Bullish Marubozu Interpretation:

❖ Defined as no shadows (Slight price variation is accepted) Shows that there is so much
❖ Open = Low High = Close buying interest that buyers
want to buy at any price to
❖ No need to look for the prior trend for Marubozu the point that the stock
closed near its high point of
How to confirm?
the day.
✓ Check prices at 3:20 pm and see if:
✓ CMP is equal or close to High
✓ Opening price is equal or close to low
Safe Traders:
Confirm Bullish Marobozu & confirm the color for next day / Candle.
❖ Blue candle – a buy day
❖ Red Candle – a sell day
Target buying price: End of Bullish Marubozu
Stop Loss: Low of Bullish Marubozu

Examples:

1
 Interpretation:
Bearish Marubozu There is so much selling
pressure that
❖ Defined as no shadows (Slight price variation is accepted) participants want to sell
❖ Open = High Close = Low at any price point up to
the extent that the stock
❖ No need to look for the prior trend for Marubozu
closed on its low point
How to confirm? for the day.
✓ Check prices at 3:20 pm and see if:
✓ Opening price is equal or close to High
✓ CMP is equal or close to low
Safe Traders:
Confirm Bearish Marubozu & confirm the color for next day / Candle.
❖ Blue candle – a buy day
❖ Red Candle – a sell day
Target selling price: End of Bearish Marubozu
Stop Loss: High of Bearish Marubozu
Examples:

2
Spinning Tops
Description:
✓ Candles have small body – which denote that prices are not far from each other
✓ Upper and lower wicks are almost similar
✓ Colors do not matter for spinning tops but rather the trend does
Interpretation:
✓ Shows that there was an attempt to overpower but was not successful
✓ Shows that the prior trend has become weak & we can either expect a continuation or a reversal
✓ Shows confusion and indecisiveness in the market
✓ Should reduce positions & be cautious

Spinning top occurred then resulted in an uptrend

Continuation of downtrend after the occurrence of Spinning tops

Uptrend reversal after occurrence of Spinning tops

3
Doji
Description:
✓ Open & close prices are the same / equal
✓ Color does not matter
Interpretation:
✓ Shows indecision in the market
✓ Trend may continue or reverse

4
Hammer (Bullish Pattern)
Description:
✓ Occurs only in Downtrend / Downward Rally
✓ Color does not matter
✓ length of the lower shadow should be at least twice the real body which is also known
as the “Shadow to real body ratio”
Shadow to Real Body Ratio Formula:
Close – Open = Length of the Real body
Open – Low = Length of the Real Shadow

How to confirm?
✓ Check prior trend, it must be a downtrend
✓ Check the stock price at 3:20 PM
✓ Open & Close Price should be almost the same (1-2% range)
✓ Lower Shadow Length must be twice the length of the real body
Note: Risk Averse Traders should evaluate OHLC data & follow “Buy Strength & Sell Weakness Rule”
Stop loss: Low of the Hammer

5
6
Hanging Man (Bearish Pattern)
Description:
✓ Occurs in Uptrend / Upward Rally
✓ Color does not make any difference
✓ All rules are the same as the hammer it just appears in an uptrend & has the opposite effect
✓ length of the lower shadow should be at least twice the real body which is also known
as the “Shadow to real body ratio”
Shadow to Real Body Ratio Formula:
Close – Open = Length of the Real body
Open – Low = Length of the Real Shadow

How to confirm?
✓ Check prior trend, it must be a uptrend
✓ Check the stock price at 3:20 PM
✓ Open & Close Price should be almost the same (1-2% range)
✓ Lower Shadow Length must be twice the length of the real body
Note: Risk Averse Traders should evaluate OHLC data & follow “Buy Strength & Sell Weakness Rule”
Stop loss: High of the Hammer

7
Shooting Star (Bearish Pattern)
Description:
✓ It’s an inverted hammer / Hanging Man
✓ Prior Trend must be bullish
✓ Long upper shadow / wick (the longer the more bearish the pattern)
✓ Look for shorting opportunities as you see this candlestick pattern
✓ As per book definition there should be no lower wick but a little as shown in the picture is fairly acceptable.

8
Engulfing
✓ Requires two trading days or candles (as per time frame you are using)
✓ If appears on a downtrend = BULLISH
✓ If appears on an uptrend + BEARISH

Bullish Engulfing
Qualifications:
✓ First day Candle of the pattern (P1) should be a red candle, which confirms bearishness in the market
✓ Second day candle pattern (P2) should be a blue candle which is long enough to engulf the red candle.
✓ BUY PRICE = CLOSE PRICE OF BULLISH ENGULFING or upon next candle confirmation
✓ If the second candle is enough to cover the real bodyor even go beyond it, it is happily considered a
Bullish Engulfing
How to confirm?
✓ 3:20 PM – P2 should be higher than P1’s Close – P2’s open should be equal or lower to P1’s close.

A trade missed by the Risk Averse

9
Bearish Engulfing
Qualification:
✓ Appears on the top end of an uptrend
✓ Has the same characteristics as the Bullish Engulfing but differs on its effect which is the opposite or Bearish
(There must be a blue candle and a succeeding red candle long enough to engulf it)
How to confirm?
✓ The open of P2 is higher than the close of P1
✓ CMP @ 3:20 on P2 is lower than P1’s open price

10
Presence of Doji
- The presence of a Doji after a candlestick patterns adds more weight & reconfirms the pattern thus results
in better & profitable trades.

11
Piercing Pattern
- Is similar to a Bullish Engulfing pattern but differs in a very minor variation.
Bullish Engulfing Piercing Pattern
P2’s blue candle engulfs P1’s red candle completely P2’s blue candle partially engulfs P1’s red candle
100% Covered Above 50% but less than 100%
Validation:
✓ Check the range of candles by deducting the Open & Close
✓ To justify, P2’s ratio must be at least or above 50% but less than 100.
Example:
Pattern Number Open High Low Close Ratio Difference
1 100 120 90 112 12
2 100 112 97 106 6

_______________________________________________________________________________________________

12
Dark Cloud Cover
- Is similar to a Bearish Engulfing pattern but differs in a very minor variation.
Bearish Engulfing Dark Cloud Cover
P2’s red candle engulfs P1’s blue candle completely P2’s red candle partially engulfs P1’s blue candle
100% Covered Above 50% but less than 100%
Validation:
✓ Check the range of candles by deducting the Open & Close
✓ To justify, P2’s ratio must be at least or above 50% but less than 100.
Example:
Pattern Number Open High Low Close Ratio Difference
1 100 120 90 112 12
2 100 112 97 106 6

_______________________________________________________________________________________________

Bullish Harami
- Bullish pattern which signals you to go long (BUY) after confirming the pattern & following candle rule
- Formed during the lower end of a downtrend
- P1 – Red Candle / P2 Blue Short candle
How to confirm?
✓ Trend - Downtrend
✓ P2’s opening must be higher than P1’s closing
✓ CMP @ 3:20 on P2 should be less than P1’s opening price.
Stop Loss – lowest price between P1 & P2
Pattern Number Open High Low Close
1 868 874 810 815
2 824 847 818 835

13
Bearish Harami
- Bearish pattern which signals you to go short (SELL) after confirming the pattern & following candle rule
- Formed during the end of an Uptrend
- P1 – Long Blue Candle / P2 Short Red candle
How to confirm?
✓ Trend - Uptrend
✓ P2’s opening must be lower than P1’s closing
✓ CMP @ 3:20 on P2 should be less than P1’s opening price.
Stop Loss – Highest price between P1 & P2

14
Gap Ups
Gap up Opening

• A gap up opening indicates buyer’s enthusiasm.

• Buyers are willing to buy stocks at a price higher than the previous day’s close. Hence, because of
enthusiastic buyer’s outlook, the stock (or the index) o pens directly above the previous day’s close.
• Gap up opening portrays bullish sentiment.

__________________________________________________________________________________________

Gap down Opening

• a gap down opening shows the enthusiasm of the bears.

• The bears are so eager to sell, that they are willing to sell at a price lower than the previous day’s close.
• Gap down opening portrays bearish sentiment.

15
Morning Star (Bullish Pattern)
- Appears on the bottom end of a downtrend
- Combination of 3 consecutive candlestick pattern
- Go Long / Buy when this pattern appears after confirming the pattern
Pattern Description:
• P1 – Day 1 : Long red candle has formed. (Red Candle shows selling acceleration)
• P2 – Day 2: Gap down opening which reaffirms the dominance of bears in the market, which would close
by either Doji or Spinning tops which show indecision in the market.
• P3 – Day 3: Opens with a Gap Up which ends in a blue candle which manages to close above P1’s Red
Candle opening.
Validation:
• P1 – Must be a Red Candle
• With a gap down opening, P2 should either be a doji or a spinning top
• P3’s opening should be a gap up, plus the CMP at 3:20 PM should be higher than the opening of P1.
Stop Loss: Lowest low in the pattern would act as the SL for the trade.

__________________________________________________________________________________________

Evening Star (Bearish Pattern)

- Appears on the bottom end of a Uptrend
- Combination of 3 consecutive candlestick pattern
- Short / Sell when this pattern appears after confirming the pattern
Pattern Description:
• P1 – Day 1 : Long Blue candle has formed. (Blue Candle shows buying acceleration)
• P2 – Day 2: Gap up opening which reconfirm the Bull’s stance in the market, which would be close by
either Doji or Spinning tops which show indecision in the market.
• P3 – Day 3: Opens with a Gap Down which ends in a Red candle which manages to close above P1’s Red
Candle opening.
Validation:
• P1 – Must be a Blue Candle
• P2 should be a Doji or a spinning top with a gap up opening
• P3 should be a red candle with a gap down opening.
The CMP at 3:20PM on P3 should be lower than the opening price of P1

16
Summarizing the entry & exit for candlestick patterns
Risk taker – The risk taker enters the trade on the last day of the pattern formation around the
closing price (3:20 PM). The trader should validate the pattern rules and if the rules are validated;
then the opportunity qualifies as a trade.
Risk averse – The risk averse trader will initiate the trade after he identifies a confirmation on the
following day. For a long trade, the colour of candle should be blue and for a short trade the color
of the candle should be red.

Never trade on an extremely low or long candle.

Low Candle (Below 1%): Makes it difficult to identify the direction of the trade
Long candle (Above 10% & higher): Indicates extreme activity
Makes the stop loss too deep thus may result in big loss if trade does not work out well.

General Rule: Buy Strength, Sell Weakness

• Buy Strength: Prominent Color is Green (Bullish) or it’s a BLUE DAY
• Sell Weakness: Prominent Color is RED (Bearish) or it’s a RED DAY
• BLUE DAY: Blue candle at the beginning of the day
• RED DAY: Red candle at the beginning of the day
• Play the game till your target is achieved or stop loss is hit.
• Be quick in booking profits

Ratio in candles: Open price minus Close price

17
Support & Resistance
• Best way to identify targets & trade points

Support
- point at which one can expect more buyers than sellers.
- price point on the chart where the trader expects maximum demand (in terms of buying)
- something that prevents the price from falling further
Current Fall till
- The support level is always below the current market price. Market Price Support
- Whenever the price falls to the support line, it is likely to bounce back.
- The support often acts as a trigger to buy.

Start Moving
Upward Consolidate

Absorb
Demand

Resistance
- point at which one can expect more sellers than buyers.
- Price point at which traders expect maximum supply (in terms of selling as the target is already hit)
- Something which stops the price from going further
- The resistance level is always above the current market price.
- The resistance often acts as a trigger to sell

18
 Volumes
- Helps us to confirm trends & patterns
- Used to gain insights on how others perceive the market
- Volume = a fair match between price & quantity
- High Volume = denote that the share is active & is catching Interest
- EOD Volume indicates cumulative volumes across trades executed throughout the day
- Traders generally compare today’s volume over the average of the last ten days volume simply by using
Moving Averages
Volume Trend Table
# Price Volume Expectation Thought
1 Increasing Increasing Bullish Smart Money is showing Interest =
Look for Buying Opportunities
2 Increasing Decreasing Caution: Weak Prices are going up because of the
hands buying market participants buying action

3 Decreasing Increasing Bearish Market Participants Selling + Smart

Money also Selling = Look for Shorting
Opportunities
4 Decreasing Decreasing Caution: Weak Market participants are selling & Smart
hands Selling Money is Idle, be careful it may be a
Bear Trap
Thought process behind the volume trend table
Institutional Buyers / Smart Money: These are the big players in the market, and it is always beneficial if we flow with
them as they make wiser moves & decisions, also buy in bulks so their steps make a big impact on the market.
1. If both the price and volume is increasing it means that smart money or a big player is showing interest in that
particular stock.
2. Prices are going up yet volume is not increasing. Why?
- Prices are going up because of the market participants buying action
- Are there any Institutional buyers associated with the price increase? No because if they were participating the
volumes would not decrease but rather spike up higher as they buy in bulks or volume.
3. Prices are decreasing yet volume is going up. Why?
- Decrease in price levels show that the market participants are selling their holdings
- Increase in volume shows that Smart Money / Institutional Buyers are selling off their holdings, thus it’s a total
sell off from both sides which ends up with the interpretation of a Bearish Trend.
• Going with the assumption that smart money makes wiser decision, when you see this kind of market action
taking place, look for shorting opportunities.
4. Prices decreasing and volume also decreasing. Why?
- Prices are going down because market participants are selling
- Are there any Institutional buyers associated with the price increase? No because if they were participating the
volumes would not decrease but rather spike up higher as they do action in bulks or volume. You should be
extra careful as this may be a bear trap.
• Before entering a trade make sure to check the volume, avoid entering if its volume is low.
• High volumes indicate the presence of smart money
• Low volumes indicate retail participation.

19
Moving Averages
- Indicate the Trend
- Takes the average based on closing price
- Generate buying & selling signals based on its own merit

SMA = Simple Moving Average gives equal weightage to all data points in the series
EMA = Exponential Moving Average scales the data according to its newness. Recent data gets the maximum
weightage and the oldest gets the least weightage, that’s why most traders prefer to use EMA over SMA.
• If a stock trades above its average price, it means that traders are willing to buy the stock at a price higher
than its average price, hence the sentiment is optimistic that the stock price may go higher: Look for
buying opportunities
• If a stock is trading below its average price, it means that traders are willing to sell the stock lesser than its
average price, hence the sentiment is pessimistic that the price will move up further: Look for shorting
opportunities

EMA Strategy ( 50 day EMA )

• Buy or Go Long when the CMP turns greater than 50 Day EMA
• Exit the position when the CMP turns lesser than the 50 days EMA

Starting from left, the first opportunity to buy originated at 165, highlighted on the charts as
B1@165. Notice, at point B1, the stock price moved to a point higher than its 50 day EMA. Hence
as per the trading system rule, we initiate a fresh long position.
Going by the trading system, we stay invested till we get an exit signal, which we eventually got at
187, marked as S1@187. This trade generated a profit of Rs.22 per share.
The next signal to go long came at B2@178, followed by a signal to square off at S2@182. This
trade was not impressive as it resulted in a profit of just Rs.4. However the last trade, B3@165,
and S3@215 was quite impressive resulting in a profit of Rs.50.

Moving averages works brilliantly when there is a trend and fails to perform when the stock moves sideways.
• MA system gives you many trading signals and one must not be choosy and follow all signals even if the
others result in losses as one big trade out of the many is sufficient enough to cover the losses and give
you decent profits.

20
Moving Averages Crossover System
- Uses two moving averages which crossover & generate signals with
fewer trades but quality & good ones.

50 days SMA – Shorter Moving Average which is also known as the Faster
Moving Average as it uses lesser number of data points to calculate the
average thus tends to stick closer to the CMP and results in quicker reactions.

100 days SMA – Longer Moving Average which is also known as the Slower Moving Average as it uses higher
number of data points to calculate its average, hence it stays away from the CMP which results in slower reactions.

As you can see, the black 50 day EMA line is closer to the CMP (as it reacts
faster) when compared to the pink 100 day EMA (as its reacts slower)

Moving averages Crossover System Entry & Exit rules.

- Buy or Go Long when the Short Term Moving Averages turns greater than the Long Term Moving Average.
Stay in the trade till this condition is satisfied.
- Square off or Exit the position when the Short Term Moving Average turns lesser than the Longer Term
Moving Average.

A trader can use any combination to create a MA cross over system, here are a few popularly used by Swing Traders:

a. 5 day EMA with 16 day EMA – use this for intraday trades (as per Sir Jayram)
b. 21 day EMA with 63 day EMA – use this for positional trades (as per Sir Jayram)
c. 9 day EMA with 21 day EMA – use this for short term trades (up to few trading session)
d. 25 day EMA with 50 day EMA – use this to identify medium term trade (up to few weeks)
e. 50 day EMA with 100 day EMA – use this to identify trades that lasts up to few months
f. 100 day EMA with 200 day EMA – for long term trades (investment opportunities – over one year or more)

Remember, longer the time frame the lesser the number of trading signals

21
Indicators
Leading indicator
- leads the price, meaning it usually signals the occurrence of a reversal or a new trend in advance
- Not all leading indicators are accurate, many are notorious for giving false signal thus the trader should be
very careful in trading and consider other confirming factors before entering the trade.
- Majority of leading indicators are called oscillators as they oscillate within a bounded range. (ex: RSI 0-100)
Lagging Indicator
- signals the occurrence of a reversal or a new trend after it has occurred.
- It is used to confirm the trend / signal.
Momentum
- is the rate at which the price changes
- The rapid the price increases noting the time span the higher the momentum
Example:
Stock Name June 1 2017 June 2 2017 June 3 2017 % of Change Momentum
Trident 100 105 115 15% High

Stock Name June 1 2017 July 1 2017 August 1 2017 % of Change Momentum
PNB 100 105 115 15% Low
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Relative Strength Index

- a leading momentum indicator which helps in identifying a trend reversal
- does not compare the relative strength of two securities, but rather shows the internal strength of the security.
- is the most popular leading indicator, which gives out strongest signals during the periods of sideways &
non-trending ranges.
- Used to identify Overbought and Oversold price points zones of a security

Overbought: Positive momentum is so high that it might not be suitable for long & there could be a correction.
Oversold: Negative Momentum is so high that it might lead to a possible reversal
Look Back Period: Days set in RSI Level

1. If the RSI is fixed in an overbought region for a prolonged period, look for buying opportunities instead of
shorting.
RSI stays in the overbought region for a prolonged period because of an excess positive momentum.
2. If the RSI is fixed in an oversold region for a prolonged period, look for selling opportunities rather than
buying.
RSI stays in the oversold region for a prolonged period because of an excess negative momentum
3. If the RSI value starts moving away from the oversold value after a prolonged period, look for buying
opportunities.
RSI moves above 30 after a long time, this means that the stock may have bottomed out, hence a case of going long.

4. If the RSI value starts moving away from the overbought value after a prolonged period, look for selling
opportunities.
RSI moving below 70 after a long time. This means the stock may have topped out, hence a case for shorting

22
Moving Average Convergence and Divergence (MACD)
- is a trend following system, which consists of 12 day & 26 day EMA
- MACD is very useful when there is a strong trend and not so accurate during sideways market movements
- MACD Line is a result of 12 day EMA minus 26 day EMA
12 DAYS EMA 26 DAYS EMA MACD LINE

6153 6198 -45

6048 6147 -100

6223 6131 +92

6256 6147 +110

MACD Positive Line:

- 12 day EMA is Higher than 26 day EMA
- Is an indication of positive momentum & the stock is drifting upwards
- The higher the momentum, the higher the magnitude of the positive drift
MACD Negative Line:
- 12 day EMA is lower than the 26 day EMA
- Is an indication that the momentum is negative
- The higher the magnitude in the MACD line, the more strength in the negative drift
Follow Crossover Method for entering and exiting the trade:
The sentiment is bullish when the 9 day SMA crosses over the MACD Line wherein the 9 day SMA is greater than
the MACD line. When this happens, the trader should look at buying Opportunities
The sentiment is bearish when the 9 day SMA crosses over the MACD line wherein the 9 day SMA is lesser than
the MACD line. When this happens, the trader should look at selling opportunities

The vertical lines on the chart highlight the crossover points on the chart where a buy or sell signal has originated.
a. The first vertical line starting from left points to a crossover where the MACD signal (9 day SMA) lies below
the MACD line and hence one should look for a selling or shorting opportunities.
b. The 2nd vertical line from the left, points to a crossover where the MACD signal line lies above the MACD
line, hence one should look at buying opportunities.

23
Bollinger Bands
- BB are used to determine overbought and oversold levels
- Trader should try to sell when the price reaches the top of the band
- Trader should execute a buy when the price reaches the bottom of the band

The BB has 3 components:

1. Middle line - which is the 20 day simple moving average of the closing prices
2. An upper band – this is the +2 standard deviation of the middle line
3. A lower band – this is the -2 standard deviation of the middle line

All the sell signals are highlighted by a down arrow, while

most of the signals worked quite well but there was a
phase when the price stuck to the upper band & continued
to drift higher, and therefore even the upper band
expanded. This is called an envelope expansion.

• The idea is to short the stock when the price touches the upper band with an expectation that it will revert to
average, vice versa one can go long when the price touches the lower band with an expectation it will revert
to the average.

Key Notes:
• The BB’s upper and lower band together forms an envelope.
• The envelope expands, whenever the price drifts in a particular direction indicating a strong momentum.
• The BB signal fails when there is an envelope expansion.
• BB works well in sideways markets, and fails in a trending market.

24
Fibonacci Retracements
- Fibonacci Golden ratios are 61.8%, 38.2%, & 23.6%
- Fibonacci retracements are levels up to which a stock can
possibly retrace before it resumes the original directional move
& from there the trader can take its position.

• Here is an example where the chart has rallied from Rs.288 to Rs.338. Therefore 50 points move
makes up for the Fibonacci up move. The stock retraced back 38.2% to Rs.319 before resuming
its up move.
-------------------------------------------------------------------------------------------------------------------------------------------------------
Fibonacci retracements can also be applied to stocks that are falling, in order to identify levels up to which the stock
can bounce back.
In the chart below (DLF Limited), the stock started to decline from Rs.187 to Rs. 120.6 thus making 67 points as
the Fibonacci Down move.

After the down move, the stock attempted to bounce back retracing back to Rs.162, which is the 61.8% Fibonacci
retracement level.

25
Fibonacci Retracement Construction
To use Fibonacci retracements, we should first identify the 100% Fibonacci move. The 100% move can be an
upward rally or a downward rally. To mark the 100% move, we need to pick the most recent peak and trough on the
chart. Once this is identified, we connect them using a Fibonacci retracement tool.
Step 1) Identify the immediate peak and trough. Trough is 150 & peak is 240.The 90-point moves make it 100%.

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Step 2) Select the Fibonacci retracement tool from the chart tools
Step 3) Use the Fibonacci retracement tool to connect the trough and the peak.

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How should you use the Fibonacci retracement levels?
Think of a situation where you wanted to buy a particular stock but you have not been able to do so because of a
sharp run up in the stock. In such a situation, the most prudent action to take would be to wait for a retracement in
the stock.

Fibonacci retracement levels such as 61.8%, 38.2%, and 23.6% act as a potential level up to which a stock can
correct. By plotting the Fibonacci retracement levels, the trader can identify these retracement levels, and therefore
position himself for an opportunity to enter the trade. However please note like any indicator, use the Fibonacci
retracement as a confirmation tool.

26
The Dow Theory Principles
Tenets
Indices discounts everything
Overall there are 3 broad market trends
The Primary Trend
The Secondary Trend
Minor Trends/Daily fluctuations
All Indices must confirm with each other
Volumes must confirm
Sideway markets can substitute secondary
markets
The closing price is the most sacred
27
What do they mean?
The stock market indices discount everything which is
known & unknown in the public domain. If a sudden and
unexpected event occurs, the stock market indices
quickly recalibrates itself to reflect the accurate value.
Primary Trend, Secondary Trend, and Minor Trends
This is the major trend of the market that lasts
from a year to several years. It indicates the
broader multiyear direction of the market. While
the long-term investor is interested in the primary
trend, an active trader is interested in all trends.
The primary trend could be a primary uptrend or a
primary down trend.
These are corrections to the primary trend. Think
of this as a minor counter reaction to the larger
movement in the market. Example – corrections in
the bull market, rallies & recoveries in the bear
market. The counter trend can last anywhere
between a few weeks to several months.
These are daily fluctuations in the market, some
traders prefer to call them market noise.
We cannot confirm a trend based on just one
index. For example, the market is said to be bullish
only if CNX Nifty, CNX Nifty Midcap, CNX Nifty
Small cap etc. all move in the same upward
direction. It would not be possible to classify
markets as bullish, just by the action of CNX Nifty
alone.
The volumes must confirm along with price.
The trend should be supported by volume. In an uptrend
the volume must increase as the price
rises and should reduce as the price falls. In a
downtrend, volume must increase when the
price falls and decrease when the price rises.
Markets may remain sideways (trading between
a range) for an extended period. Example:-
Reliance Industries between 2010 and 2013 was
trading between 860 and 990. The sideways
markets can be a substitute for a secondary
trend.
Between the open, high, low and close prices,
the close is the most important price level as it
represents the final evaluation of the stock
during the day
Different phases of Market

Accumulation Phase:
- usually occurs right after a steep sell off in the market
- this is the stage in which the smart money or institutional buyers start to acquire their shares.
- Due to the equilibrium between the buyers and sellers in this stage the prices do not fall further below
- Time span of this stage could last several months
Mark up Phase:
- the stage in which stock prices rally up quickly & sharply
- Once institutional buyers have already absorbed all the stock, short term traders sense an occurrence of
support, which usually coincides with business sentiment which tends to drive the price up high.
- Speed is an essential factor in this phase, many are left out because they are not able to catch up with the
sharp rally & surges in prices in this phase.
Distribution Phase:
- Is the time when everyone wants to invest in the stock, which shows a positive sentiment in the market
- Usually occurs when the security price reaches 52-week high
- Institutional buyers who bought during the Accumulative phase start unloading their shares which is then
absorbed by the investors.
Mark Down phase:
- Complete sell off of holdings
- Leaves the market in a state of frustration

28
Trading Range
- In a range, the stock attempts to hit the same upper & lower price level multiple times for an
extended period of time, which is also known as sideways market.
- When both buyers and sellers are not confident about the market direction, the price tends to
move in a range, its quite frustrating for long term investors but for short term traders, its an
opportunity you should not miss.
- The upside is capped by resistance and the downsize is capped by support, it is called range
bound as it gives enough opportunity for the buyers and seller to play their part.

One of the easy trades to initiate in such a scenario would be to buy near the lower level, and sell near
the higher level. In fact, the trade can be both ways with the trader opting to short at the higher level and
buying it back at the lower level.

In fact, the chart above is a classic example of blending Dow Theory with candlestick patterns.
Starting from left, notice the encircled candles:
1. The bullish engulfing pattern is suggesting a long
2. Morning doji star suggesting a long
3. Bullish Engulfing pattern suggesting a long
4. Bearish engulfing pattern is suggesting a short
5. Bearish harami pattern is suggesting a short

The short-term trader should not miss out such trades, as these are easy to identify trading opportunities
with high probability of being profitable. The duration of the range can be anywhere between a few
weeks to a couple of years. The longer the duration of the range the longer is the width of the range.

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Range Breakout
Why do stock trade in a Range?
1. When there are no meaningful fundamental triggers that can move the stock - These triggers are usually
quarterly/ annual result announcement, new products launches, new geographic expansions, change in
management, joint ventures, mergers, acquisitions etc.
- When there is nothing exciting or nothing bad about the company the stock tends to trade in a trading
range. The range under these circumstances could be quite long lasting until a meaningful trigger occurs.
2. In anticipation of a big announcement – When market anticipates a big corporate announcement the stock
can swing in either directions based on the outcome of the announcement.
- Till the announcement is made both buyers and sellers would be hesitant to take action & hence the stock
gets into the range. The range under such circumstances can be short-lived lasting until the
announcement (event) is made.
What is a Range breakout?
- It is the moment at which the stock moves out of its trading range
- It does not create a new trend but rather trading opportunities
- Trader should go long when the stock price breaks the resistance & should go short after the price breaks
its support level.

Range Breakout Confirmation: Volumes must be high & High Momentum after Breakout

The stock attempted to breakout of the range three times, however the first two attempts were false breakouts. The
first 1st breakout (starting from left) was characterized by low volumes & low momentum. The 2nd breakout was
characterized by impressive volumes but lacked momentum. However, the 3rd breakout had the classic breakout
attributes i.e high volumes and high momentum.
For example:
Assume the stock is trading in a range between Rs.128 and Rs.165. The stock breaks out of the range & surges
above Rs.165 and now trades at Rs.170. Then trader would be advised to go long 170 & place a stop loss at Rs.165.
Alternatively assume the stock breaks out at Rs.128 (also called the breakdown) and trades at Rs.123. The trader
can initiate a short trade at Rs.123 and treat the level of Rs.128 as the stop loss level.

• Always trade with Stop loss for breakouts, you can’t be sure till where the momentum will sustain itself.

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Reward to Risk Ratio (RRR)
How to calculate your Risk Ratio?
- Entry – Stoploss
How to calculate your Reward Ratio?
- Exit – Entry
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• A good trade should be characterized by a rich RRR.

• For every Rs.1/- you risk on a trade your expected return should be at least Rs.1.3/- or higher, otherwise it
is simply not a worth the risk.
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Entry: 55.75
Stop less: 53.55
Expected target: 57.20
What is the risk the trader is taking? - [Entry – Stoploss] i.e 55.75 – 53.55 = 2.2
What is the reward the trader is expecting? - [Exit – Entry] i.e 57.2 – 55.75 = 1.45
What is the Risk Reward Ratio? = 1.45/2.2 = 0.65
Conclusion: For the reward of 1.45 points, the trader is risking 2.2 points. Definetely not a good trade.
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Entry: 107
Stop less: 102
Expected target: 114
Risk : Rs.5/- (107 – 102)
Reward: Rs.7/- (114 – 107)
RRR: 114/107 = 1.4.
Conclusion: Not a bad deal
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Time Frame
- The higher the time frame, the more reliable the trading signal.
Type of Trader Time Frame Look Back period
Scalper 1-5 minutes 5 days
Swing / Positional trader 175 min 6-12 months

The Scalper
- Scalping is a technique where the trader initiates a fairly large trade with an intention of holding the trade for
few minutes.

Overall profit after applicable charges = Rs.2653/-

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