )ust good for , 0 / days sniper attack on the intradays. 6e basically need a breakout o!er ,-. to say that we are headed back into an uptrend. For now, it's downtrend on the daily#weekly &nd Bank. Nreat going, my friend. & 2uestioning mind is a mind that is learning. Feel free to ask your doubts. 8hall answer to the best of my capacity.

4"$ T'&%
&nyway, in the case of &ndhra Bank, u said it should cross ,-., how could u calculate that figure@ $s it a figure which the trendline meets when e%tended towards the price a%is. $ thought it should break at least ,,- which is the pre!ious pi!ot high. :lease correct me if $ am wrong.

#$P)( 5( A'%T
>ep, basically whene!er that trendline breaks to the 9p. $f we are going to remain in this downtrend for more time, then that figure will keep coming downwards. ,-. is the break o!er the trendline which gi!es us an indication that things are mo!ing to the up. >es, right you are, the pre!ious pi!ot high is ,,- and o!er that is confirmation that we are in an uptrend.

4"$ T'&%
>es, got it(( That means, if it goes abo!e ,-. then the uptrend is in 2uestion and it will be in our watchlist and we wait for it to cross ,,- , which is when we will be sure of the uptrend and we are in trade.

#$P)( 5( A'%T
>ep, you got it but just a correction of language so that we are both on the same page.

& break abo!e ,-. and we ha!e a possible uptrend, the previous downtrend is in question. & break o!er ,,- is confirmation.

4"$ T'&%

&s you ha!e e%plained in your earlier posts, we should follow the trendline. 6e will be able to spot the change of direction in trendline after market hours. 6hile one is buying a stock which is in uptrend, e!en when we buy it after delaying it by a day, we will still be able to ride the trend and be able to make some money Iour ultimate aimG. But how to judge the downtrend of the stock during market hours@ 6hy $ am asking this is when we analyse the charts after market hours and come to the conclusion that the particular stock is in downtrend, we will not be able to sell it. By ne%t day, it may ha!e fallen further and we may ha!e lost some more money. :lease e%plain the methods one can adopt during market hours to judge downtrend so that we can limit our loss or sell it while we ha!e considerable profit@

#$P)( 5( A'%T
$f you ha!e been playing that trendline, let us say, you'!e been buying each time the stock pulls back to the trendline and your idea was to stay in that stock so long that uptrendline holds. 8o far so good as long as the uptrendline holds. & crack in the intradays to the downside does not 2ualify as a break in that trendline till we get a close below that trendline but $ agree with you, what would you do, while watching that stock intraday, it cracked to the down. $t may or may not close below the trendline, but what would you do in such a case@ 8tick with the plan your idea is to get out on a break of trendline. Net out if it breaks. $f by the end of day, the stock does not close below the trendline, no problem, that means the trendlines are still !alid and you look to re0enter.

4"$ T'&%
:lease clear something for me. 6e are in a uptrend and i am in the trade. <o $ get out once the up trend line is broken or if it makes a lower pi!ot low. <oes this depend on our trading strategy. 4ause if we wait it to make a lower pi!ot low or e!en go down as far the pre!ious pi!ot we ha!e lost our profits if we had entered the trade when it started mo!ing up from the pre!ious pi!ot low. 'r is this the trade off we ha!e to take in the market

#$P)( 5( A'%T
&s you rightly pointed out, depends on your strategy. $f you'!e been playing the uptrendline all along, you are not about to tolerate any break in the uptrendlines. 'ne crack and you are out on the other hand, if you are willing to gi!e it some room, wait for the break of the pre!ious pi!ot low as that gi!es you a clearer idea of a change in trend. 6hich one do you do@ $ personally would get out half my position on a trendline break, lea!ing my stops for the back half a bit below the pre!ious pi!ot low. $f taken out, $ am out. )ust ha!e a look at 8atyam below $ had been playing the trendlines all along. Had been in it from late 8ept till date. That ugly mo!e last Friday took out half my position, but still in back half as the pre!ious pi!ot lows were not cracked yet. $f you got out full on Friday, you would not ha!e been wrong either.

4"$ T'&%
&lso if we are in a down trend and it breaks abo!e the trend line and mo!es up. <o we enter now and we let it make a higher pi!ot low. Because the higher pi!ot low might be !ery high and we loose out on profits. &lso, how much of a correction would u call a pi!ot. 4ould you please attach a file of the smallest correction you would consider a pi!ot.

#$P)( 5( A'%T
8ame as abo!e. Buy the break abo!e the down trendline, But buy half. 6hy@ Duite a lot of false breakouts. 8o buy half and then add the other half when we get a pullback forming a higher pi!ot low.

4"$ T'&%
For drawing the trendlines, these are drawn on the arithmetic scale, or do you use the logarithmic@ $ ha!e Betastock and $ noticed the two. 8o just wondering, which you use.

#$P)( 5( A'%T
There are two types of scales7 aG &rithmetic bG 8emi0logarithmic &n arithmetic scale displays the price le!els e!enly in rupee terms as they mo!e up. 8o therefore, a *s.,- mo!e from ,-0/- or from ,--0 ,,- or from +--0+,- will look the same as they are all a difference of *s.,-. & semi0log scale displays price le!els in percentage terms as they mo!e up. & mo!e from *s.,- to *s./- is a ,--O gain will look larger than a mo!e from *s.,--0,,- is a ,-O gain or a mo!e from *s.+--0+,- which is only a /O gain. $ use the semi0log scale is cause for some action. try it out, the rise looks smoother and the trendlines fit all the way. 6hich also means that a break in trendline

'n Betastock, go to the >0&?$8 of your charts. *ight click it. No to > &?$8 :roperties. Tick the 8emi03og scale. 4lick apply. That's it.

4"$ T'&%
6ith my limited knowledge got from you $ analysed the following stock of Borarka Finance and found it in an up trend mood and gaining momentum. &m i correct@ :lease !erify with the attached image and reply.

#$P)( 5( A'%T

Bost importantly, pour through thousands of charts. & day comes when patterns jump out of charts and grab your attention. 'n B'*&*J& F$1&14;, first look at the weekly charts so as to get a proper perspecti!e. &ttached below the weekly charts. Basically in sideways trend. <on't try to draw trendlines in a sideways trend0up or down. 8o far we are ha!ing e2ual pi!ot highs and lows from Barch /--+ till date. $t tried to put in a breakout in 8ept /--+ only to be brought back to the sideways range. 'nce it puts in an uptrend again, then you are back to drawing trendlines again.

4"$ T'&%
;!erything seems okay to me but trendline break and pre!ious pi!ot low are two things we used intermittently. $ assume that both are one and same. 6hene!er the pre!ious pi!ot low is broken then 9ptrend is in 2uestion, so do we get out of the trade. Here in this conte%t what is trendline break, is it small crack in the uptrend mo!e, $ mean is it a decline or anything else. 6hen $ looked at the weekly charts on 8atyam IMth &prG, itHs a small decline. 8aint, please add $f $ am missing out anything.

#$P)( 5( A'%T
6hen you get out of a trade is entirely up to you the fact that this stock put in an accelerated up mo!e, take out your trendlines and draw it. 6hy@ Because we don't want to gi!e back too much when the pullback starts. 6e therefore already ha!e a bearish di!ergences on the *8$ and T*$?. 6hat do we do@ 6e get cautious, we get our hands ready on the

trigger, but we <' 1'T do anything. 6e wait, and wait till we get a break in trendline. Then, we are out. 6e are always *;&<> to pull the trigger, the Bearish di!ergences tell us N;T 8;T and the trendline break tells us N'(( 1ow, if your mindset is !ery long term and these pullbacks mean nothing to you, then take some profits off the table in a trendline break. But hold the rest till we get a break in the pre!ious pi!ot low on the weekly charts ie M/-.$f it does not break M/-, the uptrend is still on and you will see higher highs and lows. 8o, that decision depends on the type of trader that you are. But you must understand this, a break in the uptrendline is not a downtrend. $t puts that run up in 2uestion.

4"$ T'&%
:lease tell me something to draw trendlines. &t times, we see a tick the price action is or real body is !ery small but the fluctuation is !ery large. 8o we draw the trendline near the opening closing or at the bottom of the tick. $ was seeing *iddhi 8iddhi. The price opened close abo!e /=- but the tick is till /,-. 8o where should the trend line be for such fluctuations.

#$P)( 5( A'%T
4onnect two or more lows, then e%tend that line, you will notice many times the price trying to break through the trendline but forming a tail and still ha!ing its body within that trendline. No with the eye.........

4"$ T'&%
$s there a reason why a trend line acts as a support I6hat is the underlying logic behind itG or cause we see it in so many charts we take the number of repetitions as a proof and follow it. &nother thing $ noticed was that the price was always bouncing back on intermediate trend line Iacting as supportG and the short trend line went abo!e the price pattern and number of time acted as the resistance le!el. $s this also common to see@

#$P)( 5( A'%T
By mind does not work in the "why something happens" mode, and therefore $ may not be the best to answer it patterns and lines de!elop because we are all looking at the same thing and drawing the same lines. but $ wonder if these

$t could be as simple as fear and greed. 4ountries may be different, the year may be different, but human emotions don't change much, $ guess. &nd it gets reflected on our charts. & chart is ne!er the mapping of what that particular company is about, but of the emotions of hope and e%pectations, fear and greed, of the in!estors in that company. The chart tells us of human emotions, and therefore, as astute traders, we buy into fear and sell into greed,and enjoy the profits made in the difference. &nd therefore trendlines, patterns and all the paraphrenalia is learnt to come to that !ery important point.......to assess when fear has truly set in, and is time to buy once we get a signal, or when greed has got a bit out of whack, and is probably time to e%it. &nd,>es to the second doubt, my friend....

4"$ T'&%
3etHs say we are in a trade at *s.+--. The stock rallies and then reaches ++-. &ll this while creating higher tops higher lows. 'n the daily chart howe!er we see that there is a small black candle. 3etHs say this is because it closed at ++- yesterday and today has closed at +P-. 6hat do we do now@ 6eekly charts our pi!ot is at +-- and the stop is ob!iously at lower le!els ... how do we confirm or in other words !erify that this is not the start of a downtrend.

#$P)( 5( #A6") 7AC*%&W)$D8$D 5( A'%T/

Duote7

'n the daily chart howe!er we see that there is a small black candle. 3etHs say this is because it closed at ++- yesterday and today has closed Hi sorry to answer this as u had posted it to 8aint. First of all black candle is not formed cause the day close is below the pre!ious day close. & black candle forms if the close is below todayHs open itself. Duote7

6hat do we do now@ 6eekly charts our pi!ot is at +-- and the stop is ob!iously at lower le!els ... how do we confirm or in other words !er this is not the start of a downtrend.

1ow booking profit is up to u. $f u are a trend follower you would book part profits when trend line is !iolated. Then u would e%it the rest when the pre!ious pi!ot low is also taken as that would mean uptrend is in 2uestion. *emember trend is !alid till the proof of e!idence pro!es otherwise Ias Bartin :ring saysG >our stop loss should not be below as once the price mo!es so much abo!e you should ha!e had trailing stop losses. &nd in any case if it was below then also if u are a trend follower you should e%it by now. 1ow candlestick would be a different understanding. $t depends where the small black candle has formed. Has it formed within the body of the pre!ious white candle, abo!e it, below it. $f it has formed within the body then it could be a Harami pattern. &bo!e would be a ;!ening star. &ll these need confirmation the ne%t day. &lso, a confirmation just shows that current trend has ended. $t does not tell us if it will re!erse, it could mo!e sideways. $t might be a small correction a large one. Bagnitude cannot be judged. Hence, candlesticks are more beneficial if used with other indicators. & confirmation with trend line being !iolated, or any other indicator turning negati!e is more useful. Though u can use it indi!idually too but a confirmation is a must.

4"$ T'&%
6as going through the weekly charts of Tata 8teel. &nd to my untrained eye, it seems like the long term trend in Tata 8teel is still intact ... the reason7 the trend line drawn from -+#/,#-P still holds and it looks like this line is a strong support. $t tried to breach this line on -K#/M#-P..and again on ,,#-P#-+ and also a few days back and it looks this line is a strong support( Howe!er, it is not in an uptrend ... lower pi!ots lower lows ... since the top M--Q ... so ideally what should i do now@ By logic says buy +-O because i am not sure this trend line will hold and also because it is not in an upward trend( &gain saint please take your time.. &lso please e%cuse me if you find this 2uestion too easy or lame to be answered. $ could not attach the graph co" $ am not sure how to attach a graph from adget n metastock..(

#$P)( 5( A'%T
$ am sorry, my friend, but $ wish $ could see what you are looking at in the T$84' charts. &s it is difficult to post what you see, ha!e a look at the attachment below. Hope it answers a few doubts ... T$84' is still in a long term uptrend, but still in an intermediate downtrend more has to happen before we get truly bullish again. 'nce again, we are talking about traders, not in!estors. This retracement puts a doubt in the head if this truly can be classified as an intermediate downtrend we will know in due course of

time. & rally is in the offing, but $ truly doubt if T$84' is going to take out highs and form new highs in the upcoming rally. 8o therefore, if you are planning an intermediate trade long, stay clear now. 8hort term is another matter.

4"$ T'&%
$f you look at the charts of Bombay <yeing 5 Bajaj Hindustan, on the daily charts, both are showing an uptrend. But, if you look at the weekly charts, then the pre!ious pi!ots ha!e not been taken out. 8o, as a "8hort term" trader, what should one do@ Buy now or wait for the weekly trend to get confirmed. $ am !ery confused(

#$P)( 5( A'%T
&lways better to ha!e both the weekly and daily in line before attempting to go long. 1o problems actually if you are an adept hand at this

else, stay clear of this rally till the intermediate trends gi!e you a signal to go long. )ust posting B'B <>; chart....

4"$ T'&%
For a gi!en time period, is it a rule that you ha!e only one trendline@ Basically what are the rules of drawing a trend lines@ $s there any rule on how to draw a trendline or we look in the charts and connect multiple highs#lows to form the trendlines@

#$P)( 5( A'%T
Think the below chart e%plains itself.......feel free to ask though if something is not clear.

4"$ T'&%
&t what stage in a intermediate downtrend do we say that we are in a bear market@ How do we make out the difference between a major trend mo!e and an intermediate trend mo!e@

#$P)( 5( A'%T
To answer your 2uery, we need to go into the basics of Trends 3et us get into it from the beginning. Then let's address your doubt.

T#$%D
As per time frames, !e can c,assify Trends into

A/ $C")A# T#$%D 5/ P#'0A#( T#$%D C/ '%T$#0$D'AT$ T#$%D D/ 6&#T T$#0 T#$%D A/ $C")A# T#$%D ;!ery short term trend has within it one to se!eral intraday uptrends and downtrends. ;!ery intermediate trend has within it one to se!eral short term uptrends and downtrends. ;!ery primary trend has within it one to se!eral intermediate uptrends and downtrends. 8o too, e!ery secular trend has within it one to se!eral primary uptrends and downtrends. 6hat we mean by Bull market is a market in a primary uptrend. 6hat we mean by a Bear Barket is a market in a primary downtrend. & 8;493&* B933 B&*J;T has primary uptrends IBull mktsG greater in magnitude and duration as compared to its primary downtrends IBear mktsG. ;%pect the bull markets to unfold longer than the bear markets in a secular bull mo!e. Aice !ersa for the 8;493&* B;&* BJT.& secular bear market has primary downtrends greater in magnitude and duration as compared to its primary uptrends.;%pect the bear markets to take longer to unfold than the bull markets in a secular bear mo!e. & 8ecular trend usually lasts about ,-0/+ years. 3et us get into the others tomorrow 9e! e:amp,es of ecu,ar 0oves 3 8;18;? an e%ample of a 8ecular Bull Barket.1$JJ;$ a 8ecular Bear.4harts below maybe we can also ha!e a look at some secular trends on charts.

'kay, in continuation we now know what a secular, primary trends and intermed trends are. 6e know that each larger time frame has within it smaller time frames of trends. 1ow,to your 2uestion we ha!e an intermed uptrend followed by an intermed downtrend followed by an intermed uptrend, so on so forth. 9e! ru,es ,G &fter an intermediate uptrend, the correction should be only ==0..O of that cycle I'ne intermed cycle L one intermed uptrend and one intermed downtrendG. 00 Nreater the retracement, the increased likelihood that the primary trend has re!ersed to the down. /G 8ubstantial increase in !olume during the price decline The abo!e are the basics you on 4aution Bode. if you are playing with indicators as well, then all the negati!e di!ergences, mo!ing a!erage crosso!ers puts

Ha!e a look at the chart below.......please do ask if anything is not clear.

4"$ T'&%
From the chart, $ see that support is taken at a higher point from ,FFP0/--= before sense% took off in /--=. The low of ,FF= was ne!er tested. $s it possible to say that unless we test that low and breach with high !olumes, we are not yet in primary bear downtrend@ >ou ha!e put benchmark at the support line in accordance with the theory. But in practice sometimes indices may bounce back from the lowest point formed after the first high of the consolidation period Iin yellow backgroundG

#$P)( 5( A'%T

These are long term charts and we are looking more at the secular trend of 8;18;?. 6hat we call as bear market in common parlance is a primary downtrend and not a secular downtrend. 8o, a break of KMFF,and we classify this mo!e as a primary downtrend that scenario. and as for this 8ecular Bull to become a Bear, we are far from

&s it stands now, we are in a 8;493&* B933 B&*J;T, in a :*$B&*> B933 BJT. Breaking KMFF, we go into a :*$B&*> B;&* BJT, but still !ery much in a 8;493&* B933 BJT. &nd for a long term trader or in!estor, there can be nothing sweeter in a secular bull mkt than taking profits, watching the mkts get into a primary bear mkt, and buying more at the lows.

4"$ T'&%
$ do hope you are right about the intermediate downtrend. 6ith all the di!ergence in *'4 and T*$? in the monthly charts of nifty, $ hope we donHt go into a primary bear trend. ;nclosing the monthly chart. 6ould like to know your !iews...

#$P)( 5( A'%T
)ust ha!e a look at the chart abo!e says e!erything.

Basically, this correction from the Bay top is too deep to be wished away as yet another intermediate downtrend. 4alling it a primary downtrend as markets plunged on Bay// is being a bit premature. &n intermediate downtrend is one till it isn't. But the ne%t wa!e drop to )une ,Pth lows takes it down to more than K-O correction of the pre!ious intermediate cycle. By personal opinion is that this no more looks like an intermediate downtrend in a primary uptrend. $ feel we are starting off the first leg of a :rimary <owntrend. 6e are still !ery much in a 8ecular Bull Barket though But as always, we can confirm that only once the market drops below /+F+. 6e are at that spot of bother on the charts where the bullish orientated trader sees things going to new highs and the bearish ones seeing new lows. $t would be wrong to say that this is a :rimary <owntrend for sure till confirmation. To say that this is nothing but an intermediate downtrend would be dangerous and wrong that statement in red should be modified to "This downtrend is nothing but an intermediate downtrend till we get a confirmation that this is a primary downtrend. But the depth of this retracement is giving rise to the possibility that it s loo!ing more and more li!e the first leg of a "rimary #owntrend" &nd yes agreed on the indicators bit as well.

T#$%D: P'V&T
'kay, now that we know that a higher high is when the pre!ious bar's high is crossed and a higher low is when the low is higher than the pre!ious bar's low, and that a series of higher highs and lows make an uptrend we retrace a bit and change things around a bit. )ust higher highs and lows alone do not make an uptrend. >es we ha!e an up0mo!e but an up0mo!e doesn't mean we are in an uptrend. Higher highs and lows form a ra,,y. 3ower highs and lows form a dec,ine. 6e can ha!e declines in an uptrend. 6e can ha!e rallies in a downtrend. 8o now that we know that a series of higher highs is called a *&33>, How then do we define an 9ptrend@ &n "PT#$%D on a particular time frame is a series of higher pivot highs and lows on that time frame. 6hat then is a downtrend@ 1othing but a series of lower pivot highs. 8o what then is a :i!ot@ 'kay, we are back to the "Hand" e%ample. 6hisk out your right hand again, once again with your right palm facing you. 6e ha!e our little finger. The ring finger makes a higher high and low as compared to the little finger. The middle finger is higher high and low as compared to the ring finger. 6e therefore ha!e a #A))(. The inde% finger makes lower highs and lows as compared to the middle finger. The thumb makes lower highs and lows as compared to the inde% finger. 6e therefore ha!e a D$C)'%$. The middle finger with two lower highs on both sides Iring and inde% now forms a P'V&T. $magine we ha!e &rea &. *ally starts from &rea & which is followed by a decline to an area that is higher than &rea &. 6e call this new area where the stock has declined to as &rea B. 8o on so forth. Therefore &rea B is higher than &rea &, &rea 4 is higher than &rea B, so on so forth. 6e ha!e therefore what is called an uptrend. These areas are pi!otal areas where the stock stops its decline and rallies upwards. 6e refer to these turning points as pi!ots. Therefore, in the abo!e e%ample, as each pi!ot is after a decline, and the pi!ot is the low after which the stock takes off again, we call them P'V&T )&W . *ight the opposite in a downtrend. The stock declines from an area and then rallies to an area lower than the first, so on so forth. $n this case e!ery pi!ot is after a rally, and the pi!ot is that area after which the stock declines further to new lows. &s this pi!ot tells us of that high after which things go back to its declining ways, we call that a P'V&T 6'86. o, in an uptrend, !e have 6'86$# P'V&T )&W . How did we come to that@ ;ach pi!ot low is higher than the pre!ious pi!ot low. Therefore we call it higher pi!ot lows. 'n a do!ntrend, !e have )&W$# P'V&T 6'86 . How did we come to that@ ;ach pi!ot high is lower than the pre!ious pi!ot high. Therefore we call it lower pi!ot highs. $n a sideways trend, we ha!e nearly e2ual pi!ot highs and lows. Basically didn't want to introduce the word ":i!ots" !ery early on but there really is no other way to tell what a trend is all about. 6ill take some chewing and digesting. The only way is to look at the charts and start to make out all the pi!ot highs and lows. The below attachment is a stock of &BR1 I&ma"onG trading in the 1&8<&D. The important thing is to know what we are talking about when we say pi!ot low and pi!ot high etc. 8o let's go to the chart of A0;%. 6e ha!e an uptrend on the daily charts of &BR1 in 1o!ember, followed by a 'D$WA( T#$%D from late 1o!ember to late <ec /--..6hy do we say that we are in a 8ideways trend@ &s the eye says, so it is. 6e are in an ob!ious trading range between the PM..K to PF.+ area. Then we ha!e a break down on the last day of <ecember followed by a weak rally back into the trading range and then we ha!e a decline taking out the pre!ious pi!ot low made in early )an to new recent lows to the P= area. 6e therefore say that we are in a ,o!er pivot ,o! as compared to the pre!ious pi!ot low. Then we ha!e another rally to the P+.F= area. This forms a pi!ot high that is lower than the pre!ious pi!ot high. Thus we ha!e lower pi!ot highs and lower pi!ot lows. This series of lower pi!ot highs and lows is called a D&W%T#$%D<

3et us take another e%ample

This is a weekly chart of B;* IBerrill 3ynchG trading on the 1>8;.

Take a look at the attachment gi!en below7 $t made a pi!ot low in &ugust /--P of PM.+,then we had a rally and a mild decline to +-.6e ha!e just made a higher pi!ot low. $s this an uptrend@ Baybe. But we get to confirm that this is a clear cut uptrend once the pre!ious pi!ot high is taken out. The rally towards the .takes out the pre!ious pi!ot high. 6hat do we ha!e now@ 6e ha!e a higher pi!ot high and a higher pi!ot low. 6e are in an "PT#$%D. &nd then once again, from Bay /--+ till date, we ha!e been making higher pi!ot highs and higher pi!ot lows.

>et another e%ample7 N''N INoogleG trading on the 1&8<&D. Through 1o!ember to early )anuary, we ha!e higher pi!ot lows and highs I9:T*;1<G.Then we ha!e that turn around in Bid0)an. 8o long as N''N did not break that pre!ious pi!ot low of around P//,$t was still in an uptrend. Then we ha!e that ugly bar on the daily charts that broke pre!ious pi!ot lows. &re we in a downtrend now@ 1o. But as far as we are concerned, the uptrend is o!er. Then we ha!e a rally back to the P+- area in the later part of )an. This is making a lower pi!ot high as compared to the pre!ious pi!ot high. 1ow are we in a downtrend@ 3ooks more and more likely. But not confirmed as yet. Then that gap down and lower prices taking out the pre!ious pi!ot low as well. 1ow we are in a confirmed <owntrend.

For those not getting a picture of what this whole pi!ot thing is all about, just check out this diagram by Jarthik regarding pi!ots. <iagram self e%planatory

4"$ T'&%
For me, $ ha!e seen that many times i ha!e entered when a share has made a higher pi!ot low and then it mo!es up a bit and then makes a lower pi!ot low. $s this common or am $ not entering right. This could also be because at this time $ am not using any indicator and only using trend line and once we use ,0/ indicators along with trend lines entries are more confirmed.

#$P)( 5( A'%T
& higher pi!ot low doesn't mean we are going to see new highs. $t could just turn around and continue its downtrend. Therefore, the importance of stops. &nd yes, as we put trendlines Q support # resistance to mo!ing a!erages, and patterns, and a few indicators and !olume, then we get to drop a few of those that you might ha!e taken now. But whate!er you do, howe!er much you learn, it's important to keep things as simple as possible.

4"$ T'&%
Duick 2uestion on identifying a pi!ot. To identify a pi!ot high, should both the below statements be true or only the ,st one needs to be true ,. High should be higher than the highs of the bars on either side /. 3ow should be higher than the lows of the bars on either side 8ame for :i!ot low &lso does the e%tent of diff between the high#lows of the pi!ot bar and the adjoining bars ha!e any significance &lso $f pi!ot highs and lows are repeating 2uite often, does this mean that the script is not in a significant trend

#$P)( 5( A'%T
& pi!ot is not e%actly a point, and therefore it need not be one single bar with lower high bars on either side to 2ualify it as a pi!ot high. $t could be /0= bars .Basically, whether pi!ot high or pi!ot low, don't go in for an e%act academic definition. No with the eye. Taking the chart of :iramyd *etail, we ha!e pi!ot lows on )an/Mth, Feb/Kth, and Bar/Pth.1otice that each pi!ot low is lower than the pre!ious one. 6e call that a downtrend. 8o too with the uptrend. $mportantly, go with the eye. &nd what is not ob!ious to the eye is not worth it to put your money into.

4"$ T'&%
$n the abo!e 2uote you say that a uptrend is caused by a series of higher pi!ot lows. $s it correct to say that in an uptrend we also ha!e a series of higher pivot highs@ The same in con!erse for a downtrend@

#$P)( 5( A'%T
;!ery uptrend would be characterised by higher pi!ot lows and higher pi!ot highs, and !ice !ersa for the downtrends characterised by lower pi!ot highs and lows to know that is important in detecting the trend. B9T, in an uptrend, focus on the higher pi!ot lows and !ice !ersa on lower pi!ot highs in the downtrend.....6hy@ Bore to do with where to place your stops and to know when this current trend is o!er. 8o, basically e!ery pi!ot low goes on to make a higher pi!ot high and then a higher pi!ot low followed by a higher pi!ot high. &s said before, this stock is in an uptrend. 6hen do we say that this particular up mo!e is o!er 6hen a pre!ious pi!ot low is taken out. Therefore, in an uptrend, train your eye to focus on the higher pi!ot lows.....8o too in a downtrend, train your eye to focus on the lower pi!ot highs. & crack of a pre!ious pi!ot low on a weekly chart indicates that this up mo!e is o!er. Aice !ersa in a downtrend

4"$ T'&%
:lease ha!e a look at the attached weekly chart of $T< 4ementation. 4learly in the last three days there is a :i!ot 3ow on ,.th )une. The daily charts show this is in a rally for the past four days. The downtrend is in 2uestion but we do not ha!e a confirmation of the uptrend. How long do we wait till we make our mo!e@ &s far as $ understand from your pre!ious posts, we only flag this stock onto our watch list. 6e wait till it makes a higher pi!ot low and higher pi!ot high. 3etHs say in the daily charts it makes a pi!ot low in the area abo!e the current pi!ot low +//.M-. Things are better and better. But the pre!ious pi!ot high is in the range of F--. <o we ha!e to wait until this pi!ot high is taken out@ 6hat if the rally doesnHt stop@ <on't we loose out if we do not buy it early@ 8orry for so many 2uestions but hope you get my point.

#$P)( 5( A'%T
$f you are an in!estor into $T<, another issue, but if you are trading it on a short to medium time frame, $'d skip this one looking at the low !olumes. But let us take $T< as an e%ample for learning purposes >es we ha!e a downtrend in $T< on the weekly charts. 6hy do we say that@ 6e ha!e taken out the pre!ious pi!ot low on the weekly charts and we are definitely on the down in the intermediate time frames, and threatening to do the same on the longer time frames as well. &s it stands now, we are in a downtrend once we get to that point when we clearly state that we are no more in an uptrend and 2uite ob!iously in a downtrend, we think of shorting e!ery rally, and in this case as we cannot short, we merely step aside and wait >es we got that pi!ot low on the week ending on ,.th of )une ,and then we got that rally. 6hat do we do here@ 1othing. 8tand aside and wait for an uptrend. How do we know that the pi!ot low made on the abo!e mentioned week is not the bottom after which we are mo!ing up@ 8imple answer we don't. &nd when we don't know something, or there just is not enough data to tell us that the trend has changed, we do not put our funds into that trade, we just stand aside. 8o far, e!ery rally is a selling opportunity opportunity. we ha!en't come to that point when trends ha!e changed and e!ery dip is a buying

1ow, at what point do we buy@ 3et us say that we are going to turn up from here and mo!e upwards, do we buy. 6e ha!e a higher pi!ot low on the daily, so why not@ The answer to that one is7 <epends on the time frame that you are trading. $f you are in a trade for few days, then maybe. But there just is nothing like trading with the weekly charts supporting you as well. 8o do nothing wait for the weekly charts to gi!e you that higher pi!ot low before committing funds. &t present, this rally is only just that a rally in a downtrend. 1ow let us presume that we get that higher pi!ot low on the weekly charts, do we wait for the higher pi!ot highs to be taken out before entering <efinitely not. Net to get ready mode once you get a higher pi!ot lowIyou could also buy here if we get a neat long basal pattern with a higher pi!ot lowG. $f $T< forms a sideways base and a higher pi!ot low from here, you could buy here and add o!er M.which is the pre!ious lower pi!ot high.

4"$ T'&%
$ had a 2uestion related to his 2uery. 6ill we take the F-- mark as a pi!ot high as what $ ha!e learned so far and read in dow theory and by martin :ring is that a pi!ot is made if a it retraces ==O, +-O or ..O. 1ow if we take other theories as well ,/.+O is minimum retracement le!els we take. $n this case if take the high of ,Fth &pril, the mo!e around /Pth may was a mere sideway mo!ement and not a retracement to 2ualify as a new pi!ot point. :lease comment on the same and correct me if i ha!e misunderstood the concept of a pi!ot.

#$P)( 5( A'%T
&ttached below is a simple chart of $T<, and where to buy and sell.

Jeep things simple and trade what is ob!ious to the eye :i!ots are just that0turning points. The amount of retracement howe!er tells us about the strength or weakness of the pree%isting trend, which we can get into shortly. Think the chart e%plains itself

"PP&#T A%D #$ ' TA%C$

"PP&#T is that area where buying interest e%ceeds selling interest, and therefore a pre!ious decline gets halted at this area and turns back up again. $t is marked by drawing a hori"ontal line connecting two or more bottoms. #$ ' TA%C$ is that area where selling pressure e%ceeds buying interest. $t is an area where pre!ious rallies get halted and turn down again. $t is marked by drawing a hori"ontal line connecting two or more tops. 8upport and *esistance are not absolute points. They are areas. 6hen 8upport breaks to the downside, we call that a <own 8ide Breakout or Breakdown. 6hen *esistance breaks to the upside, we call that a Breakout. 6hen we get a breakdown below support, that area of support now becomes an area of resistance. Ha!e a look at the )1:* charts below. That area of support broke down and that same area is now acting as *esistance. & breakout abo!e *esistance, and that same area of resistance now becomes a new 8upport. These are important areas for e!ery trader, either as an entry point or an area to take profits. There is more on 8upports and *esistances. 6e'll go o!er them slowly and with e%amples but slow and steady for now.

The below is another e%ample. 484' trading in a tight range. Then we ha!e a breakout abo!e resistance. That area which was pre!iously resistance now becomes 8upport, as prices use that floor for the ne%t rally.

6e had discussed regarding trendlines in the beginning. Basically same principles applied here, the only difference being these are sloping lines as opposed to the hori"ontal lines discussed yesterday, but same principles. &t that time we had discussed about 9ptrendlines and <owntrendlines. The 9ptrendline acts as 8upport each time prices decline and come towards it. 8o too the downtrendlines act as resistance as prices rally to the trendlines and fall from it. ;%ample in the attachment below of <;33.:rices hit the downtrendline and resume its decline. Therefore the downtrendline acts as *esistance. 8o too with an uptrend &nd as was discussed regarding the breakout o!er resistance and breakdown below support,the same applies here. 6e ha!e an uptrendline, we ha!e prices taking support at this trendline. &nd as the trendline breaks, we say that the uptrend is in 2uestion. & break in an 9ptrendline is not a <owntrend it merely tells us that this uptrend that we ha!e been trading and making profits from is now in 2uestion. 8o too with the <owntrendline. & breakout abo!e the downtrendline does not mean that the stock is now in an uptrend,it merely means that the downtrend is now in 2uestion. To assess uptrends and downtrends, we are back to pi!ot highs and pi!ot lows as has been discussed.

4"$ T'&%
$n the graph for 484', shouldnHt the support be at ,..F= and not the ,M..K like u ha!e shown there. 'r is it ,..F= for the wa!e which started a little before 1o!ember and e%tended till <ecember@

#$P)( 5( A'%T
Both le!els of support that chart was posted to indicate that an area of resistance, once broken to the up, later became an area of support. $f the correction from the up broke through the ,M..K area, yes the ne%t support would ha!e been that ,..F= le!els. ;!ery present support is a potential future resistance and !ice !ersa......that was the only indication of that aforementioned chart.

T#AD'%8 !ith T#$%D , P'V&T 2 "PP&#T = #$ ' TA%C$

5"('%8 D$C)'%$ 2 6&#T'%8 #A))'$ 3et's make this as simple as we can 6e know what an uptrend is, a series of higher pi!ot highs and lows. Aice !ersa in a downtrend. 1ow, for some rules we only 5"( in an uptrend. 8o long the uptrend is held, we do 1'T think of shorting. >es, one could always do a sniper attack on an intraday basis or at ma%, on an o!ernight basis. That is one's decision to make. The most often repeated line "The trend is your Friend", means we ne!er cross the trend. The trend is 9:, therefore we buy declines. When the trend is D&W%, !e short ra,,ies< $f you can't short for whate!er reason, then a downtrend is reason to stay out till we get a change in trend to the 9pside. Therefore, it is !ery important to be able to detect the change in trends in the first place. Therefore, our minds must work like this 0S&ll the analysts on TA, maga"ines are saying that the markets are way too o!er heated, o!er!alued, o!er buy some puts or short the 1$FT> F9T8@ etc, etc. $s this the time to

LL3ook at the charts. Take the weekly charts. 6hy, the weekly@ Because, we are looking at intermediate to long term. &re we making higher pi!ot highs and lows@ $f the answer is >;8, then we are in an 9:T*;1<. &nd in an 9:T*;1<, we think "B9> <;43$1;8". That's it(( 6e let people play Nod, but we stick to our plan. LL$f the answer is 1', the pre!ious pi!ot low just got cracked to the downside, we are thinking of getting out of our longs in that particular stock or inde%. 1ow we are thinking, "8H'*T *&33$;8" $n a downtrend, e!ery rally is a shorting opportunity. $n an 9ptrend, e!ery decline is a buying opportunity. The market changes from 9ptrends to <owntrends, again and again we are not here to predict tops and bottoms. 6e are not here to anticipate anything. 6e are here to follow the trend. &nd as uptrends change to the down, we change from B9>$1N <;43$1;8 to 8H'*T$1N *&33$;8. Forgi!e me for repeating this many times but in trading, basics is e!erything and the rest just icing on the cake. The rest of what we will learn in future increase our odds but these basics are the Nospel Truth of Trading.

T6$ 5"( $T>"P

'kay, now that we know what an 9ptrend is, and that come what may, we will stick to our rules, which is7 First detect the change in trend which re2uires a higher pi!ot high and low, then once we are in an uptrend, we B9> <;43$1;8. 1ow comes our ne%t point of worry yes we got our uptrend, and now the declines. But when do we buy@ <o we buy on the first day@ $s there anything else we are looking for before we come to that decision@ Ha!e a look at the chart of ;<94'B: below. 6e ha!e a decline after that big bar.Bearish candle 1o ,,we do nothing. 6e wait. Bearish candle 1o /, we do nothing. Bearish candle no =, things looking more and more juicy. Then we get that bullish candle. That first bullish candle is still making lower highs and lows, but is gi!ing us an indication that bulls are gaining in strength. 1ow we are ready to strike, and yet, we do not mo!e. 6e now look to buy, we do not buy as yet. 6e buy when the ne%t candle takes out the pre!ious candle's highs. 6e are in the trade. 'ur stop is the low of that pi!ot ie. /+P0/ Ito gi!e it some roomG L /+/ $n ;<94'B:, we are getting our ne%t buy set up as of now. 6e ha!e three bearish candles and then that bullish candle so far reflecting a change in sentiment and therefore a possible change in direction. &nd like before, a buy set up means we look to buy, we do not buy as yet. 6hen the ne%t candle takes out this week's high, then the trade is triggerred.

A "00A#(
6e ha!e, at !arious times and places during this thread, done the below7 a/Trends > ecu,ar, Primary, 'ntermediate, hort Term Trend b/ Pivots Jnowing just these two tell us where we are on that particular chart. &s we had discussed many a time before, first we need to know that a secular uptrend is made up of se!eral primary uptrends and downtrends. ;ach primary uptrend is made up of se!eral intermediate uptrends and downtrends. &nd each intermed uptrend is made up of se!eral to many short term uptrends and downtrends. 'f course, each short term uptrend is made up of se!eral to many intraday uptrends and downtrends. &n uptrend is made up of higher pi!ot highs and lows, each pullback within that uptrend is called a decline. & downtrend is made up of

lower pi!ot highs and lows. & mo!e up within a downtrend is called a rally. 6hy do we know these things@ &s we had discussed before we need to know that a chart is in an uptrend, because then and only then are we interested in going long. 6e buy in an uptrend. 6e could buy the breakout from a sideways consolidation phase, we could buy the declines within an uptrend but in an uptrend, in anticipation of a certain le!el, we 1;A;* 1;A;* 8H'*T. The mind must be educated to understand that one does not short in an uptrend. 6e short in a downtrend Ipl", $ know that certain things are not possible in the $ndian mkts, ob!iously one can do only what one is allowed to do. 'ne could short using deri!ati!es, or stay out and wait for an uptrendG.$n a downtrend, we get a sideways consolidation phase, we short the breakdown. 6e could also short a rally within that downtrend. 6hen we get a rally in a downtrend, we could capitalise on that mo!e on a smaller time frame by going long. But in that larger time frame, we are looking to 8H'*T. 6e are not looking to guess bottoms, we are not looking to anticipate certain areas from where we are going to bounce upwards, we 8H'*T e!ery rally ina downtrend till that downtrend no more is one and we get a Trend *e!ersal to the 9pside. c/ Trend,ines <o we only get out of a long position once pi!ots are broken and the downtrend is confirmed@ 1ope we draw trendlines using the semi0 log. & trendline break and we are out half, and a pi!ot crack, and we are out totally. How to draw the !arious trendlines has been discussed in !arious posts in this thread, please do go o!er it. d/ Chart Patterns &lright, we know about trendlines, pi!ots and trends, is that not enough to know@ $sn't this knowledge enough to plunder profits from this markets@ >;8,and a !ehement >;8 But learning some chart patterns can do no harm. $n fact, a continuation pattern gi!es us a good place of entry, and gi!es us a potential target area. 8o too with a *e!ersal pattern, we get an entry and a potential target area. 8o,do we need to learn 4hart :atterns@ 6ell,many just follow pi!ots and trends, and do not re2uire 4hart :atterns, that's basically your call to make. 'ur objecti!e as a trend trader is to latch on to a Trend *e!ersal, and use our knowledge to stay with the trend as much as possible. But the 2uestion that hits our head is7 *ight,we know all this stuff, and now we know that we will buy half on a higher pi!ot low, and add the other half o!er the pre!ious pi!ot high but what about stops@ 6here do we take our profits@ <o we take profits at all@ Then, of course, how many shares do we buy@ ;tc, ;tc

A great post by Trader?i on Trading the P,an 3 do read and assimi,ate the !isdom in the artic,e be,o!< Fortunately, none of us serious trader types e!er really gamble. 6e all take our trading !ery seriously, like a serious business person should. Bany people ha!e asked me o!er the years what it takes to be a successful trader. The answer is not clear but here are a few thoughts to ponder and apply. First, successful traders ha!e a complete commitment to trading and do it full0time. $f it is a hobby or a secondary pass0time, $ know how the bottom line will be 0 a big minus. Trading must be addressed as a profession because if you do not treat it as such, let me assure you, those who do treat it this way will separate you from your money !ery 2uickly. 8econdly, successful traders fit their trading habits to their indi!idual personality. $f you are an impulsi!e indi!idual, your style will reflect more trading than a calculating indi!idual who waits for all the indicators to fall into place. The personality factor more than any other factor $ know of, will determine success or failure. $f you are an emotional person, admit that you are and structure your trading habits to make emotions a positi!e influence, not a negati!e one. $f you are either greedy or fearful, that will affect your decision making on a position and without recogni"ing the go!erning emotion, your decisions will tend to be wrong. 6hene!er $ am the most fearful of the market, that emotion helps make me decide to go long and buy. $ know that my emotions tend to make me fearful most of the time. 6hene!er my fears become o!erwhelming, my discipline tells me to buy and discipline must win out or you are doomed to failure. The work ethic can ne!er be o!erstated. $ watch the market all day long from the opening bell to the closing bell. $ ha!e kept diaries on e!ery day in the market for the last se!en years, sometimes ha!ing o!er P- entries in my diary per day. $f $ do not do my work my profit suffers. There is no short cut in trading, the market will 2uickly find if you are la"y. :lanning is the objecti!e part of trading. 8tart with the worst case scenario and work from there. >ou will ne!er be more objecti!e than before you e%ecute a trade. 'nce you are in a trade, emotions take o!er so the plan must be in place before the acti!ity takes place. <etermine a plan that tells you when you are wrong and admit it. Net out, retreat, li!e to fight another dayT these are cowardly approaches but it will keep you from the traderHs obituary. *emember each rehabilitation takes a long time, but death is final.

Another gem from Trader?i 3 6o! to e:it a successfu, trade@ <o you stay with your profitable trades as long as possible because the trend is likely to continue and make your profits e!en larger@ This is easy to understand but not so easy to do when real money is in!ol!ed. The difficulty is that although your profit may become much larger if you stay with a trade, it may also decrease and e!en disappear. Human nature is such that it !alues a sure profit much more highly than the probability of a much higher profit. Thus, traders are inclined to take their profits too soon. This can be fatal to long0term success because big profits are necessary to o!ercome the ine!itable collection of small losses. There is a good way to let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually re!erses. $t is called a trailing stop. >ou include in your plan a method for mo!ing an e%it point along some distance behind your trade. &s long as the trend keeps mo!ing in your fa!or, you stay in the trade. $f the market re!erses direction by the amount of your trailing stop, you e%it the trade at that point. >ou would also offset your trade and re!erse position if the trend re!ersed. 'ne way to set a trailing stop is to protect a certain percentage of the accumulated profit. That will always insure that you keep some profit on a good trade.

And another great one by Trader?i 3 The key components of a successful trading plan are an edge, discipline, risk control, and money management. Contro,,ing your risA 8uccessful speculation is all about managing risk. & winning trader always knows how much they will lose, but rarely know how much they will make. The key is to ne!er let a single trade or single e!ent Ithat may impact on multiple positionsG ha!e a major negati!e impact on the trading account. "1e!er, e!er, trade without a stop0loss order. $f you don't know what a stop0loss is, you should not be trading." 0oney management & basic in!estment tenet states there is a direct relationship between risk and return. Trading is no different 0 the greater the account !alue risked on a single trade idea, the more !olatile the total returns from the trading strategy will be. & simple strategy is to ne!er risk more than /O of your trading account on a trade. Bost professional money managers will risk a fraction of ,O on a single trade. "There are many bold traders, but there are !ery few old, bold traders". The <ifference between the professionals and the no!ices. The ":rofessionals" fit the following profile7 they trade completely objecti!ely using mathematical models to arri!e at trading decisions, there is no emotion in!ol!edT their ideas are well researched to ensure their strategy has a definable edgeT they follow trends in prices, by controlling their risk and allowing profits to accumulateT they realise the market is not predictable, so employ techni2ues that will profit by recognising trends, rather than anticipating them. The "no!ices" fit the following profile7 their trade strategies are usually based on esoteric analytical techni2ues that are highly subjecti!e, making it difficult Iif not impossibleG to determine the pro!ision of an edgeT they ha!e a pre0occupation with forecasting prices or dates on which trends in the markets will re!erse Iie a belief that the markets are predictableGT by design, their subjecti!e strategies make a disciplined trading approach difficult as it is too easy to "bend the rules"T they pay little attention to risk control and money management. 'ne final 2uote7 "6inners hold their winning trades, losers hold their losing trades" &s we had discussed pre!iously, a successful trader who trades the ongoing trend of the market is he who is able to stick with the present moment, the "now" it really does not matter what our intellect tells us where the market is going or not going, the fact is that it really does not matter what we think about the market The reality is the market mo!e in itself. 'ur job as a trader trading the trends of the market is merely to latch on to a trend and stay out of the forecasting business. The problem

with this latching on to the trend business is that we don't get to go to a party and show off all our stock knowledge, fundamental # technical skills ... $n this business, we practically shut our brains and follow the trend. 8o no glit" or glamour in this, nothing to really show off. But you do ha!e banking personnel running after you with ideas on where you should put your money that is growing slowly and steadily in your account( 6e therefore use price as e!erything, now some will tell you of the importance of :rice and Time, etc Truth has as many paths to it as there are traders, and to each his own. as maintained before, Trading

1ow using price, trendlines to gi!e us warning signals, and pi!ots that tell us to jump ship when that trend of that time frame is o!er, and some traditional tech chart patterns, our job is nearly almost o!er. 4oupled with a few indicators, and certain patterns to keep a look out for, we are about done. Jeep things as simple as possible $ know that isn't a style statement these days especially amongst tech traders e%perimentation, and once you ha!e things figured out, keep things !ery simple. do your

4"$ T'&%
$ ha!e a few 2uestions. 6hen we talk about an uptrend we buy on small corrections. But in a downtrend, $ did not understand when we say e!ery rally is a shorting opportunity. 4an u e%plain the process of shorting. &nother 2uestion is we see a uptrend on the weekly chart and we enter. 1ow, we see a minor correction coming in and we think of buying at declines. But, what if that particular downtrend itself ends in a lower pi!ot low than the pre!ious one. 6hat should our trading strategy be. 6e will of course ha!e a 8#3 in place but then it could again go up.

#$P)( 5( A'%T
;!ery rally in a downtrend is a shorting opportunity, meaning we sell first and buy back later. The re!erse of buying. 6hen we get a downtrend, we look to short or we stay out of the fall. 'f course ,there's all those restrictions of not being able to short e%cept in futures, etc the whole idea is that we do 1'T buy in a downtrend. 6e look to either short or stay out. 'nly when the trend has gi!en a mo!e to the 9:, do we think of buying. $t is a rule that you do 1'T break therefore the importance of first being able to detect the trends and the change from one trend to another. &nd then following the discipline. Howe!er juicy a stock is, and whoe!er tells you, that a stock is under!alued, fundamentally great, and the 4;' is the brother0in0law of you, being a trend tech trader, will listen to all he's got to say, then pull out your charts, realise that maybe he is right, maybe he is wrong, but your charts tell you that this stock is not yet in an uptrend, and that is that. >ou <' 1'T B9>, as you do not buy in a downtrend. &s for the /nd part of your 2uestion yes, a risk that all traders take and may not e%actly work out. Therefore the stop. Howe!er great the probability of success in any trade, we still ha!e stops at important pi!otal areas. 6e are only too happy with success, but if that is not to be, we do not mind the small losses either. &nother clarification, a stock put in lower pi!ot highs and lows. $t is clearly in a downtrend. Then it put in an impressi!e rally from the bottom. &re we in an uptrend@ 1', not yet at least. Then the stock retreats and puts in a higher pi!ot low as compared to the pre!ious pi!ot. 1ow, looks more and more like a change in trend. Then it confirms the trend change by making a higher pi!ot high as well. The stock is now clearly in an uptrend. 1ow your brain says, B9> <;43$1;8. &nd true enough you get that decline. >ou bought in and horrors of horrors, the stock went on declining to lower pi!ot low than the pre!ious low. >our stop at the le!el of the pre!ious pi!ot is triggered. >ou are out, and looking elsewhere for another trade. The answer to your last 2uestion7 >ou take your stops and get out of that trade. &s far as this stock is concerned, it continues its downtrend. &nd as always, in a downtrend, 6; <' 1'T B9>. 6e keep it on our watchlist. 6e track it, we stalk it, but we do not buy. Till we get a trend change that is.

4"$ T'&%
>es, $ think $ am clear about it. 8o when we stalk a stock that is mo!ing up from a down trend we do not take position. 6e wait for it to rise, retreat and then we buy if it takes a turn around higher than the pre!ious pi!ot low. &m $ following it so far@ &nother 2uestion 0 when a trend is rising and it turns around for a !ery !ery minor correction will it still be called a pi!ot or how much fall is re2uired.

#$P)( 5( A'%T
>es( absolutely. &nd yes to your /nd 2uestion as well.

4"$ T'&%
1ormally we take the weekly charts if we want to trade for the medium term I=0. monthsG. But if $ want to trade only for !ery short term, i.e. , week or ma% ,- days then can we take the daily charts@ $f we take daily charts then, how many days of data should we consider@ $s

three months of data enough@

#$P)( 5( A'%T
;!en for short term trading, a weekly chart is important. 3et us say you intend to get in to a position as a swing trade, maybe + 0 M days. First look at the weekly charts, it B98T be in an uptrend. 1ow that we ha!e a weekly that is in an uptrend, we now intend to buy. & weekly in a downtrend, we <' 1'T buy howe!er great looking the daily chart is, howe!er great the news is, we <' 1'T buy. Ha!e a look at the chart of $1< 86$FT below. 6e ha!e a weekly in a downtrend, making lower pi!ot highs and lows, <' 1'T B9>. Buy only when the weekly gi!es you a clear cut change in trend, and then buy declines using the daily charts.

)ust another chart Basically, in a nutshell, for starters, keep away from trades where the daily is setting up, and the weekly is still in a downtrend. The desire to predict and get in at lower prices will cost you dear. Net into another stock where we ha!e a weekly in an uptrend, and then buy declines.

4"$ T'&%
)ust want to recap something we ha!e learnt so far. 6e see charts on the weekly we see an uptrend ... a higher pi!ot high and low and we can enter other indicators also permitting or we may just follow the trend. 1ow what happens if we see a chart which is in uptrend and in which the chart keeps going up. $s there any method to enter or we wait for a pull back. $ was seeing the charts of 8eamrin. +/.K-M. 'n the weekly itHs on a uptrend but the entire week on the daily it was on upper circuit. 1ow it may do that on the /nd week too. 8o we wonHt enter now. 6e will wait for a pull back preferably to ,=+ le!els where it made a window and also started mo!ing up from a sideways trend. 1ow another part would be if after mo!ing up for another week it again mo!es sideways and then mo!es up. 6ould u buy or lea!e this counter if no pull back.

#$P)( 5( A'%T
8;& B&*$1; 0 6e got a breakout on the daily charts on the /,st of &pril. Te%tbook entry, wait for a pullback or buy o!er the pre!ious day's high. $n this case, buy on the /Pth of &pril o!er the pre!ious day's high. 6hat $ would ha!e done7 $ would ha!e bought o!er the pre!ious day's high IhalfG and would ha!e liked to add the other half in a pullback. $n this case the pullback ne!er happened, and $ suppose $ would be sitting with half a position. &nd as for the second 2uestion, if this pulls back on the daily charts, it's a buying opportunity. $f it goes sideways, it is a buying opportunity. 'f course if it makes a mild pullback on the weekly, it's a buying opportunity.

4"$ T'&%
$ ha!e been using some of the indicators ... as you ha!e mentioned but one thing worth noting is, that if we are trading daily charts then ... we ha!e to keep a track of what's the stock doing on the weekly charts Ithe higher time frame modelG and suppose the daily chart is in uptrend Iin respect to higher peaks and troughsG ... and then crosses below itHs recent pi!ot low and makes a lower pi!ot high ... it can be said the stock has turned its trend Ion the daily time frameG. 1ow at the same time, the weekly indicator does not show the same weakness ... co" any change in trend will first be !isible on daily charts as in this case and then on weekly charts. 1ow my 2uestion is how can we distinguish whether it is just a temporary pull down. 'n weekly charts or start of a trend re!ersal on a weekly chart Ifrom bullish to bearishG .. as the first signs of weakness can only be !isible on the smaller time frame then go on to the bigger ones ... and is there any way we can find out that this ... re!ersal on smaller time frame is indeed a trend re!ersal on the bigger one.

#$P)( 5( A'%T
&s for an answer to your 2uestion, simply,we don't a correction in the weekly charts as well. we really cannot say for sure that this correction is going to be that one that will see

But we ha!e some ways to anticipate it few reasons to get ner!ous on the 1$FT> o!er the last few weeks. 6e ha!e a way o!erbought 8tochastics, the last time we saw '!ersold was in 'ctober last year. 6e ha!e a negati!e di!ergence on the T*$? and the *8$. 6e know that an important correction is coming, but as trend followers should, we do 1'T predict a mo!e.......opening the weekly charts, we ha!e a way o!erbought 8tochs and negati!e di!ergence on the *8$. &gain, we know that a correction is in the offing, but we ride the trend till we see a break in it. 8o far, no break, we are fine 1ow, we get this important break and a finish at the end of the day ImondayG below our all important trendline. This intermediate uptrend that we ha!e been playing from 'ctober till now is o!er. 1othing to do with long time frames, they are still !ery bullish. &s far as we are concerned, we are out of all longs, and now look to short e!ery rally till once again things change to the up. The rally yesterday means nothing, e%cept some intraday gains, and then today another big fall of K/.pts.3ooking at the weekly charts, nothing but a pullback but trendlines and a few indicators and a topping tail on the weekly gets the intermediate frame trader to get out early. &nd as trend followers, we are not concerned to get out at an absolute top or bottom. 6e just want to get as much meat as possible in the middle. Basically, important to integrate both the time frames it will all come as you pour o!er thousands of charts.

4"$ T'&%
$s it necessary that any breakout abo!e or below a trendline should be accompanied with good !olumes. $ am looking into charts of !arious companies but i am unable to find any charts which show an uptrend. But today, $ found one "8angh!i Bo!ers". This stock has broken its uptrendline and is again trying to re0enter the uptrendline. :lease see the chart. $f this stock rises abo!e the trendline, should this be accompanied by hea!y !olumes. 6hat if it doesnHt@ 8hould that be regarded as a false breakout. $s there any way by which i can tell whether a breakout is false or not.

#$P)( 5( A'%T
>es, a breakout needs high !olumes to sustain it, else as you correctly pointed out, it will end up as a false b#o. But a breakdown can happen without good !olumes as markets fall with their own weights. 8&1NHA$ B'A;*87 1ot really a good e%ample to study on due to its !ery low !olumes. But in general, yes, that trendline IupG once cracked, that !ery trendline that was pre!iously support now becomes resistance. &nd like all resistance we need the breakout o!er

resistance accompanied by good !ols.

4"$ T'&%
'ne 2uestion, since we know that the stock is in an uptrend and we are in trade, can we add to this position@ $ had read somewhere that you should keep adding to your winning position. $f yes, when do we add and in what proportion@ By thought is that e!ery higher pi!ot low is an opportunity to add, am $ right@

#$P)( 5( A'%T
*ight on, my friend but how much each time, ahh, we are stepping slowly and steadily into money management proper.

C6A#T PATT$#%
&gain and again, certain patterns seem to de!elop on our charts. &nd we realise that the probability of re!ersal or continuation is greater with certain patterns. 1ot saying that the re!erse cannot take place. &nything is possible and therefore we ha!e our stops but these patterns usually either re!erse or continue trends. Jnowing about chart patterns is one more weapon in our arsenal. T!o types of Chart Patterns a/ #eversa, Patterns: These patterns re!erse trends 0S ;g. <ouble Top, <ouble Bottom, Head and 8houlders, 4up n Handle. b/ Continuation patterns: These indicate a possible continuation in trends 0S ;g.Triangles, Bull flag, Bear flag, :ennant

#$V$# A) PATT$#%
./ Doub,e Top This pattern can happen on any time frame this halts the uptrend and starts a downtrend in that stock or inde%.

0 &lso called as B Top, co" it resembles an "B". 0$f double tops are bearish, triple tops are e!en more so. 0Aolume is higher on the first peak, and lesser in the /nd peak, and starts picking up on breakdown from the /nd peak. 0There has to be a distance between one top and the other to 2ualify as a <ouble Top. 1eeds at least = month difference if you are looking a the daily charts. 01ow take the trough between the two peaks breaking that le!el is confirmation of a change in trend to the downside.

8o, summari"ing, let us say we are looking at the daily charts of any stock. 6e need to ha!e a top put in, let us say )anuary, and then another top at the same area, let us say in &pril. The rally to the first top came in good !olumes, and then a pullback on low !olumes. The rally to the second top came in relati!ely low !olumes and then the declines coming in relati!ely stronger !olume. $t may be a double top, but you cannot call it one till the trough between the two tops is taken out. Then we can call it a double top. &lso called as B0T':.

6o! does Ano!ing this he,p us in our trading? 6e ha!e a great uptrend on good !olume and a pullback on lesser !olumes so far so good. 1ow the /nd peak formation starts to form with much lesser !olume as compared to the ,st peak, and then a breakdown on high !olume this gi!es us an indication to e%it our longs if we are short term players as trendlines get broken to the downside. But without confirmation, we are officially in nothing more than a sideways trend with possible fall downwards. 1ow the trough gets broken and usually the stock retraces back 6e are now officially in a downtrend. The time to short has arri!ed. 8hort a half at the retracement, and short the other half below the low of the bar that closed below the trough line. Target7 The distance between the peak of the "B" to the trough of the "B" That's our target point. add that to the low of the bar that broke the trough line.

1/ Doub,e 5ottom 8ame as abo!e, it halts a downtrend, and starts an uptrend in that stock or inde% &lso called as "6" bottom Trading strategy and measuring techni2ues are just the opposite to the abo!e -/ 6ead and hou,ders Pattern Bearish, re!ersal pattern signaling the end of the current uptrend Basically looks like the silhouette of a human left shoulder, head and the right shoulder 3ike the <ouble Top, strong !olume push prices upwards forming the "left shoulder". The pullback is on lesser !olume, then another strong rally on good !olume, forming the "head" but this time, the !olume causing this rally although forming higher prices, is now on relati!ely lower !olume as compared to the !ol. in the rally causing the left shoulder as the stock pulls back to the neckline, and starts rallying again to form the right shoulder, now !olume is !ery noticeably lighter The break of the neckline confirms the H 5 8 pattern I1eckline is the line connecting the two troughs on either side of the headG.Aolume e%pansion is noticed as the pattern confirmation takes place and the stock or inde% is now in a down trend. I*e!erse happens now !ol. e%pands on the down fall and decreases on a return mo!e upG Trading>Wise >B $%T#( The first down day below the neckline confirms the pattern.......short as the neckline breaks or enter short on a weak rally back to the area of the neckline.This line that was formerly strong support now acts as a stiff resistance.8hort half on that return mo!e,and the other half below the low of the confirmatory bar. TA#8$T First target would be calculate the difference from the head to neckline.&dd that to the low of the bar that confirmed the pattern.

T&P The high of the right shoulder &ne 'mportant Condition 'nce the neckline gets broken, e%pect a return mo!e but at all costs the price should not re0break the neckline upwards. $f this happens, it is called a F&$3;< H58 :&TT;*1. 3ike a failed breakdown, this acts as a bear trap and is bullish. 8o get out if that neckline gets broken back upwards. C/ 'nverse 6ead and hou,ders Pattern 0 *e!erse of the abo!e 0 *e!ersal pattern that ends a downtrend 0 Tradewise, all re!erse of abo!e

$olume and % & S

Vo,ume plays an important role in us calling a particular pattern a H58. 3et us go through the Aolume bit. 6hen the left shoulder is made, in both the h5s and in!erted h5s, e%pect strong !olumes. 6hen the head is made, it is on IusuallyG decreased !olumes as compared to the left shoulder. But as *ahul pointed out a key difference, the rt shoulder on a h5s is on usually lower !olumes. Aolumes increase when necklines break, and patterns get confirmed. &nd as all breakdown patterns, a break below support is accompanied by strong !olumes and then the return rally to what is now resistance is on low !olumes, followed by strong !olumes again, bringing the stock to newer lows. But, in the $n!erted H 5 8, once again, we ha!e strong !olumes in the forming of the lt shoulder. &gain,we ha!e decreased !olumes in the forming of the Head. But, here,we ha!e increased !olumes taking prices back to the neckline, then a dip in !olume as the stk tries to make the right shoulder, and then a burst in !olume taking it through the neckline.

ummarising 62 3eft shoulder 7 8trong !olumes Head 7 3ighter !olumes *ight shoulder 7 8ame as or lighter than the head. UUU $ncrease in !olumes as neckline breaks to the downside. ummarising 'nverted 62 3eft shoulder 7 8trong !olumes Head 7 3ighter !olumes UUU $ncrease in !olumes, sometimes higher than before the formation of left shoulder *ight shoulder 7 <ip in !olumes from the rally 'nce again, an increase in !olumes breaking the stk out o!er the neckline. &n important thing to remember is that markets or stocks do not need strong !olumes for the breakdown from the h5s as it basically falls with its own weight, but you need strong !olumes for a breakout from an $n!erted h5s. D/ Cup !ith 6and,e 9ormation &lso a re!ersal pattern, but more ob!ious at the bottom rather than at the top Basically looks like a coffee cup with a handle There is a basing stage, accumulation phase IcupG, then a breakout, followed by a pullback, forming what looks like a handle Breaking out of the top of the cup is confirmation of a change in trend 9e! criteria The cup should be more rounded than a "A" The handle should be in the top part of the cup, not too deep 4up pattern should take at least Mweeks to form Aolumes should contract in the handle and e%pand on b#out Trading>Wise >B $%T#( From a trade perspecti!e, the buy is at the area where the top of the cup is taken out TA#8$T Beasure the distance to the low of the cup.&dd that to the breakout area T&P &t the low of the handle E/ #everse Cup % 6and,e 'ccurs at the top, rest all re!erse of the abo!e F/ 5roadening 9ormation 6hen the trendlines from left to right con!erge it's called a triangle. 6hen the trendlines start from a point and di!erge as we go from left to right of the chart, that's called a Broadening Formation 'ne more interesting feature7 $n a triangle, !olume decreases within the pattern. $n a Broadening Formation, !olume e%pands along with wider price swings. This is a B'()*S% pattern. <ue to its di!ergence, the stock makes a high and a low, then high/ will take out pre!ious pi!ot high, then prices fall to low /, which takes

out the pre!ious pi!ot low. Then prices mo!e upwards to form high=,which is higher than high/ or high, Inot necessary, can e!en be same height at timesG. Three successi!e higher peaks, and two declining lower troughs complete this pattern. 4onfirmation is when the low / is taken out as prices start making new lows.

An e:amp,e of a Doub,e Top in Pun?ab Tractors in .GGG 3 'nce that trough breaks to new lows,an important area of support has gi!en way. 'nce we get a break0down, this pattern that was so far a suspected <T, a probable <T, is now a confirmed <T. 1otice that pullback rally not able to take out that line of pre!ious support. 1ow that line ,or rather area becomes an area of resistance. This pullback rally to this area becomes a place where you could add to your positions.

5e,o! is an e:amp,e of another 62 pattern,this one in #A%5AH( 0onth,y charts< e,f e:p,anatory 3 Ha!e a look at the Aolumes in the 3eft shoulder, then the Head,and *ight shoulder, all in decreasing fashion. Then the increase in !olumes in the breakdown from the neckline. &t present we are shooting past the neckline, but you ha!e to wait and see how this month pans out, if we close this month end at PP-0P+area or below, we might see a continuation in downtrend.

+e have so far, as beginners to charts, loo!ed into what a trend is. (re we in an ,ptrend, #owntrend or Sideways Trend- +e have loo!ed into some terminologies . lower highs and lows are called #eclines. /ower highs and lows by themselves do not constitute a downtrend. /ower pivot highs and lows, we call it a downtrend. %igher highs and lows ma!e up a rally. %igher pivot highs and lows ma!e up an ,ptrend. +e have seen some basics on Trendlines, Supports and )esistance. +e realise that a brea! in an ,ptrendline does not mean we are in a downtrend. ( brea! in that ,ptrendline merely means that the ongoing uptrend is in 0uestion. Brea!ing a previous pivot low, and then we say we are in a downtrend. 6e ha!e seen the basic Buy 8etup, which is nothing so far. There are a few things to add to that as we go ahead. 1ow we ha!e started 4hart :atterns now the 2uestion that may arise is7 <o we really need to know this at all@ 4an't we make beautiful profits e!en without knowing "ilch on 4hart :atterns@ 6ell,the answer is a >es and a 1o on both. 'ur moti!e as traders trading the trend is to make profits as long as that trend is on, and to detect a change in trend and e%it when that is seen. 6e therefore need not ha!e the art of prediction. 6e identify a change in trend, latch on to that stock with a good entry, and hold till that trend changes. 6e therefore follow trends, and not predict them. 8o, although you ha!e many books that will tell you on what a first target isIno harm in getting out as prescribedG,but the trader trading trends stays in as long as the trend is up unless something else is the bother.

Bost importantly about knowing 4hart :atterns, it gi!es one an idea as to what the general population of tech guys are thinking. 6e ha!e an ascending triangle. 8o e!eryone is e%pecting a breakout. 6ell,so are we. But if we get a breakdown, we take our stops and re!erse strategy fast lea!ing those who don't do it in a :ray06ish0Hope Bode and finally selling off at much lower prices fuelling the mo!e down further putting a huge smile on our faces. 8o know the patterns, so that we can all see what e!eryone is looking at. 8o that we can trade along with e!eryone else, or against them. But your basics are the most important. Trade the Trend and out when pre!ious :i!ots crack. &s we had discussed, we ha!e realised the great importance of the !ery basics. To assess the trend is sometimes easier than it looks, and to act on it more difficult than it seems. But dealing with the mind is another different topic in itself and we shall come to it in due time. 6e ha!e so far done trends, pi!ots, trendlines, supports and resistances among others, and a few important patterns of time constraints, please go to http7##www.stockcharts.com#education...terns1ode.html <ue to the !ariety

To be a trader pulling profits from the markets on a regular basis, one has to keep things simple $ belie!e the abo!e website puts it down to its simplest. Aery easily understood, and as far as patterns are concerned, all that is re2uired. There are some amongst us, from an older school of thought, who would still like to hold a book in our hands as we pour through the facts. :robably then you may ha!e to go hunting for the book ;lse these facts are enough. &fter reading, we can always discuss charts and the doubts before proceeding to other things..... 'kay, now that we ha!e gone through trendlines, etc, and $ do hope that those interested went through the education on 4hart :atterns at 8tockcharts.com. &s said before we are in this business to make profits. 6e are not in this business to become "e%perts" so that we can stop trading and start some newsletter ser!ice, etc. 6e learn this so that it can help us trade the markets we learn so that we can pull profits out of the markets whate!er the market is doing. 8o, therefore, let us go straight to trading these patterns, with the assumption that those interested ha!e gone through the theory at stockcharts.com or whiche!er T& book that you ha!e. I/ Trading the #ising Wedge The *$8$1N 6;<N; is a re!ersal pattern,as always the word "usually" comes into play. 1ice one that took place in &*A$1< B$338 see the chart below. 8elf e%planatory( 6e got higher pi!ot lows as &*A B$338 made new highs through /--= and /--P.But newer highs in 1o!ember /--P and later was accompanied by lower !olumes. This rising wedge took nearly a year in the making The week ending 'ct ,Pth, and we got our breakdown barIindicated in the chart with a red arrowG. 3ook to short below the breakdown bar with your stops at where the green arrow is placed. 'nce it cracks, keep mo!ing the stop down to the pre!ious pi!ot high, so on so forth. http7##www.stockcharts.com#education...sing6edge.html

G/ Wide #ange 5ar 6hen you get a 6ide *ange Bar ,especially out of a basing consolidating sideways mo!e, get ready for a big mo!e in that direction. <on't e%pect it to pullback and gi!e you an opportunity to climb aboard. 8ometimes it does, but in many times, it keeps e%ploding higher. 6hat is a 6*B@ <on't complicate things by adding more criteria than the simple fact, a bar that makes a wide mo!e in that time frame and closing at or near the high of that bar#candle. The beauty of a 6*B if you get one, buy the pullback, with a stop below the low of that !ery bar. ;lse, buy the high of that bar. $f we get a 6*B and it re!erses, a 6*B failure is an ominous sign of a big mo!e down. Another thing to ,ooA at: & 6*B with accompanying increase in !olume out of a sideways base &nd look out for a 6*B that can happen after a big rally 8o, look out for the 6*B( could signify a turnaround soon

&nother e%ample7 $n this case, <abur had a huge uptrend, and then we get a 6*B. & 6*B after a long run up should send alarm bells off as this could mean a possible turn around,an intermed top. <abur 4harts attached below(

&nother e%ample of a trade that we had taken a year back, based on the power of the 6*B.

&nother e%ample of a 6*B that sounded out a possible end to this mo!e up

this time from &lstom :rojects.

4"$ T'&% 6hat would be the time duration be for a weekly chart. $s = months a minimum re2uirement or can it !ary to lesser time period. #$P)( 5( A'%T &ctually no hard and fast rule some books tell you that a month apart still 2ualifies. >es, on a weekly or monthly charts that would be maybe years apart. &lso, you get these patterns on an intraday basis as well. $mportantly, one can only say that a pattern is a <ouble Top for sure once the trough gets taken out. Till then you would say that we are in a pullback or sideways pattern. &nother fact, forgot to mention yesterday greater. The longer the period between the peaks and the greater the height, e%pect the re!ersal to be

But you know that high that you see in the daily charts and then a pullback and then back to former highs in the ne%t few days that is what is 1'T a double top. There must be considerable period between the peaks. $f you are looking at the hourly, then you must ha!e at least more than =- bars bet the / peaks 4"$ T'&% ;!erything u said about trends, support, resistance etc. was e%cellent and beautifully e%plained. >ou said that we only identify the trends and get into a stock. 6e donHt determine trends or direction of a stock, just ride the trend0 that's all. ;!erything looked perfectly logical to me until u started patterns. $f we take the e%ample of a double top pattern, u said that if some criteria gi!en there is fulfilled then the stock will dip down again. How can we determine the direction of any stock@ The stock may go up or down or sideways or whate!er. $ just wanted to know why a stock will beha!e that particular way when certain patterns build up. #$P)( 5( A'%T Nreat going on your understanding on the basics you sweet profits. as you go along, you will realise that unlike in school, these basics are enough to gi!e

But learn the patterns as well learn them because e!eryone else is looking at them, and to know the strengths and weaknesses of your ri!als is going to be important for you. 1ow let us say that you do not want to ha!e anything to do with patterns no problems with that as well. ;%ample, we ha!e a pullback that is o!erdone and comes to support and then rallies off to the same pre!ious high and then back to the same le!el of support. The con!entional tech analyst calls it a <ouble Top, but you are least concerned. >ou instead draw your resistance and support lines and wait. & breakout o!er resistance and you will be in it 3'1N, a breakdown below support and you will be looking to 8H'*T. 8o, are you really bothered about a <ouble Top or Bottom@ 1ot re2uired if you are a trend trader. &nother chart pattern, we ha!e a huge mo!e up on high !olumes and then a pullback to an area of support, and then a rally on decreasing !olumes to a new high, and then back to the support area, and another rally of lesser !olumes and then back to that area of support again. 6hat would you do@ >ou would draw your lines of support, a breakdown from there, and you are in 8H'*T. <o you need to know that this was actually a H;&< &1< 8H'93<;*8 pattern@ 'b!iously not. >ou,being a trend trader, if you were in long would ha!e been unhappy that new highs were coming in decreasing !olumes and then the /nd pullback to support would ha!e already put the entire uptrend in 2uestion, and will be looking to e%it 8o therefore, can you as a trend trader manage to make huge profits in the markets, without knowing about the Head and 8houlders pattern@ 8urely )ust drawing trendlines, 8upports and *esistances would do the trick.

That is as far as *e!ersal :atterns go but you may need to know something about the continuation patterns though. 6hy@ $t gi!es you an idea that the trend that you are in so far is doing great >ou got a nice mo!e up, and then sideways pattern. $f you didn't know that it was an ascending triangle in progress, you could still draw a resistance line and buy the breakout. But knowing that an ascending triangle 989&33> is a continuation pattern before a strong mo!e up, gi!es one the courage to hold on to that trade. $n summary, is learning chart patterns !ital for the sur!i!al of a trend trader@ 1o, not at all can come in useful, but not !ital if you feel you can manage without it in your style of trading, by all means do so. 1o compromises on the Basics we learnt in the beginning. But on 4hart :atterns, your call. 8kip it if you don't need it.

4"$ T'&% $ think the chart of $ndia cements has formed an in!erted Head and shoulders pattern with an inclined neckline. $ just wanted to know whether it is really an $n!erted H58 pattern or just my imagination. The daily chart of $ndia cement chart is attached.

#$P)( 5( A'%T 1ope, not your imagination 4orrect obser!ation. 1ow we ha!e a bullish pattern on the daily, and longer term in e!ery other stock being bearish. 8o e!en if you did get in at the neckline breakout, and are sitting with some profits, keep your stops at ,++. 4"$ T'&% &m i seeing the formation of pennant in "i0Fle%" Ifrom ,M#K#/--. on0wardsG correctly. :lease guide. #$P)( 5( A'%T >es( &maren, correct To know more on pennants, http7##www.stockcharts.com#education...ag:ennant.html

T&P
6hene!er there is a trade that we get into, we put in a stop. The stop is that area where we say, ";nough is enough(" The stop is not put in after one has lost K-O of our portfolio and one has gi!en up with life. $ see it 2uite often here where one gets in on a tip because someone says so, and then take a huge loss and then say that the trade was stopped & stop is a predetermined le!el, put in B;F'*; the trade is got into, the word B;F'*; being an important word. $ hope $ do not sound lunatic when $ say this7 B;F'*; the trade, B;F'*; the trade, B;F'*; the trade, B;F'*; the trade, B;F'*; That stop that one has determined B;F'*; the trade can be a mental stop. & mental stop is one that is not e%actly broadcasted to the broker, etc it's a technical le!el the break of which one does not stay in the trade any longer. 1ow, the irony of this mental stop is this7 :lease <' 1'T keep the mental stop in the mind. 6*$T; <'61 the stop $f one entered 8&T>&B at .+-, with a stop at ./-,and a potential target of M+-,write it down. 8&T>&B, entry0.+-, stop0./-, tgt0M+-, rew7riskL=.==7,,etc etc $f 8&T>&B hits ./-,that is it, one is out of that trade. 'ne either looks elsewhere, or plans a reentry into 8atyam, but what one ne!er, e!er, e!er e!er, e!er, e!er, e!er does is to let the stops get blown through, then hold it, pray to Nod, run to the nearest temple, church or mos2ue, pray e!en harder, and then try to strike a bargain with Nod if H; manages to pull the stock back up, beat the chest, shout at one's wife, ha!e sleepless nights, all the while allowing it to slide, all because one wants the stock to get back to breake!en. Trading is a profession. $t's a business. $t is not a place where one hopes to strike lucky, you could, maybe once, maybe twice but the person who does not ha!e a strategy ,a plan ,will in the long run come to ruin. &s the famous saying goes, ":lan your Trades and Trade your :lan." & predetermined written down stop is !ital for long term success, it is !ital for our mental balance, and only a disciplined trader adhering to his#her plan can see the multiplication of wealth, and a regular flow of profits. 'nce again, to re0stress a stop is planned and written down B;F'*; the trade((((((( but $ do hope that as a beginner to trading, one does realise itHs

$ apologise for sounding like a broken down tape recorder on this one importance.

There are many types of stops 3 the ones that come to mind 3 7A/ '%'T'A) T&P &s described many times, this is the stop that we put in before we e!en put in that trade. This stop can be placed with your broker if in intradays, else, a written down e%act point after which no more nonsense is going to be taken from this trade. 75/ T#A')'%8 T&P &s the stock mo!es higher, we use trail stops. &gain, there is software that does it, of which $ ha!e no idea. There are !ery many methods that does it using pi!ots, or mo!ing a!erages, or two0three pre!ious bars break method, etc 6hate!er the method used, the most important point is that once the trade mo!es in the direction re2uired, the stop has to mo!e up to breake!en first, and then upwards, till stopped. C/ T'0$ T&P 6hen the trade does not go your direction in that specified time, and money could be deployed elsewhere, and the initial stop is also not taken out, one employs the time stop or boredom stop. 8o, that co!ers that the moment we get into a trade, and the trade ne!er sees green, and hits our $1$T$&3 stop, that's it. 6e are stopped

out. The trade goes in our direction. 6e apply T*&$3 stops. &fter getting into a trade, and nothing e%actly happens, and that wasn't part of our strategy, then we could employ a T$B; stop. 6hether we take a T$B; stop or not is our call to make but no compromises if the $1$T$&3 stop is hit. 6e are out, and that's that.

1ow, as discussed before, a stop is a predetermined point. &nother issue, a fault by many and is a crime punishable by the guillotine a stop once placed has to be respected, once that point is reached, one cannot push back that stop. :art of the trading discipline, part of the plan of attack.

5e,o! an artic,e, by Trader?i, !here he ta,As about Trai,ing tops and the various methods 3 $ personally use the 4hart :atterns and the 4hannel Breakout methods. <ifferent people ha!e their different choices, and therefore their different methods, but whate!er the method, the stop is ne!er pushed back, the stop is always adhered to, the stop is trailed upwards in systematic fashion.... Fine, we now know the importance of ha!ing a stop, the types of stops, let us get into where we should place our stops as Traderji's post states, there are a few ways of going about it. $ basically use the 4hart patterns way and the 4hannel Breakout way. &s said yesterday, it's up to your comfort le!els........there are things that one can learn from books, and then there are things that can't. 'ne can learn about the !arious methods, the type that you are most comfortable with, you got to choose....... Below is an e%ample of a position trade basically *eliance $nds was in a sideways territory trading within an ascending triangle. 6e got a clean breakout around the end of )une, and then a pullback to support in )uly. 6e therefore enter that trade with a stop loss at the pre!ious pi!ot low. This becomes our $1$T$&3 8T':. $f *el $nds had dumped the moment we bought it and hit our $nitial 8top, that's it, we are out. 6e look elsewhere or if *el $nds gi!es us a signal for a reentry. $n this case, that entry was great. The resistance that the roof of the ascending triangle pro!ided became support *ight, now we take out the pre!ious pi!ot high of +/- as *el $nds mo!es upwards. The moment we get a new high, raise the stop to the pre!ious pi!ot low which was P.F.That mo!e up made a new high of +K+ and then pulled back to +/.. 6here is our stop now through all this acti!ity, same place of P.F.1ow we get another mo!e up. The moment we make newer highs abo!e +K+,we get to do what we enjoy most yep, now raise stops to +/.. 8o on so forth the moment we take out a pre!ious pi!ot high, raise the stops to its former pi!ot low. 6e therefore use pi!ots as our stop areas especially in position trading, this also allows us to stay in the trade as long as possible. 6e are basically allowing the chart to do its thing, we stand aside and go with the flow of the uptrend. 1ow throughout *$3 has been using that dark green trendline as its support but around Barch /--., another de!elopment happens. 6e started going !ertical, a new trendline is drawn, the blue line, and then e!en more !ertical, the orange line. That break of the orange line was an area to get out of half the position. Beanwhile through the entire mo!e from Barch, we apply the 4hannel Breakout method I$ usually apply the stop to the low of / bars ago on the weekly, and = bars ago if $ am trading the daily chartsG. $n this case, *$3 first broke through the trendline, and we are out half, then followed by taking out the low of / weekly bars ago in the week with Bay ,,th. That's it, we are out, this position trade is o!er in this case, *$3 continued its fall, and we can all feel good about oursel!es, but there are times, when we get out and *$3 goes on to make new highs. 1ot a problem, part of trading. &t this point a 2uestion would be asked, at what place would you take profits@ $ don't. $ tra!el the whole distance at full position and keep raising stops till out. 6e would not get out at the top, but we would take an important chunk out the trend $n this case of *$3, merely playing the raising stops methods would ha!e gi!en you a run from PK- to ,,-- Ithat's about ,/FO gainG. 8o basically $ use the pi!ot method of trailing stops, if things get !ertical then $ employ the Trendline break stop, and the low of the last / week bars method.

*ight, let us take another chart. &ttached below is a chart of &BB. 8ame here, &BB breaking out of a triangle on the weekly charts in Feb /--=, followed by a pullback in Barch /--=, to an area of support, gi!ing us a great entry point for an intermediate trade. 'nce again, we ha!e our $nitial 8top in place, the moment &BB takes off, and makes a new high o!er the pre!ious pi!ot high, the stop is raised to the immediate pre!ious pi!ot low so on so forth, the stops are trailed upwards. The beauty of the trail stop is that we know that our entry point to where our current trail stop is ... is money in our pocket. ;!ery decline in an uptrend forming a higher pi!ot low is looked on with e%citement instead of !iewing it as money lost e%citement because we get to raise our stop losses, and that means more money in our pocket. 6e realise that there is no need to take out profits from the market at all the trail stops protect our profits. Aug J->Apr JC: >et again, &BB starts to make steeper trendlines we now start to raise our stop loss to the low of / bars ago,all the while keeping a close watch on the trendline. 'ur intention is to take out half on the break of the trendline and another half once the low of

/ bars ago is taken out. 0ay .Cth !eeA in 1JJC: That bar breaks both the trendlines and the low of the bar of / weeks ago we are out of the trade.

&ct 1JJC: 6e get a chance for a reentry after months of sideways mo!ement, with &BB making a higher pi!ot low on the weekly.&gain we get our initial stops in place. 'nce again, the same process as abo!e. &nd stops are raised with each new high to a higher pi!ot low. +an JE: From here &BB starts making steeper trendlines again the low of / bars ago. once again we are looking at the trendline carefully. 6e are looking at

0ay 1JJE: 6e are stopped out of the trade, with both trendline break and the break below the low of / bars ago. 1ow we wait for an opportunity to re0enter, and profit from yet another new intermediate uptrend.

A great post by Ashish from another thread that anyone !ho didnKt get a read need to have a ,ooA 3 great !isdom in every !ord 3 $t's said that successful trades done without a proper trading plan are more dangerous than the failed one. $n the e%ample gi!en, no 8top 3oss 3e!el was inbuilt into the trade and holding was based upon con!iction only. &t that time, nobody would ha!e any idea if the drawdown would continue or would re!erse. 3uckily, the stock turned around and pro!ed to be a multi0bagger. 1ow it installs a belie!e in the trader that such trades can be repeated again and that is where disaster starts to wait. 3oosing +-O on a trade and still holding on represents an emotion called Hope and is !ery dangerous as traders ha!e seen their entire capital being wiped out in thousands of stocks only due to this single emotion. & proper stop loss in case of any entry is better than letting oneself be prey of our own emotions. *ight, so we more or less know the importance of stops, we realise that ha!ing predetermined stops is an absolute must just as in any battle, not only do we ha!e our ;ntry strategies in place, we also ha!e our ;%it points in order. &nd all of this :*;<;T;*B$1;<, and written down before the trade. For those who see no reason for ha!ing any stops, good luck to you, my friend, for yours is the path of e%treme pain and total ruin. :lease do not go down that path. $f you already ha!e been on that path to ruin once before, please do not repeat it. $f ne!er been there, learn from the mistakes of others. 8ome wise person once saidIwas it ;instein0tend to remember 2uotes and forget who said what@@((G......"& fool ne!er learns from his mistakes, a smart person always learns from his mistakes, but a wise person learns from the mistakes of others."

5efore moving on about 0oney 0anagement, hereKs another post about stop ,osses from our very !ise +aideep 3 posted in ome 8ood tea,s near,y a year ago 3 :lenty has been said on this topic, 9sha, all !ery wise ones at that. Try 5 go through the earlier posts. They will educate you no end on your e%it strategy etc. Beanwhile, $'ll gi!e you something to read on the topic 5 put you in the know of things. &fter all, $'m no e%pert T& myself ... & 8top0loss 'rder is an order placed with your broker to buy or sell once the stock reaches a certain price. & stop0loss is designed to limit an in!estor's loss on a security position. 8etting a stop0loss order for ,-O below the price at which you bought the stock will limit your loss to ,-O. For e%ample, let's say you just purchased 8&$3 at *s.+- per share. *ight after buying the stock you enter a stop0loss order for VP+. This means that if the stock falls below *s.P+,your shares will then be sold at the pre!ailing market price. Positives and %egatives The ad!antage of a stop order is you don't ha!e to monitor on a daily basis how a stock is performing. This is especially when some other commitments pre!ents you from monitoring your stocks for any period of time. The disad!antage is that the stop price could be acti!ated by a short0term fluctuation in a stock's price. The key is picking a stop0loss percentage that allows a stock to fluctuate day to day while pre!enting as much downside risk as possible. 8etting a +O stop loss on a stock that has a history of fluctuating ,-O or more in a week is not the best strategy7 you'll most likely just lose money on the brokerage you'll pay for e%ecution of your orders. There are no hard and fast rules for the le!el at which stops should be placed. This totally depends on your indi!idual in!esting style7 an acti!e trader might use +O while a long0term in!estor might choose ,+O or more. &nother thing to keep in mind is that once your stop price is reached, your stop order becomes a market order and the price at which you sell may be much different from the stop price. This is especially true in a fast0mo!ing market where stock prices can change rapidly. %ot +ust for Preventing )osses 8top0loss orders are traditionally thought of as a way to pre!ent losses, thus the name. &nother use of this tool, though, is to lock in profits, in which case it is sometimes referred to as a "trailing stop". Here, the stop0loss order is set at a percentage le!el below not the price at which you bought it but the current market price. The price of the stop loss adjusts as the stock price fluctuates. *emember, if a stock goes up, what you ha!e is an unreali"ed gain, which means you don't ha!e the cash in hand until you sell. 9sing a trailing stop allows you to let profits run while at the same time guaranteeing at least some reali"ed capital gain. 4ontinuing with our 8&$3 e%ample from abo!e, say you set a trailing stop order for ,-O below the current price, and the stock skyrockets to *s.K- within a month. >our trailing0stop order would then lock in at *s.M/ per share I*s.K- 0 I,-O % *s.K-G L *s.M/G. This is the worst price you would recei!e, so e!en if the stock takes an une%pected dip, you won't be in the red. Advantages of the top>)oss &rder First of all, the beauty of the stop0loss order is that it costs nothing to implement. >our regular brokerage is charged only once the stop0loss price has been reached and the stock must be sold. $t's like a free insurance policy( 8econdly, but most importantly, a stop loss allows decision making to be free from any emotional influences. :eople tend to fall in lo!e with stocks, belie!ing that if they gi!e a stock another chance, it will come around. This causes procrastination and delay, gi!ing the stock yet another chance and then yet another. $n the meantime, the losses mount.... 1o matter what type of in!estor you are, you should know why you own a stock. & !alue in!estor's criteria will be different from that of a growth in!estor, which will be different still from an acti!e trader. &ny one strategy may work, but only if you stick to the strategy. This also means that if you are a hardcore buy0and0hold in!estor, your stop0loss orders are ne%t to useless. The point here is to be confident in your strategy and carry through with your plan. 8top0loss orders can help you stay on track without clouding your judgment with emotion.

Finally, it's important to reali"e that stop0loss orders do not guarantee you'll make money in the stock marketT you still ha!e to make intelligent in!estment decisions. $f you don't, you'll lose just as much money as you would without a stop loss, only at a much slower rate.

Conc,usion & stop0loss order is such a simple little tool, yet so many in!estors fail to use it. 6hether to pre!ent e%cessi!e losses or to lock in profits, nearly all in!esting styles can benefit from this trade. Think of a stop loss as an insurance policy7 you hope you ne!er ha!e to use it, but it's good to know you ha!e the protection should you need it. H&::> T*&<$1N 5 3'&<8 'F :&T$;14;, you'll need all this to laugh all the way to the Bank Ias 8aint saidG. Best of 3uck.

9or those !ho are not in the habit of reading each and every post out there, do Aeep a ,ooAout for some nice ones by #V)V< An e:amp,e <<< T&P)& >5'8 0ystery >and its three go,den Aeys 0000000000000000000000 0ystery of top,oss 'ne of the great mysteries of trading is the dreadful stop. Cwhat kind of stops should $ use@E The philosophy outlined here regarding stops is !ery different than most others. when you learn how to use stoploss wisely, you disco!er that stops donHt ha!e to hurt.

Stoploss orders are the medicine of trading.

When your trade is sicA, stops are there to hea, it< The big 2uestion is whether you like to take the medicine before you get sick as a pre!enti!e measure or you wait till you really get sick,and then use the medicine. 1atural choice seems to the part two. There a few ways of using stops7 .< L%o topM specia,ist 6hat do you call a trader that doesnHt use stops@ An investor< 6hen a trader lets a trade go against him, he gets married to the stock, starts looking at fundamentals then becomes an in!estor. $ ha!e seen people, especially si% years ago, buy a stock at ,-- and still hold it today, e!en though itHs a penny stock today. 1< L#andom stopM or L8amb,ing stopM These happen when a trader knows how much money he wants to risk on a stock, his CbetE on the stock, and that is his stop. Buy &B4 stock with a +-- stop, because that is all they can allocate for this trade. These P$&P)$ thinA trading as gamb,ing, they put their money on the tab,e and forget about it< The problem with this method is that it is not a method, there is no reasoning behind the p,acement of the stop< -< LAdding in stopM 8ome traders keep adding in money into their position as it goes against them. This is a,so ca,,ed LDo,,ar Cost AveragingM< 6hen people begin trading they think that adding money to a position lowers your cost on it and, therefore, allows you to buy more shares at a lower price. &ny $n!estor, who liked &B4 at .-, surely will like it so much more at +-, right@ The reasoning behind this method is very dangerous< >ou buy ,--- shares at .-, buy another ,--- at +F, buy another ,--- at +K. 1ow, your a!erage cost is +F, not .- as you originally wanted. The stock only has to jump up a single for you to break e!en, not two. 5'8 P#&5)$0 Prob,em comes !hen the stocA Aeeps 9A))'%8 and you are no! stucA !ith -JJJ shares on the !rong side of a breaAout< :eople using this method wipe out their accounts. Traders will become in!estors. $f not on the first /- trades, then on the /,st that would wipe them out. 't on,y taAes one ,arge ,oss to devastate an account and devastate the trader< tops are ,iAe medicine for your trading.

The ,onger you taAe before you s!a,,o! the bitter pi,,, the !orse your condition is going to be< Preventive medicine !orAs so much better, it prevents sma,, !eaAnesses from becoming serious diseases< Trade this way if you agree it is better Follow this method of stops Lit is !ery simple, *%&W (&"# $%T#( #$A &%, W#'T$ 'T D&W%, A,!ays e:it a trade !hen the reason for your entry no ,onger e:ists< Take 1otice 6e said $:it, not stop< We do not taAe stops, !e e:it< (t times it1s a negative e2it, but it is still an e2it, not a stop. & Cstop lossE stops your loss, we are not interested in the trade becoming a loss. ;%plain $%T#( *f you have done your analysis right, you should be able to pinpoint an entry. LLLLLLLLLLLLLLLLL &n entry is a trigger that starts a trend, starts a wa!e in a trend, starts a bounce, starts a fade or a break out. LLLLLLLLLLLLLLLLLLLLL 5$ accurate !ith your entry, A%D your e:it shou,d be very simp,e< $f you entered a trend, you e%it when you know that the reason for your entry no longer e%ists, when the stock refuses to start your trend. $f you entered a breakout, you know the reason for your entry no longer e%ists when the stock returns back into your consolidation. 8o how much is that@ >our stop, or negati!e e%it, Iif you did your home work and pinpointed your entry,G is 1oise Q 8pread. 1oise is the normal fluctuation of the stock and spread is the difference between bid and ask. Basically, if you add them together, it is the amount that the stock can pull back before you know that your entry is wrong. For e%ample, in day trading, most of our negati!e e%its are less than , *9:;; Bost of the stocks that we trade ha!e less than & 4'9:3; 'F *9:;;8 spread and noise. $n 8wing trading, most of our negati!e e%its are less than ,- T' /- *9:;;8IT;1 T$B;8 plus TH&T 'F <&>T*&<$1NG for the same reason. 8ome people day trade with a *9:;; stop or e!en two or three rupees. $f you do your home work and can pinpoint your entry, how many as follows

, rupee negati!e e%its can you take before you e2ual one point or two points@ $magine ha!ing ,-0/- attempts for the price of one. 000000000000000000000000000000000000000 Three keys There are three Aeys to success here7 .< Pinpoint your entry W >ou need to know e%actly where to enter. 1< *no! e:act,y !here the reason for your entry no ,onger e:ists W6here on the chart does price ha!e to go to in!alidate your entry@ -< #e>entry N 'f the stocA comes bacA and your setup is sti,, va,id, maAe sure that you re>enter< Bost of us pay less than ,-- in commissions, which is a lot less than a de!astating stop loss of multiple points. $f you ha!e to pay +-- plus rupees for a trade that didnHt work, it is a business e%pense, not a stop loss. $t protects you financially and psychologically. $t allows you to re0enter the trade without any damages. $f you e%it with an e%pense of ,---, it will do a lot less damage than se!eral thousands or your whole account. How would you feel if you spent a few hundred bucks on a trade !s. lost se!eral thousands on a gamble@ Traders need to get educated how to pinpoint their entries and know e%actly when the trade is working or not, in order to keep stops down to business e%penses, instead of serious losses. The secret to longe!ity and prosperity in trading is knowing why you are entering, pinpointing your entries and preser!ation of your capital. :reser!ation of capital is always more important than capital appreciation. Hope this helps your trading in some way. <edicated to ma%imi"ing your profits,

4"$ T'&%
'k back to 2ueries 70G :lacing stop. do u e%it on intra day fluctuation or if ;'< is below your stop. 4ause in $ntraday, like u ha!e mentioned it might just hit it the stop loss for a couple of minutes and start mo!ing up again and we miss the mo!e. $n ;'< the stock might go down much more than our stop loss price and our loss Oage to our capital will go wrong, 8o which is a better strategy or it depends to an indi!idual. $t must be a common phenomenon that the stop gets hit and the stock starts running again. $n such a situation do we analyse the stock again or should we just let it go.

#$P)( 5( A'%T
That's a common dilemma that we all face howe!er accurate your stop is, and howe!er much you gi!e it room, it can still happen.

1ow comes the problem let us say we entered a stock at +-.The pre!ious pi!ot low was P+.>ou decided to gi!e it some room to wiggle your stop is at PP.+ or slightly lower. Nreat, so far so good, all systems go, e!erything in place. 1ow the stock corrects almost after you buy it Icommon phenomenon, my friend, happens to us all, can be rather irritating and frustrating, but that's part of the game((G and it comes to P+, and falls through PP.+. 1ow the dilemma is this is this a false breakdown, or a shake0out bar, etc, or is it a genuine mo!e down. 1ow many people ha!e different ways to deal with it. Bine is simple $ e%it((

6hy@ Because this mo!e could go down to P-,=+,etc and $ would be left with a huge loss in my account, left with a feeling of regret, and the would'!e0should'!e0could'!e syndrome. 8o, $ am !ery rigid about the stop loss enter. and am certainly out if it hits. 6ould be waiting on the sidelines though for an opportunity to re0

4"$ T'&%
1ow $'!e some doubts regarding the buy # stoploss signal using the pi!ots, which you had taught in one of your earlier post. I$ use the word theory to mean your words7"... buy after the second candlestick takes o!er the high of the pre!ious candlestick *eferring to the attached chart, can you please e%plain me the following 2ueries@ $ placed all those "black coloured" buy # stoploss according to your theory, which $ hope are correct. $'!e doubts in those "*ose" coloured buy # stoploss. 4uestion.: 'f you notice those rose co,oured ones, aG They are placed according to your same "theory". bG They are only at pullbacks cG But as we can see they are placed somewhat in the middle of the "up trend", which leads to breaking out of the stop loss !ery !ery soon, although the uptrend is intact. dG 8o both rose and black coloured ones are from the same theory, buy rose is wrong I$ guessG and blacks are correct. W6( ' 'T &? "G

7or/ 6o! shou,d one behave in those "rose" co,oured pu,,bacAs? 4uestion1: 'n case of "stop,oss-" !here shou,d the stop,oss be e:act,y? aG Below the low of red bar or bG Below the low of green bar

#$P)( 5( A'%T
Duestion ,7 Nreat 2uestion once again the chart that you had posted is that of the daily chart.

The 2uestion you ha!e to ask is7 6hich time frame is it that you are playing@ $f your answer is7 8hort term, then, you are out at *ose 4oloured Buy +, once 83+ is taken out, so on so forth. 1ow if your answer is7 $ntermediate term, then the black coloured Buys and 83's are correct.

'nly thing is the one marked as 83 . in rose colour, instead that could also be a black coloured 83 IintermediateG. 1ow once you get the mo!e on a weekly chart, e!ery pullback is a buying opportunity Iblack onesG. ;!ery time we take out the pre!ious pi!ot high, keep raising stop losses to the immediate pre!ious pi!ot low. 8o on so forth $f you are playing the weekly charts, and the intermediate time frame, forget the rose coloured ones. 6hat you are looking out for, licking your lips, are those black coloured ones. Duestion /7 Below the low of the green bar

0&%$( 0A%A8$0$%T
Net your trading strategies in place and abo!e all stop and money management techni2ues. Boney management is so important, e!en more than entry and e%it strategies it is money management that separates the men from the boys, it is money management that is the Holy Nrail in Trading. >ou ha!e poor strategies but good money management skills.......you 6$33 sur!i!e, you may not become a great trader, but you will still be around in a few years. 'n the other hand, if you are great at entries,and e%its, but know "ilch about money management you 6$33 come to your <oom sooner or later(( 1ot trying to go all lunatic all o!er again but knowing money management is so !ery important, so so important. 8o, let us get down to a bit of Boney Banagement in the ne%t few posts This part you B98T absorb, no two ways about it those that ha!e read ;lder would feel like taking a yawn on the ne%t few posts. <o yawn, no harm though in reading again but to those who ha!e ne!er heard of this strange / words called "Boney Banagement", the ne%t few posts are for you and like $ said before, there are no two ways about it. MO3'4 M(3(G'M'3T *S $*T(/ TO T)(#*3G S,)$*$(/,T)(#*3G S,55'SS,(3# T)(#*3G ")O6*TS . !now them and open the treasures available. 7now them not ,and that will be at your peril and doom. Basically, we use money management rules to restrict how much the market can take away from us. 4ertain rules that we follow with discipline. *ules that are written and implemented trade after trade, again and again. *ules that help us to stay with the trend and to let profits run as long as possible. *ules that trigger off small losses as compared to the big profits. 3ike a warrior, this is the 4ode that a trader swears by, and adheres to, come what may. $f his stop is triggerred, he is out, he does not sit there reasoning that the economy is growing ,+O,and the fundamentals of this company is great, and that it is e%pecting good earnings $f the stop is hit, that's it. He#8he's out of that trade. &ll thought therefore goes into the trade B;F'*; the trade. 1o more thoughts after the trade has been set in motion. The mind is set into "1'6" mode, no more planning ,no more thinking. 6hen the stop is hit, the trader is out and that's that( But, there is more to money management other than stops stops is an aspect of it. But there is more

But before getting into it, just noticed that there always is this great amount of blabber about the number of wins a trader has had, etc etc 8o before getting into things, felt that we all should realise one thing. 6e are in this business to make profits, we are 1'T in this business to win you can ha!e a Batting &!g of F+O and lose out when you look at profits and losses. >ou can ha!e a Batting &!g of =-O and come out with stupendous profits by the end of the month. How is that possible@ 6ell, presume you make an a!erage of *s/-- per trade for ,F trades, and lose *s.+--- in the /-th trade, well,you are sitting pretty with a F+Obatting a!g and a loss at the end of the month. :resuming that you ha!e made losses in ,P trades, an a!erage of *s.P-- per trade, and we made *s,-,--- in the other . trades, well,we are sitting with a profit at the end of the month although we ha!e been wrong M-O of the time. 8o, it's not about about the number of wins that one makes, it's all about making profits management( and that !erily is the heart and core of money

6e look at a trade, yummy, yummy trade a beautiful clean sideways pattern just itching to breakout. 'ur plan is to buy the breakout and ride the trend ,trail stopping upwards at e!ery pi!ot low. 4ool. 8o far so good. 6e now need to ascertain how many shares we plan to buy. For e%ample, the stop is *s./- away from our entry point. *ight, do we buy ,- sharesIwhich means we lose *s./-- if stoppedG, or do we buy a ,-- shares Iwhich means we lose *s./--- if stoppedG, or a ,--- shares Iwhich means we lose *s./---- if stoppedG@ The amount of money lost if stopped is the risA on this trade. <on't let it get past /O of your e2uity. 6hich means, first calculation is7

How much 4apital do $ ha!e in my trading &ccount@ Itrading acct only, not the worth of your house and car and jewellery all put togetherG. 3et us say that $ ha!e ,- lakhs in my trading account, that means the ma%imum risk that $ can take on any single trade is 7/O of ,- lakhs L /-,---. 6hich is to say that if $ enter into a trade, and the trade goes against me, $ will lose *s./----. 8o whether you paid /.+ lakhs for that stock or not, you are not risking /.+ lakhs, but *s./----, as that is where your stop is. 1ow must it definitely be /O of the capital not necessarily. 4an be anywhere between J<D > 1O,but no more than that. $ personally use -.M+O of my capital as a stop loss, but that is something you ha!e to tweak to your comfort le!els. But,to stress again, no more than /O( 8o,therefore, first $ look at my trading capital at the end of the month. $ then assess how much my risk would be the ne%t month. For e%ample, let us say $ ha!e ,- lakhs at the end of )uly. 3et us say $ take ,O loss in each trade. Therefore for the month of &ugust, $ would be risking *s.,-,--- per trade Ito reiterate, that means the amount lost if stopped outG. 1ow $ ha!e my ups and downs in &ugust, and landed up in &ugust with an e2uity of ,-.+ lakhs, now my risk in the month of 8eptember would be ,O of ,-.+lakhs L ,-,+-- per trade. 8o too, if my e2uity had dropped that month to F.+lakhs, then my risk of ,O for the following month would be F,+-- per trade forth(( so on so

*ight, $ now know my trading capital, the amount of percentage risk that $ am willing to take, and the amount of money risked for the following month at the end of each month now how do $ calculate share si"e7 hare iPe L IO risk % trading capitalG di!ided by Ientry0predetermined stoplossG 8o, therefore, we look at our charts, we get our entry point let us say /--,and our stop loss is at ,M+.1ow presuming our capital is ,lakhs,and our percentage risk per trade is ,O. Therefore, hare iPeLI,O of ,-lakhsGdi!ided by I/--0,M+G L ,-,--- di!ided by /+ L CJJ Therefore in the abo!e e%ample we would buy P-- shares with an entry at /-- with a predetermined stop loss at ,M+ .The ma%imum we should lose in this trade if stopped would be *s.,-,---#L The /O rule for assessing position si"ing is !ital, but there is more to be done. 6e ha!e therefore gone about the importance of stops, and how !ital it is for trading success. 6e ha!e realised that we are going to be laughing our hearts out to the bank, so long as we take small losses, and let our profits ride. $n short we look to make big gains, at the risk of many small losses. 6e ha!e also discussed that there are many methods of placing stops the important thing is to ha!e stops and the discipline to adhere to them. 8o like we discussed, we place our stops just a bit below the pre!ious pi!ot low, and trail stop upwards. 6e had discussed the other day that the ma%imum risk per trade is /Opreferably lower. &nd yes :ranay if you are comfortable with a risk of ,O as stated in the other e%ample, yes,that would be ,O per trade. &nd to go o!er it again, presuming that my trading capital is ,lakhs Iyes Ner-.,by that, we mean the money that you ha!e set aside for your trading. $f you do deri!ati!es and e2uities, calculate them separately. By trading capital, we are not talking net worth....simply the money put aside for tradingG first we calculate how much we are willing to risk.

Therefore, if we are willing to risk no more than ,O per trade, that would mean ,O of ,-lakhs,ie *s,-,---#L per trade. &nd therefore if our stop loss is *s./- away from our entry price, we can therefore buy ,-,--- di!ided by /- L +-- shares. Howe!er juicy the charts look, if our stop is *s./- away, and our risk is ,O on ,-lakh portfolio, then that's that,+-- shares less. no more no

1ow coming to :ranay's !alid doubt for one trade, we plan to risk no more than ,O.Therefore, for /+ trades, we would be risking /+O of our portfolio, right@ 1' Therefore, another condition that has to be met. ;lse, we would be right about placing our stops and right e!en about share si"ing, but a huge market mo!e taking all stocks down would trigger all our stops. &nd with it, a si"eable chunk of our portfolio

0AH #' *
1ow we come to another major part of money management that must be looked into just as how crucial ha!ing a predetermined stop is and proper share si"ing, this part is !ital for the sur!i!al of our trading account and therefore our sur!i!al as traders. $f we were to risk /O per trade and we get into /- stocks, a mo!e down would trigger all the /- stops we ha!e put proper stops, great we ha!e taken small losses, great and yet, our account is down P-O. $f our trading capital was ,-lakhs, well P lakhs has !anished into thin air(( This is unacceptable and unpardonable as far as the trader is concerned. 6e therefore ha!e another set of percentages in place so that we are protected from market mo!ements now what that percentage is basically comes back to the indi!idual trader and his comfort le!els. There are many absolute truths in the world of trading, but no absolute methods, all relati!e to what our psyche allows us. For e%ample, $ belie!e that a /O risk is just too much to bear, $ am on the other hand comfortable with a risk of -.+0-.M+O as many methods as there are traders. Basically tweak to your indi!idual comfort le!els. 1ow what are these percentage rules of ma% risk that $ am speaking of@ ,G $n an intraday position, take no more total risk than PO in that day. 6hich means that $ would take no more than P trades at the same time. 6hy@ Because $ am risking ,O per trade, and if $ take more than P trades, $ would be risking more than PO in that day. Therefore, $ enter into T$84' with my stop loss at the pre!ious pi!ot low at a risk of ,O.Then,$ see a great setup in *$3,same thing as abo!e. 1ow $ see a great trade in $T4, $ grabbed that as well. Then a beauty in &44. 1ow $ ha!e P trades running simultaneously, and $ risking PO as of now. $ then see a great play in 8B$ But my rules pre!ent me from taking that +th trade, howe!er juicy that set up. 1ow $ get a great mo!e in T$84' and &44, and that gi!es me the opportunity to raise my stops in the two to breake!en. 1ow $ can take 8B$ if it still looks great if it has already run off, well, nothing can be done about it. Bissed money better than lost money(( &lso make sure you ha!e your ma% percent loss in a week after which you wouldn't trade any more, and your ma% percent loss in a month after which you are no more than a bystander. $f $ lose ,-O, that 's it $ am out for the month. Bany put that figure to .O,or KO once again, your comfort le!els. /G $n a swing position that may last up to P0+ days, once again similar rules come into play. $ basically take a ma% risk of .O now why these figures, well, basically no real reason e%cept years of toying around and tweaking it to comfort le!els. &s said before you will ha!e to do the same. 8o, here again, a risk of ,O per trade allows me to take . swings that week. ;!ery time $ am able to raise my stop to break e!en, $ am allowed another trade. ;lse that's that so there are

=G $n a position trade, that can take up to weeks to months, $ tend to take a ma% risk of ,/O,meaning that if you are taking a ,Orisk per trade, ma% number of stocks that can be got into is ,/. &nd then, once you get to breake!en stop in a trade, you are allowed to get into a new position or add to the pre!ious position. $f you are the type that can take on a bigger amount of risk, fine would be fishing for trouble. 8o careful on that one. but total portfolio risk no greater than /-O.Nreater than that, think you

$t is !ery important that these rules are in place !ery, !ery important(( The percentages you as the trader will ha!e to work out. But you B98T ha!e a stop, you B98T adhere to them, you B98T ha!e a risk per trade and share si"e accordingly, and you B98T ha!e a ma% risk that you are willing to take, after which you are going to pull the plugs. &nd you B98T ha!e a point where a bad day or month is accepted as it is and all trading comes to an end. $f you are out on the ,+th day of the month, that does not mean that you sleep and watch TA for the rest of the month >ou come to work as in e!ery other day, you paper trade, and you do it till the end of the month. >our first trade would be the first day of ne%t month. <iscipline is discipline, and rules are rules These are like commandments in the Holy 8criptures of the Trader. 1ot obser!ing them is sacrilege, a blasphemy. They, once drawn up, B98T be followed at all cost. There's still more that one has to learn about Boney management $ hope this is at least a start.

And 1 posts that one has to go through, one from Credit Vio,et, and another from !ing Trader << 5y Credit Vio,et 3 Boney management is the process of analy"ing trades for risk and potential profits, determining how much risk, if any, is acceptable and managing a trade position Iif takenG to control risk and ma%imi"e profitability. Bany traders pay lip ser!ice to money management while spending the bulk of their time and energy trying to find the perfect Iread7 imaginaryG trading system or entry method. But traders ignore money management at their own peril. The importance of money management can best be shown through drawdown analysis. Dra!do!n <rawdown is simply the amount of money you lose trading, e%pressed as a percentage of your total trading e2uity. $f all your trades were profitable, you would ne!er e%perience a drawdown. <rawdown does not measure o!erall performance, only the money lost while achie!ing that performance. $ts calculation begins only with a losing trade and continues as long as the account hits new e2uity lows. 8uppose you begin with an account of ,-,--- and lose /,---. >our drawdown would be /-O. 'n the K,--- that remains, if you subse2uently make ,,---, then lose /,---, you now ha!e a drawdown of =-O IK,--- Q ,,--- 0 /,--- LM,---, a =-O loss on the original e2uity stake of ,-,---G. But, if you made P,--- after the initial /,--- loss Iincreasing your account e2uity to ,/,---G, then lost another =,---, your drawdown would be /+O I,/,--- 0 =,--- L F,---, a /+O drop from the new e2uity high of ,/,---G. Ba%imum drawdown is the largest percentage drop in your account between e2uity peaks. $n other words, it's how much money you lose until you get back to breake!en. $f you began with ,-,--- and lost P,--- before getting back to breake!en, your ma%imum drawdown would be P-O. Jeep in mind that no matter how much you are up in your account at any gi!en time00,--O, /--O, =--O00a ,--O drawdown will wipe out your trading account. This leads us to our ne%t topic7 the difficulty of reco!ering from drawdowns. ;!en worse is that as the drawdowns deepen, the reco!ery percentage begins to grow geometrically. For e%ample, a +-O loss re2uires a ,--O return just to get back to break e!en Isee Table , and Figure , for detailsG. :rofessional traders and money mangers are well aware of how difficult it is to reco!er from drawdowns. Those who succeed long term ha!e the utmost respect for risk. They get on top and stay on top, not by being gunslingers and taking huge risks, but by controlling risk through proper money management. 8ure, we all like to read about famous traders who parlay small sums into fortunes, but what these stories fail to mention is that many such traders, through lack of respect for risk, are e!entually wiped out.

8uide,ines that shou,d he,p your ,ong>term trading success ,. *isk only a small percentage of total e2uity on each trade, preferably no more than /O of your portfolio !alue. $ know of two traders who ha!e been acti!ely trading for o!er ,+ years, both of whom ha!e amassed small fortunes during this time. $n fact, both ha!e paid for their dream homes with cash out of their trading accounts. $ was ama"ed to find out that one rarely trades o!er ,,--- shares of stock and the other rarely trades more than two or three futures contracts at a time. Both use e%tremely tight stops and risk less than ,O per trade. /. 3imit your total portfolio risk to /-O. $n other words, if you were stopped out on e!ery open position in your account at the same time, you would still retain K-O of your original trading capital. =. Jeep your reward0to0risk ratio at a minimum of /7,, and preferably =7, or higher. $n other words, if you are risking , point on each trade, you should be making, on a!erage, at least / points. &n 85: futures system $ recently saw did just the opposite7 $t risked = points to make only ,. That is, for e!ery losing trade, it took = winners make up for it. The first drawdown Istring of lossesG would wipe out all of the trader's money. P. Be realistic about the amount of risk re2uired to properly trade a gi!en market. For instance, don't kid yourself by thinking you are only risking a small amount if you are position trading Iholding o!ernightG in a high0flying technology stock or a highly le!eraged and !olatile market like the 85: futures. +. 9nderstand the !olatility of the market you are trading and adjust position si"e accordingly. That is, take smaller positions in more !olatile stocks and futures. &lso, be aware that !olatility is constantly changing as markets heat up and cool off. .. 9nderstand position correlation. $f you are long heating oil, crude oil and unleaded gas, in reality you do not ha!e three positions. Because these markets are so highly correlated Imeaning their price mo!es are !ery similarG, you really ha!e one position in energy with three times the risk of a single position. $t would essentially be the same as trading three crude, three heating oil, or three unleaded gas contracts. M. 3ock in at least a portion of windfall profits. $f you are fortunate enough to catch a substantial mo!e in a short amount of time, li2uidate at least part of your position. This is especially true for short0term trading, for which large gains are few and far between. K. The more acti!e a trader you are, the less you should risk per trade. 'b!iously, if you are making do"ens of trades a day you can't afford to risk e!en /O per trade00one really bad day could !irtually wipe you out. 3onger0term traders who may make three to four trades per year could risk more, say =0+O per trade. *egardless of how acti!e you are, just limit total portfolio risk to /-O Irule X/G. F. Bake sure you are ade2uately capitali"ed. There is no "Holy Nrail" in trading. Howe!er, if there was one, $ think it would be ha!ing enough money to trade and taking small risks. These principles help you sur!i!e long enough to prosper. $ know of many successful traders who wiped out small accounts early in their careers. $t was only until they became ade2uately capitali"ed and took reasonable risks that they sur!i!ed as long term traders. ,-. 1e!er add to or "a!erage down" a losing position. $f you are wrong, admit it and get out. Two wrongs do not make a right. ,,. &!oid pyramiding altogether or only pyramid properly. By "properly," $ mean only adding to profitable positions and establishing the largest position first. $n other words the position should look like an actual pyramid. For e%ample, if your typical total position si"e in a stock is ,--- shares then you might initially buy .-- shares, add =-- Iif the initial position is profitableG, then ,-- more as the position mo!es in your direction. $n addition, if you do pyramid, make sure the total position risk is within the guidelines outlined earlier Ii.e., /O on the entire position, total portfolio risk no more that /-O, etc.G. ,/. &lways ha!e an actual stop in the market. "Bental stops" do not work. ,=. Be willing to take money off the table as a position mo!es in your fa!orT "/0for0, money management," is a good start. ;ssentially, once your profits e%ceed your initial risk, e%it half of your position and mo!e your stop to breake!en on the remainder of your position. This way, barring o!ernight gaps, you are ensured, at worst, a breake!en trade, and you still ha!e the potential for gains on the remainder

of the position. ,P. 9nderstand the market you are trading. This is especially true in deri!ati!e trading Ii.e. options, futuresG. ,+. 8tri!e to keep ma%imum drawdowns between /- and /+O. 'nce drawdowns e%ceed this amount it becomes increasingly difficult, if not impossible, to completely reco!er. The importance of keeping drawdowns within reason was illustrated in the first installment of this series.

,.. Be willing to stop trading and re0e!aluate the markets and your methodology when you encounter a string of losses. The markets will always be there. Nann said it best in his book, How to Bake :rofits in 4ommodities, published o!er +- years ago7 "6hen you make one to three trades that show losses, whether they be large or small, something is wrong with you and not the market. >our trend may ha!e changed. By rule is to get out and wait. 8tudy the reason for your losses. *emember, you will ne!er lose any money by being out of the market." ,M. 4onsider the psychological impact of losing money. 9nlike most of the other techni2ues discussed here, this one can't be 2uantified. 'b!iously, no one likes to lose money. Howe!er, each indi!idual reacts differently. >ou must honestly ask yourself, 6hat would happen if $ lose ?O@ 6ould it ha!e a material effect on my lifestyle, my family or my mental well being@ >ou should be willing to accept the conse2uences of being stopped out on any or all of your trades. ;motionally, you should be completely comfortable with the risks you are taking. The main point is that money management doesn't ha!e to be rocket science. $t all boils down to understanding the risk of the in!estment, risking only a small percentage on any one trade Ior trading approachG and keeping total e%posure within reason. 6hile the list abo!e is not e%hausti!e, $ belie!e it will help keep you out of the majority of trouble spots. Those who sur!i!e to become successful traders not only study methodologies for trading, but they also study the risks associated with them. $ strongly urge you to do the same. 5y !ing Trader 3 Hello ;!eryone, 1ow that the market is in a short term downtrend and stock tip threads ha!e mostly disappeared $ think it is a good time to discuss what is really important in trading 0 :osition 8i"ing # Boney Banagement 8trategies. $ 6ould like to hear#discuss the different sorts of position si"ing strategies e%perienced traders here use for stock trading. For new traders7 ":osition 8i"ing" is the way you determine the number of shares of a stock you would buy when you decide to initiate a trade Iand also how many shares you would continue to hold throughout the duration of the tradeG. $t also decides how much e2uity will be allocated to a single position. :osition 8i"ing is used by e!eryone e!en though they might not think about it Iusually traders just buy ,-- or +- shares or any number that they are comfortable with or can affordG. But good position si"ing is what makes or breaks a trader, it is the strategy that keeps a trader in the business longer. $t turns a mediocre trading system into an e%cellent one Ibut won't help a losing systemG. The most popular#recommended position si"ing strategy is to risk not more than /O on any single position. 1ew traders 0 make sure you go thru' pre!ious threads in "*isk 5 Boney Banagement" section of this forum, there are good posts on risk 5 money mgmt by Traderji 5 4reditAiolet. 5ooAs on position siPing: Trade >our 6ay To Financial Freedom by <r. Aan Tharp :ortfolio Banagement Formulas by *alph Aince The Bathematics of Boney Banagement by *alph Aince The Trading Name by *yan )ones

0y trategy: $ use a combination of percent risk 5 percent !olatility strategy. Here are the rules $ use7 0 By main aim is to ensure that $ stay in the business longer so my trading system gets a fair chance to realise its potential. 0 1o position should be greater than ,-O of my total trading e2uity 0 $ don't risk more than ,O of my total trading e2uity on any single position 0 $ make sure my positions are "!olatility balanced". $n other words $ make sure that all my positions fluctuate appro%imately the same each day in the market. $ do this using &!erage True *ange of the stock. $:amp,e: 8ay $ am planning to buy H$1<3;A;*, here is what $ would do to determine the number of shares $ would buy7 Total ;2uity 7 ,--,---.-Ba% ;2uity for each trade 7 ,-,---.-- I,-O of total e2uityG *isk &mount 7 ,,---.-- I,O of total e2uityG Aolatility &mount 7 +--.-- I-.+O of total e2uity. This is the fluctuation le!el per day per positionG &!erage True *ange I,- <ay &!gG 7 +..= 3ast Barket 4losing :rice 7 ,M=./- IFor simplicity assume this is the entry priceG 8top 3oss at 7 ,.=.P- I6ill get out just below pre!ious reaction lowG 1umber of shares to buy Ipercent risk modelG L *isk &mount # I;ntry :rice 0 8top 3oss :riceG 1umber of shares to buy Ipercent risk modelG L ,--- # I,M=./- 0 ,.=.P-G 1umber of shares to buy Ipercent risk modelG L ,-/ 8hares 1umber of shares to buy Ipercent !olatility modelG L Aolatility &mount # &!erage True *ange I,- <ayG 1umber of shares to buy Ipercent !olatility modelG L +-- # +..= 1umber of shares to buy Ipercent !olatility modelG L KK shares 1umber of shares to buy Ibased on Ba% ;2uity for each tradeG L Ba% ;2uity for each trade # 3ast Barket 4losing :rice 1umber of shares to buy Ibased on Ba% ;2uity for each tradeG L ,---- # ,M=./1umber of shares to buy Ibased on Ba% ;2uity for each tradeG L +M shares $ will buy minimum number of shares determined from the abo!e three models. 8o in the abo!e case $ would buy +M shares. 8o here is what $ basically do. $ am still trying to fine tune these things. The abo!e parameters used are what $ am currently using but $ am in the process of doing trial 5 error to come up with parameters that fit me well. $ would now like to hear what the e%perienced traders here do.

Positive Divergence of Price !rt 0ACD

& positi!e di!ergence occurs when B&4< begins to ad!ance and the security is still in a downtrend and makes a lower reaction low. B&4< can either form as a series of higher lows or a second low that is higher than the pre!ious low. :ositi!e di!ergences are probably the least common of the three signals, but are usually the most reliable and lead to the biggest mo!es. 8ee attached charts of &r!ind mills in weekly and daily mode.

DA')( 0&D$

W$$*)( 0&D$

4"$ T'&%
How do we use histograms on B&4<. $ mean $ want to plot The difference between the B&4< and signal line. &nd also $t gi!es me the option to change the time period for the signal lineI which is FG. But i am not able to change the time period of the two mo!ing a!erages used to plot B&4<. 4an you guide me what time periods should $ use for the three simple indicatorsI *8$, B&4<, 8tochasticsG. *ight now $ am using ,P days for *8$. 8tochastics + and =. 8ignal line F and $ am not sure what period it is using for the plotting the B&4<. &nd should we us different time periods for daily charts, for weekly charts and for monthly charts. &lso do they change if market is !olatile. $f yes could pls briefly note them down for me.

#$P)( 5( A'%T
$ basically use the *8$ at ,P, and the 8tochs at ,P,+,= but all this is more a personal preference. :lay around with it till you attain comfort le!els.&nd,no,$ don't change the periods in different time frames. :lease do ha!e a look at the link below for more education.... http7##stockcharts.com#education#$ndicator&nalysis#indicYstochastic'scillator.html http7##stockcharts.com#education#$ndicator&nalysis#indicY*8$.html http7##stockcharts.com#education#$ndicator&nalysis#indicYB&4<,.html

4"$ T'&%
$f a security in down trend, but Bomentum indicatiors Ilike 8tochastic, *8$G generate buy signal in some inter!al of time due to o!ersold position. $ want your guidance on following points7 ,G To determine the right time to buy. /G To find out down trend is o!er or price may be re!erse =G 8uggest an indicator to o!ercome this problem

#$P)( 5( A'%T
<epends on the timeframe of the downtrend if we are talking daily charts and the stock is in a downtrend, meaning it is making lower pi!ot highs and lows, and momentum indicators on that daily charts tell you o!ersold, it 1;A;* is the time to buy The right time to buy would be if we make a higher pi!ot low and you get confirmation once a pre!ious pi!ot high is taken out. 8o, the important thing is always :*$4;,:*$4; and :*$4;. Duestion / is answered by the answer to 2uestion , abo!e. &n indicator to o!ercome this problem@ 1one stay with price, pi!ots and trends. &n indicator may at best confirm to you what you should already be knowing. For eg. 6e ha!e a strong uptrend indicators tell us that we are o!erbought, what do we do@ 1othing .6e hold The uptrend gets stronger and stronger. The indicators continue to be o!erbought. 6e Hold. 1ow we start breaking pre!ious pi!ots, we sell, whate!er the indicators tell us. By suggestion7 3earn Trends, :i!ots and :atterns then go with the flow of the trend. But do learn about the !arious indicators. Because they may come in handy in shorter time frames, and for the pure fun of it.

4"$ T'&%
$ am new and am !ery interested in the technical analysis. $ ha!e purchased a few books on technical analysis, but $ find all of them donHt actually tell you how to use the different graphs mo!ing a!erage or oscillators. *ather, they duel on how to construct it what actually is ie its definition. $ could not find in any of my books how to interpret and use it to take trading decision. 4ould u suggest me some good books regarding interpretation and how to use these charts..

#$P)( 5( A'%T
Bany threads here that teach a lot of T&. ;lse ha!e a look at http7##www.stockcharts.com#education

For a trading decision off a chart, one must first be able to interpret a chart. To interpret a chart, one must be able to do the basics. 3earn the basics now, first step first &s for books, T;4H &1&3>8$8 ;?:3&$1;< by :*$1N,T;4H &1&3>8$8 'F 8TJ T*;1<8 by ;<6&*<8,B4N;;, and Technical &nalysis of the Finacial Barkets by )ohn ). Burphyanother

4"$ T'&%
Hi( $Hm new in this thread, here is !ery good things about share market, one of these 0 teaching fundamental rule is !ery appreciated. $ re2uest to friends to learn to catch fish in chinese style.

#$P)( 5( A'%T
From what $ understand, $ think you are referring to learning Fundamental &nalysis there are many within the forum whom $ respect for their knowledge of Fundamentals.like :ankaj IpkjhaG. 8uggest you get in touch with him to learn some fundamental stuff. This thread is limited to the trader who belie!es in trading using charts, a trader who follows trends, a trader whose primary objecti!e is to make as much profits as possible in the simplest method possible.
Compiled by SJL