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How to Study Candlestick in Trading?

In this article, I am going to discuss How to Study Candlestick in Trading. As part of
this article, we are going to discuss the following three important pointers in detail which
are related to Candlestick in Trading.
1. What is a candlestick?
2. How to Study Candlestick?
3. The 6 principles for analyzing candlestick
What is a candlestick? 
The candlesticks are the reflections of what buyers and sellers are doing. What extent
they move the price and the strength behind the move. CANDLES TELL YOU who is in
control but do not tell you about the strength of buyer or sellers behind the move, candle
with volume shows that

The Open:
Open price tells us where the balance between buyers and sellers at the opening of that
period, the opening value is the first trade of the day. After the traders have time to review
the markets overnight, the open represents the desired position of investors to begin the
day. The change from the previous close to the open is a reflection of new sentiments. Also,
institutions looking to accumulate (or distribute) a position often place orders at the open
because the open trade is often the largest, most liquid trade of the day. In this way, the
open might be one of the best times to accumulate/ distribute a large volume of stock while
minimizing the impact on the stock’s price.
The High:
The high is the highest point the stock traded during the session. The high is the furthest
point the bulls were able to push the stock higher before sellers regained control to push the
stock back down. The high represents a stronghold for sellers and a resistance area to
buyers. There is one exception when the stock closes on the high, it did not encounter any
real resistance from the sellers. The buyers just ran out of time.
The Low:
The low is the lowest point the stock traded during the session. The low is the furthest point
the bears were able to force down the stock before buyers regained control to push the
stock up. The low represents an area where enough demand existed to prevent the price

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from moving lower. The exception is when the security closes on the low. When the stock
closes on the low, it did not encounter buying support. Rather, the bulls were saved by the
closing bell of the session.
The Close:
Close price tells us where the balance point was at the end of the period. The close is the
last price agreed between buyers and sellers ending the trading session. The close is the
market’s final evaluation. A lot can happen between one close to the next close. The close
represents investors’ sentiments and convictions of investors at the end of the day. It is the
position investors desire to hold after-hours when investors are unable to trade with liquidity
until the next session opens. The closing price is the first (and oftentimes, the only) price the
majority of investors desire to know.
The Change:
The change is the difference between close to close. The difference in the closing value one
day versus the closing value the next day. When this difference is positive, it tells us that
demand is outweighing supply. When this difference is negative, it tells us that supply is
increasing beyond demand. The change is perhaps the most sought after piece of financial
data on the planet.
The Range:
The range is the spread of values within which the stock traded throughout the day. The
range spans between the bar’s highest point and the same bar’s lowest point. It is
measured from the top of the bar, where resistance set into low, where support came in.
The size of the range gives us important information about how easily demand can move
the s took up or supply force the price down. The wider the range, typically, the easier it is
for the forces of supply and demand to move the stock price.
Bullish CANDLESTICK
This is nothing but when CURRENT CANDLE close is ABOVE the previous candle close.

Bearish CANDLESTICK
When CURRENT close is BELOW the previous candle close

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With the proper understanding of CANDLESTICK, you can predict what about to happen in
the near future
#Pro tips, we (retailers) can’t move the market so every candle shows what smart money
trying to shows. So their move trap or genuine is only validated by volume
#Pro tips, CANDLESTICK shows half information, another half information shows by
volume
Example

WHAT IS TELLING US?

SENIMATE= BULLISH, 2 consecutive higher close candle. Let’s add volume to this
candle

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2nd candle range smaller than 1st candle

2nd candle volume greater than 1st candle
Think why volume is greater than 1st candle?
Let me explain to you
NARROW SPREAD CANDLE WITH HIGH VOLUME. Two possible explanations
If the volume had represented buying, how can the spread be narrow?
Either the professional money is selling into the buying, possible reversal on near
future
 There is a trading range to the left and the professional money is prepared to
absorb the selling from traders locked into this old trading range. I mean break
out may happen
Let’s understand with chart

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If the next bar is down closing near its lows this confirms the professional selling

Low volume down candle close middle or top, it shows that smart money testing supply
and no more supply available 2 nd candle was buyer’s volume if the next candle closes
above the current candle
6 PRINCIPLE FOR CANDLESTICK ANALYSIS IN TRADING
Principle Number One: The length of any wick, either to the top or bottom of the
candle is ALWAYS the first point of focus because it instantly shows, strength,
weakness, and indecision, and most important where SMART-MONEY enter
Ad by Value impression
Principle Number Two: If no wick is created, then this signals strong market sentiment
in the direction of the closing price. SMART-MONEY active there
Principle Number Three: A wide-body represents strong market sentiment and a
narrow body present week market sentiment Narrow body with the heavy volume either
Smart Money observing for continuous of move or Smart Money enter on the opposite
direction
Principle Number Four: A candle of the same type will have a completely different
meaning depending on where it appears in a price trend. Start of trend or middle of the
trend or end of the trend or at support or resistance or in the consolidation
phase. Candlestick should analyze the context of the move. You should never try
and read the market looking at one day’s action in isolation. Always read the market
phase-by-phase and then read the latest day’s action into the phase
Principle Number Five: Volume validates price. First, see what CANDLESTICK is
telling then validated by volume, is It validating or not with the CANDLESTICK price
action
Principle Number SIX: When a particular timeframe DON’T make sense then move to
the next higher time frame for the big picture or lower timeframe for the microstructure
of move
Candlestick Analysis in Trading

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. After the study, you will no need to recognize any CANDLESTICK patterns. As part of this
article, you will understand the following four things which are related to Candlestick
Analysis in Trading.
1. Understanding candlestick
2. How to read candlestick
3. How to read a chart using candlestick
4. How to find opportunity using candlestick
Part1: Understanding Candlestick Analysis
What is a candlestick?
 Candlesticks are a reflection of what buyers and sellers are doing. CANDLES TELL
YOU who is in control in that specific time frame
 Candlesticks tell us the immediate information about the supply-demand relationship
 Multiple candles form patterns that tell us a story
 Understanding candlesticks is paramount to successfully day trade
Elements of candlestick
 The High
 The Open
 The Low
 The Close
 The Change(BODY)
 The Range

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Part2: How to read candlestick

STEP 1: The size of the body (open to close)
Remember that in every bar, the same number of contracts/shares are sold and bought at
that time frame
 The only reason for a bar to end up with a higher price is that the buyers were
committed to one direction and more aggressive than the sellers. The reverse is true
for a bear wide range bar
 So candle body shows, What extent they move the price and the strength behind the
move
BODY:
Generally, we have to consider 3 types of body
1. Narrow range candle
2. Average candle
3. Wide range candle

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The candle body shows lots of information such as

Let us see some example

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STEP 2: The length of wicks

The length of any wick, either to the top or bottom of the candle is ALWAYS the first point of
focus because it instantly shows, strength, weakness, and indecision, and most important
where SMART-MONEY enter
 Larger wicks show that price has moved a lot during the duration of the candle but it
got rejected, shows the presence of supply or demand
 Lower wick act as support and upper wick act as resistance

Let’s understand pin bar

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What a pin bar telling us

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When candles are not able to break through a zone 70-80% of the time they will go
the opposite way

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Part3: How to read a chart using candlestick?

Step 1 First read DIRECTION OF current CANDLE with respect to the previous candle
That means, the relationship of each bar high/low relative to the previous bar. What it telling
us

Step 2 Context (read the current bar sentiment with respect to the
previous bar)
Candlestick should analyze the context of the move. You should never try and read the
market looking at one day’s action in isolation. A candlestick always must be analyzed in
the context of what has happened in the past.

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Context is what current candlestick shows with respect to the previous candlestick
 The current candlestick larger or smaller than previous ones? Which shows
momentum increases or decreases
 Is the size-changing meaningfully or not? Buying or selling pressure
 Is volatility increases or decreases
 Is the change happening during an active trading period or not? For example,
candlesticks on mid-period generally dead or inactive.

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Step 3 Testing (Read what it showing when testing key level (support or
resistance))
The concept of testing refers to the market moving towards a price level to “test” if the price
level will accept reject the market’s advances. Key levels are
 Previous candles high/low
 Last swing high/low
 Previous day’s high/low
 Major support or resistance
The high and low of each price bar are natural support and resistance levels and the wick
generally acts as a supply and demand zone. The test of these levels or zones shows the
undercurrents of the market and is critical for reading price action.

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Step 4 Expectation
With a clear read of DIRECTION, CONTEXT, TESTING. we are able to form expectations
of the market in the third candle. We would expect the market to move in a certain way in
the third bar with our read of DIRECTION, CONTEXT, TESTING. The confirmation or failure
of our expectations of the third bar reveals more about the market, and add to our
candlestick analysis
To form expectations, we need to make a very simple assumption about how the market
should behave and should not behave.
Essentially, the market has momentum and inertia. bearishness should follow bearishness
and bullishness should follow bullishness. When it does not obey this assumption, we have
to cautious, Maybe a possible change in market direction.

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Part4: Finding Trading opportunity

A candlestick pattern is useless if its location is not correct, where it happens is the most
important variable. So we should analysis candlestick at support and resistance for
opportunity either reversal or continuation of the trend
AT resistance we expect the price to reverse or supply exceed demand confirms the supply
or resistance level. Like at the support we expect the price to reverse for confirming demand
overcome supply
There are some key pointer should consider when trading reversal Means what candlestick
action validates our support and resistance level
Explained below
Point1: Momentum loss when approaching a key level(support
resistance)

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Below is the example of bullish reversal

Point2: Clear Rejection from resistance in the form of the pin bar
multiple rejections
In an established uptrend any Clear Rejection from resistance in the form of the pin bar
confirm the resistance level, it indicates buyers tried had but failed to close above the
resistance

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MULTIPLE REJECTION SHOWS THAT BUYERS TRIED OVER AND OVER AGAIN TO
PUSH THROUGH THE LEVEL BUT FAILED

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Point3: Price Unable to close above the resistance level or below the
support level
When Buyers trying hard each time to close above the resistance level, each time they
failed shows supply coming and trying to dominate demand

Point4: Candle color change

For bearish reversal. The price should break the previous candle low and close below the
low at resistance. It shows bullish strength completely lost

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Point5: REVERSAL MOMENTUM CANDLE FROM KEY LEVEL

When a reversal momentum candle formed from the key level it confirms the strength of the
level of the opposite party. When bullish strength candle formed from support it confirms the
support level as strong

What candlestick action disconfirms the resistance? Opposite for

support
There is a certain point also consider when price approaching support or resistance. That
validated or invalidated our support or resistance level
Candle spread increasing when approaching resistance level

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With a widespread up, while the price is getting close to the resistance, we would expect to
see the resistance broken due to the extra effort by buyers

If price hug the support and hold it disconfirm the demand and shows
the presence of supply
 If there is strong support or resistance level, price should immediately react within a
few candles
 Price hold (unable to react) after a move down to support. Sellers overcoming buyers
is the repeated inability of prices to REACT away from the danger point(support).
Such hugging of the support usually leads to a breakout

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What we learned
Summary of candlestick analysis
Part1: Understanding candlestick
Part2: How to read candlestick
       Wide range bar(show strength or momentum)
       Narrow range bar(momentum or strength decreases)
       A pin bar(shows rejection or either supply or demand came in)
       Doji(indecision )
Part3: How to read a chart using candlestick
      First, read the current candle direction with respect to the previous candle
      Second, read the current candle sentiment with respect to the previous candle
      Third, read the testing key level
      Expect what you fill
Part4: How to find opportunity using candlestick
Step to find a trading opportunity for reversal
       Point1 Momentum loss when approaching resistance /support
       Point2 Clear Rejection from resistance in the form of the pin bar multiple rejections
       Point3 Price unable close above the resistance
       Point4 CANDLE COLOR CHANGE
       Point5 REVERSAL MOMENTUM CANDLE FROM KEY LEVEL

Price Action Analysis in Trading

1. What is Price Action Analysis?
2. Understanding the advance features of CANDLESTICK

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The ultimate guide you will ever need to understand CANDLESTICK and its
characteristics. Once you complete this article, then you will no need to recognize any
CANDLESTICK patterns.
What is Price Action Analysis?
The Price Action Analysis is the movement of price in the chart. Candlestick format
shows clear price action, I mean what buyers and sellers are doing in that period. Their
activity clearly shows in CANDLESTICK
So to learn price action we have to learn all the basic and advanced feature of
candlestick
5 steps to candlestick analysis
Step1: The size of the body (high to low)
BODY:
1. Narrow
2. Average
3. Wide

Find the body of your timeframe. The candle body shows a lot of information such as
 A long body is showing strength
 A narrow-body shows weakness
 When consecutive bodies become larger and larger, it shows an increase in momentum
 When consecutive bodies become smaller and smaller, it shows slowing momentum
 If up or down move with greater than average body candle it shows volatility high
How to compare?
1. current candlestick with respect to the previous candle
2. current candlestick with respect to the same swing
3. current candlestick with respect to the previous swing
Step2: The length of wicks
 Larger wicks show that price has moved a lot during the duration of the candle but it got
rejected, shows the presence of supply or demand

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 At major support and resistance levels. Candlewick becomes larger it indicates volatility.
This generally happens after long trending phases before a reversal happen from
support and resistance level
 One more thing: the longer the shadow, the more likely prices will move in the opposite
direction of the shadow
 Long wick candles do not always signal a reversal if the wick of rejection candle engulf
by subsequent move it fails, it called reverse rejection
 If it appears between the trend it shows trend cont. ( as a small pullback in smaller time
frame)
 While a single long long wick indicates possible of prices moving in the opposite
direction of the wick, a cluster of multiple wicks indicate that prices are likely to move in
the same direction of the wick created and if the body closing the direction of the trend

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Step3: The ratio between wicks and bodies

Understanding the relationship between the open and close when compared to the high
and the low of the present bar
 Open price tells us where the balance between buyers and sellers at the opening of that
period
 Close price tells us where the balance point was at the end of the period

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Etep4: Volume contains

WYCKOFF BASIC LAW
1. THE LAW OF SUPPLY AND DEMAND: When demand is greater than supply then the
price will rise to meet this demand and conversely when supply is greater than demand
then the price will fall
2. THE LAW OF CAUSE AND EFFECT: The effect will be indirectly proportional to the
cause other words a small amount of volume action will only result in a small amount of
price action. If the cause is large then the effect will be large vice a Versa

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3. THE LAW OF EFFORT VS RESULT: Similar to newton’s third law. Every action must
have an equal and opposite reaction, in other words, the price action on the chart must
reflect the volume action below. Effort (volume) seen as the result (price), where
validated and anomaly comes to consider
Wide spared candle

Price action –
Strong BULLISH market sentiment. The price action has risen sharply higher and
closed at or near the high of an up candle.
Volume Action–
 The associated volume should, therefore, reflect this strong sentiment with a ‘strong’
volume. As we can see in the above example is, if the volume is above average(effort vs
result), then this is what we should expect to see as it validates the price. The smart
money is joining the move higher and everything is as it should be.
 If the volume is below average or low, this is a warning signal. The price is being marked
higher, but with little effort. The move is not genuine. If we are in a position, we look to
exit. If we are not in a position we stay out and wait for the next signal to see when and
where the smart money is now taking this market.
Narrow Spread Candles

Price action – weak market sentiment

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Volume Action–
 A narrow spread candle should have low volume – again effort vs result.
 NARROW SPREAD CANDLE WITH HIGH VOLUME. If the volume had represented
buying, how can the spread be narrow? There are only two possible explanations for a
narrow spread up candle on a very high volume.
1. Either the professional money is selling into the buying [see the end of a rising market]
2. There is a trading range to the left and the professional money is prepared to absorb the
selling from traders locked into this old trading range
Step5: RELATIVE OR 2 CANDLE PRICE ACTION
DIRECTION OF CANDLE
The relationship of each bar high/low relative to the previous bar

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1. An up bar starts an upswing and confirms the end of a downswing

2. A down bar starts a downswing and confirms the end of an upswing
3. The inside bar does not break the previous high low, hence they do not affect the
direction of the current swing

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4. Outside bar breaks both the previous high and low, it introduces uncertainty in the
market structure. Outside bar in the upswing cont the upswing and the outside bar in the
downswing cont the downswing. Typically an outside bar not end or start a price swing
without down bar or a break below the swing low an upswing will cont
DIRECTION OF TREND WITH RESPECT TO CANDLE POSITION

Context or Background

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Candlestick should not be analyzed in a vacuum. A candlestick always must be

analyzed in the context of what has happened in the past.
Context is what current candlestick shows with respect to the previous candlestick
 The current candlestick larger or smaller than previous ones? Which shows momentum
increases or decreases
 Is the size-changing meaningfully or not? Buying or selling pressure
 Is volatility increases or decreases
 Is the change happening during an active trading period or not? For example,
candlesticks in mid-period generally dead or inactive.

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TESTING PRICE LEVELS

The concept of testing refers to the market moving towards a price level to “test” if the
price level will accept reject the market’s advances.
The high and low of each price bar are natural support and resistance levels and the
wick generally acts as a supply and demand zone. The test of these levels or zones
show the undercurrents of the market and is critical for reading price action.

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THREE PRICE BARS/expectation

With a clear read of 2 BAR PRICE ACTION (DIRECTION, CONTEXT, TESTING), we
are able to form an expectation of the market in the third candle. We would expect the
market to move in a certain way in the third bar with our read of 2 bar price action. The
confirmation or failure of our expectations of the third bar reveals more about the market
and adds to our price action analysis.
To form expectations, we need to make a very simple assumption about how the market
should behave and should not behave. Essentially, the market has momentum and
inertia. bearishness should follow bearishness and bullishness should follow
bullishness. When it does not obey this assumption, we have to cautious, Maybe a
possible change in market direction.

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Some more examples

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Advanced Price Action Analysis

1. What is high and low?
2. What is the swing high and swing low?
3. Criteria for drawing swing high and swing low
4. Types of swing high
5. Strength and Weakness of Trend through Analysis Swing.
Before going forward let me know you that, This is the extension part of price action
analysis. so I would suggest going through the previous article
How to Study Candlestick

Price Action Analysis

Let’s begin
Understanding Market Structure through the swing
It is similar to learning to read a new alphabet-once you understand the characters, you can
read the words, and once you know the words you can read the story. The first letter to
master tells you what market activity causes the formation of a short-term high or low. If you
learn this basic point, the meaning of all market structures will begin to fall into place.
The market moves in the up-down wave, what we call a market swing. In a healthy bull
trend, the upswing generally exceeds the downswing in length, the reverse is true for the
bear market. Hence by observing market swing, we are able to glimpse into the structure of
the market and get clues on whether the market will move up or down
Swing high and swing low
Criteria for drawing swing high and swing low
SWING HIGH Or SWING LOW CONSIST OF MINIMUM 5 BAR. The middle bar must be
higher high and higher low then the two proceeding bar and the two following bar

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Restriction for drawing swing high and swing low

1. If bars high is parallel to the middle or high(LOW) bar, it does not count as one of the
five bars in the swing HIGH (LOW) because it does not have a lower high(HIGHER
LOW) than the middle bar
2. TWO ADJACENT swings high or swing low may share bars

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1. A swing high
2. B both swing high and swing low, this happens because two proceeding bar and two
following bar are inside bars, that fulfills the requirement of the middle bar must be
the highest or lowest point of five bar sequence
3. C both up and downswing by sharing bar
4. D requires six-bar to form swing high as the fifth bar is equal high to the middle bar

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Why important?
These points not random, they created by the market. they represent momentary changes
and demand and supply forces. The bulls could not move the market above the swing high.
This means that at that point in time, no one was willing to offer a price higher than the
swing high. Traders saw no value above the swing high
In a nutshell, there are two key skills in reading price action:
1. Evaluate how likely a swing pivot will hold up as support/resistance
2. Understand the implication of a swing pivot not holding up as support/resistance
Swing types
There are two types of swing
1. High and low
2. Swing high and swing low
Let me explain to you
Swing low(SL)
The market tried to move down. Then, it stopped and the bullish trend resumed. The market
broke all resistance (swing high) and made a new trend high. In other words, the market
failed terribly in its attempt to move down. The lowest point it pushed to is called swing low

Tip: valid pivot makes sense only within the trending price action. To find a valid low, you
need to know the start point of the trend and the last extreme trend high.  Then what about
point B. Point B called a LOW not swing low
Swing low
Every major market has some pullback that is shallow and some last for one swing. The
point where pullback goes deeper and lasts for more than one swing, forming a LOW.
Eventually, this deeper pullback terminated and the trend resumed. A low becomes a swing
low once price breaks out above the last extreme price high for the resumption of the bullish
trend. Let me explain to you

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All the concept are discussed above are applicable for a swing high and high
HOW TO KNOW WHEN LOW BECOME SWING LOW
When the price cleared the above swing high level. To clear a price level, the market must
form a price bar that is completely above the price level. This means if a bar low is higher
than a price level, the market has cleared above the price level.

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UNDERSTANDING MARKET SWINGS in Advanced Candlestick Analysis

We have understood how to find out swing high and swing low
Let understand STRENGTH AND WEAKNESS OR TREND THROUGH ANALYSIS OF
swing
 Momentum
 Thrust and pullback
 Volume
What is Momentum?
The rate at which price move with respect to time
We are simply observing price action in order to compare the current speed and
acceleration of price movement with historical speed and acceleration. Momentum is visible
on a chart through observing the slope (angle) of price movement

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The same concept applies to price action on charts. Changes in momentum are observed
through changes in the slope (angle) of the price action
Analysis of momentum is not about measuring any absolute value of momentum, but
in making a comparison of current price action momentum with prior price action
momentum.
WE can compare through
1. Candle
2. Swing
Momentum through candle
Compare the momentum of the current candle with the momentum of the previous candle

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BAR COUNTING
1. Counting number of bars in a half cycle and comparing one-half cycle to another
(previous half cycle)

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2. Comparing each swing(relative strength of move)

3. How much time to get up or how much time to get down

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Momentum through swing

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1. Compare the momentum of the current price swing with the momentum of the
previous price swing in the same direction?
2. Compare the momentum of the current price swing with the momentum of the
previous price swing in the opposite direction?
3. Is the current price accelerating or decelerating? What does that mean?
1) Compare the momentum of the current price swing with the momentum of the
previous price swing in the same direction?

Now let’s remove the downswing and study what it is showing Is price faster or slower
than before?

Compare the slope of UP-swings (a), (c) (e) and (g). Note the decreased speed on each of
these legs, indicating a reduction in bullish momentum. Weakness is appearing on the
bullish side.
Clearly shows upward momentum decreasing
Now putting the same chart with only downward momentum

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Compare the slope of upswings (B) (D)(F) and (H). Note the increasing speed on each of
these legs, indicating an increase in bearish momentum. bearish price swings are showing
signs of strength.
BY COMPARING THE SWING IT indicating an increase in bearish momentum. bearish
price swings are showing signs of strength. The price movement is more likely to continue
in the direction of strength and against the direction of weakness.

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2) Compare the momentum of the current price swing with the momentum of the
previous price swing in the opposite direction?

That is, comparing the current bullish swing with the previous bearish swing; or comparing
the current bearish swing with the previous bullish swing. Note the slope of (a) is quite steep
compared with the slope of (b). The latest upswing (b) has shown weakness compared with
the previous downswing (a). Strength is still in the bearish direction.
Bullish upswing (d) shows an increase in speed compared with the last downswing (c).
While the strength is now to the bullish side. The shallow angle of downward momentum
compared with the steep rise of upward momentum indicate Strength is now clearly on the
bullish side.
The price movement is expected in the direction of strength and against the direction of
weakness.

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3) Is the current price accelerating or decelerating? What does that mean?

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The deceleration in this example is evidence of bullish momentum gradually weakening as

bearish pressure overcomes any bullish pressure.

Thrust Pullback and Measuring Move Analysis

I am going to discuss the following pointers in detail which are related to Thrust Pullback
and Measuring Move Analysis.
1. Thrust and pullback analysis

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2. Measuring move
3. Volume and price analysis
Thrust, pullback and Measuring move Analysis
Strengthening or weakening of a trend may also be observed through the analysis of thrust
and pullback and measured move.
THRUST Analysis
Thrust Refers to the distance between the current swing high to a previous swing high (in
an uptrend) or swings low (in a downtrend). Increased thrust is a sign of potential trend
strength. Shortening of Thrust is a sign of potential trend weakness.

The increased thrust of T2 when compared with T1 indicating greater strength within the
trend. Also compared with T3 to T2 indicating strength on the upside.

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Shortening of thrust, T2 when compared with T1 indicating weakness with the trend. T3 is
then much shorter than T2, indicating weakness developing with the trend. T2 is unable to
project to the same distance as T1 did. Something has shifted in the balance of supply and
demand. The fact that the market was unable to do so indicates either a decrease in bullish
pressure and/or an increase in bearish pressure.

The uptrend is showing signs of weakening

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ALL REVERSE FOR DOWN TREND

DEPTH OF Pullback
DEPTH Pullback refers to the distance with which a price retraces the previous up move or
impulse move

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Increased depth is a sign of potential weakness of a trend. Decreased depth is a sign of

potential strength of a trend.

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PULLBACK DP1 is the distance with which the pullback retraces IMPULSEMOVE IM1. DP2
is the depth with which the pullback retraces IM2. And DP3 is the depth with which the
pullback retraces IME3
Note that
DP2 is a much smaller percentage of its IMPULSE MOVE IM2 when compared to DP1. D2
has a smaller depth than D1, indicating a potential weakening of the bears, and therefore
strength within the price trend.

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Note that DP4 is significantly larger than DP3, indicating potential strength within the bears,
and therefore potential weakness within the price trend. The increased depth of pullback
DP3 indicates increasing bearish pressure and a potential weakening of the trend.

The same concept applies to the downtrend.

MEASURING MOVE (relative strength of move)
Comparing impulse swing with the previous impulse swing in the same direction to find
whether strength increasing or decreasing or equal

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Volume and Price Analysis

Before going forward, we have to identify a few terms:
Swing: A high or low where the price changes direction.
Leg: The distance between two swings
General Rules for Interpreting Volume to determine the health of a trend
1.) If the PRICE is rising and VOLUME is rising, it means the market is STRONGLY
BULLISH.
Volume helps us to determine the health of a trend. An uptrend is strong and healthy if
volume increases as price moves with the trend and decreases when the price goes
counter-trend (correction periods or ‘pullbacks’).
2.) If the PRICE is rising but VOLUME is falling, it means the market is WEAKLY
BULLISH.
When prices are rising and volume is decreasing, it tells that a trend is unlikely to continue.
Price may still attempt to rise at a lesser pace, and once sellers take control (which is
usually signified by an increase in volume on a down bar or candle), prices will fall
3.) If the PRICE is falling, VOLUME is rising, the market is STRONGLY BEARISH.
4.) If the PRICE is falling and VOLUME is falling, the market is WEAKLY BEARISH.

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Volume strength and weakness analysis

Volume is always analyzed by comparing; it can be to previous legs or swings. The reason
for volume analysis is to look for increases or decreases compared to previous swings or
legs to identify whether there is an increase or decrease in strength.
1) Compare the volume of the current price swing with the volume of the previous price
swing in the same direction?

2) Compare the volume of the current price swing with the volume of the previous price
swing in the opposite direction?

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Compare the volume of the current price swing with the volume of the previous price swing
in the same direction?
Means compare the current impulse swing vs previous impulse swing. What it is telling?
Volume increasing or decreasing or same volume

LEFT SIDE image 1

Compare the volume of UP-swings (A) and (B). Note the decreased VOLUME of the leg (B),
indicating a reduction in bullish VOLUME. Weakness is appearing on the bullish side.
When comparing the current up leg B volume with the previous up leg A volume. It shows
volume decreasing. When prices are rising and volume is decreasing, it tells that the trend
is unlikely to continue. Price may still attempt to rise at a slower pace, and once sellers take
control (which is usually signified by an increase in volume on a down bar or candle), prices
will fall
RIGHT SIDE IMAGE 2
When comparing the current up B leg volume with the previous up leg A volume. Note the
increasing VOLUME on A legs, indicating an increase in BULLISH STRENGTH. BULLISH
price swings are showing signs of strength
ALL CONCEPT REVERSE FOR DOWN TREND

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Compare the volume of the current price swing with the volume of the previous price swing
in the opposite direction?
Means compare impulse volume vs retrace volume. In general, a healthy trend has
increasing volume on impulse move and decreasing volume on retrace volume

LEFT SIDE IMAGE 1

When comparing the current up leg B volume with the previous up leg A volume. It shows
volume decreasing. Strength is now clearly on the BEARISH side.
The price movement is expected in the direction of strength. When prices are rising and
volume is decreasing, it tells traders that the trend is unlikely to continue. Price may still
attempt to rise at a slower pace, and once sellers take control (which is usually signified by
an increase in volume on a down bar or candle), prices will fall

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RIGHT SIDE IMAGE 2

When comparing the current up B leg volume with previous up leg A volume IT SHOWS
PRICE is rising and VOLUME is rising, it means BULLISH PRESSURE OVERCOME
BEARISH PRESSURE. TREND CONTINUE IN UP DIRECTION

How to Trade with Smart Money

1. 3 sign of Smart Money activity
2. How to trade with them?
3. Odd enhancer of trading
Before going forward let me remind you that, this is the 2 nd part of how to trade with smart
money. So please read the first part of how to trade with smart money article before
proceeding to this article.
How to trade with Smart Money?
There are three main signs of Smart Money activity which we can spot with Price Action and
volume and can trade with them
1. Sideways price action area
2. Aggressive initiation activity
3. Strong rejection (of higher or lower prices)
Sideways Price Action Area

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Look for sideways price action areas. Those are very significant places because Smart
Money are accumulating their positions there. Always watch for such areas, no matter
which timeframe you use. FOR continuation of an existing trend these sideways price action
areas should be low volume

Aggressive Initiation Activity

Aggressive activity is basically a significant price movement. It is caused by aggressive
buyers(SM) pushing the price higher or by aggressive sellers(SM) who are pushing the
price lower. This sort of aggressive buying or selling often takes place after sideways price
action activity. What happens is that Smart Money is building up their positions (in sideways
areas), and when they are done with that, they start aggressive buying or selling to
manipulate and to move the price in any direction they want. This is how they make money.
They build up their positions slowly and unnoticed, and then they start a trend to make
those positions profitable.
When the price is moving in a fast trend, there isn’t much time to place any more big
positions. For this reason, the Smart Money needs to accumulate their positions before the
move. Below is an example of sideways price action areas followed by aggressive initiation
activity:

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Strong Rejection (of higher or lower prices)

Strong rejection means sudden price reversal from either higher or lower price levels. This
pattern is made when the price goes one way aggressively and then turns quickly and with
the same aggression and speed goes the other way. An example would be a type of candle
called the pin bar. But pin bar isn’t the only visual form of strong rejection. There are many
ways a strong rejection can look like. A common sign for all strong rejections is
aggression and sudden reversal (2 bar reversal)
What happens is that one side of the market (for example buyers) is aggressive and moves
the price in one way. Then it clashes with the other side (for example strong sellers) which
suddenly becomes even stronger and even more aggressive. So the price turns quickly,
and the stronger side takes over. The area where the other side took over is very significant
because it marks a place where strong market participants rejected aggressively the current
course of action and started a strong countermove. This place is significant for us because
it will most likely be defended again if the price gets near again. It becomes a new
support/resistance zone.
Here are some examples of strong rejections:

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Remember, places where price suddenly turned and changed direction are very significant.
We should always watch out for them in our price action analysis
Odd enhancer for trading
1. Trading with the trend
2. Trading from supply and demand or support resistance level
3. Trading with the dominant pressure

How to Trade with Supply and Demand Zone

1. Structure of the market
2. What is the supply-demand zone?
3. How to find supply and demand zone?
4. Different types of zone
5. How to measure the strength of the zone?
6. When did the supply and demand zone break?
7. How to trade with the supply and demand zone?
8. Odd enhancer for trading with supply and demand zone
STRUCTURE OF MARKET
The price goes through the following phases
1. ACCUMULATION
2. REACCUMULATION
3. UPTREND
4. DISTRIBUTION
5. REDISTRIBUTION
6. DOWNTREND

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ACCUMULATION smart money is removed the floating supply of stock by buying, this

process is called accumulation
TREND UP smart money aggressively moving price up
DISTRIBUTION SM will take advantage of the higher prices obtained in the rally to take
profits by beginning to sell the stock back to the uninformed traders/investors
LAWS OF SUPPLY AND DEMAND
All financial markets work on the universal law of Supply and Demand.

Law of Demand– The higher the price of an item, the fewer the demand (buyers don’t want
to buy at a higher price) and lower the price, higher the demand (buyers want to buy at a
low price)
Law of Supply-the higher the price, the higher the supply (sellers want to sell at a higher
price) and lower the price, lower the supply(sellers don’t want to supply at a lower price
What are Supply and Demand Zones
Supply-demand nothing but the border area of support or resistance
Let analyze NIFTY 50 STOCK

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In the chart above you can see a demand zone (broad support level) and a supply zone
(broad area of resistance).
What we want to find at the price zones where supply overwhelms demand and where
demand overwhelms supply.
 The former is known as SUPPLY ZONES. When the market bumps into SUPPLY
ZONES, the price will drop. Then, you can make money by shorting the market.
 The latter is market DEMAND ZONE. With the support of demand, the price will rise.
Then, you can profit in a long position.
 IF the supply zone is broken it becomes demand zone, pullback test from demand
zone you can go long
How to Find Supply and Demand Zones
 Two steps in order to identify the supply and demand zones.
1. Look at the chart and try to spot successive large successive candles. It is important
that price moves a lot
2. Establish the base (usually sideways price action area) from which price started the
quick move
Different Types of Supply and Demand Formations 
There are different supply and demand zone patterns. Some of the more popular ones are
shown below:
TREND CONTINUOUS BASE
1. RALLY BASE RALLY(RBR)
2. DOWN BASE DOWN (DBD)
TREND REVERSAL BASE
1. RALLY BASE DROP (RBD)
2. DOWN BASE RALLY (DBR)
And

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FLIP ZONE

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NOW PUTTING ALL THIS TO NIFTY 50CHART

STRENGTH OF SUPPLY AND DEMAND ZONE

How did price leave the level? STRENGTH OF THE MOVE
The Logic: The stronger the price moves away from a zone, the more out-of-balance supply
and demand are at that zone. A heavy order is placed by smart money

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How much time did the price spend at the zone? TIME AT LEVEL
The Logic: The less time price spends at a zone, the more out-of-balance supply and
demand are at the price level. Smart money aggressively entering
At price levels with supply and demand zone more out of balance, the price will spend the
least amount of time at the level

How far did the price move away from the zone before returning back to the
zone?
The Logic: The farther price moves away from a zone before returning to that zone, the
greater the reward to risk and probability.

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When price comes back to that supply level for our short entry, we have a good idea where
the buyers are (the demand) and just as importantly, where they are not.

How many times is the price approaching the zone? FRESHNESS OF

BASE
First-time stock retrace to the base is the strongest to enter

When Supply/Demand breaks

After a zone is tested many times or during a strong move, Supply and Demand levels
eventually break. Due to the remaining orders being triggered and gradually removed, or an
overwhelming amount of orders in the opposite direction breaking the level.
Price action
 If the price stays near or at these zones & doesn’t fall much then there is a high
probability that they will break the zone
 Strong move to the zone may break the zone
 low volume test confirm the zone
HOW TO ENTER DEMAND AND SUPPLY USING PRICE ACTION
1. Find SD zone on HTF(HIGHER TIME FRAME) then wait for price come to at this
level
2. See any acceptance or rejection from this zone on trading time frame(TTF)
3. Any reversal price action signal on TTF
4. Entry in the direction of the dominant trend

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Suppose context downtrend, price rally to the supply zone on TTF, then any bearish
reversal PA signal for an entry short
 Also, notice the volume on these reversals. low volume test is a good sign & they are
highly probable trades.
TIPS for day trading previous day high and previous day low is the supply and demand
zone. look price action around there for acceptance or rejection of these zones
Let’s do an example
Find the supply and demand zone in a higher time frame
IN hourly time frame we find the zone
Big picture shows
1. whether trend up or down – determines which side we want to be on
2. Where the big picture support and demand levels?
We don’t want to long below the supply zone
WHEN PRICE APPROACHING TO DEMAND ZONE
WE WANT TO SEE SIGN OF STRENGTH PRICE ACTION FOR CONFIRMATION OF
ZONE
1. MOMENTUM LOSS(DECREASING CANDLE RANGE AND BODY
2. LOWER WICK
3. MIX OF BIOTH RED AND GREEN CANDLE

Entry on the trading time frame

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ENTRY SIGNAL CANDLE

Candlesticks AT Supply and Demand
1. PIN BAR
2. ENGULFING
3. OUTSIDE CANDLE
Odds Enhancers example
1. Trade with the trend
2. If INDEX AND SECTOR SHOWS POSITIVE, THEN GO LONG FROM DEMAND
ZONE
How to Day Trade with Trend
1. Why trend analyze required for day trading
2. Structure of the market in details
3. How to trade with uptrend and downtrend and sideways market
4. Characteristics of each trend
5. How to analyze each trend
6. When does trend end
I WOULD SUGGEST GO THROUGH THE Price Action Analysis article BEFORE GOING
FORWARD.

Why Trend Analysis for Day Trading?

Trading against the trend, without a trend, or poor quality trends are one of the most
common reasons for trade fail. The quality or strong trends have more predictable success
(edge).
The controlled arrangement of price bars and pullbacks provide greater certainty that
reverses at supply and demand happen. Poor or weak trends have lower

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predictability. Uncontrolled arrangement of price bars and pullbacks into supply and

demand lessens chances of a reversal
STRUCTURE OF MARKET OF MARKET
The price goes through 4 Phases
1. ACCUMULATION (sideways market)
2. UPTREND(trending up)
3. DISTRIBUTION (sideways market)
4. DOWNTREND (trending down)

ACCUMULATION (SIDEWAYS MARKET)

Smart money is removed from the floating supply of stock by buying, this process is called
accumulation. The accumulation phase looks like a range market after an extended
downtrend.
A market is in a range when trading between Support and Resistance. Price Stuck between
Resistance and Support. Not move any direction. Generally in the accumulation stage, we
will see
 Normal or narrow range candle
 Both mix of the green and red candle
 Low volume
 Take more time
 Price in a tight range
As time goes by, stops will gradually build up beyond the range as traders long near the
lows and short near the highs of the range.

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No guarantee that the market will reverse from here. But it should alert you to the possibility
that the bears are getting weak and the bulls could take control and push the price higher
above the highs of the range
How to enter from the accumulation
3 TYPES ENTRY FROM ACCUMULATION
1. Spring entry
2. Break out entry
3. Break out pullback(flat or test ) entry

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If the lows of the range coincide with Support on the higher timeframe, it greatly increases
the odds of the market breaking out higher. Let me explain to you, the big picture is bullish
but the lower time frame has a down trend .lower time frame trend stop at higher timeframe
resistance. Let me explain to you

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UPDATED DAILY CHART

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This means you wait for the price to come to an area of Support on the daily timeframe and
then look for the break of accumulation on your trading timeframe
UPTREND
Smart money aggressively moving price up. The advancing phase is essentially an uptrend
with price making higher highs and lows. Market move in up and downswing
In a healthy bull trend, the upswing generally exceed the downswing in length and making a
higher high and higher low, the reverse is true for the bear market
Price Make Higher High (HH) and Higher Low (HL)

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Generally in the advancing stage:

1. There’s more bullish than bearish candles
2. The bullish candles are larger than the bearish candles
3. Volume increases on the upswing and decreases on the downswing
Bullish bar close on opposite extreme or at near high

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Now… the advancing stage eventually will need to “take a break” because the early buyers
will start taking profits and sellers will look to short the markets as prices are at attractive
levels.
Different types of trends.
They are:
1. Strong trend
2. Healthy trend
3. Weak trend
Strong uptrend
 In a strong uptrend, the buyers are in control with little selling pressure.
 You can expect this trend to have shallow pullbacks (flat sideways)with low volume
 Barely retracing beyond the 20 EMA.
 Bullish wide range bar is more than bearish
This makes it difficult to enter on a pullback because the market hardly retraces and then
continues trading higher. The best way to trade this trend is on a breakout

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ANALYZE YOURSELF:

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Healthy uptrend
In a healthy uptrend, the buyers are still in control with the presence of selling pressure
(possibly due to traders taking profits, or traders looking to take counter-trend setups).
You can expect this trend to have a decent retracement usually towards the 20EMA, which
provides an opportunity entry with the trend. Low volume pullback with narrow range or
lower wick candle

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Weak uptrend/choppy trend


In a weak uptrend, both buyers and sellers are almost equal control, with the buyers
having a slight advantage.
 You can expect the market to have steep pullbacks and trades beyond the 20EMA.
 Generally choppy price action
 The market breaks out of the highs only to retrace back much lower (which makes it
prone to false breakout). Pullbacks often breakthrough areas of minor demand
(uptrend) or minor supply (downtrend)
 Majority of open prices will be into 50% or more of the prior bar range
 Close may not move in direction of the previous bar
 New bar open and close not near extremes, meaning tails
 Display uncertainty
The best way to enter this trend is at Support or Resistance.

Analyze yourself

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Tick by Tick: Secrets to Day Trading Success Class 2: Technical Analysis

DISTRIBUTION
SM will take advantage of the higher prices obtained in the rally to take profits by beginning
to sell the stock back to the uninformed traders/investors
ALL THE INFORMATION PROVIDED ABOVE ARE REVERSE FOR DISTRIBUTION AND
DECLINE PHASE
DOWNTREND
Price makes Lower High (LH) and Lower Low. (LL)

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When does a trend end?

An uptrend is officially over when the stock has put in two lower highs and two lower lows in
a particular time frame. A downtrend is officially over when the stock has put in two higher
lows and two higher highs in a particular time frame.

Multiple Time Frame Analysis in Trading

1. What is multiple timeframe analysis?
2. Understanding the trend with multiple timeframe analysis
3. How to use multiple time frame in trading
4. Advantages of multiple timeframe analysis
5. Entry principle for multiple time frame
Trend Analysis
Once we identify the current trend we need to anticipate what would have to occur to make
the price fall into a sideways trend, or reverse. Some common reversal patterns are
1. 123 REVERSAL
2. Double Top/bottom
3. RANGE
4. Up THRUST/SPRING
5. Head and shoulder
WHAT IS FRACTAL?
Fractals are just smaller things that combine to create bigger things. Each of the smaller
things is identical in shape to the larger thing.
How do Fractals apply to Financial Markets?

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Markets do the same thing as what we see in nature, creating “patterns within patterns”
from smaller timeframes to larger ones. Larger timeframe swings are comprised of several
identical smaller-timeframe swings.
We use a “Factor of Five” to break up the different timeframes.
1. A month is around 25 trading days so 25/5 = 5 weeks
2. Weak is 5 days trading day s 5/5=1 day
3. The day is around 6:30 active hours so 6:30/5=78 minutes
4. Even lower time frame 78/5=15 minutes for day trading
What is the Multiple Time Frame Analysis?
The multi time frame analysis is nothing but analyzes multiple timeframe charts of a single
instrument. Let’s understand in a chart

Let’s see an example with three timeframes

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Understanding Trends with Multiple Time Frame

There are two major rules for multiple timeframe analysis:
1. Larger Timeframes establish and dominate the trend.
2. Reversals start from the smaller timeframes first and propagate upwards.

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Let’s go back to our two main price action rules.

Larger Timeframes establish and dominate the trend.
This means when a larger timeframe trend is in play, you will see pullbacks on the smaller
timeframes.

Reversals start from the smaller timeframes first and propagate upwards
This means that we’ll see this changing structure show up on the shorter timeframe charts
first.

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HOW TO USE MULTIPLE TIME FRAME?

Use 1:
We will be able to differentiate a “pullback” on the smaller time frame chart vs. the beginning
of a correction in the larger time frame. Let me explain to you

Use 2:
We will be able to read the “smaller” timeframes to see when that pullback is about to
reverse.

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Use 3:
We will also be able to spot potential reversals before the structure change

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Advantages of using multiple time frames that we cover include:

 Allowing the trader to get a micro view of larger time frames, which can, in turn,
confirm the trader’s original analysis of trade. It is like using a backup pattern and
fine-tuning an entry. An example would be having a pattern on a 60-minute chart and
using a 5-minute chart to confirm the entry. (See Figures 8.12 through 8.14 an
example.)
 Risk can be managed more effectively by combining time frames. A trader can learn
to move stops on smaller time frames for patterns that complete on larger time
frames.
 Using multiple time frames from larger to smaller can help the trader to be aware of
contrary or opposing patterns that form on smaller time frames that are against the
longer-term time frame.
MULTIPLE TIME FRAME ENTRY PRINCIPLE
1. Define what your “signal” chart is. For swing traders, this will generally be a Daily
chart. For Day traders, this will be a smaller timeframe like 2/5/10/15 minutes chart
2. Add a higher time frame chart that is either 5x or 25x larger than your signal chart.
3. Trade your signal chart as before, but trade in the direction of the swings on that
higher timeframe chart!
Let me explain to you
While the bigger frame like daily is trending and in impulse, you would have CYCLES of
impulses and correction in the hourly frame. This is the most important phase. You have to
find the conjunction when the hourly comes in the impulse.

Let’s take day trading example

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Daily time frame market overview (uptrend)

Hourly time frame strategy development (price reverse after a pullback )
5minute timeframe execution
Day Trade when the long-term structure, daily swing structure, and intraday structure are all
in synchronizing
TAX
Open chart and start the top-down analysis, from monthly chart to 15b minute chart

Head and Shoulder Pattern in Trading

 What is the head and shoulder pattern
 Types of head and shoulder pattern
 Failed head and shoulder pattern
 How to enter a head and shoulder pattern
Head and Shoulder Pattern:
The Head and Shoulders pattern signals a possible trend reversal from bullish to the
bearish trend. And the opposite of it is called the Inverse Head and Shoulders pattern which
signals a possible trend reversal from bearish to the bullish trend. It consists of four parts:
1. The left shoulder
2. The head
3. The right shoulder
4. The neckline
 

Here’s what I mean:

Left Shoulder:
The market does a pullback. At this point, there’s no way to tell if the market will reverse
because a pullback occurs regularly in a trending market.

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The left shoulder moves up on big volume, retrace on lower volume

Head:
The market breaks and trades above the previous high. However, the sellers took control
and drive the price lower towards the previous swing low (forming the Neckline).
Higher high (head) on lower volume than left shoulder, then retrace that goes below the left
shoulder.
Right Shoulder:
The buyers make a final attempt to push the price higher, but it failed to even break above
the previous high (the head). Then, the sellers take control and push the price towards the
Neckline.
Then forms first lower high (right shoulder) on lower volume than the head. Sellers take
control and drive the price down on more volume than previous upswing volume not
confirmed until breaks neckline.
Neckline: 
This is the last line of defense for the buyers. If the price breaks below it with heavy volume,
the market could head lower and begin the start of a downtrend.
Head and Shoulder Pattern Type
 

The Failed Head And Shoulders Pattern

Once prices have moved through the neckline and completed a head and shoulders
pattern.
Once the neckline has been broken on the downside, any close back above the neckline is
a serious warning that the initial breakdown was probably a bad signal, and creates what is

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often called, for obvious reasons, a failed head and shoulders and prices resume their
original trend

WHEN HEAD AND SHOULDER PATTERN FAILED

IF
1. The pattern appeared in a strong trend
2. The duration of the pattern is small
Let me explain to you

1. The pattern appeared in a strong trend

The preceding trend before the head and shoulders pattern. If the market is in a strong
uptrend, it’s unlikely that a simple chart pattern can reverse the entire move.
2. The duration of the pattern is small
If the pattern takes the small time it less likely to reverse a trend, its just a complex pullback
Here’s the thing: A Head and Shoulders that takes more to form are MORE significant than
a Head and Shoulders that takes less to form.
Why?
Because if the market breaks the more time pattern Neckline, more traders will get
“trapped” and their rush for exit will increase the selling pressure.
HOW TO ENTER A TRADE
For head and shoulder pattern entry condition
1. The higher timeframe is in a downtrend
2. The Head and Shoulders pattern formed at Resistance on the higher timeframe
3. Volume confirmation
Entry method
1. The tight range at neckline break out
2. The breakout test of the neckline
3. The first pullback
4. Professional entry
1. The tight range at neckline break out

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PRICE drives down to the neckline and forming a tight range. enter when price breaks down
from NECKLINE and place stop loss above the tight range.

2. The breakout test of the neckline

Often, the Head and Shoulders pattern may break down without forming a TIGHT
RANGE.U MISSED THE OPPORTUNITY. If the market breaks down without forming a
TIGHT RANGE, then wait for a pullback to occur. Price breakdown from the neckline and
low volume test (PULLBACK) of the neckline is high probability short opportunity
What you want to pay attention to is to this previous support (neckline) that could act as
resistance. If the market comes into this area (neckline) and it gets rejected, this now is a
favorable trade location to look for short trading setups. And your stops can just go above
the neckline. So, here’s an example:

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3. The first pullback

1. If the market breaks down without forming a TIGHT RANGE, then wait for a pullback
to occur
2. If the market does a pullback(flag or tight range )with low volume and narrow range
candle with upper wick, then go short on the break of the lows
3. Set your stop loss above the highs of the pullback
So, this is what I mean by the first pullback, and here’s an example:

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4. PROFESSIONAL ENTRY
Here’s how…
1. Wait for the market to form the Left Shoulder and Head
2. After it’s formed, let the price rally higher back towards the Head with low volume
and narrow candle
3. Go short when you get a price rejection (like Shooting Star, Bearish Engulfing
pattern, outside reversal bar)
Here’s an example: Ahead of the Crowd.

How to Trade with Support and Resistance

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1. What are support and resistance

2. How to Trade with Support and Resistance
3. The psychology behind support and resistance
4. Support resistance level vs zone
5. Types of support and resistance
6. Multi time frame support and resistance
7. Where support and resistance formed
8. Strength of support and resistance
9. When support and resistance break
What are SUPPORT AND RESISTANCE?
SUPPORT
Support, as the “buying, actual or potential, sufficient in DEMAND to halt a downtrend in
prices for an appreciable period.” and possibly reverse it, start prices moving up again. Fair
price for buyers and risk to reward is more

RESISTANCE
Resistance, as the selling, actual or potential, insufficient supply to keep prices from rising
for a time, and possibly turn back its uptrend. Fair price for sellers and risk to reward is
more

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FLIPPING
These price levels constantly switch their roles from support to resistance and from
resistance to support. A former resistance, once it has been surpassed, becomes a support
zone in a subsequent downtrend; and old support, once it has been penetrated, becomes
are resistance zone in a later advancing phase.”

Why Support and Resistance important?

These points are not random, they created by the market. They represent momentary
changed of demand and supply forces

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The bulls could not move the market above the swing high. This means that at that point in
time, no one was willing to offer a price higher than the swing high. Traders saw no value
above the swing high
Hence, subsequently, when price moves close to or near or above a wing high, we must
remember that traders saw no value in buying above that point previously. Assuming that
most traders have not changed their opinions, prices are unlikely to move above the swing
high. Effectively the swing high mark a price area that resists the market from moving up
this is what we call a resistance area. Reverse for support area

Once the structure of market know, then find which phase the market is currently
(accumulation or distribution or up or down)

The Psychology of Support and Resistance

To illustrate, let’s divide the market participants into three categories the longs, the shorts,
and the uncommitted. When price comes to the support level
1. The longs are those traders who have already purchased contracts;
2. The shorts are those who have already committed themselves to the sell-side;

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3. The uncommitted are those who have out of the market or remain undecided as to
which side to enter.
Traders with the fear of missing out would enter their trades the moment the price comes
close to Support to get at cheap price. And if there’s enough buying pressure; the market
would reverse at that location.
Let’s assume that a market starts to move higher from a support area where prices have
been fluctuating OR accumulating for some time.
The longs are delighted but regret not having bought more. If the market would retrace back
near that support area again, they could add to their long positions.
The shorts now that they are on the wrong side of the market. The shorts are hoping (and
praying) for a dip back to that area where they went short so they can get out of the market
where they got in (their break-even point).
The final uncommitted group, now realize that prices are going higher and resolve to enter
the market on the long side on the next good buying opportunity.
All four groups are resolved to “buy the next dip.” They all have a “vested interest” in that
support area under the market. If prices decline near to support, renewed buying by all four
groups will push the prices up
Now let’s turn the tables and imagine that, instead of moving higher, prices move lower. In
the previous situation, because prices advanced, the combined reaction of the market
participants caused each downside reaction to being met with additional buying (thereby
creating new support). However, if prices start to drop and move below the previous support
zone, the reaction becomes just the opposite. All those who bought in the support zone now
realize that they made a mistake.
All of the factors that created support by the three categories of participants—the longs, the
shorts, and the uncommitted—will now function to put a ceiling over prices on subsequent
rallies or bounces. As all of the previous buy orders under the market have become sell
orders over the market. Support zone has become a resistance zone

Support and Resistance Level and Zone

Support and Resistance Level is more detailed and different levels with the zone. The level
is one line and Zone is Zone. In practice, support and resistance and supply and demand
zones are formed from the same origin
Support and Resistance are areas and not lines
Why?
Because you’ll face these two problems:
 Price “undershoot” and you miss the trade
 Price “overshoot” and you assume support and resistance is broken
Let me explain…

Price “undershoot” and you missed the trade. This occurs when the market comes close to
the support and resistance line, but not closes enough.
Then, it reverses back in the opposite direction. And you miss the trade because you were
waiting for the market to test your exact SR level. This price reversal also called 123
reversals. Or holding a higher level of support or lower level of resistance, THIS IS
GENERALLY OCCURS DUE TO THE AGGRESSIVE BUYERS AND SELLERS
An example: OF PRICE UNDERSHOOT

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Price “overshoots” and assume support and resistance is broken

This happens when the market breaks support and resistance level and you assume it’s
broken. Thus, we trade the breakout but only to realize it’s a false breakout. THIS TYPE OF
PRICE ACTION CALLED UPTHUST AND SPRING
Let’s DO AN EXAMPLE OF PRICE OVERSHOOT

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So, how do you solve these two problems?

Simple, Support, and Resistance are areas on the chart, not lines.
How to draw support and resistance zone
A two-step process to fins SR ZONE
1. Step 1 switch to a line chart and mark the line with the rejections.
2. Step 2 again switch to the candlestick chart, mark the high or low of the candle near
the marked line and make the zone
Let’s do an example of drawing SR zone

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TYPES OF SUPPORT AND RESISTANCE

 Horizontal
 Dynamic(moving average)
 Trend line
LET’S FIND ALL THE ABOVE SUPPORT AND RESISTANCE IN A SINGLE CHART

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Multi timeframe SUPPORT AND RESISTANCE

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The power of support and resistance depends on the time frame we are looking at,
the higher the time frame the higher the probability of it to work
 Through all the timeframe support and resistance work but the rewards grow with the
higher the timeframe it is
 The noise in lower time frame chart is more
Using the higher time frame and top-down analysis, put more weight on higher time frame
SR level.
To focus on major support and resistance levels, first, find them on higher time-frames
before applying them to your trading time-frame for analysis.
For example, you can note down the support and resistance levels from the weekly chart.
Then, plot them on the daily chart to find trading opportunities. This method keeps you
focused on important support and resistance levels instead of flooding your chart with
dozens of potential support and resistance levels.

WHERE SUPPORT AND RESISTANCE are DEVELOPED?

 The first point of support in any time frame is prior bar’s high
 The first point of resistance in any time frame is prior bar’s low
 Second points of support and resistance are pivot points(swing high and swing low)
 Consolidation area
 Rejection from an area
 Previous has acted as both support and resistance
 Gap(invisible tail), EMOTIONAL POINT
 Fibo retracement
 Trend line and MA

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Rejection from an area

LAST SWING HIGH AND LAST SWING LOW

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Swing highs and swing lows are market turning points. They are natural choices for
projecting support and resistance zones

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CONGESTION AREAS

The smart money has spent a prolonged time in the congestion area. They have
established actual trading interests within that price range. Hence, earlier market congestion
areas are reliable support and resistance zones
MA AND FIBO RETRACEMENT

You can also derive support and resistance from the moving average. They work best in
trending markets.

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Fibonacci retracement is a popular method for projecting support and resistance. We can
mark out retracement levels easily. Hence Identify major market swings and focus on the
retracement of the move by a Fibonacci ratio. Generally Fibonacci ratios include 23.6%,
38.2%, 50%, 61.8% and 100%.
FLIPPING OF SUPPORT/RESISTANCE

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Flipping act as both support and resistance. Support turned into resistance or resistance
turned into support. When price breaks through a resistance level, it shows a shift of power
from sellers to buyers. The resistance level then becomes support.
How strong support and resistance
There are a number of factors that should be considered in determining how significant or
strong the support or resistance level will be. These factors are as follows:
1. The number of occurrences. The first-time retrace to the area is strong
2. Volume. The higher the relative volume is at a particular price level, the more likely it
is that the price level will become significant support or resistance.
3. How did price leave the level? The stronger the price moves away from a zone,
the more out-of-balance supply and demand are at that zone. A heavy order is
placed by smart money

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4. How much time did the price spend at the zone? The less time the price spends
at a zone, the more out-of-balance supply and demand are at the price level. Smart
money aggressively entering When price retrace and test the level in future
5. How far did the price move away from the zone before returning back to the
zone? The farther price moves away from a zone before returning to that zone, the
greater the reward to risk and probability.
When support and resistance break
And even when prices start to falter in the higher region of the chart, bulls are technically
still in control as long as they manage to keep the market up in levels higher than or equal
to a former significant low. But the stronger the earlier dominance, the less likely the market
will turn on any first reversal attempt.
 Support tends to break in a downtrend
 Resistance tends to break in an uptrend
 Support and Resistance tend to break when there is a tight range at SR level
 The more/frequently test of support resistance is weakening this level and break the
level
The more times Support or Resistance (SR) is tested, the weaker it becomes and
breaks the level

Here’s why…
The market reverses at RESISTANCE because there is selling pressure to push the price
lower. The selling pressure could be from Institutions, banks, or smart money that trades in
large orders.
Imagine this: If the market keeps re-testing resistance, these orders will eventually be filled.
And when all the orders are filled, who’s left to sell?
It shows that participants are more aggressive to push /pull the price to break the
resistance/support. While the higher low towards resistance indicate aggressive by the
buyers
LET’S DO AN EXAMPLE

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Higher lows into Resistance usually result in a breakout (formed ascending triangle). Lower
highs into Support usually results in a breakdown (formed descending triangle).
Resistance tends to break in an uptrend
For an uptrend to continue, it has to consistently break new highs. So, shorting at resistance
is a low probability trade in an uptrend. Instead, going long at Support is a better trade or
break out from last high

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Support tends to break in a downtrend

For a downtrend to continue, it has to consistently break new lows. So, going long at
support isn’t a good idea in the downtrend. But, going short at Resistance is a great idea or
breakout from last swing low
Support and Resistance tend to break when there’s a tight range
Resistance is an area with potential selling pressure. So, the price should move up quickly,
right?
Now… what if price didn’t move down and instead, consolidates at resistance?
What does it mean?
A sign of strength as the bears couldn’t push the price lower. Perhaps there’s no selling
pressure or, there’s strong buying pressure. Either way, it doesn’t look good for the bears
and resistances likely to break. An example:

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And the opposite for Resistance:

Advanced Candlestick Analysis in Trading

1. Advanced Candlestick Analysis
2. What price action validates the resistance/support level?
3. What price action disconfirms the resistance/support level?
Candlestick Analysis in Trading:
Each candlestick tells a story as they are a reflection of what buyers and sellers are doing
or what the market is telling you. Use candlestick with support and resistance area
1. Support tends to break in a downtrend
2. Resistance tends to break in an uptrend
3. Support and Resistance tend to break when there is a tight range at SR level
4. The more/frequently test of support resistance is weakening this level and break the
level
Then how to know whether the price will reverse from support or resistance or break level. I
mean whether price confirms or disconfirm as support or resistance.
DISCONFIRMATION AND CONFIRMATION
At resistance we expect the price to reverse or supply exceed demand confirms the supply.
What price action validates the resistance level?
1. Clear Rejection from resistance in the form of the pin bar or outside bar or engulfing
bar
2. Momentum loss when approaching resistance
3. Unable to close above the resistance level
4. Low volume candle when approaching resistance
CANDLE REJECTION
Single candle rejection (pin bar)

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In an established downtrend any Clear Rejection from resistance in the form of the pin bar
or outside bar or engulfing bar confirm the resistance level

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MULTIPLE CANDLE REJECTION

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Better if multiple candlesticks are rejecting an area as this shows that price tried over and
over but failed When multiple candles refuse to go UP or rejection from resistance they
ultimately go down Below are some example of multiple rejection candle from an area

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REJECTION CANDLE SHOULD CONFIRM BY FOLLOW THROUGH

CANDLE
The next candle should follow-through candle for validation of rejection candle

Momentum loss is the key to reversal when approaching a key level

1. Candle getting smaller and multiple colors with wicks signal that buyers or sellers are
losing strength
2. Even better when it finishes with long wick candles (for bullish reversal lower ling
wick and fro bearish reversal upper long wick)

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Below is the example of bullish reversal

Price unable close above the resistance

Buyers trying hard to close above the resistance level, each time they failed shows supply
coming and trying to dominate demand

Volume

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In an up-move, where the price is getting close to the upper trend line (resistance Line), and
low volume appearing will tell you that the trend line is likely to hold for that moment in time
because there is no effort to change the trend (you need buying to push through
resistance).
The resistance area which needs demand pressure to penetrate it. Low volume tells us
there is little demand and thus the line is likely to hold.

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What price action disconfirms the resistance?

1. Candle spread and volume increasing when approaching the resistance level
2. If price hug the resistance and hold it disconfirm the supply and shows the presence
of
Candle spread and volume increasing when approaching the resistance
level
In an up-move, where the price is getting close to the upper trend line (resistance Line), and
low volume appearing will tell you that the trend line is likely to hold for that moment in time
because there is no effort to change the trend (you need buying to push through
resistance).
If the volume is high, with a widespread up, whilst the price is getting close to the upper
trend line, we would expect to see the trend line broken due to the extra effort and the next
day is level or even higher, then you would now be expecting higher prices. Any low volume
down-day (potential test) will confirm this view

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If price hug the resistance and hold it disconfirm the supply and shows the presence of
demand
1. Price hold (unable to react) after a drive up
2. The price will move up at resistance price form a tight trading range. Nevermore than
50% of the previous drive up. Tighter the better
The main characteristic of BUYERS overcoming SELLERS is the repeated inability of prices
to REACT away from the danger point(resistance). Such hugging of the HIGH usually leads
to a breakout. Persistently heavy volume hammering the HIGH usually says a break is
Imminent

Trendline Trading Strategy in Detail

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1. The importance of drawing lines over your charts.

2. TRENDLINE
3. Rules for DRAWING TREND LINES
4. How to Determine the Significance of a Trendline Trading Strategy
5. The trend channel
6. Use of trend lines Trading Strategy
7. How to entry based on trend line
Importance of drawing lines over your charts:
They tell a story. They showing the angle of advance or angle of decline within a price
trend, alert when a market has reached an overbought or oversold point within a trend,
showing trading ranges, indicate the point of equilibrium (apex), and help forecast where to
expect support or resistance on corrections.
Never undertake to draw conclusive deductions from trend lines alone taking care to weigh
all of the factors (three) involved in a complete diagnosis of market action. The three factors
are Price Movement, Volume, and Price Movement-Volume Relationships determine when
and where trend lines may logically be applied} and when it is inadvisable to attempt to
apply them
What is the Trend line Trading Strategy?
The momentum of an upward movement is reflected in the angular upward climb of the
vertical bars on our charts and the pace of a downward movement by their angular
downward pitch. The eye may not always see the pitch of these angular swings clearly
because of the confusing effect of minor irregularities of the price movement as recorded on
charts. Therefore, it is frequently helpful to employ Trend Lines for this purpose. Thus, the
examination of the accompanying charts will show how the angle of ascent or descent of
prices may often be visualized more clearly by drawing straight lines through the successive
tops or bottoms of the price path established during the minor, intermediate and major
moves

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A support or demand Line is that line which identifies the angle of the advance of a bull
swing by passing through two successive points of support. Example:- Lines A-C, D-1 in
above IMAGE 1
A resistance or Supply Line is that line which identifies the angle of the decline of a bear
swing by passing through two successive points of resistance (top of rallies). Example:-
Line I-K, and I-6 in above image 2.
An Oversold Position Line is that line that is drawn parallel to a supply or resistance line
and passes through the first point of support (reaction low) which intervenes between two
successive rally tops in a downtrend. Example :- Line J-L, Note that J is the first point of
support intervening between the two successive tops, I and K. IN IMAGE 2

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An Overbought Position Line is that line which is drawn parallel to a support line and
passes through the first point of resistance (rally top) intervening between two successive
points of support in on uptrend. Example: Lines B-E, in above image 1
Rules for drawing trend line
RULES
1. DRAW a new trend line by connecting the stat of the trend with a valid swing point.
2. Adjust the trend line as price action unfold
DRAW new trendline by connecting the stat of the trend with a valid
swing point
This means that we cannot draw a new trendline without a valid swing. First of all, there
must be evidence of a trend. This means that for an up trendline to be drawn there must be
at least two reaction lows with the second low higher than the first
HOW TO FIND VALID SWING HIGH AND SWING LOW? Click here

ADJUSTING New trendlines

For instance, in the case of an advance, the angle of ascent may be leisurely for a time and
then become pitched more sharply upward as the original force of demand is renewed by
fresh buying from the sponsors of the move and the public, and perhaps by expanding
enthusiasm of bullishly inclined traders and investors. Under these conditions, we have to
relocate our trend lines to conform to the newly established stride

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If a steep trend line is broken, a slower trend line might have to be drawn

Trendline analyze on a chart

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It will be seen that after the reaction to (B), we are able to distinguish two well-defined rally
tops, the first at (A) and the second at (C).
Accordingly, if we draw a straight line through the extreme tops of these two rallies we find
that the extension of this supply line to the right, across the page, helps to define the
approximate limits of subsequent rallies. If, however, it is able to rise through the supply line
with some degree of strength by either with increasing volume, or by a material gain in
price, or both. Finally price swing E-F successful break the supply line, as both candle and
volume increases
The upswing from G enables us to establish the trend support line E-G which represents the
angle, or rate of acceleration, of the first phase of the bull campaign in this stock. Extending
this line to the right, we find that after the rise is temporarily accelerated by a sharp run-up
from G, then price recedes toward this line of support in what we conclude is a normal
corrective reaction. We reason that if it recedes further, we may expect the price to hold on
or around this line of support (H). It does hold, for on the quick further rally from G POINT,
marked by closing at the high, as the price almost touches our established trend line. Thus
our trend line has given us a helpful hint, in advance, as to the point at which we might
reasonably look for new demand (support) and the probable place where this particular
reaction should end.
After the mark-up from H POINT, we must readjust our trend support line because of the
increasing momentum of the rise. PONIT (1) brings a new phase of the advance. This new
line, of course, runs from 1-2, price getting support from the support line.
How to Determine the Significance of a Trendline
1. The number of times the trendline has been touched or approached. The larger the
number, the greater the significance. A trendline that has been successfully tested
five times is obviously a more significant trendline than one that has only been
touched three times
2. Time factor, a trendline that has been in effect for nine months is of more importance
than one that has been in effect for nine weeks or nine days.
3. Angel of ascent and descent, a very sharp trend is difficult to maintain and it’s liable
to be broken, the steep trend is not more important as that of a more gradual one a

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large angle on a lower trendline in an uptrend means that the lows are rising
significantly fast and that the momentum is high.
THE TREND CHANNEL
Occasionally, the momentum produced by the forces of demand and supply will become so
plainly marked as to develop a well-defined zone of activity; that is, the alternating buying
and selling waves form a price path or channel whose upper and lower limits are easily
identified by a series of tops and bottoms confined within parallel, or nearly parallel, lines.
The drawing of the channel line is very simple. In an uptrend, first, draw the support or
demand line along with the lows (A-C). Then draw a line from the first prominent peak (point
B), which is parallel to the support or demand trend line. Both lines move up to the right,
forming a channel If the next rally reaches and backs off from the channel line (at point D),
then a channel may exist. If prices drop back to the original trendline (at point E), then a
channel probably does exist. The same holds true for a downtrend, but of course in the
opposite direction

In the uptrend supply line act as overbought, the price will be reverse from the supply
line. Support line act as oversold
Use of Trendline in Trading:
Use of trend lines is frequently helpful in judging the points at which you may expect the
price:-
1. To be supported on reactions;
2. To meet resistance on rallies; and
3. Overbought and oversold condition sowing in channel
4. To approach a critical position in its travel from one level to another. Trend line l also
help you to foresee the possibilities of an impending change of trend before it
actually takes place

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The violation of a trend line often (but by no means always) may signify that the force of
demand or supply which was formerly in effect is now becoming exhausted. This may either
mean that the price movement is changing its rate of progress, or it may mean that the
trend is definitely in danger of being reversed.

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Trendline Trading Strategy

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It is bad practice to take entry on a stock simply because it has penetrated an established.
Trendline or broken out of an extended congestion area. The significant thing is HOW the
line is broken; the conditions under which the change of stride occurs.
The quality of the buying or the selling at and around the point of penetration determines
whether the violation of an established trendline may be regarded as evidence of a further
price movement in the direction of the breakthrough, or whether it means the only
temporary change of false breakout. For breakout, the price needs to close above or
below the trendline

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WRB Trading Strategy in Detail

What is the WRB Trading Strategy?
1. Criteria for finding a wide range bar
2. What does a wide range bar mean
3. Uses of wide range bar in you trading
NOTE: Don’t confuse with wide range bar, trend bar, both are the same. In the following
paragraph and image, I used both the wide range bar and trend bar
What is the WRB Trading Strategy?
A wide range bar is one that represents a trend within a smaller time-frame. A bull wide
range bar opens near its low and closes near its high. A bear wide range bar opens near its
high and closes near its low.
Criteria for WRB Trading
It’s basically a candlestick that has a longer body than the surrounding candlesticks

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What does a Wide Range Bar (WRB) mean?

Remember that in every bar, the same number of contracts are sold and bought.
1. The only reason for a bar to end up with a higher price is that the buyers were
committed to one direction and more aggressive than the sellers. The reverse is true
for a bear WRB.
2. THE importance of wide range candles is that they are one of the few places a chart
where supply and demand can be both identified and measure i.e. wide range bars
are occur from supply and demand zone. I mean you can easily identify supply and
demand zone observing trend candle
Let me explain to you
Did you know that a single candlestick (on its own) is by its nature, an area of
supply/demand (support/resistance)?
Let’s take the example of a bull wide range candle: A bullish candle tells us there is a larger
volume of buyers than sellers (nothing new here). But this information is based on

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something that had already happened. How does this help us make trading decisions in the
future?
Answer
A bull candle tells us at what price there is a pool of sellers in the future (long exit). Does
this make sense?
Let’s imagine you’ve just entered a BUY trade, and prices start moving up. Your trade is
making money. Soon, however, you notice that prices are starting to move back down close
to your trade entry point. What would you do? You’ll hang on to the trade. And wait for it to
move back up again. But what happens next when prices continue to move down and down
even closer to your entry point?
They will think of getting out of the trade at breakeven or most traders would have already
moved their stop loss to breakeven, or if not, they will manually get out of their BUY trades
as soon as the market moves towards the breakeven price.
And so, all the traders who entered a BUY trade along this wide range bull candle are now
looking to SELL to close the trade. A wide range bull candle thus represents the range of
prices where the previous buyers are now looking to sell to close their previous (buy) trade.
Reverse for wide range bear candle

How to use WRB in your trading

1. BREAKOUT
2. CLIMAX
3. ChCo candle (change of character candle )
Breakout
When trend candlestick occurs as a breakout candle in a sideways market or as a
beginning of a new trend. It represents strength. Here I will explain in-depth about
breakout trading strategy

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CLIMAX PATTERN
Whenever it occurs at the end of an established trend, it is a sign of climax. It represents the
end of the move, possible trend change in the near future or trend become a trading range.

ChCo candle (CHANGE OF CHARACTER CANDLE)

Use of ChCo candle
1. For identifying swing (The distance between the highest and lowest points is a
swing)
2. For placement of stop loss
Identifying swing using ChCo candle
Identify the last wide range bar. Look for a reversal bar that closes below/above of the last
wide range bar

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For placing stop-loss using chco candle

In a very rare situation, where prices will reverse without forming a clear reversal pattern.
Then, how do we know whether a counter-trend move is going to be a temporary
retracement or reversal? Here’s the trick.
You’ll first have to identify what I call a wide range of candlestick. When a candlestick
closes past the opening price of the wide range candle, a reversal is likely to happen. If not,
it’s just a retracement.
Why?
When traders don’t take into account profit-taking behavior, they’ll often be tricked into
placing low winning-probability trades. Here’s what I mean:

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If you noticed, the close price of the last bull candle did not go above the open price of the
last wide range bear candle. This means it’s entirely possible for most of the buying activity,
to be coming from the sellers who are exiting their positions. We’ll need to see more
commitment from the buyers before we can say that prices are likely to reverse. Let’s see
what happens next.

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.Here’s an example:

The market moved up with a strong wide range candle and then dropped back down again.
This looks like a reversal… but is it really? Let’s see what happened next:

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If you look closely, prices did not close past the opening price of the wide range candlestick.
So it was a strong retracement. Here another example.

As you already got the idea for placing a stop loss below or above the wide-range candle for
avoiding unexpected reversal. Let me show you in an example

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VWAP Trading Strategy in Detail

In this article, I am going to discuss the VWAP Trading Strategy in detail. Please read our
previous article where we discussed Breakout Trading Strategy. As part of this article, we
are going to discuss the following VWAP Trading Strategy concepts in detail.
1. What is the VWAP Trading Strategy?
2. Uses of VWAP
3. Limitation of VWAP
4. VWAP Strategies
What is the VWAP Trading Strategy?
VWAP stands for Volume Weighted Average Price. These tools are used mostly by short-
term traders and in algorithm-based trading programs.
VWAP is often used to measure the trading performance of smart money. Professional
traders who work for investment banks or hedge funds and need to trade large numbers of
shares each day and cannot enter or exit the market by buying or selling a large position in
stock during the day, institutional traders compare their price to VWAP values.
A buy order executed below the VWAP would be considered a good fill for them because
the stock was bought at a below-average price (meaning that the trader has bought their
large position at a relatively discounted price compared to the market). Opposite for sell
Therefore, VWAP is used by institutional traders to identify good entry and exit points.
Conversely, when a professional trader has to get rid of a large position, they try to sell at
the VWAP or higher
.VWAP has the big advantages of the timeframe you chose, VWAP is the same.

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Use of VWAP Trading

 VWAP shows who is in control
 VWAP can determine the market trend at opening
 VWAP act as support and resistance
VWAP shows who is in control
VWAP is an indicator, it indicates who is in control of the price (the buyers or the sellers).
When a stock is traded above the VWAP, it means that the buyers are in overall control of
the price and there is a buying demand on the stock. When a stock price breaks and close
below the VWAP, it is safe to assume that the sellers are gaining control over the price.
1. If VWAP is rising then it shows buyers in control
2. If VWAP is falling it shows sellers in control
3. If VWAP is flat then it indicates no one is controlling the market, price in a trading
range
Used as Support and Resistance
Smart Money Buy below vwap and sell above the vwap if a large order came to market then
they buy from VWAP, so when price unable to close below vwap and getting rejected from
vwap and create a shadow or engulfing or outside bar this confirms the support and
resistance
Price action and volume confirm the support and resistance

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VWAP USED TO DETERMINE THE MARKET TREND

Observations
1. For bullish trend days, the market stays above the VWAP.
2. For bearish trend days, the market stays below the VWAP.
3. For ranging sessions, the market stays around the VWAP which remains more or
less flat.
These observations show that the VWAP has great potential for helping traders identify the
market trend
Note: on avoid trading at the opening of a trading session:
After the market opens, the price bars tend to overlap with the VWAP. In the first five
minutes, unknown heavy trading is happening between the overnight shareholders and the
new investors and institutional traders. According to our method here, you cannot judge the
market bias until the market tries to move away from it.
After volatility decreases around ten to fifteen minutes into the Open, the stock will move
toward or away from the VWAP. This is a test to see if there is a large investment bank
waiting to buy or sell. If there is a large institutional trader(smart money) aiming to buy a
significant position, the stock will pop over the VWAP and move even higher. This is a good
opportunity for us to go long. Opposite for short selling. If there is no interest in the stock
from market makers or institutions or smart money, the price may trade sideways near
VWAP. The best option would stay away from that stock.
Here, you’ll learn a price action method that you can apply immediately to your
intraday trading to determine the market trend with the use of VWAP
TRENDING SESSION
Step1: Look for at least 2/3 candle in the same direction
Step2: When first-time price approaching VWAP, Look for a push away from the VWAP(the
price should not stall at vwap)
Step3: Observe if that push enjoys follow-through or is rejected back to the VWAP level
from last swing high for an uptrend or last swing low for a downtrend
If they push away from the VWAP has good follow-through, assume a trending session. You
can then consider momentum trades in the direction of the trend. If the market rejects the
push away back to the VWAP, assume a sideways session. Consider taking mean-
reversion trades in this case.

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RANGING SESSION
A quote from James Dalton’s Mind over Markets: “Many knowledgeable professionals
estimate that markets trend only 20 to 30 percent of the time. Failure to recognize this fact
is one of the main reasons why a large number of traders don’t make money”. It is very

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important not to trade if there is no trend or no movements. Trading in a range only works if
the range is large enough.
Smart money buys below vwap and pushes above vwap, then when price retrace to vwap
see PA around vwap for continuous of existing trend or range market, If the market rejects
the push away back to the VWAP, assume a sideways session.
The characteristics of sideways markets are
 Price often near VWAP, Point of Control or other equilibrium prices
 Price stays the whole day in the opening range (the span of the first hourly candle)
 Inside- and outside-candles near each other
 Many crossings of VWAP
 High and low of the day hold though out the day

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LIMITATION OF VWAP
1. VWAP Lags tend to increase as the day passes
2. Cannot be used at the opening of the day
3. Require supporting price action for entry
VWAP PRINCIPLES
Two words are used here( PVWAP and VWAP). PVWAP is the end of vwap value of the
previous day. VWAP is the current day VWAP. PVWAP can be obtained by plotting a
straight horizontal line on the chart and looking where it was plotted at 3:30 pm.  VWAP is
obviously current day VWAP which can be obtained by plotting the VWAP indicator.
CONDITION

Do not play stock long that is below the VWAP

Do not playa stock short if above the VWAP

If way extended from VWAP, then a play reversal is okay but the target has to be the
VWAP
 If the price is trading above PVWAP, it is bullish and we look for a buy entry
 If the price is trading below PVWAP, it is bearish and we look for a sell entry
CONFLUENCE: USE VWAP indicator with price action and volume
ENTRY
1. Buy Entry – any 5-minute candle that completely above both vwap and pvwap, buys
entry will be above high of that candle.
2. Sell Entry – any 5-minute candle that completely below both pvwap and vwap, sell
entry will be below low of that candle
NOTE:- Strategy doesn’t work on range-bound days
VWAP STRATEGY
VWAP REVERSAL ENTRY
VWAP REVERSAL FOR UPTREND
Rule
 The previous day should be a trend UP day
 Price should not close below last swing low

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
Price should close above the VWAP

Look weakness for morning move into previous days VWAP (PVWAP) level

Faster the better

The volume also important(prefer low volume move)

Current day(ONE FIVE MINUTE) price should not close below the previous day
VWAP(PVWAP)
 Take the trade only if I can get a good entry and a good risk/reward ratio.
Reverse for downtrend
ENTRY PROCESS
Step1: find the stock in a clear trend up (HH/HL) or trend down(LH/LL)
Step2: Weak retracement move towards PVWAP
Step3: When the first time price approaching VWAP, Look for a push away from the
PVWAP (the price should not stall at pvwap)
Step4: Observe if that push enjoys follow-through or is rejected back to the VWAP level
from last swing high for an uptrend or last swing low for the downtrend

Price open and drive down with less volume shows sign of strength and stall at P VWAP
and unable to close below the PVWAP

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VWAP False Breakout (TRAP)

Strong Stock will stay and trade above VWAP if there is buying pressure from institutional
traders. If a large investment bank is interested in taking the position, a stock will often stay
above VWAP and keep moving above VWAP. But if there are no large institutions behind
the stock, or if they fill all of their orders, then the stock will move back to VWAP and often
“lose it”, meaning it will drop and trade below the VWAP. This is a sign for short sellers to
start shorting it. On the other hand, when a stock below the VWAP is bounces back and
breaks out above the VWAP, it means the buyers are gaining control and short-sellers
desperately have to cover. Smart day traders chase the fleeing shorts by going long to ride
the momentum and “squeeze the shorts”.
Price action and volume play a major role

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VWAP First Pullback

Step1: find the stock in a clear trend up (HH/HL) or trend down(LH/LL)
Step2: Look for at least 2/3 candle in the same direction
Step3: When first-time price approaching VWAP, Look for a push away from the VWAP (the
price should not stall at vwap).also look for rejection from the vwap
Step4: Observe if that push enjoys follow-through or is rejected back to the VWAP level
from last swing high for an uptrend or last swing low for the downtrend

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This is not a holy grail strategy.no strategy will give you a 100% win rate. This strategy
works 60-80% for me .so open chart and do practice before entry in the live market

How to Day Trade with the 5 simple GAP Trading

Strategy
1. What are the gaps?
2. Why the price gap?
3. 5 simple day trading gap strategy
What Are Gaps?
The difference between two consecutive candles closing price and opening price is called
the gap. A gap occurs when price skip between two trading periods, skipping over certain
prices. A gap creates a void on a price chart. Price gaps are simply areas on the chart
where no trading has taken place.

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Why do prices gap up?

 Gaps Greatest imbalance between demand and supply. The gap up because
aggressiveness by buyers, I mean there are more buy orders at the open than there
is available supply at the prior day’s closing price. The gap down because of the
aggressiveness by the sellers, I mean there are more sell orders at the open than
willing demand at the prior day’s close. Therefore, gaps are almost always at price
levels where there are a supply and demand imbalance at the open.
 Gaps also occur due to the overnight sentiment of the participant or any big news
 Smart money trying to skip important support and resistance level,i.e. If they are
bullish they gap-up price above the supply zone
GAP act as Support and Resistance
The Up gap act as a support zone and down gap act as a resistance zone. The chart below
of RELIANCE stock shows the gap up acting as support for prices. 

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The Gap fill

The gap-fill refers to the price retrace and close the level where the origin of the gap
occurs. The closure rate (gap-fill) for up gaps increases if the prior day’s open to close price
trend was also up. The closure rate (gap-fill) for down gaps increases if the prior day’s open
to close move was downward.
After gap price tries to fill the gap. Another occurrence with gaps is that once gaps are filled
by price, the gap tends to reverse direction and continue its way in the direction of the gap
(for example, in the chart BELOW of RELIANCE, back upwards).

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Types of Gap Trading Strategy

Gaps are divided based on the context in which they appear.
1. Breakaway (or Breakout) Gaps
2. Runaway (or Measuring) Gaps
3. Exhaustion Gaps
4. Professional gap
5. Inside gap
What is the breakaway GAP?
The breakaway gap means breaking the important support or resistance or significant trend
line in the form of the gap. Generally appears after completion of important patterns like
price in consolidation range or any continuation or reversal pattern. Maximum time this gap
does not fill quickly or the same day. Most important volume should be high

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Why the breakaway gap occur?

The smart money knows exactly where these resistance areas are. If the smart money is
bullish, and higher prices are anticipated, the smart money will certainly want a rally. The
problem now is how to avoid the old resistance
 Gapping up through an old area of supply as quickly as possible is an old and
trusted method – a way of avoiding the resistance.
We now have a clear sign of strength. The smart money does not want to have to buy the
stock at high prices. They are already bought their main holding at lower levels.
Smart money knows that a breakout above an old trading resistance area will create a new
wave of buying. How?
 Many traders who have shorted the market will now be forced to cover their poor
positions by buying as well.
 Many traders are looking for breakouts will buy.
 All those traders who are not in the market may feel they are missing out and will be
encouraged to start buying.
Here you can see that prices have been quickly up moved by smart money, whose opinion
of the market at that moment is bullish. We know this because the volume has increased. It
cannot be a trap up move, because the high volume is supporting the move

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The chart study above shows breakaway gaps through important support and resistance
levels. Every breakaway gap leads to a trend continuation as well.
Runaway (or Measuring) Gap:
After the move has been underway for a while, somewhere around the middle of the move,
prices will gap, this gap called the runaway gap. In an uptrend, it’s a sign of continuation of
trend; in a downtrend, a sign of continuation of the trend.

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Exhaustion Gap:
You will find that weak gap-ups are always Gap up to resistance or gap down to
support. This price action is usually designed to trap you into a potentially weak
market and into a poor trade, catching stop-losses on the short side, and generally
panicking traders to do the wrong thing.
Near the end of an uptrend, the exhaustion gap occurred. However, that upward gap quickly
fades and prices turn lower. When prices close under that last gap (exhaustion gap), it is
usually a dead giveaway that the exhaustion gap has made its appearance. An exhaustion
gap occurs with extremely high volume. 

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Professional GAP:
These gaps appear at the beginning of the moves. Generally occur at the supply or demand
zone. (Gap up from demand zone and gap down from supply zone) when price approaching
the quality supply and demand zone

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. 
Inside gap
Inside gaps are gaps happening inside the prior day’s range.
1. Week market gap up
2. Strong market gap down
However, low volume warns you of a trap up-move (which is indicative of a lack of demand
in the market) after a gap up resistance

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Gap Trading Strategy:

There are three factors to monitor to determine whether the gap is real or trap. The three
factors are volume, opening price and pullback
Opening Price and Pullback
After a gap up, the pullback to be watched
 Flat pullback (price consolidate high of the day). Strong buy signal
 The weak pullback was unable to close below the previous day’s high. buy signal
 Strong pullback closes below the previous day’s high. sell signal
If the stock gaps up and then sell off and remains beneath its opening price after the
morning pullback has stabilized, it’s possible that the stock has reached its high of the day.
however, if a stock gaps up and pulls back during the morning pullback, but then rallies to
break above its opening price, the mark-up was probably not trapped gap and the stock
should make new intraday highs
Volume
 It is important to watch the volume carefully when determining if a gap is valid. If the
stock gap up high and the volume also high and also the price remains above its
opening price after the early morning pullback, it is an excellent sign that the stock
has further to go on the upside. All reverse for a trap gap up
 If high volume appear after a gap up and the stock immediately comes under selling
pressure, chances are that this volume was a seller
 If a large volume paper in a gap up the situation and if the stock runs higher, then
chances are that it was a buyer, probably the reason for the gap up in the first place.
The smart money will support the stock if he has the buyer, or he will sell stock in a
hurry if he has the sellers. Smart money do not generally chase the stock in the
direction of the gap in the early morning unless there is a fundamental reason for
doing so
Our entry based on two types of gap

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1. Outside gap(market open outside of the previous day range)

2. Inside gap(market open inside of the previous day range)
Outside gap
1. Gap and GO Trading Strategy
All gaps are not filled in that day
Gap and GO Trading Strategy criteria
1. Price gap up above previous day high
2. Wait for the first candle to complete
3. Volume should be high and supporting in the direction of the gap
4. Mark opening range
5. Entry on breakout of high of the day
6. Price should above vwap

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2. Gap-fill reversal Trading Strategy

When a market gaps up, then the gap act as a support level for any pullback. Pullback
Tests of gaps on lighter volume tells that the issue does not have enough energy to get
through the gap; instead, the gap becomes support and any bullish signal is triggered our
buy entry
1. Wait for price gap up
2. Wait for a stock to pull back to its prior days close and fill the gap.
Two types of pullback
1. Price gap up just above the previous day high or below previous day low, and then
strong pin bar formed which fill the gap. volume should be high on the pin bar

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2. Second price gap up and then retrace and fill the gap. it takes more than 2 candles
and volume should be decreasing
3. You then wait to see a sign of strength and enter the position on that move.
4. Price should not close inside the previous day in any five-minute candle
5. You then place a stop below the low of the candlestick.

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3. Open Gap Reversal Trading Strategy

These patterns generally appear at top or bottom or any strong supply or demand zone
The open gap reversal process
1. There needs to be an existing extended uptrend on the chart for at least a few
trading sessions to supply zone. A gap up in price to quality supply zone is a VERY
high odds shorting opportunity.
2. Or a gap up in price to quality supply zone in the context of a downtrend is a VERY
high odds shorting opportunity.
3. After a gap up the price starts falling and crosses yesterdays. This generates the sell
4. The Stop-Loss is the low of the same day.
NOTE:-As we are trading against the gap more confirmation required confirmation either
from price action or volume action

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4 & 5. Inside GAP Trading Strategy

Let’s analyze a downtrend and the previous day was a down day. Today price gap up but
close within the range of the previous day. Our entry opportunity will be
 Gap up short
 Gap up long
A gap up in price, in the context of a downtrend, is a VERY high odds shorting opportunity if
any bearish reversal signal given. A gap up in price, in the context of a downtrend, is a
lower odds buying opportunity
If the stock gaps up and then sell off and remains beneath its opening price after the
morning pullback has stabilized, it’s possible that the stock has reached its high of the day.
however, if a stock gaps up and pulls back during the morning pullback, but then rallies to
break above its opening price, the mark-up was probably not trapped gap and the stock
should make new intraday highs
In an uptrend, entry opportunity will be
1. Gap down long
2. Gap down short
Gap up short in a downtrend 
 Context downtrend
 Wait for at least 5 minutes. Or mark opening range
 After the 5 minutes, wait for a reversal price signal to provide you with short term
confirmation that the mark-up was a trap by smart money and the short term trend is
pointing downward.
 Then short below of the first candle
 Volume should be low .if the stock has gapped up high; volume should be high for
confirmation of the real gap. However, if price closes below the opening price with no
large volume, chances are that the mark-up was a trap by smart money
Let’s analyze gap down long in an uptrend

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Gap up long in a downtrend

How to know, whether the gap up is real or trap by smart money
 Market when gap up opening, the volume should be heavy to go higher. if smart
money is active they supported by volume
 Wait and see if the market trades above its opening prices after the morning pullback
.it indicate gap was real
 Then go long
 Or you can enter from a previous day low when price retrace test of the previous day
low
NOTE: – this entry technique is very risky as we are going against the trend and
momentums so double confirmation is required

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Intraday Open High Low Strategy

1. Here you will learn
2. Logic behind the open high low strategy
3. Where it occur in the big picture
4. Rules for trading OPEN HIGH LOW STRAEGY
5. With live example
Intraday open high low strategy
Original name of the strategy is open derive. for buy sell perspective we called it open high
and open low.

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Open high= sell

Open low= buy
So open rive and open high low both same.
Logic behind the strategy
These are the directional move with strong hand participation and conviction.
Where it occur? Location
1. It occurs most of the time after a sideways price action (tight price channel), or
2. You can also spot it at the start of a trading session.
3. From strong supply or demand zone
If open-drive occurs after a sideways price action, it indicates that either strong buyers or
sellers were accumulating their positions in the sideways price action or afterward they
started aggressive buying or selling activity to move the price
If at the start of a trading session. An Open-Drive is generally caused participants who have
made their market decisions before the opening bell. The market opens and move
aggressively in one direction. Fueled by strong smart money activity, price never returns to
trade back through the opening range
Rule for sell open drive or open high strategy
Where the action playing out?(location in big picture).Reason to take trade . best
work if breakout from any sideways price action are or gap from strong supply or
demand zone
 First 5 min candle(opening candle) should be big red candle
 Open = High, For easy reference 2-3 points buffer will be considered as equal not
carrying much weight
 First candle open to close around lower of the candle (preferably)
 Volume must be high
 Minimum Risk: Reward(R:R)=1:2(next support area)
 Breakout entry after opening range or first candle low(for open high set up)
 Price must be below vwap for sell
Let’s do it an example
Open high strategy for entry
1. Wait for the first candle to complete. should be big red candle
2. Volume should be high.
3. The 2nd inside candle be a doji or narrow candle
4. low of second candle equal to low of 1st candle
5. Declining or lower volume on 2nd candle
6. 2nd candle range stays within bottom 2/3rd’s of 1st candle
7. Price must be below vwap
8. Stop loss above your entry candle or day high as per your risk

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Lets do an example
Today I took this trade
On daily time frame price increasing with volume decreasing and closing near resistance. I
clearly indicate me this move will not break the resistance.

Today price gap up to resistance. Then wait for 1st candle to complete
What first candle told me?
 A big red candle
 Open = High
 First candle open to close around lower of the candle
 Volume very high
All these indicate bearishness. So sold in next candle. As shown in below image

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PIN BAR Trading Strategy

1. What is a pin bar?
2. Structure of pin bar
3. Psychology behind pin bar
4. How to use pin bar in our trading?
5. One day trading strategy based on pin bar
Pin Bar Structure
Let’s understand a bearish pin bar. How it formed?
Phase1: After a strong extended up-trend has been in effect, the atmosphere is bullish.
Phase2: The price opens and trades higher. The bulls are in control.
Phase3: But before the end of the day, the bears step in and take the price back down to
the lower end of the trading range, creating a small body for the day. The long upper wick
represents that sellers had started coming in at these levels. A lower open or a red candle
the next day reinforces the fact that selling is going on and sellers have now taken control

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So basically pin bar is reversal pattern 

There are two types of pin (1) bearish pin bar, explained above and (2) bullish pin bar

Criteria to Identify Pin Bars

1. First Requires an old support or resistance  in background
2. Price rallies above resistance only to fall back below .Price closes below resistance
and on or near its lows. reverse  for support
3. The “wick” (or tail) should be at least 2 – 3 times the length of the body.
4. The body should be completely contained within the previous day’s range. body
either red or black
5. The body should be present towards either the upper or lower extreme of the Pin
Bar.
6. The wick should stand out when compared to surrounding bars. The wick of the Pin
Bar should be larger than the previous day’s trading range

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7. The following day needs to confirm

8. The  volume can be either low ( no demand above the resistance ) or high (supply
overcoming the demand above resistance ), reverse for support

THE CONTINUOUS PIN BAR
Pin bar do not always signal a reversal, so you’ll need to know how to tell when a pin bar
has failed, and how to react accordingly. The significance of pin bar depend open
(1)location ,where it appear in the trend ,(2)length of the wick, If  the Pin Bar wick is more
than 4 times larger than the average trading range of the preceding bars. Then it will most
likely become a (1)continuation pattern or (2)the wick will tested again for reversal. 
When presented with a massive Pin Bar my advice is to stay on the side liners and wait for
a better opportunity to present itself as you have to risk too much capital in hopes of being
profitable.
Let me explain you this through an example

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PSYCHOLOGY OF PIN BAR

Let me tell you very important information.

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Smart Money only targets places with higher Volumes are and he collects them. Generally
the places (reference points) are 
1. support and resistance
2. area on consolidation/accumulations on yesterday high/low .weekly high/low  etc.
and 
3. The beginning of the day
4. The end of day
5. Daily High and low.
Why they do?
The main objectives are:
1. To get volume
2. Avoid Slippage due to  big order
3. Smart money testing demand above old resistance before moving down or testing
supply below support before moving up
How they do?
They move the price above or below any reference point hitting the stop losses of either
buyers or sellers, while same time Encourage traders to commit to positions in a wrong
direction. Smart money induce traders to take the wrong direction by using sharp and
aggressive moves near the high or low of the day
Let me explain when price reverse from resistance. As the early price is marked up, 
1. Premature short traders are liable to panic and cover with buy orders.(stop hunts) 
2. However, those traders looking for breakouts will buy, but their stop-loss orders are
usually triggered as the price move back down. 
3. All those traders who are not in the market may feel they are missing out and will feel
pressured to start buying. 
Let understand through an example

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What happen next, price move down words? After trapping breakout long trader 

Pin bar act as support and resistance 

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Low of bullish act as support and high of the bearish pin bar act as resistance

Pin Bar and market context

To be able to trade Pin Bars effectively you need to be able to gauge the direction of the
Trend and trade with it. Here are some key principles for trading pin bar
Pin bar work best in trending conditions
Ideally a Pin Bar should close in favor of the prevailing trend, for example if the trend is up
then the Pin Bar should have the close higher than the open and should be a bullish Pin
Bar. The opposite applies for a down trend.

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A retracement to a prior resistance now- support area is a typically

excellent trade
A retracement to a prior resistance now- support area is a typically excellent trade

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A choppy, range bound markets should not be traded
Pin Bars that are in heavy traffic or choppy, range bound markets should not be traded. The
reason for this is that there is no clear trend and there are too many areas of interest for
price to stall at.

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 A pin bar should

immediately follow through
If a  bullish pin bar  fails to rally away from the danger point and price hangs near the bullish
pin bar  low, then something is likely wrong.

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Opening  Pin Bar Trading Strategy

1. Price gap up above previous day’s high(PDH)
2. Opening candle close above PDH. (bullish pin bar)
3. If low of the candle touches PDH and leaves a wick below then very high probability
trade
4. Entry above he high of the bullish pin bar candle
5. Ensure that there is no resistance over head like big support/resistance
6. SL below PDH or below entry candle

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NOTE:- REVERSE FOR BEARISH PIN BAR

Stop loss placements
The simplest and most likely method that you will profit from is to place your stop a certain
distance beyond the high / low of the Pin Bar. 

Trading with Sideways Price Action Area

1. Two approaches to trading with a sideways price action area
2. How enter?

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3. How to exit?
4. Odd enhancer
How to trade with SIDEWAYS Price Action Area Break Out?
Minimum three candles are required for sideways price action area break out.
Here are two approaches to trading the breakout designed to minimize
risk:
1. Buy the initial breakout when the conditions are right
2. Buy the retracement to the breakout when you need confirmation
Break Out Condition
Now that you know TWO tactical approaches to trade the breakout, let’s look at how to
recognize which OR breakouts are the best to trade. Again, I’ve created a quick checklist for
evaluating a stock’s price and volume action. Remember these criteria are used not only to
find stocks that are likely to lead to a successful breakout but also to define good risk points
based on the stock’s price and volume action.
 For bullish breakouts. look for price to hug the top of the range
 The quicker you enter a range breakout trade, the better.
 Trade with the trend. In a bear market, downward breakouts tend to make more
money than upward breakouts in intraday trading. In bull markets, upward breakouts
make more money.
 For upward breakouts, trade only those situations where price closes above the
middle of the opening range most of the time. Downward breakouts from the opening
range do best when price resides below the range’s midpoint most often
 There is no resistance above breakout of bullish breakout
 Break out with volume
 After the breakout, the stock exhibit bullish price action for up break out
Trade set up 1: For Opening Sideways Price Action Breakout
Logic: 1st candle of the day should be heavy volume
Why heavy volume on the first candle of the day?
We are trying to identify what the SM sentiment is for the day?
If Smart Money wants to buy stock, we would see that on the open with heavy volume and
strong directional move. Stock may gape at the opening. Which shows that stock may trend
up the rest of the day?
Open = low of the first candle indicate SM strongly bullish
1st candle having lower wick indicate price tray to move down but Smart Money enter drive
price higher
 1st 5-minute candle be a wide range candle with a low wick or no wick with volume
 Stock in an uptrend with price above new demand
 The next candle/candles should be inside candle be a doji or a shooting star or
narrow range candle with less volume
 The range stays within top 2/3rd’s of 1st candle
Odd Enhancer
Avoid if
 Price extended from 20ma on entry time frame ( I am using 5 minutes)
 Sideways pa area volume almost equal or more relative to the first candle
 Entry time frame not trading just above demand or supply on a higher time frame

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 Less than a 3 to 1 reward to risk ratio to target on the chart

3 action steps:
➡ Buy 1-2 cents above the second candle, preferably a Doji or shooting star
if playing long. Opposite for playing short.
➡ Upon entering you place stop loss 2 cents below 1st candle or low of the last swing low
➡ Target is 2R

Trade set up 2: Pull back Break Out

SEE THE PULLBACK FOR CONFIRMATION
SMART-MONEY ALWAYS BUY FROM VWAP OR AROUND VWAP, IF THEY WANT TO
BUY
See the pullback to VWAP OR 20 EMA. If price pullback to VWAP EMA, but unable to push
and hold below VWAP, indicating that buyers strength
Pullback condition
1. Low volume
2. Lower wick
3. NARROW RANGE CANDLE
ODD ENHANCER
Avoid if
 Already traded to target on a bigger time frame
 Sideways pa area volume almost equal or more relative to the first candle
 Less than a 2 to 1 reward to risk ratio to target on the chart

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Let’s do an example
Big picture
ON DAILY TIME FRAME
On daily in the uptrend

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HIGHER TIME FRAME ANALYSIS

ON 30MINUES OR HOURLY TIME FRAME

TRADING TIME FRAME

I am using entry-exit for a 5-minute time frame

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Pullback Trading Strategy

1. What is pullback and psychology behind pullback?
2. Benefits of Pullback Trading
3. Characteristics of pullback
4. Pullback types
5. Where does pullback end?
6. Conservative vs aggressive entry
What is pullback and psychology behind pullback?
A pullback is a price movement that moves in against the trend. It is a temporary price
movement before it resumes back into the main market direction. Pullbacks are sometimes
referred to as price Correction or retracement. Pullback occurs when price moves at least
one bar against the opposite direction of the trend.
1. The hope of comparison to find top or bottom on find weakness in price move by the
novice.
2. If the pullback is sluggish contra trader will lose hope while bullish traders will regain
confidence.
3. If he pullback down is strong and signals bearish conviction, the bar will get more
aggressive and the bulls will start to doubt their position
The benefits of pullback trading
There are several benefits to trading pullbacks. Some of them are as follows:
1. Trading pullback lets you have a tighter stop loss as your trade location is good and
this gives you a better risk to reward
2. From a psychological standpoint, it’s easier to pull the trigger as you’re buying high
and selling low
Characteristics
CHARACTERISTICS of WEAK PULLBACK
1. Correction (depth of pullback) must be small and without strong momentum
candlestick
2. Volume decreases / low volume correction
3. Great mix between red and green candle with light volume
4. Closes towards the middle with wicks
5. How pullback came (should not come after consolidation)
Week pullback leads to continuous of an existing trend

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CHARACTERISTICS of STRONG PULLBACK (leads to TR/REVERSAL)

In a bull trend, the strong pullback key features are as follows:
1. First is a series of consecutive bearish bars(LH/LL)
2. Second is the presence of strong bearish bar( trend bar)
3. The third VOLUME DOES NOT REDUCE on a pullback
4. Fourth Depth of pullback (deep)
5. Fifth How pullback came (after consolidation)
6. When pullback fails to bounce back quickly
Hence, a weak pullback is one that lacks all these features.
Strong pullback leads to TRADING RANGE OR reversal of trend or serious attempt to
reverse the trend

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Pullback Trading Strategy

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PULLBACK TYPES
These corrective moves either are the time or price correction but they denote a change in
the order flow and participation depend upon the types of trend. There are TWO TYPES of
Pullback. They are as follows:
1. TIME CORRECTION
2. PRICE CORRECTION
A strong trend: (Time correction)
In strong trending markets, you’ll have pullbacks that usually stock move in horizontal, low
volatility trendless manner. Because the pullback is shallow, it’s difficult to time your entry
on a pullback. Instead, you can look to trade the breakout, or find an entry on the lower
timeframe.
Healthy trend: (PRICE CORRECTION)
A healthy trend is between a strong and weak trend. You can expect a pullback towards the
SR level.
Weak trend (TRENDING RANGE TYPE):
In weak trending markets, you’ll have steeper pullbacks that usually retrace towards major
Support and Resistance
TIME CORRECTION
TIME CORRECTION (Stock to digest the directional move is through a time correction). In
time correction the stock moves in horizontal, low volatility trendless manner. Generally, a
strong trend has time correction.
A strong trend: (Time correction)
In strong trending markets, you’ll have pullbacks that usually stock move in horizontal, low
volatility trendless manner. Because the pullback is shallow, it’s difficult to time your entry
on a pullback. Instead, you can look to trade the breakout, or find an entry on the lower
timeframe.

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What happening here is as follows?

As the trend continues, it gets far from the stop loss point; retailer’s taking profit to reduce
risk .market pulls back and goes sideways. Once bulls confident that the bears will fail to
reverse the trend, bulls buy again with tighter stop loss

The diagram above shows a time correction pullback example.

PRICE CORRECTION
PRICE CORRECTION, CORRECT as price moves in the opposite direction of the primary
trend, this correction occurs by price and move towards SR level.
Healthy trend: (PRICE CORRECTION)
A healthy trend is between a strong and weak trend. You can expect pullback towards the
SR level

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The above diagram shows that the bears are usually trying to show their dominants, but not
realizing that the bulls are still strong, the bulls usually come back into the market just
before the bears managed to build confidence
Complex Pullbacks
Complex pullbacks happen when price steps into a consolidating phase in the form of any
pattern. It then remains consolidated for a while before it resumes into the trend No one
really knows how long it remains consolidated before it moves again. Generally forming a
continuous pattern like
1. Rising / Falling Wedge Pullback
2. Rising / Falling Flag Pullback
3. Pennants Pullback
4. Widening Wedge Pullback
Where does the pullback end?
Here are some of the guidelines to find
1. Towards previous resistance turned support

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2. Towards previous support turned resistance.

3. Towards dynamic support.
4. Towards a dynamic resistance.

5. Towards a Fibonacci retracement

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Now you have an idea where price could potentially retrace to.

Conservative vs aggressive entry at technical test point or end of the
pullback
Should one insist on playing a reversal without waiting for build-up, firing into a technical
test (where pullback end) is certainly superior over firing into a void. But there is still a large
degree of aggression and risk involved with respect to the stop-loss point. Let me explain to
you.

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Pullback D-E represents a test in the level of B, which was a function of the earlier sideways
activity within a bull trend
It can safely be stated that the level of B plays a crucial role in this chart:
1. Resistance turned into support
2. It provided a level for a technical test in a Fibonacci 50/61.8 percent correction;
3. It offered a platform for bulls and bears to fight it out in order to determine the lows of
the correction,
By waiting for consolidation at support, it is inevitable to occasionally miss a turn. In fact, it
is quite a frequent occurrence. But it will save us also from many a quick shake.
It is important to note that the higher entry above F does not necessarily compare
unfavorably to the more economical entry at E. First of all, the consolidation below F shows
more confirmation on the likelihood of the reversal, which is already a plus. But there is
another issue to take into account that will affect the clinical odds on both wagers. The
levels for protection and target in relation to the level of entry.

The above chart with a small variation

The above diagram demonstrates what exactly it is that we aim to avoid when waiting for
consolidation. This time the pullback D-E reversal played itself out a little differently.
Technically seen, the level of B once again presented itself as the most likely candidate for
a possible turnaround (a 50/60 percent retracement in an area of former support, now
resistance), but an immediate short at point e would have put an aggressive bull in serious
trouble before the actual turn set in.
Take note of the fact that in this situation, prices once again put in a technical test before
reversing, but instead of using a former level of support to bounce away from (B), the
market opted for a former level of resistance to turning around in if matches (C). Both E and
F are valid technical tests and equally common in occurrence. since we have no way of
knowing beforehand which level the market will pick in any one situation, the idea is to
remain on the sidelines until more clarity comes along. BUT Not always will the market offer

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us this extra information, but it will do so often enough to consider patience as a vital
ingredient in operating tactics.
As to the conservative long, an entry above the level of G and a tight stop below the level of
F will certainly have suited many BULLS just fine
How to enter your trades on a pullback
There are many ways to enter your trades via a pullback. Here are some entry techniques
you can us
1. Reversal candlestick patterns break out
2. Continuous pattern TL breakout
Reversal patterns
Reversal patterns represent a rejection of higher/lower prices, which are useful for entry
triggers. Some of these patterns can be the pin bar, engulfing pattern and outside bar

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Continuous pattern TL break

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PULLBACK SETUP FOR DAY TRADING

Trade set up cannot have the following:
Already traded to target on bigger time frame after the initial morning move

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Intraday Breakout Trading Strategy

1. What is the Intraday Breakout Trading Strategy?
2. Merit and demerit of breakout trading
3. When should void breakout trade?
4. How to find high probability breakout trading?
5. Price action for the breakout bar
6. How to enter a breakout?
What is the Intraday Breakout Trading Strategy?
Break out means moves below any support or above any resistance. Price breakout from
1. First support and resistance is a break of previous candle high or low
2. Last swing high or low (shorter-term support and resistance)
3. Major support and resistance
4. Trend line or moving average

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Benefits of Intraday Breakout Trading Strategy:

There are several benefits to trading breakouts. For example
1. Momentum is with you – Trading breakouts allow you to enter your trade with
momentum at your back
2. Catch big trends – If you were to trade pullbacks, sometimes it may never come.
But with breakouts, you never have to worry about missing another move in the
markets
The demerit of Breakout Trading Strategy:
False breakout or trap
When should we avoid trading breakouts?
1. Don’t trade breakouts when the market is far from Support/Resistance (S/R) and Are
there obstacles overhead or underfoot that could possibly obstruct an advance or
decline
2. Don’t trade breakouts without TIGHT TRADING RANGE (consolidation) before the
breakout
3. Don’t trade breakout when the break set against the dominant pressure
Don’t trade breakouts when the market is far from Support or Resistance
(S/R) Why?
Because you don’t have a logical level to place your stop loss. Even if you do, it usually
results in a poor risk to reward profile Based on the stop loss placement we can divide the
break out into three types
False Breaks, Tease Breaks and Proper Breaks

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Whether to take a position or not on a break is always a function of how well the technical
credentials of the chart back up the prospects for follow-through.

The difference in consolidation prior to a breakout not only affects the likelihood of follow-
through but the level for protection as well. An excellent way to play a break is shown in
Situation 3. Now we can truly see the virtues of proper consolidation up. The breakout may
still fail soon after, but technically seen, this is the more favorable scenario
Don’t trade breakouts without consolidation

Why is this so?

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Traders in profit will exit their positions at the nearest swing high (to protect their
profits). And traders looking to short will do so at the swing high. So here’s what happens…
You get a double dose of selling pressure. From traders exiting their long trades (by selling),
and traders looking to short the markets. With so much selling pressure at the same area,
chances are, the breakout would fail if the breakout happens without consolidation.
DON’T TRADE AGAINST THE Higher Time Frame Support and
Resistance

How to find high probability breakout trades

Based on my experience, these are the best times to trade breakout:
1. When the market is trending strongly
2. When there’s no Support/Resistance nearby
3. When the market is forming consolidation at Support and Resistance area
4. When there are higher lows into Resistance or lower highs into Support
Let me explain you above four points in details
1. When the market is trending strongly
If the market is trending strongly, you’re unlikely to catch the trend on a pullback.  So, what
can you do? Well… you can trade the breakout, right?

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You can get long when price trades above the swing high, and place your stops below the
last swing low
2. When there’s no Support/Resistance nearby
Think about this. If you’re short the market, where would buyers come in? If you’re long the
market, where would sellers come in? Support and Resistance, right?
3. When the market is forming consolidation at Support and Resistance
area
Why do you want to trade breakouts with consolidation?
Here’s why: A consolidation would attract stops in the market as traders place their stop-
loss beyond the highs/lows of the consolidation.
It could be to protect their existing positions or to trade the breakout in either direction. So,
when the market breaks out of consolidation, you get a double dose of pressure. And it’s
caused by traders looking to protect their positions and traders looking to trade the
breakout. An example:

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CONSOLIDATION

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4. When there are higher lows into Resistance or lower highs into
Support
Higher lows into Resistance is a sign of strength by the buyers and there’s a good chance
the market will break out higher. Why?
Because if there were strong selling pressure at resistance, the price should have fallen
quickly. The fact it didn’t tell you that buyers are willing to buy at higher prices and thus
forming higher lows into Resistance. Visually, it looks like an ascending triangle. Here’s an
example:

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And when you get lower highs into Support, it’s a sign of strength by the sellers. Because if
there were strong buying pressure at Support, the price should have risen quickly. The fact
it didn’t tell you that sellers are willing to sell at lower prices and thus forming lower highs.
Visually, it looks like a descending triangle. An example:

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Breakout bars for upside

1. The bar that breaks structure (resistance line)
2. Volume should dramatically increase
3. If the follow-through bar is large, the odds of the trend continuing are greater
4. The first pullback occurs after 3or more bar of a breakout with low volume and lower
tail
Breakout and breakout bar
The bar has a full trend body and small tails or no tails, the larger the body, the more likely
breakout will succeed. A widespread up bar closing on the highs pushing up and through an
old top to the left. It is an effort to go up as it is showing demand. After this event the market
usually rests or starts to react, you are now looking for indications of strength to confirm the
strength

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Breakout and volume

If you observe a wide spread up, on high volume, punching through the top of a resistance
(supply line), and the next day is level or even higher, then you would now be expecting
higher prices. Any low volume down-day (potential test) will confirm this view

BREAK OUT bar NEEDS FOLLOWTHROUGH

Traders like to see a confirmation after the breakout. One more trend bar after breakout
bar. A bull break followed by a bull break is a sign of follow-through and thus an indication
of bullish enthusiasm, for as long as it lasts. Should we see the market respond to a bull
break with a bearish bar and this bar then gets broken at the bottom by another that gives
us valuable information also: technically seen, we are dealing with a false break. It shows
false as the bull break failed to follow through and was followed by a bear break-in turn.

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BREAKOUT AND PULLBACK

Any low volume pullback shows successful of breakout

How do I enter breakout trades?

Well, there are usually 3 ways you can trade a breakout.
You wait for a candle close:
1. It’s easier to execute the trade psychologically as the candle has closed in your favor
2. You may get a poorer risk-to-reward (as the market has already moved in your favor)
You trade breakout using a stop order:
1. It’s harder to execute the trade psychologically because there are no signs of
“confirmation”
2. You usually get a better risk-to-reward (as you’re entering near the breakout level)

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3 Techniques for Risk Management in Trading

1. Risk protection
2. Risk profile
3. Active trade management
Introduction to Risk Management in Trading
Trading knowledge including technical analysis, good strategies and chart reading are all
necessary but alone are not enough to make you a successful trader
Today’s post is going to be one of the most important you’ll ever read. Here I will discuss
risk management. Because if you apply the risk management strategies, I can guarantee
you’ll never blow up another trading account and you might even become a profitable trader
Risk management is the foundation of a successful trading system. We can basically break
risk management into 3 categories:
1. Risk protection
2. Risk profile
3. Active Trade management
Let’s discuss all these in details
Risk Protection
In order to protect against something it is necessary to begin with an understanding of what
it is that you are protecting against. It is fine to say that protection is being taken against
potential loss. Losses are inevitable part of the trading game. We need to accept losses as
cost of doing this business. World’s best traders too lose a lot.
 The underlying root cause of a loss in any particular trading situation is the trader’s
own fear and greed.
Let’s start with fear
Fear
Fear warns you that something doesn’t feel right about a trade that you took; you have to try
to figure out what exactly is going wrong
Any fear that does exist works in two ways.
 There is the fear of missing an opportunity (FOMO)
 There is also the fear of incurring a major loss
The protection against each is somewhat different.
Let’s discuss each in depth
Protection against Fear of missing an opportunity (FOMO)
How it affect our trading
 The fear of a missed opportunity may result in a premature trade. What most of us
do We’re so afraid of missing a profit that we tend to constantly trade too early.
 The common mistake made here is to conclude that a little bit of a wait is no problem
because the eventual result will justify it. How do you know it’s going to be just a
short wait? That’s an assumption.
 A much bigger problem, however, is that the judgment (upon) which the trade is
based may be invalid. Because that opportunity has not had a chance to fully
develop. That means something could go wrong. If it does, the position will
probably be stopped out.
HOW TO PREVENT Fear of missing an opportunity (FOMO)
Unfortunately there is no mechanical tool that will invariably keep you from trading too early.

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 Protection against the fear of missing an opportunity is discipline and confidence on

your method
4 Steps for Disciplined Trading:
1. Take direction from the market, not from your hopes, greed or fear. Most traders do
not see the market clearly. Control your beliefs about the market
2. Predefine your risk before taking a trade
3. Cut your losses without hesitation
4. Use a systematic money management plan
Confidence
Confidence in your method makes all the difference in trading. You will not be able to make
money unless you have total confidence in your methods. But the problem is that you will
not have confidence in your methods if you are not making money with it. To become a
consistently profitable trader, you need to develop a method that suits your personality.
When developing a trading plan, you should know and understand the logic behind each
step. This will boost your confidence and will give you the discipline to follow the plan.
Confidence believes in your ability to do something.
To be successful in trading, we must have a method with an edge. We need to trade the
method long enough
Ignoring the results of individual trades to win. This is not possible without total trust in your
methods. If you have Confidence in your trading method, losses shouldn’t worry you at all.
Just take it and move on. Successful trading is not totally avoiding losses but winning more
than what you lose. For every trade we enter, there could be four outcomes. a) Big Loss, b)
Small Loss, c) Small Win and d) Big Win. Let us remove the Big Loss from this. Small Wins
will take care of Small losses and Big wins will remain with us. Ensure that your trading plan
eliminates the possibility of losing big. “You can’t make money if you are not willing to lose.
It’s like breathing in, but not willing to breathe out” Ed Seykota
Fear is of incurring a major loss
The other type of fear is of incurring a major loss. It is done with a stop order. The stop
order lets the investor take comfort in the fact that if his appraisal is badly flawed, his loss
will be cut short before it turns into a disaster.
If a trade has been made too early (FOMO), the stop may be too close to survive the
remaining and unknown action of the trading range. In these cases the position may be
lost to a stop resulting in a loss even though the eventual outcome has been properly
diagnosed market.
 Using a stop correctly means maintaining a profit – risk ratio that is in your favour. Be
careful however, that you don’t end up using this idea in a way that unduly restricts
the stock’s ability to move.
 Over the years we have found that the most generally acceptable profit – risk ration
is 3 to 1. First of all, it prevents a major loss it also gives the stock some breathing
room. It is unreasonable to assume that every stock will be caught exactly at its turn.
 A long position may move somewhat lower before it turns up and a short position
may move somewhat higher before it turns down. You have got to allow some
margin for error.
Stop loss order
How to place a proper stop loss order?
Step 1 =Identify the structure of the markets

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Step 2 = Place your stop loss beyond the structure

Let me explain…
Identify the structure of the markets
The structure of the market refers to Support & Resistance, swing high, swing low, higher
highs and lows, lower highs and lows, and etc.

Step 2 = Place your stop loss beyond the structure

These are important points in the market because that’s where most traders will place their
stop loss.
Why?
Because if price trades beyond it, it will invalidate their trading setup as they know they are
wrong on their trade. But, the problem with placing your stop loss near these levels is, it
gets triggered easily by smart money
Why they do this?
Smart Money paid to collect VOLUME (where Liquidity is found). He only targets places
with higher Volumes are and he collects them.
How they do?
They spikes in one direction or the other hitting the stop losses of either sellers or buyers

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Protection against greed

Greed is perhaps more basic. When it is responsible for a loss it is a loss of already realized
profits
From an objective standpoint you would think that when a reasonable profit has been
developed in a position there would be a great deal of satisfaction in taking of that profit.
Unfortunately, it doesn’t always work that way. Let’s analysis the situation
 After market given a certain level of profit there is a tendency to want more
(greed) instead of being satisfied.
 The desire to have more profit causes the situation to be analysed from that
standpoint (greed) and not from the standpoint of things as they really are. At
that point greed has taken control and the profit already gained is put in jeopardy
 Consider these examples. A stock is in an uptrend and has been for quite some time
with good upside progress being the result. There are two good reasons here for
selling this stock .The stock becomes overbought, reaches its upside objective or
key resistance
Here’s an example for Risk Management in Trading:
You go long on a breakout and the trade goes in your favor immediately. Shortly, you have
open profits of 3R and your trading strategy tells you to exit your trade (because the market
has reached a key Resistance). But, you tell yourself: “This chart is looking so bullish, I
should hold this trade longer for bigger profits”. So, you hold onto the trade. Slowly, the
market starts to reverse and wiped out a portion of your open profits. Now you’re feeling
anxious but you tell yourself: “Never mind, I’ll exit the trade if the market goes up a little
more”. Unfortunately, the market didn’t go higher and retrace all the way and hit your stop
loss.
How to overcome greed
 Pre-establish a sell or cover order in the area of the anticipated objective

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 Or once price is reached in the anticipated objective , tighten your stop loss(trailing
stop order)
Pre-establish a sell or cover order in the area of the anticipated objective
 The only way to totally protect oneself from greed is to take steps against it at the
time a position is one of the best ways to do this is to predetermine and
preestablish a sell or cover order in the area of the anticipated objective. When
the stock reaches that level the established. Position will be automatically eliminated
and the profit protected.” Greed won’t even have a chance.
TRAILING STOP ORDER
We identify zones in which we’re happy to trade, and then work the best entry we can within
that area. Stops should be placed in a location that invalidates the trade
Not every position is going to make it to its indicated objective. I mean not every position hit
the target. In those cases where the ultimate objective is not met, how to protect the
position? The stop order can be used very effectively for this type of protection providing. If
it is used correctly throughout the life of the position.
That means re positioning it as the move progresses. The first objective in re positioning
a stop is to get up to or down to the trade price as quickly as possible.  One this is
accomplished, the investor’s funds are protected against loss and he can breathe a little
easier. This re positioning, or any to follow, cannot be done in a careless fashion. If it is,
initial capital may be protected, but profits will likely be scarce.
The rest periods between the periods of progress are extremely important. They will
indicate when a stop can be moved and more importantly to what level it can be moved. A
resting period will either come as a normal correction or as a horizontal consolidation. The
stop should be re positioned just above or below the extremes of these periods just
as soon as there is an indication that the prior progress is being renewed. Don’t be in
too much of a hurry on this. If you cannot point to some action that clearly indicates the prior
move is about to be renewed, you may be setting yourself up to be stopped out by a
correction that goes a little farther than you had expected or by the consolidation that ends
with an unexpected shakeout or up thrust action.
Risk profile
X is an aggressive trader and he risks 20% of his account on each trade. Y is a
conservative trader and she risks 2% of her account on each trade. Both adopt a trading
strategy that wins 50% of the time with an average of 1:2 risk to reward. Over the next 10
trades, the outcomes are Lose Lose Lose Lose Lose Lose Win Win Win Win Win.
Here’s the outcome for X :
-20% -20% – 20% – 20% -20%= BLOW UP
Here’s the outcome for Y:
-2% -2% -2% -2% +4% +4% +4% +4% = +8%
Risk Management in Trading could be a deciding factor whether you’re a consistently
profitable trader or, losing trader.
Remember, you can have the best trading strategy in the world. But without proper risk
management, you won’t be success in trading.
What do we include in Risk Profile?
 What is the level of Risk: Reward ratio will we be working in each trade? Profile
 What is the maximum percentage of our account we are willing to risk on each
trade or day or week?
 What is the maximum position size we can use per trade?

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Risk Reward Ratio

Risk Defined as The amount a trader is willing to lose on a trade if it hits his or her stop.
Calculate risk on trade (size of stop) by measuring the distance between entry and stop
loss
The reward is simply defined as the price distance between our entry and our profit
point. The trading risk-reward ratio simply determines the potential loss (risk) versus the
potential profit (reward) on any given trade.
How to measure the risk-reward ratio?
Risk Reward Ratio(R: R) = Total Risk on each trade / Total Reward on that trade
What’s the maximum percentage of our account we are willing to risk on
any one or more trade/s?
 Only risk a small amount of your total account per trade , you want to keep your risk
low, perhaps 0.5 to 1 percent
 Only risk a small amount of total account per day. This is called a daily stop. Perhaps
set a rule that if you lose 3 or 4 percent of our total account in a given day, you will
stop trading for that day
 Only risk a small amount per week. This is called a weekly stop. Perhaps set a rule
that if you lose 5 percent of your total account in a given week. you will stop trading
for that week
Position sizing
4 Step to determine maximum position size
Step1 = Establish maximum Risk amount per day based on a percentage of account size
Step2 = Divide maximum Risk amount per day with average number of trades per day to
calculate risk amount per trade
Step3 = Calculate risk on trade (size of stop) by measuring the distance between entry and
stop loss
Step4 = Divide the maximum risk amount per trade by risk on trade to determine the
maximum position size
Let’s do it in an example
Account size=100000
Maximum Risk percentage per day=2%
Maximum Risk amount per day= Account size* Maximum Risk percentage per day
=10000*2%=2000
Number of trades per day =2
Risk amount per trade= Maximum Risk amount per day/ Number of trades per day
=2000/2=1000
Calculate risk on trade (size of stop) =5
Maximum position size= 1000/5=200 shares
The larger the size of your stop loss (risk), the smaller your position size (and vice versa).
Visually, it looks like this:

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As long as we can stick to the above risk profile defined, we can enter 10 trades, have 5
looser and only 5 winners but still end up with profit overall.
Active Trade management
Most traders focus too much on their entries as that’s the most hopeful stage of a trade. But
the fact is, your exit determines your profit and loss (P&L), not your entry. You can have a
good trading entry, but if you manage your trade poorly and exit at the worst possible time,
you can still end up with a loss.

How to Select Stocks for Intraday Trading

Rules for stock selection

1. 3 stock selection methods
2. With live example
Why do most traders fail to pick the right stock?
1. They pick randomly on tips from social media or news
2. They don’t prepare before the market open
Rules for stock selection in trading
Price Structure = Trend (avoid ranging market)
Trade active stock=high volume and high open interest build up (smart money active on
these stock)
The momentum of stock = Strength & Continuity of the move (previous day candle)

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Stock selection for trading types

1. Breakout trading
2. Momentum trading
3. Pullback reversal trading
How to select stocks for intraday trading?
Generally three methods of stock selection for intraday trading
1. Aftermarket closed
2. Live market stock selection
3. News or result based stock selection
Aftermarket closed
Aftermarket closed stock selection
1. Based on the end of the day (EOD) data
2. Based on breakout
Based on EOD data
Here we have to select stocks based on
1. High volume
2. High Open interest
3. Top gainer and top looser
Step to find high volume, high open interest, or top gainer/loser stock
Step1 We have to find out stock that showing increasing in open interest with increasing
volume at the end of the day (EOD). Suppose we find some 10 stock both bullish and
bearish data from
Step2 then we check where the action happening in the chart
Step3 if price action also indicates bullish or bearish behaviors then we keep it on our watch
list. If the index and sector indicate positive. we prefer only bullish stock
Step4 aftermarket open if our system tells us to buy then we will go long in that stock
Let’s do with an example

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Based on breakout
Time frame hourly or daily
The breakout means price breakout from any
1. Support or resistance
2. Trend line
3. Chart pattern
This method takes time. As we have to find out manually in our chart
Chart Patterns like
 Rectangle
 Wedge
 Triangle
 Flag
 Cup & Handle

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 Tight trading range

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Live market stock selection

There are two methods to select stocks from the live market
1. Pre-market stock selection for intraday trading
2. After 15 of the market open
Premarket stock selection
 First, select FO stock
 Check market sentiment(Check advance-decline ratio )
 Generally, I trade only gap up or gap down stock from pre-market stock selection
 Pick a stock and check-in chart
Let’s do it with an example

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Live market stock selection for intraday

trading
After 15 market open find
Step1 find Top gainer /looser from the NSE site
Step2 check the premarket volume
Step3 see the last 2/3 days activity and draw the support and resistance line
Step4 wait for the pullback to entry(pullback entry strategy)

Intraday Trading Course

This is the first part of Intraday Trading Course for Beginners as well as Professional
Traders. I strongly recommended you to follow this and our upcoming articles to gain more
knowledge about Intraday Trading.
Here, in this article, you will learn, how to prepare for day trading before market
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1. Index
2. Context
3. Previous day activity
4. Next support and resistance
5. Area of opportunity
6. Possible entry price action
7. Index (if you trade in index stock)
1. Context
Where price is with respect to major trend
 Up/down/range(trend)
 Pullback /impulse swing
2. Previous day activity
Price what did last day?
Studying previous days profile to get clues for today is one of the essential step a trader has
to perform daily. When a trader starts tracking this regularly, when it becomes a habit, he
will always be in sync with the Short Term moves in the markets. We will study following
parameters to understand the previous day
 Attempted Direction (Up, Dn, Sideways)
 Volume Generated (High, Low, Unchanged)
 Position of Close (STRONG/WEEK/neutral)
 Last swing high/last swing low
By studying the above factors we can get a tight grip on what the SM was trying to achieve
the previous day and was that attempt successful. And Possible of trend for next day

LAST HIGH AND LOW

If the previous day has had a trending day in which price was marked up to a new levels,
the previous day’s high or low will not be as important. For example, in the case of a trend
day UP, the previous day’s low is not likely to test. Instead, the last swing low becomes the
important support level. This support level is most important in the morning session of
trading. After a trend day up , expect that last swing low to provide initial support

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Position of close
 If the market strong closes(either near to the previous day high or near to the
previous day low), it is giving the trader a very loud and clear signal that continuation
is likely the next day.
 The last hour often tells the truth about how strong a trend truly is. Smart money or
strong hand shows their hand in the last hour, continuing to mark positions in their
favor
 Neutral CLOSE MEANS. Price close middle of the day .previous day was a range
day. If neutral closing in previous day we expect price will reverse from either
previous day low or previous day high in next day. If trend up then we expect price
will reverse from previous day low

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Volume and attempted direction

 High volume on the closing hours indicate continuation the next morning in the
direction of the last half-hour.
 If the market makes a trending move in the last hour after a lifeless opening session ,
be positioned in the direction of that move by the close. There are very high odds of
an opening gap in your favor the next morning.
3. Next support and resistance level
1. Where is immediate support and resistance or supply and demand zone
2. This is decide our risk to reward
4. DEFINING AREA OF OPPORTUNITY

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Trading is all about Location. Define a location where a decisive group of traders act and
fight it out is the key. Wait for the market to hit the identified price level, watch which side
takes control, buyers or sellers. Go with the winning team and enter where the losers start
exiting and allow their order flow to take our position to profit. Location for area of
opportunity are
 Previous day High, previous day Low
 Last swing high and last swing low
 Major Swing Pivots.
 Big Round Numbers
The previous days high and low are two very important “pivot” points, because where
buyers or sellers came in the day before. Look for price action at these point for either
continuation or reversal.These are markets own levels and market is going to respect its
own levels.
5. INDEX AND SECTOR
First Identify the support (demand) and resistance (supply) levels in the NF and any
sector. If markets closed near demand, I would know to look for opportunities to buy the
next day as price was likely to rally from that demand level
The next step was to look at charts of a few of the large sectors to find some that are also
trading near demand as those sectors would likely rally from that demand level with the
broad (NF and BNF) market the following day. Out of the few sectors, I would always find
one or two that were setting up very well with the broad market.
The final step was to look at a handful of high volume stocks within that sector and that is
always where I would find a VERY quality trading opportunity
6. ENTRY PRICE ACTION
There are three price action trade setups when price encounters an area of opportunity.
 Breakout failure
 Breakout pullback
 Test Reversal

Trading these three price action patterns blindly is a recipe for disaster. There are other
factors to be considered while trading these price action setups like Strength of Trend,
volume , price action etc.

Multiple Timeframe Analysis for Intraday Trading 

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1. What is multiple timeframe analysis?

2. Understanding the trend with multiple timeframe analysis
3. How to use multiple time frame in trading
4. Advantages of multiple timeframe analysis
Multiple timeframe analysis for intraday trading
Tunnel Vision
Have you ever found yourself taking a picture perfect setup on your primary timeframe chart
only to see if not work and stop you out?
Traders should always understand the overall market environment and no just one time
frame
Advantages of using multiple time frames that we cover include:
 Allowing the trader to get a micro view of larger time frames, which can, in turn,
confirm the trader’s original analysis of trade. It is like using a backup pattern and
fine-tuning an entry. An example would be having a pattern on a 60-minute chart and
using a 5-minute chart to confirm the entry.
 Risk can be managed more effectively by combining time frames. A trader can learn
to move stops on smaller time frames for patterns that complete on larger time
frames.
 Using multiple time frames from larger to smaller can help the trader to be aware of
contrary or opposing patterns that form on smaller time frames that are against the
longer-term time frame.
Let’s take day trading example
We will use 3 time frames for our decision making
1. Higher Time Frame (HTF) DAILY
2. Intermediate Time Frame(ITF) HOURLY
3. Trading Time Frame(TTF) 5MINUTES
Higher Time Frame (HTF) DAILY
Daily time frame for market overview and stock selection
FOR STOCK selection based on
 HTF support and resistance Or SUPPLY AND DEMAND ZONE
 HTF trend channel(demand and supply line)
 HTF SENTIMENT
 HTF SOS AND HTS SOW
Let’s analyse in chart
We have taken three stock based on above three stock selection method

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Intermediate Time Frame (ITF) HOURLY

In this time frame we will define the structural framework within which our trading timeframe
(TTF)price action will move.
In this time frame we will
1. Indemnifying trend and
2. Marking the nearest supply and demand zone
Let’s analyse the above three chart in intermediate time frame in above three chart

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Trading Time Frame (TTF) 5 MINUTES

We will use trading time frame(TTF) FOR
 Used for zone selection
 Used for entry ,exit and stop loss placement
How to select zone?
Step 1
Marking the nearest supply and demand zone
Watch below video for better understanding
Step 2
Find where we are with respect to zone

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1. If trend up and we are at supply zone avoids long trend, we become sellers as price
at supply zone or wait for clear breakout from supply zone.
2. If trend up we are at the demand zone look opportunity for long
3. If we are middle of the trend ,we can go with the intermediate trend
Let’s go to trading time frame
Axis bank case study

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Sunpharma case study

HDFC bank case study

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VWAP Trading
1. What is VWAP Trading?
2. A complete VWAP Trading system
3. 2 VWAP Strategies
WHAT IS VWAP Trading?

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Volume weighted average price (VWAP). These Tools are used mostly by short-term
traders and in algorithm-based trading programs.
VWAP is often used to measure the trading performance of smart money. Professional
traders who work for investment banks or hedge funds and need to trade large numbers of
shares each day and cannot enter or exit the market by buying or selling a large position in
a stock during the day, institutional traders compare their price to VWAP values.
Two words are used here (PVWAP and VWAP)
PVWAP is end of vwap value of previous day
VWAP is current day VWAP
PVWAP can be obtained by plotting straight horizontal line on chart and looking where it
was plotted at 3:30 pm. VWAP is obviously current day VWAP which can be obtained by
plotting VWAP indicator.
VWAP day Trading system
Step1: location (refer out multiple time frame trading video)
1. define trading range(NEAREST SUPPLY AND DEMNAD ZONE)
2. where price open, where wants to go(with respect to nearest supply and demand
zone)
Step2: relative strength and weakness compare to sector and index(refer to intraday trading
course part 1)
If respective sector negative choose weak stock for sell. If index (nifty) negative. Choose
weak sector

Step3: MARK OPENING RANGE

Mark opening range (first high and low of the day)
Step4: condition and entry type
Rules for entry
 Do not play stock long that is below the VWAP
 Do not play stock short if above the VWAP
 If price above both PVWAP AND VWAP look for long
 If price below both PVWAP AND VWAP look for short
 A five minute candle should no closed below vwap for long entry . reverse for short
entry(why that shows day going to be a range day)
 1st candle of the day should be heavy volume .Why heavy volume on first candle of
the day? We are trying to identify what the SM sentiment is for the day? If SM want
to buy stock, we would see that on the open with heavy volume and strong
directional move. Stock may gaped at opening. Which shows that stock may trend
up rest of the
VWAP PULLBACK entry type
1. VWAP PRICE CORRECTION
2. VWAP TIME CORRECTION
Step5: Entry
If conditions are valid
Step6: Active trade management
Exit method
1. Target exit

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2. Reversal development exit

WHAT IS VWAP PULLBACK STRATEGY
FIRST UNDERSTAND WHAT IS PULLBACK
A pullback is a price movement that moves in against the trend. It is a temporarily price
movement before it resumes back into the main market direction. Pullbacks are sometimes
referred to as price Corrections or retracement.
VWAP PRICE PULLBACK ENTRY
CHARACTERISTICS of WEAK PULLBACK
1. Correction(depth of pullback) must be small and without strong momentum
candlestick
2. Volume decreases / low volume correction
3. Great mix between red and green candle with light volume
4. Closes towards the middle with wicks
LOGIC OF VWAP PRICE PULLBACK ENTRY
If a stock move strongly in the morning supported by smart money , then it respect
vwap. When a stock is traded above the VWAP .If VWAP is rising then it shows buyers in
control. When a stock is traded below the VWAP. If VWAP is falling it shows sellers in
control
Step to follow
1. Find the stock in a clear trend up (HH/HL) or trend down(LH/LL). Look for at least  2/3
candle in same direction with high volume
2. THEN wait for price to pullback(WEAK) towards vwap
3. Check whether price rejected from vwap or not. (look for rejection from vwap)
4. If rejected go with the initial move
5. Don’t buy aggressively until this stock heads towards initial direction.
6. Check price action around opening range high or opening range low
7. Those stocks that trade back above the opening range price are likely to go even
higher. This is because of new bulls entry plus short cover buy order .so after the
reaction period market set the tone of the morning trend

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TIME PULLBACK
TIME CORRECTION(Stock to digest the directional move is through a time correction. In a
time correction the stock move in horizontal, low volatility trendless manner. Generally
strong trend has time correction
Because the pullback is shallow, it’s difficult to time your entry on a pullback. Instead, you
can look to trade the breakout
What happening here is
1. Initial upward movement shows the direction of major interest. Then a stock meets
resistance and consolidates under this level .If the stock is strong enough to stay
close to the resistance level without sharp retracement, it means that the path of

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least resistance is still upward and that the stock is likely to continue in the same
direction as soon as it digests the distribution
2. Smart money slowly and discreetly accumulate their positions is in sideways price
action. There they can hide their activity perfectly. A sideways price action is a place
where big institutions are getting ready for action
3. Once bulls confident that the bears will fail to reverse the trend ,bulls buy again with
tighter stop loss
4. We prefer the range of the consolidation to be narrow
Step to follow
1. Find the stock in a clear initial move with high volume.
2. For bullish breakouts, look for price to hug the top of the range. For upward
breakouts, trade only those situations where price closes above the middle of the
opening range most of the time. Downward breakouts from the opening range do
best when price resides below the range’s midpoint most often
3. Price should above both PVWAP and VWAP
4. Trade with the trend. In a bear market, downward breakouts tend to make more
money than upward breakouts in intraday trading. In bull markets, upward breakouts
make more money.
5. Look Break out with volume and clean candle
6. After the breakout the stock exhibit bullish price action. I mean breakout should
follow through
What invalidate our setup
1. Price take too much time during consolidation
2. Price should not break initial move high(for long entry)during consolidation for upside
breakout
3. First candle have both upper and lower long wick

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Opening Range Trading Strategy

1. Understanding market sentiment
2. Understanding opening range
3. Opening range comparative analysis
4. Opening range trading strategy
UNDERSTANDING MARKET SENTIMENT
1. Different market sentiment is like related to the prospects of a specific company.
There is also sentiment based on the company’s industry group, and there is
sentiment regarding the condition of the whole market(corona effect)
2. The force behind any price move is market’s mood or sentiment. Not news or
earning, there are already happen. I mean old.in good news price fall why?
3. Sentiment represents bullish or bearish feelings for the future prospects of a stock.
This means the current movements of a stock’s price are dictated by what the
market expects will happen in the future, not what has already taken place. Any
news is old; any reported earnings data is old information.
How to find out market sentiment in chart?
 Through Principle of Opening Range (OR) trading approach
 You should look at a stock’s price action and volume. And find out what it
demonstrates that its sentiment is bullish, bearish or undecided?
Opening price
The Opening Price is the first trade of the day. Balance point of current day. Daily open
price act as support and resistance.

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The Importance rules

1. Don’t try to buy below the open on expected up close days.
2. Don’t try to sell above the opening on expected large down days.

What we study at opening?

1. Where price open relative to previous day high and low
2. Where the next support or resistance level ?

OPENING CANDLE in Opening Range Trading Strategy

OPENING CANDLE SUGGEST THE SENTIMENT FOR THE DAY. IF FORMED AT KEY
SR LEVEL(PDL/PDH/LSL/LSH)

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 Clean ,Strong wide range candle with volume indicate strong market sentiment
 PIN BAR FROM PDH/PDL also suggest strong sentiment
The proper knowledge of opening candle and the price action around a reference point very
crucial for successful trades. Follow the trend

Initial move 
Two types of player
 Smart money
 Retailer
Market always looks to handle the current business first. So the initial move will usually tell
us about,
 Who were the trapped traders from yesterday scampering for an exit today?
 Who missed an entry yesterday and are rushing into the morning markets?
 Who is driving the price?
once the current business is taken care of, we can then start looking for the serious traders
trying to give market a direction.
How to know above point?
By analyzing direction of move and volume and where price is?
Lets analyse an initial up move
1. short covering rallies(discussed in volume price action analysis video
2. Actually buying up move
3. Morning trap

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Why should avoid initial move for entry (morning rap)

The “Morning Specials” is composed with two scenarios which can trap novice traders to
believe market is moving in one direction, but in fact, reversal is just around the corner.
1. Often you see price is moving in one direction very strongly from the opening bell.
The momentum is so strong, it creates a parabolic curve. It makes you regret not
entering early. But don’t get trapped, this parabolic move often get reversed. The

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psychology behind this is that trend is healthy when it’s made of average trend bars
closing near the extremes, consecutiveness and small corrections. But when the
momentum gets out of control, such as a parabolic curve with gigantic bars without
pullbacks, control has to be restored. Too fast too big is a problem because there is
no consistency. Market is balanced, where both bulls and bears can profit. If price is
only favoring one side, resistance will be met. Keep this in mind when you see
volatile movement in the early morning. When you see clear signs of failure or
exhaustion, counter it.
2. Operator will run the price down fast from opening and or below any reference point
this action creates interest among the traders and brings in selling .Smart money
objective are
 To test the selling power of public also who long now wind and exit
 The stock of which in turn is demand by the operator and gives him a chance to buy
a little long stock and put out some long orders.

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Initial indication of trend change

 Down opening from strong close or up opening from week close indicate may be the
beginning of the change of the trend either way(or type 2)

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 When the pullback is deeper and stronger than expected, let it roll over. Wait for test
 Low volume move

Opening Range(OR) and initial range(IR)

Opening range is defined as the difference between the previous day close to today high or
low ,as shown in left side of image
Initial range defines as the difference between the firs high and low of the day. So assume
opening range and initial range has same meaning. So next onward opening range means
initial range

Why you should study Opening Range?

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 Stocks at opening usually experience violent price action that arises from heavy buy
and sell orders that come into the market. This heavy trading in the first five minutes
is the result of the profit or loss taking of the overnight position holders as well as
new investors and traders
 Wise traders sit on their hands and watch for the opening ranges to develop and
allow the other traders to fight against each other until one side wins.
 Then develop a trade plan in the direction of the opening range breakout
What is the Opening Range (OR)?
 The Opening Range Trading Strategy is consisting of price and volume as inputs
to determining the current bias ( bullish, bearish or neutral of the stock’s
trading activity)
 The Opening Range Trading Strategy is the difference between the first high and low
of the day.
 How to find high and low? At least one candle should be completely against the
trend. If that candle has low volume it suggests more strength on trend cont.

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Depend open the Opening Range, we can predict what types of day may
occur
There are various types of day pattern, but generally these four types day pattern are occur
again and again
 Trend Day
 Double-Distribution Trend Day
 Typical Day
 Trading Range Day
Trend day
 Small opening range
 usually opens with an wide range candle or pin bar candle
 sharp move at opening with high volume. Consucative healthy candle

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 each period will have a higher high and higher low

Double distribution trend day

 relatively inactive during the opening range
 narrow opening range(accumulation or distribution going on)
 when price break out from opening range give trending move either direction

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RANGE DAY
 WIDE opening range
 High and low of the day hold though out the day(BOF at both end)
 Price rotated up and down without any clear directional conviction during the day

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Typical day
 Very wide opening range
 usually opens with an open drive or open test drive
 sharp move at opening with high volume with very big candle candle
 price generally trading around either day high or day low

How to analyse Opening Range

We will ask five questions for analyzing opening range .The answers to these questions will
give your insight into the stock’s current condition.
These are explain below

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BIG PICTURE
 What price did yesterday ?
 What types of day?
Where it occur with respect to previous day range?
 Inside or outside of previous day range. Identify the opening range and see where
the opening range stands, above or below the previous day range (PDR)
 Is market structure change
 Identify the opening range and see whether the opening range low at support or
opening range high at resistance.
 Why is it important to establish whether or not the low (high) represents significant
support (resistance)? When you are trading using the OR you will approach each
day assuming that the OR high and low are likely to be important price levels
 If you knew that a particular price level was likely to be either the high for the day or
a significant breakout point, wouldn’t you want to focus on that stock and that price
level? You don’t need to know anything about the OR to understand that.
 Where was the last SR crack, on upside or downside, successful crack or failure

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Bias of the day(bullish ,bearish,neutral)
 Opening range represents the bulls and bears establishing their initial positions for
the day.
 The most basic application of the opening range principle is that, when a stock move
away from the opening range indicates that one side is stronger than the other.
When a stock moves above the opening range the bulls are in control. This means
the prevailing sentiment in the stock is bullish. The manner in which the stock breaks
above and trades above the opening range will indicate the strength of the bullish
sentiment.
 Don’t buy aggressively until this stock heads upward. Those stocks that trade back
above the opening price are likely to go even higher. This is because of new bulls
entry plus short cover buy order .so after the reaction period market set the tone of
the morning trend
 Check bias with trend
#Tips what I am following
 Don’t buy below opening range. buy above opening range
 Don’t sell above opening range , sell below opening range
 This technique does not work all of the time
How to find bias of the day
 Identify how much a stock retraces in relative to how much initial move in the
opening range. And pay attention to the reaction and how stocks tend to act during
this period
 Flat pullback (price consolidate high of the day). Look to see if most of the trading is
near one end of the range. Has the stock spent most of its OR period near the highs
of the OR? If so, this is bullish Strong buy signal.
 If a stock goes from an up opening and then sells off and remains beneath its
opening price after the morning pullback has stabilized, it’s possible that the stock
has reached its high of the day.

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 however , if a stock gaps up and pulls back during the morning pullback , but then
rallies to break above its opening price , the mark-up was probably not trap gap and
the stock should make new intraday highs

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Volume activity for the entire Opening Range?

Big volume during the OR means there is something unusual going on and that is
exactly what you want if you are looking for a big breakout day
Note: Volume it is important to watch the volume carefully, when determining if price will
continue with the direction of opening range
 If stock up and the volume also high and also the price remain above its opening
price after the early morning pullback, it is an excellent sign that the stock has further
to go on the upside.
 If high volume appear after a up move and the stock immediately comes under
selling pressure ,chances are that this volume was a seller

Opening range relative strength with respect to sector and index

Let’s understand with a bullish relative strength with respect to index or sector

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When the market takes out it’s OR swing low most stocks will follow suit and take out their
respective Opening Range low
Relative to parent index,
1. If Stock hold the open or goes sideways when index down. The stocks that do not
trade below their OR low are demonstrating bullish intraday relative strength. If the
market does not follow through in its breakdown the strong relative strength stocks
are the best candidates for an immediate rise in price
2. If the Stock up
These are the sign of strength show in the stock relative to index, don’t short these stock ,
but patiently wait for the index to show some strength or turn from down to up , then go long

1 SECTOR TEST OPENING RANGE LOW

M&M -higher low(indicate bullish)
MARUTI- also test opening range low
AMARAJABAT- break opening range low(bearish)
2 sector making higher low but near opening range low
M&M- stalling at opening range high (bullish)
MARUTI-making lower low (bearish)
AMARAJABAT- price below opening range low(bearish)
Sector is indicating some strength on upside as price struggling to close below opening
range low and making higher low .so want bullish stock for long entry
M&M Only showing bullish signal compare to other two stock
The Opening Range Provides Price Points for Identifying Opportunity
and Risk
Entry
1. Breakout
2. Pullback

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3. Reversal

Opening Range Breakout

1. What is opening range?
2. What is opening range breakout?
3. Opening range breakout types
4. Breakout entry for volume and price action
5. After entry volume and price action
What is the Opening Range (OR)?
The Opening Range is the difference between the first high and low of the day. How to find
high and low? At least one candle should be completely against the initial move

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The benefits of Opening Range Breakout Trading

There are several benefits to trading breakouts. For example…
 Momentum is with you – Trading breakouts allow you to enter your trade with
momentum at your back
 Catch big trends – If you were to trade pullbacks, sometimes it may never come.
But with breakouts, you never have to worry about missing another move in the
markets
 It gives us defined entry and exit (stop loss) points.
Demerit Opening Range Breakout Trading
 False breakout or smart money trap
 Maximum time breakout failed
So breakout should be trade in a proper time. Here are two approaches to trading the
breakout designed to minimize risk:
1. Buy the initial breakout when the conditions are right
2. Buy the retracement to the breakout when you need confirmation
Tips :-When opening range is not clear ,stay away from opening range trading market

Opening Range Breakout

Note-Now onwards we will discuss only bullish breakout. Exact opposite for bear breakout
Opening Range Breakout players
1. professional
2. Those traders who have shorted the market will now be forced to cover their poor
positions by buying as well. Short covering buy order above the opening range high
3. those traders not in the market may feel they are missing out and will be encouraged
to start buying
Principle for opening range breakout
Identify how much a stock retraces in relative to how much initial move in the
opening range.
 Pay attention to the reaction and how stocks tend to act during this period
 And the volume activity during the opening range period
Based on above three pointers we have divide opening range breakout into 3 types. These
are
1. Opening range breakout
2. Opening range Accumulation breakout
3. Opening range Absorption breakout
What is Opening Range Breakout?
Opening Range Breakout means price moves below well-defined support (opening range
low) or above resistance (opening range high)
Logic
Opening range breakout depend open 3 factors
1. Strong initial move (1 or more than one candle)
2. Price consolidate at opening range high(Flat pullback)
3. Unusual volume in opening range
Strong initial move

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These are the directional move with smart money participation and conviction. If at the
start of a trading session. An Open-Drive is generally caused participants who have made
their market decisions before the opening bell. The market opens and move aggressively
in one direction.

Price consolidate AT opening range high

In strong trending markets, you’ll have Flat pullback (price consolidate high of the day).that
usually stock move in horizontal, low volatility trendless manner. Most of the trading is near
one end of the range. A Structural Feature Sign of Strength Price holds gains after an up
move “Eating through” residual supply
 OVERLAPPING BAR hugs the level. It shows his level is no longer a strong
reference point, The price will move with the current pressure. If the level is strong
then price should react immediately
 retailer’s taking profit to reduce risk .market pulls back and goes sideways. Once
bulls confident that the bears will fail to reverse the trend, bulls buy again with tighter
stop loss(if find this pattern find middle of the trend)
 Price should above vwap
 Price should not break opening range high
 Price consolidate within a tight trading range

Volume

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Initial move volume should be clearly expansion than previous day volume
Why high volume on the initial move of the day?
We are trying to identify what the SM sentiment is for the day?
If Smart Money wants to buy stock, we would see that on the open with high volume and
strong directional move.

Rules for opening range breakout

1. Wait for the first initial move to complete. should be strong candle
2. Volume should be clearly expansion than previous day
3. Price consolidating at high of the day(flat pullback)
4. High of the opening range should not break
5. Declining or lower volume on retracement candle
6. Price must be above vwap
7. Entry above opening range high
8. Stop loss below opening range low

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BELOW ARE SOME MORE EXAMPLE GIVEN ANALYSIS YOURSELF

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Opening Range Accumulation Breakout Strategy

logic
The big institutions who move and manipulate the market build up their massive trading
positions in a well-defined trading range .After they fully enter their positions, then they
initiate strong and aggressive buying or selling activity to move the price. They strive to
move the price in the direction of their newly accumulated positions.
May be happen at opening range high or above opening range
Characteristic of re accumulation
 Immediate background must have strength. Strong move
 Re accumulation areas are generally in well-defined range.
 Reaction volume remains low and volume increases at support
 Upthust and spring can be appear

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 Springs at lows are the best indications of ACCUMULATION.

 Failure of price to break support after basing above it
 Stronger BULL candles in range
 Price Above vwap

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Opening range Absorption breakout

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Smart money obserbing supply at resistance. Means smart money obserping supply coming
from ,long liquidation, profit taking, and new short selling.
Characteristic of Opening range Absorption breakout
 Immediate background must have strength. Evidence of demand overcoming supply
 When viewed as a correction, absorption areas are generally shallow.. The main
characteristic of BUYERS overcoming SELLERS is the repeated inability of prices to
REACT away from opening range high.
 Reaction volume remains low
 rising supports and expanding volume on up‐swings
 AFTER upthrust(breakout failure) , price unable to move down and unable to break
last swing low

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After entry
breakout candle
Clean wide range candle close above the opening range high

Breakout volume
Should be high or above high. Why?
 If you see high volume accompanying wide spreads up, this shows that the smart
money was prepared to absorb any selling from those locked-in traders who decided
to sell In this situation, the market-makers anticipate higher prices and are bullish.
 High volume breakout should follow through
The danger sign to watch for at the breakout is the opposite price pattern. If the stock
breaks out on good volume but immediately reverses and trades below the breakout point
on continued big volume it means that there is too much supply at the new high price. This
is a major warning sign. The big volume at the breakout will now represent significant

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resistance if the stock is below it. This pattern of a big-volume reversal at the top of the OR
usually leads to a failed breakout and a selloff.
Average volume breakout
Often the breakout will occur on light volume but as the stock climbs the volume will
increase. This is also a positive sign.

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BREAK OUT NEEDS FOLLOW THROUGH

Why breakout needs follow-through?
 For confirmation for successful breakout
 Avoiding smart money trap (stop loss hunting)
Smart money trap
Hunting the stops is a phrase that describes a situation where smart money push the stock
to trade above (resistance) a certain price because they expect that there are a lot of resting

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orders to buy the stock if it trades above that particular level. The motive for doing this is
that if the trader buys the stock to trigger an advance through the price then the flurry of
stop orders will push the price even higher, at which point the trader would sell the stock to
the stop orders being executed. If a breakout is created by a large number of stop orders
being executed, the subsequent price action will usually be an immediate reversal back into
the range. An immediate reversal is therefore a warning sign that the breakout is not going
to be clean!
For confirmation for successful breakout
Traders like to see confirmation after breakout. One more bullish candle after breakout
candle. A bull break followed by bull break is a sign of follow through and thus an indication
of bullish enthusiasm, for as long as it lasts.
 If price up and the volume also high and also the price remain above its opening
price after the early morning pullback, it is an excellent sign that the stock has further
to go on the upside.

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3 Rules for Trading Stock Volume Analysis

In this article, I am going to discuss 3 Rules for Trading Stock Volume Analysis. At the
end of this article, you will understand the following. 
1. What is Volume in Trading
2. Understanding Volume Analysis in Trading
3. 3 fundamental rule of volume analysis
What does volume mean in trading?
Volume, or trading volume, is the amount (total number) of shares or contracts that was
traded during a given period of time. Generally volume shows the interest of buyers and
sellers. In above example volume clearly shows buyers more interested than sellers
Let me explain you

3 rules for volume analysis in trading

These are the 3 rules that based our volume analysis
1. THE LAW OF SUPPLY AND DEMAND
2. THE LAW OF CAUSE AND EFFECT

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3. THE LAW OF EFFORT VS RESULT

These rules are popularly known as WYCKOFF BASIC LAW. Now let’s understand the 3
fundamental rules of RD Wyckoff
THE LAW OF SUPPLY AND DEMAND
When demand is greater than supply then price will rise to meet this demand and
conversely when supply is greater than demand then price will fall
4 fundamental principle of supply and demand
1. Price = direction of trend
2. Volume =strength of trend
3. Price and volume confirms market direction
4. Divergence leads to market weakness

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THE LAW OF CAUSE AND EFFECT

The law of cause and effect, basically, tells us that we cannot get something from nothing.
When the market enters a period where demand exceeds supply or, where there is an
excess of supply over demand, it is not just a freak occurrence. Each of these comes out of
a period of preparation and the extent of that preparation has a direct and inseparable effect
on the final result. If there is no preparation, there will be no move.
THE LAW OF CAUSE AND EFFECT: The effect will be in direct proportional to the cause
other words as small amount of volume action will only result in small amount of price
action. If the cause is large then the effect will be large vice a versa
Different types of cause that occur are

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 Trading range(accumulation/distribution)
 Chart pattern

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THE LAW OF EFFORT VS RESULT

The market, or a stock, is continually attempting to go one way or the other. These attempts
may be very short in duration or quite lengthy. Either way, they represent an effort generally
expressed in terms of volume. When the price responds to the effort, an important price
movement is likely. When the effort and result are contrary(divergence) in nature, there is
likely to be an important change in the direction of the price.
THE LAW OF EFFORT VS RESULT: Similar to newton’s third law. Every action must have
an equal and opposite reaction in other words the price action on the chart must reflect the
volume action below. Effort (volume) seen as the result (price), where validated and
divergence comes to consider

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How to trade with price and volume

1. As discussed in multiple time frame analysis. define the nearest supply and demand
zone

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2. Let the price comes to the zone and analyse the candle associate with volume at the
zone
3. See either reversal or continuous volume and price action

VOLUME PRICE ACTION ANALYSIS

1. Understanding Market Structure through Volume Swing Analysis
2. Strength and weakness of swing through volume price action analysis
3. How to analysis volume in trading

Understanding Market Structure through volume analysis

In the first part we have studied 3 law of volume analysis. These are
1. THE LAW OF SUPPLY AND DEMAND
2. THE LAW OF CAUSE AND EFFECT
3. THE LAW OF EFFORT VS RESULT
Based on these laws we know analysis the big picture that is market structure analysis
using volume. Because our the final decision making depend open the market structure
Market Structure
It is similar to learning to read a new alphabet-once you understand the characters, you can
read the words, and once you know the words you can read the story. So market structure
consist of short term swing
 Market move in up down swing, what we call a market swing. In a healthy bull trend,
the upswing generally exceed the downswing in length, the reverse is true for the
bear market
 Hence by observing market swing , we are able to glimpse into the structure of the
market and get clues on whether the market will move up or down
 So basically price move in uptrend or down trend
1. In a healthy bull trend Price Make Higher High (HH) and Higher Low (HL)
2. In a healthy bear trend Price make Lower High (LH) and Lower Low (LL)

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Let’s understand the rally (opposite for decline)

What happening during the rally?

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Daring the rally, what has been going on? Two things
1. First the buying of stock by those who are covering their previous short sales(after
knowing that they are in wrong direction) and
2. Second ,actual new buying by those who expect the advance to continue
What happen after rally?
1. If the rally is due to more short covers than long buyers then , it is likely to be decline
in future
2. If the rally is due to actual new buying , the trend is likely to continue
How can I tell which type rally is? (Short covering or long buying)
Watch the volume and momentum of price changes
 If PRICE is rising with momentum and VOLUME is rising, it means market is
STRONGLY BULLISH. The move is by long buyers. HARMONEY
 If PRICE is rising but VOLUME is falling and momentum also falling, it means market
is WEAKLY BULLISH. The move is by short covering. DIVERGENCE
Why PRICE is rising and VOLUME is rising in rally?
For price to overcome selling pressure created by
1. Profit taking selling order
2. New selling order at market top
What indicate HARMONEY & DIVERGENCE?
It should be noted that the price movement will be in direct proportion to the amount of effort
expended.
 If the effort is in harmony with the result it is a sign of strength of the movement and
suggests its continuation. If the effort is in divergence with the result it is a sign of
weakness of the movement and suggests a reversal.
 The result tends to be in direct proportion to harmony or divergence. If divergence is
suggested, a smaller divergence tends to generate a smaller result and a larger
divergence, a larger result. On the other hand, If harmony is suggested, a greater
effort will cause a movement of long duration; while a slight effort will be reflected in
a movement of shorter duration
General Rules for Interpreting Volume to determine the health of a trend
1.If PRICE is rising and VOLUME is rising, it means market is STRONGLY BULLISH.
Volume helps us to determine the health of a trend. An uptrend is strong and healthy if
volume increases as price moves with the trend and decreases when price goes counter
trend (correction periods or ‘pull backs’).
2.If PRICE is rising but VOLUME is falling, it means market is WEAKLY BULLISH.
Uptrend weakening
When prices are rising and volume is decreasing, it tells that a trend is unlikely to continue.
Price may still attempt to rise at a lesser pace, and once sellers take control (which is
usually signified by an increase in volume on a down bar or candle), prices will fall
1. If PRICE is falling, VOLUME is rising, market is STRONGLY BEARISH.
2. If PRICE is falling and VOLUME is falling, market is WEAKLY BEARISH.
Downtrend weakening

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Understanding Market Structure through Volume Swing Analysis

The movements of the price do not develop in periods of time of equal duration, but that
they do it in swing of different sizes, for this reason we have to study the relation between
the upward and downward swings
The swing of the market furnishes a clear insight into changes in supply and demand. By
learning to judge all sizes (both up and down swings) of market swings, you will gradually
learn to spot the time when a rally, and the time when a reaction has stopped and is about
to reverse. These are the turning points.
Here we have to find out
1. Strength and weakness of swing through volume analysis or find out harmony and
divergence
2. volume analysis at key level for decision making
Strength and weakness of swing through volume analysis
There are two methods to find out strength and weakness in swing through volume analysis

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A Compare the volume of the current price swing with the volume of the
previous price swing in the same direction?
Means compare the current impulse swing vs. previous impulse swing. What it is telling?
Volume increasing or decreasing or same volume
Let’s understand divergence

 Compare the volume of UP-swings (A) and upswing (B). Note the decreased
VOLUME of the swing (B), indicating a reduction in bullish VOLUME. Weakness is
appearing on the bullish side.
 When prices are rising and volume is decreasing, it tells that the trend is unlikely to
continue. Price may still attempt to rise at a slower pace, and once sellers take
control (which is usually signified by an increase in volume on a down bar or candle),
prices will fall
 The move is by short covering RALLY
 A low volume up swing as the market attempts to rally above these old top is telling
you clearly that the market is not going anywhere
 High volume up bars in the same areas is certainly indicating that there is supply in
the market. If the market makers and specialist are still bullish they will have to
absorb any supply that appears, this will allow prices to continue up.
Let’s understand harmony

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 When comparing current upswing B volume with previous up swing a volume. Note
the increasing VOLUME on A swing, indicating an increase in BULLISH
STREANGTH. BULLISH price swings are showing signs of strength
 RISING PRICE IS ACCOMPIED BY RISING VOLUME. It means market is
STRONGLY BULLISH. Price will continue the trend
 High volume up bars in the same areas is certainly indicating that there is supply in
the market. If the market makers and specialist are still bullish they will have to
absorb any supply that appears, this will allow prices to continue up
Compare the volume of the current price swing with the volume of the
previous price swing in the opposite direction?
Means compare impulse volume vs. retrace (pullback) volume. In general a healthy trend
has increasing volume on impulse move and decreasing volume on retrace volume
Let’s understand harmony

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
 When comparing current down swing B volume with previous up swing A volume . it
shows volume decreasing . Strength is now clearly on the bullish side.
 Price movement is expected in the direction of strength .When prices are falling and
volume is decreasing, it tells traders that the trend is unlikely to continue in the down
direction. Price may still attempt to fall at a slower pace, and once buyers take
control (which is usually signified by an increase in volume on a up bar or candle),
prices will move up
Let’s understand divergence

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When comparing current upswing B volume with previous up swing A volume IT SHOWS
PRICE is falling and VOLUME is rising, it means bearish PRESSURE OVERCOME
bullish PRESSURE. TREND CONTINUE IN down DIRECTION

1. What is volume spread analysis?

2. How to use volume spread analysis in trading?
3. Market structure with respect to volume spread analysis
4. Volume spread analysis
5. Selling climax
6. Stopping volume
7. How to trade based on selling climax and stopping volume?
MARKET STRUCTURE With Respect To Volume Spread Analysis
Lets understand bullish trend formation. Bearish trend turned to bullish trend
Price goes through 4 phases. These are
Phase A. Stopping the previous bearish trend
Phase B. Construction of the cause.(accumulation)
Phase C. Test for confirmation (testing supply after accumulation)
Phase D. Bullish Trend out of range.

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We will come this market structure later. Just understand the overall concept
How to analysis volume activity in chart
1. Through volume price action(VPA) (discussed in previous article)
2. Through volume spread analysis(VSA) (we will discussed in this article)
Let’s understand how to differentiate different types of volume like
1. Average volume
2. Below average volume
3. High volume
4. Ultra high volume
Now we have four type of volume. Let’s find out in chart
Volume always moves in cycle.
Rule -: You can visually compare Mountain Peaks to identify volume peaks structure. The
key is to understand the structure of the peak clearly. Volume peak has following
characteristics:
Rising Volume — Peak (Highest Point)— Falling Volume

Average and Above Average Volume: Above Average Volume is the Highest Volume in
the current session which is higher than the average volume but it is lower than the previous

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peak Volume. Average Volume is the volume that coincides with Moving Average 20 of the
volume indicator
High volume and Ultra high volume: high volume is volume equal to previous pick
volume. Ultra High Volume is the Highest Volume in the current session. It is higher than
the previous peak volume.

Bearish and Bullish Volume

Bearish Volume is marked in Red and it shows bearish activity. Bullish Volume is marked in
green and it shows bullish activity. If demand volume greater than supply volume then
overall bullish volume

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VOLUME SPREAD ANALYSIS (VSA) in Trading

In volume spread analysis few facts which we are required for chart analysis. These facts
are:
1. price movement,
2. volume(the intensity of the trading)
3. the relationships between price movement and volume (harmony or divergence)
4. the time required for all the movements to run their respective action
Components of volume Spread Analysis:
1. The Volume (i.e. activity),
2. The Spread (i.e. range of the price bar)
3. The Close (the closing price of current bar)
Spread: Spread is the difference between Opening and closing of the price. See the
diagram below for further illustration.
Volume: Volume is the activity of the frequency of transaction of the price change during a
specified period of time.
Close: Close price tells us where the balance point at the end of the period.

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Upside move with respected to volume

1. Smart money has no interest in the upside – Low volume.
2. Smart money are selling into the public buying – Higher volume.

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SIGN OF STRENGTH BASED ON VOLUME SPREAD ANALYSIS

Re call the market structure that we have discussed above

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Sign of strength means. The stopping action of down trend

Phase A. Stopping the previous bearish trend (sign of strength)

Again recall the volume interpretation
• Smart money has no interest in the upside – Low volume.
• Smart money are selling into the public buying – Higher volume.
 Ultra high volume-the classic trap of “Smart Money
Now we have found two important rules for volume spread analysis
 Rule Number 1-‐ Weakness appears on an Up candle. Supply when it comes, it
comes on an up candle.
 Rule Number 2-‐ Strength Appears on a Down candle. Demand when it comes, it
comes on a down candle.
Some volume spread analysis that suggests the end of down trend. These are
1. Selling climax
2. Stopping volume
3. End of falling market
Now we will discussed these 3 pointer
What is selling climax?
This condition marks the end or the approaching end of a particular downtrend. This panic
selling by retailers (or public) creates an extreme expansion of the price spread and an
expansion of the volume, this action may occur over one day or over several days.which is
matched by buying (demand) of:
1. experienced smart money
2. large interests
The classic characteristics of a selling climax:
 There must be trend to reverse. (after a significant extended down move on the time
frame of interest )

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 Trend will accelerate to downside with wide spreads down closing in the middle or
high
 Volume expands dramatically
 Often occurs one more than one bar
 Must be tested for entry

A selling climax is generally followed by a secondary reaction why?

Two possible outcome after selling climax
1. Either the professional money is BUYING into the SELLING [see end of a DOWN
market].

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2. There is a trading range OR technical support level to the left and .(trend
continuation)
Let’s first understand for trend continuation after selling climax
If buying during the Selling Climax was principally for the purpose of supporting prices
temporarily and checking a panic, or relieving a panicky situation, this support stock will be
continue after a technical bounce from support .if price supply sufficiently to drive prices
through the lows of the climax day and bring about a new decline, that is, a resumption of
liquidation.

Trend reversal after selling climax

After a technical rally, if prices test climax low with volume decreasing and hold around or
above the climax lows, then we have an indication of support and the completion of
liquidation. This tells us that there is no selling pressure or no Supply, (i.e. no more sellers)
an obvious conclusion that the market is going to rally as shown in the right side of image
If the ‘test’ is successful, we can expect higher prices, especially if the test is on low volume
and narrow spread down bar into the same area where you first saw the very high volume.
This is a strong BUY signal.
Time To Buy The Market AFTER TEST
1. Look for selling climax
2. Wait for successful test(lower volume and narrower spread)OF selling climax day
low
3. Any reversal candlestick pattern(like engulfing or outside bar or pin bar)
4. Buy above that candle
5. STOP LOSS below the low

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Stopping volume
What is stopping volume?
   To stop a down move and  demand has to overcome the supply
 It is the volume of the smart money coming into the market and stopping it falling
further
 What is happening is that the weight of the selling pressure has become so great at
this point, that even the smart money moving into the market have insufficient
muscle to stop the market falling in one session. It takes two or three sessions for
the brakes to be applied and is like our tanker.
Characteristics of stopping volume
 Demand overcoming supply
 Occur after an extended down move
 Volume expand significantly
 Bar close mid or high and body narrow (lower shadow)
 Often occurs one more than one bar . first bar close may low 2 nd bar close mid or
high

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Two possible outcome after seeing stopping volume

If the volume had represented SELLING, how can the spread be narrow? There are only
two possible outcome for a narrow spread DOWN-day on very high volume.
1. Either the professional money is BUYING into the SELLING [see end of a DOWN
market].
2. There is a trading range to the left and the professional money is prepared to absorb
the buying from traders from support region.
Trend continuation after seeing stopping volume
This topic will covered in next separate article
Trend reversal after seeing stopping volume
After seeing stopping volume .If the ‘test’ is successful, we can expect higher prices,
especially if the test is on low volume and narrow spread down bar into the same area
where you first saw the very high volume. This is a strong BUY signal.

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How to trade after see stopping volume?

Time To Buy The Market AFTER TEST
1. If the day closes on the lows, you now have to wait to see what happens on the next
day.
2. If the next day is level or up, this must surely show buying on the previous day as
well.
3. wait for the market to come back down into the area of stopping volume on LOW
VOLUME narrower spread
4. The time to buy the market is when we begin to trend up As the trend begins .Any
reversal candlestick pattern (like engulfing or outside bar or pin bar). This shows us
that there is no sellers or no Supply
5. Buy above that candle
6. STOP LOSS below the low

CANDLESTICK Pattern Analysis

In this article, I am going to cover all Reversal Candlestick Pattern Analysis in detail. In
previous article we have discussed Candlestick Analysis in Trading, PIN BAR Trading
Strategy, Wide range candle analysis. And in this article we will cover 2 candle reversal
patterns
Outside Reversal Pattern
BULLISH OUTSIDE REVERSAL PATTERN STRUCTURE
1. First candle is a narrow range candle or doji
2. The second candle completely engulf first candle and close above the first candle
high.
3. The second candle low below of the first candle low ,but the close must be above the
first candle close and high above previous candle high
4. The second candle should be accompanied by high volume

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OUTSIDE REVERSAL PATTERN PSYCHOLOGY

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What exactly is going on at these levels? Lets understand he two candlestick pattern
psychology. First candle should be narrow or doji.
A Doji represent either one of two things:
 Buyers and sellers are equally strong
 Indecision in the market if appear after an extended move
Basically, smart money testing the selling pressure below support to make sure there is no
new business to be done at these levels. When no selling pressure below low of previous
candle, smart money start drive price up

How Reversal candlestick Patterns Work?

Reversal candlestick psychology is one of the reasons why reversal patterns are such
effective predictors of price reversals. Here’s an example:

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LOW OF BULLISH OUTSIDE REVERSAL PATTERN As support

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BULLISH OUTSIDE REVERSAL PATTERN should followed by bullish price action. One

more bull candle should formed to confirm the bullish reversal or validated the bullish
engulfing candle

They will work best in trending conditions. Trade with the trend. In an uptrend bullish outside
reversal pattern work better.

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Trade from support or resistance level

How do we trade it?

1. Buy above the bullish Engulfing pattern
2. Stop loss below of the pattern

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Finding Entry Opportunity using Volume Spread

Analysis in Trading
1. Finding support and resistance based on volume spread analysis
2. Testing (most important concept of volume spread analysis)
3. Entry opportunity based on testing
Finding Support and Resistance
Risk to reward is favour when we trade from support or resistance level. Generally trade
entry types are
1. Reversal from support or resistance zone
2. Pullback entry after some retracement
3. Breakout of support and resistance
SUPPORT
Support as the “buying, actual or potential, sufficient in DEMAND to halt a downtrend in
prices for an appreciable period.” and possibly reverse it , start prices moving up again

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RESISTANCE
Resistance, as the selling, actual or potential, in sufficient supply to keep prices from rising
for a time. and possibly turn back, its uptrend

How to find support and resistance zone?

 Rejection from an area
 Flipping zone
 Fibonacci retracement
These are the Support and Resistance zone from where we have to find opportunity for
trading. Generally trade entry types are
1. Reversal from support or resistance zone
2. Pullback entry after some retracement
3. Breakout of support and resistance

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So the support and resistance for day trading is

 Weak Highs/Lows.
 Previous Day’s High/Low
 Day high or low
Testing
Most important concept of volume spread analysis
What is testing?
 Test is required to confirm a trend
 Usually, a successful test tells you that the market is ready to move immediately,
while a higher volume test usually results in a temporary move, and will be re-test of
the same price area again at a later time.
 Important support and resistance point for testing include Weak
Highs/Lows.Previous Days High/Low and day high / low
Why do we place such importance on this action?

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Lets discussed for an uptrend (all concept opposite for down trend)
Test is employed to make sure that all the selling (supply) pressure has been absorbed in
the accumulation phase, and this is done with a test of supply.
Many times the smart money is just testing the strength of either buyers or sellers. Usually
above or below important reference points. As smart money don’t want 2 things to happen
1. If they don’t find any supply below or demand above an important reference then
they are confident to move the prices in the opposite direction of the test.
2. But if they do find it, then they usually follow-through and test the next reference for
the same
Our entry decision is depend open the test
So our entry decision is depend open the test from this support and resistance zone
 Rejection from an area
 Flipping zone
 Fibonacci retracement
TESTING SUPPLY (opposite for demand)
Rule: Too much supply the market will fall, if there is no more supply the market must go up
Testing types (DEPEND OPEN THE SUPPORT AND RESITACE ZONE
TYPE)
1. Test in a Rising Market – Test in an up trending market (trending )
2. Test after Temporary Weakness – Also seen in an up trending market –(PULLBACK)
3. Test into an area of High Supply – Testing into the area of Stopping Volume or
Selling Climax (reversal or absorption)
Test variation
 Single candle test
 Swing test
SINGLE CANDLE TEST
Testing supply in uptrend
Characteristics
 In a bullish trending market
 A down bar, on reduced volume and narrow spread
 The key is the volume. It should be less than the previous candle
 Closes can be on the highs, but better when in the middle or near the high
 A successful low volume test tells you that the market is ready to rise immediately

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Entry after seeing no supply candle in a uptrend

 No Supply candle means that there is lack of supply and demand is overpowering
supply causing price to rise in future.
 Please note that No Supply candle is a continuation signal not a reversal signal.
 The background is important here, this is only an entry to the long side if you have
strength in the background, not weakness means if it is appears after bullish
momentum
1. Since we have the Bullish momentum. We can go long during uptrend whenever no
Supply Signal appears
2. When you see No Supply with climactic action in the background this
indicates higher prices so enter a buy order above the high of the no supply
candle

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SWING TEST FOR REVERSAL

When the market is testing supply any down-move dipping into an area or price range
where there was previous high volume (previous selling), which then returns to close on, or
near the high, on lower volume, is a clear signal to expect higher prices immediately. This is
a successful test. Lower volume depicts that the amount of trading that took place on the
mark-down was reduced, that now there is less selling, when previously there had been a
lot of selling. At this point, it is now important to see how the market- reacts to the strength
seen in the testing.

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Characteristic of SWING testing candle

1. A down bar, on reduced volume and narrow spread
2. The key is the volume. It should be less than the previous two bars
3. Closes can be on the lows, but better when in the middle or near the high
4. Follows a Sign of Strength (selling climax or stopping volume)

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ENTRY AFTER SEEING SWING TEST

YOU MUST have strength in the background, such as stopping volume or selling cliamx.
Place a stop under the low of the climactic bar and place a buy order above the test bar. A
test can fail and you can re-test an area several times before the market moves up, so
placing an order above the test lets the market come to you. If the test fails you are not in
the position.

Result based on testing volume

 LOW VOLUME TEST
 HIGH VOLUME TEST
If there is still too much supply a test can fail and if you see a failed test in a weak market it
confirms that the market will continue to fall.

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If the stock recovers towards the high and the volume is low it would mean that there was
no supply. If the volume is high and if the price fails to recover it would mean that there still
supply present.

Low volume test

When the market is testing supply any down move dipping into an area or price range
where there was previous high volume (previous selling ), which then returns to close on, or
near the high, on lower volume, is a clear signal to expect higher prices immediately. This is
a successful test.
Lower volume depicts that the amount of trading that took place on the mark-down was
reduced, that now there is less selling, when previously there had been a lot of selling. At
this point, it is now important to see how the market- reacts to the strength seen in the
testing.
With the test now confirmed the insiders can move the market higher to the target
distribution level, confident that all the old selling has now been absorbed

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What price action should follow after successful test ?

If you are in a bearish market, you may see at times, what appears to be a successful test?
However, if the market does not respond to what is normally an indication of strength after a
successful test , then this shows further weakness.
Any testing that does not respond immediately with higher prices, or certainly during the
next candle or so, can be considered an indication of weakness. If it were a true sign of
strength, the smart money would have stepped in and would be buying the market – the
result of this smart money support would be the beginnings of an upward trending market
.The specialist or smart money is never going to fight the market. If, in smart money view,
the market is still weak on these days, he will withdraw from trading. The market will then be
reluctant to go up, even if it looks as if it should go up, because there was little or no selling
on the ‘test’ candle

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High volume test

However, what if the test fails and instead of low volume appearing there is high volume,
which is a problem. This has resulted in sellers returning in large numbers and forcing the
price lower.
While a higher volume test usually results in a temporary move, and will be re-test of the
same price area again at a later time. This action sometimes results in a “W/M” pattern. This
volume price action is sometimes referred to as a “double bottom (W)/double top (M)”. The
“W” shape volume price action results from the action of re-testing an area that had too
much supply before. Vice a versa for “M” pattern

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1.What is spring
2.Logic behind spring
3.Some element for determining spring
           Spring and trend
           Spring and volume

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           Spring and follow-through

5.When should avoid trading spring
6.My trading setup using spring

Spring (opposite upthrust(UT))

 Price dips below support and rallies to close on or near its high and back above
support, so there should be a clear minor or major support zone
 Failure to follow-through after breaking below support or recent swing low
 All bullish pin bar is not spring but all spring is a bullish pin bar

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Logic
A spring is an example of a “bear trap”. WHY? Because price drop below support appears
to signal resumption of the downtrend. But In reality, the drop marks the end of the
downtrend, thus “trapping” the late sellers, or bears.
The strength of the sellers can be judged by the depth of the price drive to new lows below
the support and the relative level of volume on that penetration.
A spring involves the penetration of a well-defined support level on low or moderate
volume .think if a stock going to break the support, it must break with high volume .the
spring action shows that the stock trying to break down and failed. It is an important sign of
strength
Spring and Trend
During an uptrend
Pullback
1. They will work best in trending conditions. During an uptrend when bullish signal
appears, we go long.
2. A retracement to a prior resistance now- support area is a typically excellent trade
3. Fibonacci retracement level also worked well

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During a downtrend
During a downtrend when spring signal appears then we need a retest of that spring before
we can go long.
Condition
 Be sure that prior trends are over
 Background:The background is extremely important. You should see strength in the
background with stopping volume or a selling climax or end of falling market
 Then appearing spring and Spring is Tested

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Spring and Volume

Low volume spring
Volume should be lower than the original anchor(where support first occurred ) candle at
support, when price retrace first time to support the candle should have low volume than the
anchor candle
The shallow price penetration and low volume indicate sellers are exhausted. springs
should be bought immediately.

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High volume spring

High volume indicates demand coming in, as we trade with the trend , springs should be
bought immediately.
If we want to trade for trend reversal. High volume indicates presence of sellers more likely
to test immediately or after some rally.
In order to justify buying on the test of the spring, two criteria must be met.
1. First of all, the volume on the test must be lower than on the spring itself. If it is not,
nothing is proven and no buying should be done.
2. Secondly, the price should hold at a higher level on the test than on the spring, It is
especially positive if the price supports at or above the support level on the test.
If these two criteria are met, the stock can be bought on the test of the spring. Immediately
after the test, the stock should begin a rally.

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Spring and Follow-through

WHAT PRICE ACTION SHOULD HAPPEN AFTER SPRING
If a spring fails to rally away from the SUPPORT and price hangs near the Spring low,
then Something is likely wrong

WHEN SHOULD AVOID TRADING SPRING

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Context or background move

Supply dominated
In a Downtrend where supply is dominated. the swing down to Spring has supply(price
decreasing and volume increasing) compare to demand swing, the odds of success are low
Momentum should be loss when approaching support and the spring indicate strength this
is good context. If momentum increases when approaching support and the next is a
spring ,the context is not showing strength and the spring should be see in suspect

Last demand swing

Shortening of thrust. Thrust Refers to the distance between the current swing high to a
previous swing high (in an uptrend) or swings low (in a downtrend). Increased thrust is a
sign of potential trend strength. Shortening of Thrust is a sign of potential trend weakness.

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If last swing high is characterized by diminishing demand(price increasing and volume

decreasing ) odds for success are lower

My SPRING SETUP(opposite for upthrust)

Trend continuous setup
ELEMENT REQUIRED
 SPRING
 WELL DEIFINED SUPPORT
 VWAP
Support
 Last swing low or resistance turned into support
 Fibonacci retracement level (50-61.8%)
Time frame:
 5 minutes

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Applicable
 Both stock and index
Context or background
 Market in a defined uptrend
 Cleared support level
 Low volume when approaching support level
Set up condition
 Price retrace towards support on low volume
 Spring at confluence of support plus vwap (strong signal) or spring at support
Entry
 Buy above the spring
 Or Test of spring
Stop loss
 Below the spring
Target
 Next resistance
 Or any bearish reversal price action

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volume spread analysis

1. The Shakeout
2. Stop hunting
3. Outside Reversal Pattern
Introduction to VSA trading strategy

Today we will discuss volume spread analysis intraday trading strategy. Basically volume
spread analysis entry strategy based on reversal trading. That means finding turning point
in trend either

 Trend reversal or
 Pullback reversal
Today will discuss pullback reversal. I mean how to take trade based on volume spread
analysis in an existing trend
Note: – today we will discuss only finding entry in an uptrend . Exact opposite for down
trend
Volume spread analysis that suggests sign of end of down trend or end of pullback in a
exiting up trend these are
1. Selling climax
2. sopping out volume
3. End of falling market
The above points are discussed in this article Volume Spread Analysis
4 step process for volume spread analysis entry
1. Identify the trend
2. identify the sign of weakness in a exiting up trend
3. Wait for test the weakness for confirmation for continuation of up trend
4. Look for any bullish reversal candlestick pattern for entry

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In previous article we have discussed

1. Firs identify the sign of weakness
2. Wait for test the weakness for confirmation of trend cont..
Today we will discussed
1. Look for any reversal candlestick pattern for entry
Bullish VOLUME PRICE SIGNAL CANDLESTICK PATTERN FOR ENTRY
1. OUTSIDE/ ENGULFING
2. STOP HUNTING
3. SHAKEOUT
Outside Reversal Pattern
We have discussed this article here .so please go through this article for more information
Outside Reversal Pattern
BULLISH OUTSIDE REVERSAL PATTERN STRUCTURE
1. First candle is a narrow range candle or doji
2. The second candle completely engulf first candle and close above the first candle
high.
3. The second candle low below of the first candle low ,but the close must be above the
first candle close and high above previous candle high
4. The second candle should be accompanied by high volume

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Background:
The background is extremely important. You should see strength in the background. You
should see strength in the background with stopping volume or a selling climax OR end of
falling market

Stop hunting
Also called pin bar or spring or up thrust
Go through below article for more information
Spring and Up thrust Trading Strategy
PIN BAR Trading Strategy
Logic

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Smart money placed limit sell order above resistance and limit buy order below support to
absorb panic buying or selling by retailers for breakout trading entry by placing stop loss
buy order above resistance or stop loss sell order below support

Why they do?

The main objectives are:
1. To get volume
2. Avoid Slippage due to  big order
3. Smart money testing demand above old resistance before moving down or testing
supply below support before moving up
A spring is an example of a “bear trap”. WHY? Because price drop below support appears
to signal resumption of the downtrend. But In reality, the drop marks the end of the
downtrend, thus “trapping” the late sellers, or bears.
The strength of the sellers can be judged by the depth of the price drive to new lows below
the support and the relative level of volume on that penetration.
A spring involves the penetration of a well-defined support level on low or moderate
volume .think if a stock going to break the support, it must break with high volume .the
spring action shows that the stock trying to break down and failed. It is an important sign of
strength
Background:
The background is extremely important. You should see strength in the background. You
should see strength in the background with stopping volume or a selling climax OR end of
falling market

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The Shakeout
As the name suggest shaking out weak holder’s .in an existing up trend shaking out week
buyers
CRITERIA for shakeout for long
 FAILURE TO FOLLOW THROUGH AFTER BREAKING a well-defined SUPPORT or
resistance
 Wide spread down closing on the middle or low of the candle
 Volume can be high or low.
 Engineered to catch stops and induce selling

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WHY shakeout ? FORM OF MANIPULATION

Lets discuss for an uptrend
 If this is seen in an uptrend it is a very strong buy opportunity. Think of Smart Money,
they have to buy at lower prices and will do anything to get the price down to buy
more of the instrument they are accumulating.
 Design to lock in weak shorts and shakeout early longs
 SHAKEOUT, is a man oeuvre used to catch stops and trap breakout traders. Its is
often observed right before the market is about to take off in a particular direction.
 SHAKEOUT can be a sign of strength or a sign of weakness depending on the
direction of the SHAKEOUT

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Background:
The background is extremely important. You should see strength in the background. You
should see strength in the background with stopping volume or a selling climax OR end of
falling market
Future DIRECTION
A ‘Shakeout’ on low volume is really a violent test and has the same effect. It shows supply
has disappeared and you would expect higher prices.
A ‘Shakeout’ on high volume shows demand was prepared to absorb the supply on that
bar but they would likely want to test that supply in the future. Any low volume testing back
into the area of the Shakeout would be strong SOS.

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Where appear shakeout

1. In a clear support or resistance level or
2. In a Well-defined trading range

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Shorting AFTER you see a shakeout pattern

 In a existing up trend you can buy above the shakeout candle
 For trend reversal wait for no demand candle then buy above the candle

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RSI Trading Strategy (Relative Strength Index)

1. What is RSI?
2. How RSI indicator works?
3. 4 uses of RSI
What is Relative Strength Index?
The Relative Strength Index (RSI), developed by J. Welles Wilder. Relative Strength Index
(RSI) is a momentum oscillator that measures the speed and change of price movements.
The RSI oscillates between zero and 100
How RSI indicator works?
Let’s understand the formula .how it works? The logic behind the RSI. RSI indicator is
calculated on closing price. We can define bullish and bearish price on a closing chart as
follows:
1. If current closing price is higher than previous closing price = Bullish trend
2. If Current closing price is lower than previous closing price = Bearish trend

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The very first calculations for average gain and average loss are simple 14-period
averages(default period): The first question is what is the average gain? Let me give you a
very simple example.

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Above is chart connecting 14 closing prices. We are calculating the average gain and loss
over the last 14 periods
Let us calculate gains and losses on this chart.
 First Average Gain = Sum of Gains over the past 14 periods
 First Average Loss = Sum of Losses over the past 14 periods
In the above chart,
Bullish readings (Gain) are = 10,10,10,10,10,10 and 10
Bearish reading (Loss) are = 10,10,10,10,10,10 and 10
Let us calculate the simple average price of the gains & losses:
Bullish average = (10+10+10+10+10+10+10)/7=10
Bearish average = (10+10+10+10+10+10+10)/7=10
So average gains were 10 points and average losses 10 points.
How to know how strong the bulls are?
The average of losing bars plus the average of winning bars was =10+10=20
Average gain was 10
So, RSI will be (10 / 20) x 100= 50
The key thing to take note is that the higher your average gain, the higher your RSI is going
to be. Make sense?
Suppose in the above example average gain is 15 and average loss is 5
RSI will be (15/20) x 100= 75
So, when RSI is at 50, it means Average gain is equal to Average loss.
RSI goes up: When your average gain is greater than your average loss in a particular look
back period, and this pretty much means that the size of your bullish candles is larger than
the bearish candles.
RSI goes down: When your average gains are smaller than your average loss in a
particular look back period. This means the size of bearish candles is larger than the bullish
candles. In other words, the RSI indicator measures the momentum of price or trend
(Disclaimer: I used a very simplified version of calculation for the Relative Strength Index
(RSI) indicator, I think their calculation used is a little bit more complicated. But again, the
concept is the same.)
Parameters
The default look-back period for RSI is 14, but this can be changed. Look-back period for
RSI is lowered to increase sensitivity or raised to decrease sensitivity. 7- Period RSI is more
likely to reach overbought or oversold levels than 14- period RSI.
Uses of Relative Strength Index Trading Strategy
RSI shows overbought or oversold

RSI When above 60 and oversold when below 40. These levels can also be changed
if necessary to better fit the security. For example, if a security is repeatedly reaching
the oversold level of 40 you may want to adjust this level to 30.
 Relative Strength Index (RSI) overbought and oversold readings work best when
prices move sideways within a range
 During strong up trends, the RSI may remain in overbought for extended periods.
So consider only oversold when trend is strong .reverse for strong down trend

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RSI pattern
 RSI also often forms chart patterns(like price chart pattern) that may not show on the
underlying price chart, such as double tops and bottoms, support resistance and
trend lines .
Identifying trend using RSI
Uptrend
If RSI above 50.This tells you is that the average gain is larger than the average loss, you
can conclude that it’s in an uptrend. In an uptrend, the RSI tends to remain in the 40 to 80
range with the 40-50 zone acting as support zone
Downtrend
If RSI below 50 .This tells you that the average loss is greater than the average gain, and
you can conclude that it’s in a downtrend
During a downtrend the RSI tends to stay between the 20 to 60 range with the 50-60 zone
acting as resistance zone. These ranges will vary depending on the RSI settings and the
strength of the security’s trend
DIVEREGNCE
If prices make a new high or low that isn’t confirmed by the RSI, this divergence can signal
a price reversal.
Price makes lower low while RSI makes higher low. Why?
A bullish divergence occurs when the price makes a lower low and RSI forms a higher low.
If RSI does not confirm the lower low and this shows strengthening momentum. It means
there were gains in between while price made new lows but the gains prevented the RSI
from making a corresponding lower low. The logic is reversed for the Bearish divergence.

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BTST (Buy Today Sell Tomorrow) TRADING

STRATEGY
1. Price Action based strategy
2. A clear rules-based system with defined Entry, Target & Stop Loss
3. Clear rules for stock picks, tell clearly which stock to Trade
WHAT is BTST (Buy Today Sell Tomorrow) Trading Strategy?
BTST (Buy Today Sell Tomorrow) is a method that allows customers to sell shares before
they are credited into a Demat account or take the delivery of shares. The reverse of BTST
is called STBT i.e. Sell Today Buy Tomorrow
BTST Trading Strategy Advantages
1. It allows you to benefit from the short term volatility or increase/decrease in the price
of the stocks.
2. If you find intra-day trading unprofitable, then BTST gives 2 more days to your trades
to improve its performance.
BTST Trading Strategy Disadvantages

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1. Unlike intraday trading, most stockbrokers do not offer margin to BTST facility.
2. Overnight risk
Strategy for BTST trading
Change of Guard (COG)
LOGIC. Change the direction of MINOR move
For more information read Candlestick Pattern Analysis
COG ENTRY Either
 Pullback Reversal from the support level
 Trend reversal from the demand zone
Criteria for long
1. Previous day red candle should be small
2. Price at the clear support level
3. Next green candle(current t day) price close above the red candle(previous day)
4. CURRENT DAY CANDLE MAY GAP UP OR GAP DOWN DOESN’T MATTER
5. VOLUME GREATER THAN PREVIOUS DAY

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Breakout strategy
Here I discussed the breakout trading strategy. read as logic and condition all are the
same. Just move to daily time frame
 Price should close below clean support and above the resistance level
 More condition. Go through the above article

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Stock selection condition for both BTST Trading Strategy

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We will study the following parameters to select stock

 Attempted Direction (Up, Down, Sideways) or intraday structure
 Volume Generated (High, Low, Unchanged)
 Closing swing and volume
 Data(future and option)
By studying the above factors we can get a tight grip on what the smart money was trying to
achieve and was that attempt successful. And Possible of the trend for the next day
Internal structure
Attempted Direction (Up, Down, Sideways)

Only select those stock .which intraday structure is either trending up or down
Opening range and follow-through

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Select those stock which opening range got breakout and follow-through
CLOSING SWING and VOLUME
 If the market closes with an extremely unusual discount (closing at day low) OR
excess premium (closing at day high), it is giving the trader a very loud and clear
signal that continuation is likely the next day.
 The last SWING or closing swing often tells the truth about how strong a trend truly
is. “Smart money “shows their presence in the last SWING or closing swing,
continuing to mark positions in their favor. As long as a market is having strong
closes (closing at day high), look for up-trend to continue.

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 High volume on the close swing implies continuation the next morning in the
direction of the closing swing.

Data
Future open interest
2) Increase in open interest with an increase in price during the last swing of the trading
day.it shows the strength of the trend
Option data
1. Long buildup or short buildup
2. Avoid short covering or long liquidation move
Note-check option chain video for option chain analysis or you can read here
Next support and resistance level
1. Where is immediate support and resistance or supply and demand zone by technical
analysis
2. Options support and resistance level
Stock selection condition for BTST strategy
1. CLEAN HEALTHY CANDLE
2. Today price trading above previous day high(for long )
3. Trending internal structure
4. The last swing must be trending and close at day high (for long)
5. Last swing volume and open interest increasing,
6. Technical analysis and Options data suggest no nearby any support or resistance
level
Odd enhancer
INDEX
Identify what the general market or index is doing?
1. Trending

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2. At support or resistance zone

First Identify the support and resistance zones in the index (nifty). If markets closed
near support zone, I would know to look for opportunities to buy the next day as the price
was likely to rally from that support zone
Sector selection
look at charts sectors to find some that are also trading near support zone as those sectors
would likely rally from that support zone with the index (nifty ) market the following day. Out
of the few sectors, I would always find one or two that were set up very well with the broad
market (index).
1. If the index is bullish, select a strong sector for BTST
News stock
AVOID frequently NEWS BASED SECTOR (LIKE PHARMA)
Check history
 CHECK history of the stock and find whether the stock has the capability of moving
consecutive strong days. if yes then select

Ol-OH
 If stock open with open high or open low
 Add confidence if open with open low or open high
Exit
 Most of the time these scripts are opened the next day with a gap up .profit should
be booked within 5-10 minutes in the next session.
 If price moving strongly from the open in the direction of your entry, you can trail your
stop loss
 If the market closes with a strong premium (closing at day high) but opens weak (gap
down)the next morning, the odds favor that the first move will be to the upside to test
the previous day high(fill the gap). If the market closes weak, and the futures close

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with a discount (close at day low), yet the market gaps up the following morning, the
first move should be a retest down to attempt to fill the gap.
 If the price gap down (you took BTST).YOU can exit immediately or wait for opening
range and place sop loss or wait for the first five-minute candle and place stop loss.
It totally depends open your risk

Technical Analysis
1. What is Technical Analysis?
2. The basic assumption of Technical Analysis
3. Rules for trend
4. Application of Technical Analysis
What is technical analysis?
Technical analysis is the study of past market price action to try to gauge what the market
might do in the future.
Technical Analysis – Assumptions
The 3 basic assumptions of technical analysis
1. History repeats itself.
2. Prices move in trends.
3. Market Action discounts everything
History repeats itself.
It states that human behavior will not change and commit to similar things repeatedly.
Means chart patterns in the technical analysis have been used for more than 100 years,
and they are still believed to be relevant and that often repeat themselves. Technical
analysis is the study of past market price action to try to gauge what the market might do in
the future.
Prices move in trends
Newton’s first law of Motion state that “An object at rest remains at rest, or if in motion,
remains in motion at a constant velocity unless acted on by an external force. So, the same
way we assume that a trend remains in force till we don’t see a trend reversal price action
that has enough force to change or stop it.
3 RULES FOR TREND
1. We expect an up or downtrend to continue in its current state until the next support
/resistance or unless displaying evidence of weakness within the trend.
2. A sideways trend within the framework is expected to continue in its current state
3. If strength is shown on an approach to a support or resistance, we expect a breakout

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Let’s apply this to the nifty 50 chart

Price in uptrend making higher high (HH) and a higher low (HL)

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Market Action discounts everything

All known and unknown information related to security is reflected in the price of the stock.
Prices represent the sum total of all the greed, hopes, fears, and Including fundamental or
any major event. As soon as new information comes to light it’s immediately reflected in the
stock’s price
Applications of technical analysis
1. Technical analysis can be used in stocks, indices, futures, commodities, or any
tradable instrument where the price is influenced by the forces of supply and
demand.
2. Technical analysis may not work with micro-cap companies and penny stocks which
are controlled and operated by a handful of operators

Market Structure |

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1. What is the market structure?

2. Principles of Market Structure
3. Elements of the Market structure
What is the market structure?
 Market structure gives us bias for trading opportunities. In the bull market, we always
look to buy dips
 Range market we look for buy low sell high
Principles of Market Structure
1. Price moves within a structural of support and resistance.
2. A breakout of the structural of support or resistance will lead to price movement in
the next area of the support or resistance

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Elements of the Market structure

The market structure consists of
1. Phases
2. Trend
Phases
How does the market really work?
All financial markets work on the universal law of Supply and Demand.
Law of Demand– The higher the price of an item, the fewer the demand (buyers don’t want
to buy at a higher price) and lower the price, higher the demand (buyers want to buy at a
low price)
Law of Supply– The higher the price of an item, the higher the supply (sellers want to sell
at a higher price) and lower the price, lower the supply (sellers don’t want to supply at a
lower price
So prices go up to find sellers and then go down to find buyers
Let’s think from the perspective of smart money
What is smart money?
 Smart money are nothing but professional money, big hedge funds and institution’s
 If you want to be a successful trader you have to understand where these smart
money place themselves and where their orders are
 If you don’t know this you might get trapped by smart money
The price goes through 4 Phases
1. ACCUMULATION
2. UPTREND
3. DISTRIBUTION
4. DOWNTREND
ACCUMULATION
 Accumulation means removed from the floating supply of stock by buying

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 Demand coming in to gradually overcome and absorb the supply and to support the
stock at this level
How smart money do that? they buy as much of the stock as possible, without significantly
putting the price up against their own buying until there are few, or no more shares available
at the price level they have been buying at
Accumulation generally takes place within a well-defined congestion area, where the stock
appears to have no interest to either move up or move down. The smart money ensures
that the stock is contained below a certain upper level which is the supply area. At the same
time, the smart money also supports the prices above a certain lower line which is the
support area.
How does trend change?
 Stopping action(stopping the downtrend)
 Change of character(strength of trend change from bearish to bullish)
 Testing of supply(testing supply whether present or not)
 Mark up(if no supply found in testing action )

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We will discuss in depth later sections. There are many other patterns that signify
accumulation. Some of them are
 rounding bottoms,
 reverse head and shoulder and
 double bottoms patterns
 triple bottom pattern
UPTREND
Once the supply observes by smart money. When general market conditions appear
favorable, the Smart Money can then mark up the price of the stock At some time in the
future
First, the market breaks out from the end of the accumulation phase, moving higher
steadily, with average volume. There is no rush as the insiders have bought at wholesale
prices and now want to maximize profits by building bullish momentum slowly, as the bulk of
the distribution phase will be done at the top of the trend, and at the highest prices possible.
Again, given the chance, we would do the same

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DISTRIBUTION
Smart money will take advantage of the higher prices obtained in the rally to take profits by
beginning to sell the stock back to the uninformed traders/investors
Opposite of accumulation process
DOWNTREND
Once the distribution completed. the Smart Money can then mark down the price of the
stock At some time in the future. Let’s combine all phase

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So, let’s try to put the above phases with nifty 50

This is all the smart money is doing, they are simply playing on the emotions of the markets
which are driven by just two. Fear and greed. That’s it. Create enough fear and people will
sell. Create enough greed and people will buy. It’s all very simple and logical

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This cycle of accumulation and distribution is then repeated endlessly, and across all the
time frames. Some may be major moves, and others minor, but they happen every day and
in every market
Trends:
Let us first understand what is a trend. In a healthy bull trend, the upswing generally exceed
the downswing in length and making a higher high and higher low, the reverse is true for the
bear market

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WHY Trend Analysis for Trading?

 Trading against the trend, without a trend, or poor quality trends are one of the most
common reasons traders fail.
 The quality or strong trends have more predictable success (edge)
 Controlled arrangement of price bars and pullbacks provide greater certainty that
reverses at supply and demand happen
 Poor or weak trends have lower predictability
 Uncontrolled arrangement of price bars and pullbacks into supply and demand
lessens chances of a reversal
Determining the market trend
According to Dow Theory, the market has three trends
Primary trend: In Dow Theory, the primary trend is also considered as a major trend in the
market. It has a long term impact
Secondary trend: Dow calls a correction in the primary trend as a secondary trend. In a
bullish market, the secondary trend will be a downward movement and in a bearish market,
it will be a rally.
SHORT TERM trend: The Minor Trend is a corrective move within the secondary trend
Which time frame trend is best?
 It depends on what time frame you are looking at.
 Larger Timeframes establish and dominate the trend.

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 If we are looking at daily time frame and price is making higher highs and higher
lows we are in the bull market
 But if we are looking at a retracement of that bull move in 30 minutes time frame we
might be a short term bear market even though overall market is bullish

Let’s do an example

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The Ultimate objective of technical analysis is to find the location of trend and trade
according to the trend
Some of the tools which are used for technical analysis are
 Swing(the building block of trend)
 Support and resistance
 supply and demand zone
 trend line
 pattern
 gaps
 volume
 open interest
 signal candle for entry

1. What is the swing?

2. Types of swing Why Swing points are important?
3. Chart reading through the swing
4. 4 Important facts that affect the swing
Introduction
Before entry, you must know where buyers in a downtrend and sellers in an uptrend enter.
Let me explain if you know that, this is the end of the swing downswing then you can buy
with small risk and exit when you know that this the end of the upswing. For finding sellers
in an uptrend or buyers in a downtrend we have to analyze swing structure, by weighing the
relation of supply and demand
Hence by observing market swing, we are able to glimpse into the structure of the
market and get clues about
1. the current direction of the market(trend)
2. Strength of trend (buying and selling pressure)
3. Support and resistance

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4. When will the trend change?

5. when to buy/sell/exit
Why Swing points are important?
These points not random, they created by the market. They represent momentary changes
and demand and supply forces. The bulls could not move the market above the swing high.
This means that at that point in time, no one was willing to offer a price higher than the
swing high. Traders saw no value above the swing high. In the future, his point may act as
resistance.
It is similar to learning to read a new alphabet-once you understand the characters, you can
read the words, and once you know the words you can read the story. The first letter to
master tells you what market activity causes the formation of a short-term high or low. If you
learn this basic point, the meaning of all market structures will begin to fall into place.
Defining candle
It focusses the relation between current candle high and low with previous candle high and
low

Swing high and swing low

Criteria for drawing swing high and swing low: SWING HIGH or SWING LOW CONSIST
OF MINIMUM 5 BAR. The middle bar must be higher high and higher low then the two-
proceeding bar and the two-following bar

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Swing Types
There are two types of swing
1. High and low
2. Swing high and swing low
Let me explain to you
Swing low (SL)
The market tried to move down. Then, it stopped and the bullish trend resumed. The market
broke all resistance (swing high) and made a new trend high. In other words, the market
failed terribly in its attempt to move down. The lowest point it pushed to is called swing low

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Swing low and low point

Every major market has some pullback that is shallow and some last for one swing. The
point where pullback goes deeper and lasts for more than one swing, forming a LOW.

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Eventually, this deeper pullback terminated and the trend resumed. A low becomes a swing
low once price breaks out above the last extreme price high for the resumption of the bullish
trend. Let me explain to you

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LET’S DO SOME EXAMPLE

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All the concept is discussed above are applicable for a swing high and high
HOW TO KNOW WHEN LOW BECOME SWING LOW
When the price cleared the above swing high level. To clear a price level, the market must
form a candle that is completely above the price level. This means if a candle low is higher
than a price level, the market has cleared above the price level.

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We will cover this in more details in the price action topic

Chart reading through the swing

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Charts have actual value in determining the position (location) and probable trend of stocks,
by weighing the relation of supply and demand swing. To study charts, look for the motives
behind the action which the chart displays.
Whenever you read a chart, consider what you see there as an expression of the forces that
dominate the price and when the force lift from prices. Study your chart from the viewpoint
of the behavior of the stock, the motives of those who are dominant in it, and the successes
and failures of the buyers and sellers as they struggle to dominate each other

Important facts that affect the swing are:

1. price movement
2. volume
3. The relationships between price movement and volume
4. The time required for all the swing movements
Price movement and swing
Price movement (price changes from swing to swing)
Observing the sequence of a price swing, we are able to glimpse into the structure of
the market and get clues about
 support and resistance
 Lines of supply and support(trend)
 Changes of impulse and reaction movement (net gain or loss)
 Comparative strength and weakness(momentum)
 Development of accumulation or distribution
Swing and Support resistance
This swing points not random, they created by the market. They represent momentary
changes and demand and supply forces. The bulls could not move the market above the

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swing high. This means that at that point in time, no one was willing to offer a price higher
than the swing high. Traders saw no value above the swing high.
Hence, subsequently, when price moves close to or near above a swing high, we must
remember that traders saw no value in buying above that point previously. Assuming that
most traders have not changed their opinions, the price is unlikely to move above the swing
high. Effectively the swing high mark a price area that resists the market from moving up
this is what we call a resistance area. Reverse for support area

Changes of impulse and reaction movement (net gain or loss)

By comparing impulse swing with retrace swing we can we can measure the strength of a
trend
1. Increased IMPULSE swing is a sign of potential trend strength as the gain is positive.
Shortening of impulse swing is a sign of potential trend weakness.
2. The increased reaction is a sign of potential weakness of a trend. The decreased
reaction is a sign of potential strength of a trend

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For more

Thrust Pullback
Comparative strength and weakness
1. Compare the momentum of the current price swing with the momentum of the
previous price swing in the same direction?

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2. Compare the momentum of the current price swing with the momentum of the
previous price swing in the opposite direction?
3. Is the current price accelerating or decelerating? What does that mean?

Advanced Price Action Analysis

Development of accumulation or distribution
 The trader will buy aggressively in the vicinity of previously established market
support points, as he is convinced that a rally will generate sufficiently.

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 When the trader notes diminishing demand in the rallies from each support point, he
recognizes that his opportunity for successful speculation on the ‘Bull’ side is also
diminishing
 Ultimately, worthwhile opportunity on the long side is gone, and the professional
switches his position. Becoming a short seller at rally tops he increases the supply of
stock and this increase intensifies the progressing imbalance favoring the sellers
over the buyers. Again, the transition to a trend condition is accomplished with the
line of least resistance now being a bearish one

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TREND and swing

Let’s combine all the above factors. Conventional technical analysis says the market moves
in the up-down wave, what we call market swing. In a healthy bull trend, the upswing
generally exceeds the downswing in length, the reverse is true for the bear market. When a
trend fails to make a new high (failed rally), it possibly indicates a trend change (sideways
or reversal).

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Volume traded in each swing

Volume (when to buy/sell/exit) of trading on alternative buying and selling waves
 Increasing or decreasing the pressure of supply and demand
 Buying and selling climax
 Activity or intensity of trading (the ability of bull and bear to attract following on
advances and decline. rallies and reaction
 Characteristics of supply and demand whether urgent, timid, or aggressive

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Volume Price Action

Volume and price of each swing
Volume and price movement provide the greatest aid in:
1. Determining the direction of coming moves.
2. Deciding when to buy or sell.
3. Knowing when a stock is on the consolidation
4. Knowing when a move is ending.

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Supply and Demand Trading

1. What are the supply and demand zone?
2. Why supply and demand zones in our chart?

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3. Why does the market return to the supply and demand zone?
4. Why trade from supply and demand zone?
What are the supply and demand zones?
Supply-demand nothing but the border area of support or resistance

Why supply and demand zone in our chart?

1. Supply zone formed due to the smart money placing sell trades, we can confirm this
to be a fact because the market continued to fall after the zone formed (opposite for
demand zone)
2. If you are aggressive, you want to buy or sell NOW. In other words: you place a
MARKET ORDER to buy or sell immediately at the best available current price
3. Because your position is pretty big, it won’t be filled all at once. It will get filled fast,
you will be able to enter the whole position, but the position will get split as the price
moves upward quickly. It is the aggressive market participants, who drive the price
aggressively up or down with their market orders
4. So, the supply and demand zone can only be seen once price speeds away from
the zone. It indicates that there was smart money buying or selling interest at the
origin of that move

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Why does the Market return to Supply and Demand Zones?

1. Due to Pending Block order
2. Because the smart money position is pretty big, it won’t be filled all at once smart
money was not able to get all of their trades placed when the zone formed. If they
rush into the market the price goes along with them. This action will make them buy
higher and sell lower. They resolve this issue by leaving blocks of orders on the
books
3. To get their remaining trades placed, the banks leave pending orders at the zones so
when the market returns to the zone, the trades which they were not able to get
placed initially are executed, and the market moves back in the direction to which the
zone was created

WHY TRADE FROM SUPPLY AND DEMAND ZONE?

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1. Low-risk high reward

2. You are with the smart money

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Option Chain Analysis

1. What is open interest
2. How to study option chain table
3. Element of option chain table
4. How to interpret option open interest
5. Use of open interest
Market Structure Principles
Price moves within a structural framework of supply and demand zone. A breakout of the
structural framework supply and demand zone will lead to price movement in the next area
of the framework of supply and demand zone

OPTION CHAIN COMPONENT

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WHAT IS ITM (IN THE MONEY) OPTIONS?

1. A call option is said to be in ITM if the strike price is less than the current spot price
of the security.
2. A put option is said to be ITM if the strike price is more than the current spot price of
the security.
WHAT IS ATM (AT THE MONEY) OPTIONS?
1. A call option is said to be in ATM if the strike price is equal to the current spot price
of the security.
2. A put option is said to be ATM if the strike price is equal to the current spot price of
the security.
WHAT IS OTM (OUT OF THE MONEY) OPTIONS?
1. A call option is said to be in OTM if the strike price is more than the current spot
price of the security.
2. A put option is said to be OTM if the strike price is less to the current spot price of
the security.
Open interest
How Changes in Open Interest Occur
 If both participants in a trade are initiating a new position, the open interest will
increase. If both participants are liquidating an old position, the open interest will
decline.
 If, however, one participant is initiating a new trade while the other is liquidating an
old trade, open interest will remain unchanged.
Misconception about open interest

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Never think that since PRICE is rising, more LONGS are being created than SHORTS.
LONGS will always be equal to SHORTS just that LONGS are dominating SHORTS in the
transaction, that is why PRICE is rising
Number of shares bought is ALWAYS EQUAL to number of shares sold. Then why PRICE
rises or falls? because of buying pressure or selling pressure. So, if buyers of a contract are
dominating the sellers, PRICE will rise and if sellers are dominating the buyers, PRICE will
fall. But BUYERS will always be equal to SELLERS. So,open interest is rising, means new
contracts are being added. But since PRICE is rising with it, it means that LONGS are
DOMINATING the transactions. Thus, market/share is STRONGLY BULLISH . opposite for
bearish trend
WRITING/Selling(Sellers) is more important here….. Why… ?
 It takes conviction to sell as there is Unlimited risk and more money required
 Sellers are usually someone with Big money like Big Institutions
 Buyers are usually retail traders as it is convenient with less required capital
 Institutions are usually right
 Large option open interest means massive bet against that strike price

Use of open interest data

 To identify support and resistance
 To find out when support resistance will break
 Direction of trend
Identifying Support and Resistance based on option chain open interest

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How to identify support and resistance level or zone?

 STEP 1 find the highest OI column on both sides (call and put side)
 STEP 2 note the corresponding change in OI
 SUPPORT (PE) biggest open interest number + positive change in open interest
 RESISTANCE(CE) biggest open interest number + positive change in open interest

How to know where is the resistance in all time high price?

 By analyzing the option chain data

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PARTICULAR STRIKE PRICE

Now we will study what a particular strike price showing us?

CALLS PUTS

 +ve change in OI implies that call writers are selling
because they feel the stock will not rise above
respective level
 -ve change in OI implies that call writers are squaring
up because they feel the stock will rise above
respective level
 +ve change in OI implies that put writers are selling
because they feel the stock will not fall below
respective level
 -ve change in OI implies that put writers are squaring
up because they feel the stock will fall below
respective level

“STRIKE PRICE” will show any of the following:

1. LONG BUILDUP
2. LONG LIQUIDATION
3. SHORT BUILDUP
4. SHORT COVERING
LONG BUILDUP
If PRICE is rising and open interest is rising, it means market is STRONGLY
BULLISH. LONG BUILDUP
 If PRICE and OI both are rising, it means that new contract that is being added is
dominated by bulls, that’s why PRICE is rising with every new contract addition.
short covering
If PRICE is rising but open interest is falling, it means market is WEAKLY
BULLISH.short covering
 If PRICE is rising but open interest is falling, it means that the rise in price is due to
SHORT COVERING and not bullishness. See why is OI falling? It’s falling because
positions are being squared off and number of open contracts in the market are
reducing. But since PRICE is rising with it, it means that SHORTS are SQUARING
OFF and dominating LONGS in the transaction. See, how would SHORTS square
off? They will square off by BUYING. That is why PRICE is rising. So, PRICE is not
rising because LONGS are dominating. It is rising because SHORTS are dominating
the squaring off process. Thus, it can not be called BULLISH. It is WEAKLY
BULLISH. It can be a TRAP for new LONGS.
 Rally Extrapolating from the general rule, price up with high volume is bullish.
However, if open interest drops during this same trading session, a bearish reading
of that variable results. The internal condition of the market during such a trading
session would be that of short covering. A short-covering rally is a very weak
technical situation. The technician can state that the decline in open interest is more
bearish than the high volume is bullish. In fact, if volume is so high that it can be

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considered to be of blowoff proportion, the volume reading would also be bearish-

signaling at least a temporary reversal of the price uptrend
SHORT BUILDUP
If PRICE is falling, open interest is rising, market is STRONGLY BEARISH.
 If price is falling and open interest is rising, it means that SHORTS are dominating
the LONGS. And since open interest is rising, it means that new contracts are being
added. But, since price is falling, it means the new contracts which are being added
are dominated by SHORTS not LONGS. Hence, it is STRONGLY BEARISH.
LONG LIQUIDATION
If PRICE is falling and open interest is falling, market is WEAKLY BEARISH.
 If PRICE is falling and open interest is falling, it means that the fall in price is due to
LONG COVERING or also called LONG UNWINDING. See why is open
interest falling? It’s falling because positions are being squared off and number of
open contracts in the market are reducing. But since PRICE is falling with it, it means
that LONGS are SQUARING OFF & dominating SHORTS in the transaction. how
would LONGS square off? They will square off by SELLING. That is why PRICE is
falling. So, PRICE is not falling because SHORTS are dominating and creating new
positions. It is falling because LONGS are dominating the squaring off process.
Thus, it can not be called BEARISH. It is WEAKLY BEARISH. It can be a TRAP for
new SHORTS.
MARKET DIRECTION BASED ON OPTION OI
 Which direction both support and resistance is shifting . if both shifting higher is
indicate bullish
HOW TO KNOW?
 BY CHANGE IN OPEN INTEREST IN PARTICULAR STRIKEPRICE
Lets study call open interest (CE OI)

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Lets discuss put open interest (PE OI)

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Lets combine both call and put

 Call writer adding(increasing) and put writer exiting(decreasing)=bearish
 Put buyers adding(increasing) and call buyers exiting(decreasing) = bearish
 Call writer decreasing(exiting)and put writer adding(increasing)=bullish.

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 Call buyers increasing(adding) and put buyers decreasing (exiting )=bullish

OPTION CHAIN TABLE FOR ABOVE CHART

WHAT HAPPEN NEXT

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Lets see the option chain data for this chart

BREAKOUT/REVERSAL
Let’s study bullish breakout and
Bull to bear reversal
REVERSAL STUDY
 If near CE OTM strike price has highest open interest and positive change in open
interest, then price will not break that level . means call writers are feel that price will
not move above that level
 PUT WRITER exiting , means open interest decreasing in ATM and ITM PE, THEY
FEEL THA PRICE WILL MOVE BELOW THAT LEVEL
BREAKOUT STUDY
 If near CE OTM strike price has change in negative open interest, then price will
break that level .call writer are exiting means they are feeling price will move up

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 Addition in ATM AND ITM PE means put writers are bullish

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Put Call Ratio (PCR)

HIGH PCR =BULLISH
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 More puts than calls

 Big sellers are selling puts, more than calls
 Means they are saying the market won’t go down much

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Team Of Traders