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Preface .................................................................................. 5

Who should Read this book ...................................................... 6

Acknowledgement ................................................................... 7

Chapter 1. Introduction............................................................ 8

Chapter 2. Understanding Charts Convention used in the book . 11

Chapter 3. Moving Average Indicator ....................................... 17

Simple Moving Average ....................................................... 17

Simple Moving Average Indicator ....................................... 17

Advantages and Disadvantages of SMA indicator.................. 23

Exponential Moving Average ................................................ 23

Exponential Moving Average Indicator ................................ 24

Advantages and Disadvantages of EMA Indicator.................. 26

Comparison of SMA with EMA............................................... 27

Chapter 4. Fibonacci.............................................................. 29

Fibonacci Retracement Indicators ......................................... 29

Fibonacci Extension Indicators ............................................. 34

Fibonacci Numbers .......................................................... 35

Chapter 5. Bollinger Bands ..................................................... 38

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Buy & Exit Trigger pattern ................................................... 40

Short and cover trigger pattern ............................................ 42

Chapter 6. Spike and breakout pattern..................................... 44

Break out chart pattern for Investors .................................... 48

Chapter 7. Morning panic and Afternoon fade pattern................. 57

Chapter 8. Higher Top Higher Bottom Chart pattern ................... 60

Why higher top higher bottom works? ................................... 61

Chapter 9. Lower Top Lower Bottom Chart pattern .................... 63

Chapter 10. Volume patterns .................................................. 66

Chapter 11. Cup and handle Pattern or U pattern ...................... 69

Chapter 12. Double bottom or W-bottom Pattern....................... 71

Non-W or M Pattern ............................................................ 72

Significance of Ws and Ms .................................................. 74

Chapter 13. Application of Multiple Chart patterns ..................... 75

Chapter 14. Insider Trading Tips that Always works for me ......... 80

Earning Days ..................................................................... 80

Never ever decide after seeing on TV .................................... 81

IPO investing ..................................................................... 84

Targets by finance groups ................................................... 85

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How to find right stock to short and when? ............................ 85

What if you miss a trade? .................................................... 88

How to plan your trades? .................................................... 88

Targets and stop losses....................................................... 89

Strategy that works almost every week ................................. 89

What type of order to place - Market or Limit?........................ 89

Chapter 15. Summary ........................................................... 91

Table of Figures .................................................................... 92

Disclaimer............................................................................ 95

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Preface

I dont have educational finance background and this was one of the
main reasons me not willing to be an author of a book in equity. I
always wanted to be into equity markets but more for a personal
hobby and as I buried myself into equity markets I found that there
is too much crap information available and it is very difficult to
understand who you should believe and who you should not. The
amount of noise in the finance domain leads me to my blog
shabbir.in. I always try to write article about what information
people should look for and where and how. This book is no
different. This book contains lots of chart patterns that I have learnt
over the years trading myself as well as reading lots of different
books that I am going to share.

This e-book comes with a lifetime free upgrades. If you purchased

the paper version of this book you can get the free copy of the e-
book version delivered right in your inbox. Just drop me an email at
[email protected] with the details of your purchase and I will
make sure you not only get your free copy of this e-book delivered
but also will make sure you receive free lifetime upgrade to this e-
book in the future.

The question may come to your mind as to why am I providing life

time free upgrades. I learn chart patterns reading them from
various books and trading myself. As I learn more patterns I will
add them to this e-book and I think you also deserve the new
patterns that I learn over the years.

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Who should Read this book

You may have heard timing the market is not important but time in
the market is which means if you are not able to get a stock at the
best possible price you can remain invested in the same stock for
long enough and still make decent return.

True provided you have selected the right stock at the

right price.

Again you may have selected the right stock but chances are that
you may have purchased it way too high. This can test your nerves
for sure. You may see losses for quite sometime which can actually
turn against you. Unless you are very experienced you will either
quit with a loss saying that stock market is not for you or wait for
your capital to return and then quit and still say the same. The end
result will be same. I have seen this happen to too many.

Looking at both the scenarios I think it is important that you invest

in the right stock at the right time and at the right price and this
book teaches you exactly that i.e. how to judge the best possible
time to invest in good stocks at the right price level and exit
accordingly.

So this book is for every trader and investor who wants to be in

equity markets and want to know when to buy, when to sell, when
to short sell and when to cover a stock based on chart patterns.

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Acknowledgement

Charts used in this book are from Interactive Brokers Trader Work
Station application. Apart from that I also use the one provided for
free by Yahoo Finance and Google Finance.

I follow Timothy Sykes blog as well as his DVDs to learn about

many of the chart patterns and apply the same in the Indian
Market.

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Chapter 1. Introduction

I have read it in a well known magazine sometime back that 90% of

people are not able to make money from the stock market. Isnt
this shocking for you? I was really shocked. Indian stock markets
are hitting all time high and things like Indian growth story and
other such big jargons and yet 90% of people dont make money in
stock market.

I did not believe it but finally I was forced to agree to it.

Just tune in to any financial news channel for entertainment

purpose, verify what I am talking about and see for yourself. See
how many people ask questions like what they should do for xyz
stock? They have purchased it at some very high price and now it is
almost down to earth. They can hold the same stock for years to
get the money back.

Do you expect those people are making money from the stock
market? The answer is No.

Now verify how many calls you see on TV from people who dont
make money and you will be forced like me to agree that 90% of
the people dont make money from the stock market.

One basic rule of investment is that you should research before you
invest and not after but people tend to do just the opposite. They
ask experts what they should do now and not before.

You may be wondering why I am telling you all this. The answer is I
was among those 90% for quite a long time.

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I was also certain that theres lot of money to be made in stock

market if I am willing to learn the right way. I have learnt few ways
(I cannot say all but yes definitely some) to make money from
markets the hard way i.e. loosing my own hard earned money and I
am trying to teach my blog readers what they should & should not
be doing if they are trying to make money from stock market.

The first thing you should follow is not to rely too much on stock
tips. Being in the market for almost five years now, I know for sure
that its not the tips that matter but the knowledge coupled with
tricks that matter more than the tips. Stock tips are good and I also
prefer to get them but before I jump into those tips I prefer to do
my own research and find why I should follow the tips and execute
the trade.

Let me be honest. I never do the financial research myself and I

dont have the right kind of knowledge to do that as well but what I
do is if I get some tips to invest or trade in a particular stock I apply
my knowledge of charts. I am fine buying the stock later than to
buy and then lament.

The next thing you should understand is never execute a trade

immediately on your brokers tips. It is not that they provide bad
tips or I have something against them but the model is a bit flawed
because they provide the same tips to all their customers. So think
about it. If you react immediately to those tips you may end up
buying a stock at much higher price because all of your brokers
customer may do the same. More buyers can inflate the stock price
considerably.

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My main source of stock ideas (I dont prefer calling them tips) is

from my broker and you can be rest assured I have account with
almost all the major Indian brokers. I always use them for stock
ideas but never execute the trade without applying my own
research on the stock.

I prefer Motilal Oswal, ICICIDirect and Sharekhan but if you have a

very large trading portfolio you can use Interactive Brokers but I do
not recommend them for investment purposes. You can read my
personal experiences about all the brokers in my blog here.

One more thing I think I should clarify in the introduction is a

misconception about chart patterns. Many think that charts are only
for traders and not for investors but I can tell you that as I learn
chart patterns from trading and apply them into my investment I
started to see a lot less downside into my investments which helped
me to make a lot more money from the markets and shift myself
from the 90% of people not making money into those 10% of
people who actually make lots of money.

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Chapter 2. Understanding Charts Convention

used in the book

Before we can begin understanding the chart pattern it is important

that we understand chart conventions in general and conventions I
have used in this book. What kind of information exists in each
chart and how to understand all those information and use to your
advantage?

You can see a sample chart of Dish TV India Limited or in short

DITV in Interactive Brokers Application. You can see the company
code in the top left corner of the figure.

Figure 1 - Dish TV - Intraday [5 Minutes]

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In the top right hand corner you can see some more numbers like

L: 66.55 CH: +1.50 CH%: 2.31% V: 1.529M

L: means the last traded price.

CH: Is the change from the previous close.

CH%: is the percentage change from the previous close.

V: is the amount of shares traded in the given period i.e. 1 day in

this case.

Now let me explain each of the parameters in the above chart.

Dotted line is the previous close price.

On X-Axis we have time.

On Y-Axis we have volume as well as price. Actually we have 2

charts. Top we have price and volume at bottom. Let me now split
the charts into two for understanding purpose.

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Figure 2 - Price Chart for Dish TV

In the price chart you can see three coloured candle sticks. Each
candle stick for the price here is a five minute time frame.
Remember this is an intraday chart with five minute time of each
candle stick.

Figure 3 - Candle Stick

Each candle stick has four parameters. Width, height, entry level
and exit level. We have five minutes time frame and so width of
each candle stick is five minutes. Height is the range of price traded
for the stock in that five minute time gap.

Entry point is the first trade in this time period. Exit point is the last
trade in this time period. Exit point for previous candle stick may
not be same as entry point of next time candle stick because in real
time trade may not have been executed at the same price between
two points and so they can vary.

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The colours of the candle stick define the price action. Yellow stick
means price is un-changed, green means positive tick and orange
means negative tick in the given time frame.

Now let us look at the second part of the chart which is volume
chart.

Figure 4 - Volume Chart of Dish TV

Volume is a histogram and each bar means the amount of share

traded in given time period.

Here there is no special meaning to the colours but they are used
inline with the price candle sticks.

I have used Interactive Brokers application to generate most of the

charts for this book but you can also use Google Finance and Yahoo
Finance to get similar charts.

Let us see the charts of Dish TV for 29th November 2010 in all the
three applications.

With Google Finance and Yahoo Finance you may need to change
the default settings to show candle stick because they have default
as line charts. Also the colours from various charting software can
vary slightly.

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Figure 5 - Dish TV Intraday [5 Minutes] by Google Finance

For Google finance you will see setting buttons under the chart to
customize candle stick interval of candle sticks and view type.

Figure 6 - Dish TV Intraday [5 Minutes] by Yahoo Finance

Yahoo Finance does not allow candle stick of variable width and it
has default set to 5 minutes for intraday charts.

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In this book each chart will be labelled with square [] brackets. The
time in square brackets represent candle stick interval.

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Chapter 3. Moving Average Indicator

Simple Moving Average

Let us begin understanding our journey of chart patterns with the

simplest possible pattern i.e. simple moving average pattern.
Though it is very simple and is not very widely used as stand alone
pattern, it is used in conjunction with other advance patterns and so
it is important for us to understand.

Before we get into the patterns let me define Simple Moving

Average first.

A simple moving average is average price over a specific

number of periods. A 50-day simple moving average is fifty
day sum of closing prices divided by fifty. Similarly A 200-day
simple moving average is the two hundred day sum of closing
prices divided by two hundred.

Simple Moving Average Indicator

Simple moving average indicator means applying various simple

moving averages on charts for better understanding of the market
sentiments and to an extent predict the future market sentiments.
Widely used simple moving average indicators are

1. 50 Day Simple Moving Average

2. 200 Day Simple Moving Average

Many prefer to use the combination of 20 day moving average with

8/9 day moving average and many others prefer to use three
indicators aka 50, 20 and 8/9.

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No matter what number you use the concept is same which is we

predict the future of the stock movement based on how it has
performed in the short term average over longer term average. I.e.
in 2 indicators how the stock has moved for 50 days compared to
200 days.

Chart patterns are better understood with examples and so let us

take our first example of Infosys between 2008 and 2009. We all
know for sure that in the tough time of 2008 and 2009 stock
markets and especially IT stocks had lots of issues on account of
problems in US. The sentiments were so bleak that many people
started to believe that technology companies may have hard time
finding orders. So this is what we see in charts.

Figure 7 - Infosys Yearly [Daily]

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In the above chart blue line represents 50 DMA and purple line 200
DMA. When the smaller moving average i.e. 50 DMA moves below
the larger moving average i.e. 200 DMA we assume the stock is in
bearish pattern. This means stock has not performed well enough in
the last 50 days compared to its performance over last 200 days
and so it would not be a wise decision to hold on to the stock.
Selling it off can turn out to be better decision or if you are a trader
going short on the stock is more advisable.

When the smaller moving average i.e. 50 DMA moves above the
larger moving average i.e. 200 DMA we assume the stock is in
bullish pattern which means stock has performed well enough in the
last 50 days compared to last 200 days and either we should hold
on to the long positions or can even buy the stock.

Let us tabularize the simple moving average concept to

make it easier to understand.

Pattern Indicator

Smaller moving average is above Sign of Bullish pattern

larger moving average

Smaller moving average is below Sign of Bearish pattern

larger moving average

Smaller moving average is above Best time to move out of your

larger moving average but they

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cross over i.e. smaller moving investment.

average dips below the larger
moving average.

Smaller moving average is below Time to re-invest.

larger moving average but they
cross over i.e. smaller moving
average peaks above the larger
moving average.

DMA does not necessarily mean you have to have the days closing
average. You can use any needed closing value like hourly values or
even minutes.

In the above example we have seen a daily closing average to

determine the trend but let us see an intraday chart of Infosys.
Here each candle stick represents 1 minute of trade.

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Figure 8 - Infosys Intraday [1 min]

We can see that the stock is in bullish trend all day long but a sharp
downfall in the closing hours. It can be avoided with the trend
reversal idea. You can easily move out of your position near 3085
levels.

Now let us see how to read the data with more than two indicators.

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Figure 9 - Infosys - 1 Year [Daily]

We see three lines in the above chart.

1. Orange line for 9 DMA

2. Purple line for 20 DMA

3. Blue line for 50 DMA

We have the same concept of how the smaller average performs

over the larger ones. Ideal buy signal is when we have averages
stacked rightly i.e. highest average at the bottom and lowest at the
top i.e. 9 at the top, 20 in between and 50 at the bottom.

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Advantages and Disadvantages of SMA indicator

The biggest advantage of simple moving average indicator is to help

you predict the trend i.e. bearish or bullish but it comes with lots of
disadvantages as well.

The biggest disadvantage is, you cannot predict the trend well
before the beginning of the trend and it has to be based on
historical data. Apart from that this method does not take into
account many other factors like volume, sentiments and interest.

The chart interval (1 min / 1 day) that you are looking at can
impact your decision to a great extent and so it needs a lot of
experience before you can settle into one perfect interval for your
needs.

Exponential Moving Average

Exponential moving average indicator is similar to simple moving

average indicator with the difference being in the calculation of
average. As the name suggests here we use the exponential
average and not simple average.

Let me define the exponential moving average first.

Exponential moving averages reduce the lag by applying more

weight to recent prices. The factor is (2/ (Time periods+1)). A
20-period EMA applies a 9.52% weighing to the most recent
price (2/ (20+1) = .0952). Similarly a 50-period EMA applies
a 3.92% weighing to the most recent price (2/ (50+1) =
.0392)

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Exponential Moving Average Indicator

Exponential Moving Average Indicator or EMA indicator is similar to

SMA indicator and can help predict the market sentiments. EMA
indicator like SMA indicator also works with more than one indicator
and widely used indicators are

1. 20 Day Exponential Moving Average

2. 50 Day Exponential Moving Average

But many prefer to use the combination of 20 day moving average

with 8 or 9 day moving average as well and many others prefer to
use three indicators aka 50, 20 and 8.

EMA is also termed as weigtage moving average or WMA.

No matter what number you use the concept is same. Predict the
stock movement based on how it has performed in the short term
average over the longer term average.

Again let us see the same example of Infosys in between 2008 and
2009 so it not only helps us understand EMA but we can also do a
side by side comparison of SMA with EMA.

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Figure 10 - Infosys 1 Year [Daily]

Looks pretty much similar to what we saw in SMA Right? But it is a

lot different. In SMA we used 200 and 50 to get much similar charts
and here we are using 50 and 20 respectively. Apart from that you
can clearly see that we get the trend reversal idea much before
than SMA indicates. You see that line cross over much before the
2009/04 and in SMA it was much later than 2009/04

The table for EMA is pretty much same as SMA.

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Pattern Indicator

Smaller moving average is above Sign of Bullish pattern

larger moving average

Smaller moving average is below Sign of Bearish pattern

larger moving average

Smaller moving average is above Best time to move out of your

larger moving average but they investment.
cross over i.e. smaller moving
average dips below the larger
moving average.

Smaller moving average is below Time to re-invest.

larger moving average but they
cross over i.e. smaller moving
average peaks above the larger
moving average.

Advantages and Disadvantages of EMA Indicator

EMA indicator like SMA indicator is also used to predict the trend i.e.
bearish or bullish and though with EMA indicator you can predict the
trend somewhat before SMA indicator still it comes with lots of
disadvantages as well.

Again this method does not take into account factors like volume,
sentiments and interest.

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The interval (1 min / 1 day) that you use can impact your decision
to a great extent and so needs a lot of experience before you can
settle into one perfect interval for your needs.

Comparison of SMA with EMA

Let us first see SMA (50) and EMA (50) applied on Reliance
industries. I have especially chosen Reliance Industries because the
price action in Reliance industries has been to and fro in a range.
You can see that EMA is much closer to the actual price and that
EMA takes much sharper turn than simple moving average because
it gives more weight to the most recent price over the past unlike
SMA.

Figure 11 - Reliance Industries 1 Year [Daily]

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Many savvy analysts use only one single exponential moving

average to identify the trend as well. When using single average,
you should be using a very small number average, preferably 8 or
9. You can see in the below chart that direction of the blue line
(upward or downward) can also be used to identify the stock
pattern as bullish or bearish respectively.

Figure 12 - Reliance Industries 1 Year with 1 EMA [Daily]

I personally do not prefer using it but just for the sake

of explanation I have explained it in this book.

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Chapter 4. Fibonacci

Fibonacci Retracement Indicators

The scope of this book does not permit me to explain in complete

details about Fibonacci numbers but I will try to explain to the
extent we need so that you can understand the key Fibonacci levels
which we will use. If you are interested in knowing more you can
read about Fibonacci Numbers here.

In mathematics, the Fibonacci numbers are the numbers in the

following integer sequence:

0,1,1,2,3,5,8,13,21,34,55,89,144

By definition, the first two Fibonacci numbers are 0 and 1, and each
subsequent number is the sum of the previous two. The numerical
sequence is such that each number is approximately 1.618 times
greater than the preceding number or in other terms if you divide
any number by the next number you will get 0.618 which is better
known as "the golden ratio" or "the golden mean".

For example: 8/13 = 0.6153, and 55/89 = 0.6179.

The ratios of interest for the stock market from the Fibonacci series
are 23.6%, 38.2% and 61.8%.

The 38.2% ratio is found by dividing any number in the series by

the number that is found two places to the right.

For example: 55/144 = 0.3819.

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The 23.6% ratio is found by dividing one number in the series by

the number that is three places to the right.

For example: 8/34 = 0.2352.

Also we see that 61.8 & 38.2 sums up to 100.

The 76.4 ratio is derived by subtracting 23.6 from 100.

I.e. 76.4 = 100-23.6

Additionally people also use 50% as a level.

So now we have key percentages which are 61.8%, 38.2%, 23.6%

from Fibonacci series directly and 76.4 and 50% as derived ratios
from Fibonacci series. We will be using them as our indicators.

For strange reasons that are unclear, the Fibonacci ratios seem to
play an important role in the stock market and can be used to
determine critical points that cause an asset's price to reverse. The
direction of the prior trend is likely to continue once the price of the
asset has retraced to one of those ratios.

Let us see some examples and see how to apply them.

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Figure 13 - Nifty Yearly [Daily]

I have drawn the Fibonacci levels between point 1 and 2 marked on

the graph.

Now see for yourself how first retracement of Nifty is from Fibonacci
level of 61.8 and second retracement from 38.2.

You can apply Fibonacci on the last leg up and see that the next
correction was when Nifty touched -61.8 levels. See the figure
below.

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Figure 14 - Nifty Yearly [Daily]

Or you can even consider the application of Fibonacci between point

1 of first figure and point 2 of second figure and this is what we see.

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Figure 15 - Nifty Yearly [Daily]

See how the retracement is from yet another Fibonacci level of

38.2.

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Fibonacci Extension Indicators

We have seen how Fibonacci levels are important for retracement

and same also applies to extensions as well and this can help you
predict a possible top.

The Fibonacci extension levels are 161.8%, 261.8% and using the
same chart for retracement see how we can predict the possible
top.

Figure 16 - Nifty Yearly [Daily]

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Fibonacci Numbers

Definitely the aim of this chapter was not to talk about super
natural things that happen but also use them to our advantages. I
dont use Fibonacci extension at all but do use retracement few
times. But that may be because I am not an expert at using them
to the full extent but what I do use more often are Fibonacci
numbers.

0,1,1,2,3,5,8,13,21,34,55,89,144

Now let us also see the importance of these numbers in stock

market.

We have 5 trading sessions in a week. 5 is Fibonacci number.

Let us take any chart and see how Fibonacci numbers are found in
that chart.

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Figure 17 - Bharti Airtel Intraday [5 minutes]

Let us pair the simultaneous ticks and see how many ticks are of
same colour in continuity.

2green, 1orange, 1green, 1orange, 1green, 1orange, 1green,

4orange, 1green, 5orange, 2green, 2orange, 1green, 1orange,
3green, 1orange, 1green, 1yellow, 1orange, 6green, 1orange,
1green, 1orange, 2green, 1orange, 2yellow, 1orange, 1green,
5orange, 1green, 1yellow, 3orange, 2green, 1orange, 1green,
3orange, 1green, 4orange, 1green, 1orange, 2green, 1yellow,
1green.

Out of 43 ticks we have only 3 which are non-Fibonacci numbers

and 40 of them are Fibonacci numbers.

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By the way we have 5 Minutes as candle stick width, yet again a

Fibonacci number but it has been chosen just to make the
calculation easy for me.

Fibonacci analysis is not exactly technical analysis but more of a

fractal analysis and personally I use it as a wait time.

If I see a down day or correction I wait for 3 to 5 days before I take

a long term buy especially in mutual funds.

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Chapter 5. Bollinger Bands

Developed by John Bollinger, Bollinger Bands are volatility bands

placed above and below a moving average. The bands automatically
widen when volatility increases and narrow down when volatility
decreases.

Middle Line = 20 simple moving average (SMA)

Upper Line = 20 SMA + (20-day standard deviation of price x

standard deviation multiplier = 2)

Lower Line = 20 SMA - (20-day standard deviation of price x

standard deviation multiplier = 2)

With a 20-day SMA and 20-day Standard Deviation, the standard

deviation multiplier is set at 2. Bollinger suggests increasing the
standard deviation multiplier to 2.1 for a 50-period SMA and
decreasing the standard deviation multiplier to 1.9 for a 10-period
SMA. I prefer to use a 20 day SMA.

In very volatile markets Bollinger bands can help you decide entry
and exit points in a given stock and so let us first understand
Bollinger bands with a sample. Let us see the Nifty Index for 9th
December 2010.

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Figure 18 - Nifty Intraday [1 min]

Light and dark blue lines form the band, orange line is the 20 ticks
simple moving average. I prefer to use 20 ticks but you can also
use 10 but remember to use the deviation as 1.9 for 10 DMA.

Moving along the upper band shows strength, while

along the lower band shows weakness.

In the above chart at around 10 AM we see nifty moving along the

upper band showing signs of strength. Around 14:00 PM we see
nifty moving along the lower band showing signs of weakness. Nifty
when touches any of the bands (lower or upper) moves along the
band.

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Buy & Exit Trigger pattern

Bollinger Bands are not meant to be used as a stand alone tool to

decide on the buy and sell signal and ideally we should combine
Bollinger Bands with other basic trend indicators for confirmation of
buy and sell signals

Using Bollinger bands we can predict the market move. If we

combine it with some more technical methods we can predict entry
point and exit point quite easily.

In chapter 1 of the book we learnt the Simple Moving average

Indicator. The summary of the lesson was - when we have lower
average indicator above the higher average it is a buy signal.
Bollinger bands suggest that if stock price is near the higher bands
it will walk along the band suggesting signs of strength. Now let us
combine both of them and apply the same on a chart and see how
we get the buy signal, sell signal as well as value for stop loss.

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Figure 19 - NTPC 6 Months [Daily]

The buy signal comes when we have the stock price

moving along the higher band and smaller moving
average is either above the higher moving average
before hand or crosses the higher moving average and
stacks up rightly.

The exit signal comes when we see that price is tending to leave the
higher band. If you want to let the profit ride with a trailing stop
loss, we can even do that. Stop loss is a closing below the middle
20 SMA line as shown with a horizontal blue arrow in the above
figure.

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Short and cover trigger pattern

We just saw how we can combine Bollinger bands and simple

moving average indicator to get the entry and exit point in a stock.
Now we will see how we can use Bollinger bands to find the trigger
for going short for the stock and cover our short positions.

Again let us use NTPC only and I have purposefully selected NTPC
just to make sure people not only understand that no stock can
always remain in the uptrend and so you should be ready to earn
profit both ways. Buy and sell as well as short and cover.

I will use the same chart as above but remove the buy triggers and
add short triggers. This is what we see.

Figure 20 - NTPC 1 Year [Daily]

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The short signal like buy signal is when we have the

stock price moving along the lower band and smaller
moving average is either below the higher moving
average before hand or crosses the higher moving
average and stacks up rightly.

We see that once we short the stock at our short trigger point in the
chart above, the stock price actually deviates from the lower
Bollinger band but still our stop loss which is the red line in the
chart above is not yet touched. You can either cover your short
position at a point where you see a green day first time after lot of
red days or can also keep your profit riding with a stop loss of the
same red line. Personally I prefer taking profit of the table as soon
as I see a bounce.

Why NTPC for this example?

Many investors enquire about the Indian Power story and the first
suggestions that any TV analyst recommends is always NTPC. I am
sure they recommend it because of good fundamentals and trading
at very lower multiples to earnings but I do not take that theory for
large cap stocks. If a large cap stock is available very cheaply and is
not able to outperform the market it is either best avoided for
investment or is very good for trading technically i.e. after reading
the charts.

If you are investing in large cap stocks it is better to

buy the expensive stocks and not the cheap stocks. It
same is completely opposite for midcap stocks.

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Chapter 6. Spike and breakout pattern

Figure 21 - Dish TV Intraday [2 minutes]

This is one of the most common chart patterns in the Indian market
and this is yet another reason why we see pre-market sessions
being implemented in the Indian Market. Despite pre-market this
pattern will always occur. I trade in many foreign markets with
more than a few hours of pre-market hours of trading and still this
kind of spikes are beyond control but if you know how to play this
kind of chart patterns, you can make a lot of money out of it.

Let us see the above chart in 2 parts - morning to Mid-day and then
Mid-day to closing.

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From the opening reaction it is clear that there is some good news
for the stock and so the stock runs-up. If you have the TV channel
on and find such brilliant news you will be tempted to buy such
stocks, isnt it? Suddenly after you buy, you see that things start to
become dull and run-up which you expected is not continuing any
more for you to make some decent gains.

If you know how to handle such news and pattern you can really
make the most of it.

If you see brilliant news flashing for some stock, dont

buy that stock immediately. Put that stock in your list of
good stock and allow few hours of trading and let the
reaction to the news settle down.

Analyze the peak you see for the news. For Dish TV in the above
chart we see it is roughly 72.50.

Buy if the stock can break out of above 72.50. Ideally breaks out
the next whole number which is 73. You see how it tries to break
out of the morning peak thrice but then finally manage to break out
past 73 decisively on good volume.

Do not anticipate the break out but wait for the break
out to actually happen.

This is also known as a Cup or U pattern.

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The same pattern will repeat time and again. If you can hold onto
the stock for an overnight position you can sell into the next day
morning spike. Usually the same pattern again repeats the next day
as well.

Figure 22 - Dish TV 2 Days [2 minutes]

Many argue that this pattern only exists in low priced stocks like
Dish TV. Let me tell you that Dish TV is not a midcap stock but
instead of arguing let me show you more examples. See Reliance
Industries after it breaks out of morning spike of 1032.

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Figure 23 - Reliance Industries [1 min]

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Break out chart pattern for Investors

One of the myths among investors is - Break out chart pattern is for
intraday traders and does not work for investors? But when I
applied the above chart pattern for my investments I started to see
far better return on my investment with very far less pain and less
loss recovery that I always needed to do.

Let us see few of the blue chip stocks and we will see how history
helps. How it can help you to not only recover your capital but
provide you good returns.

Lets take an example.

After all doom and gloom of 2008 you have been out of the stock
market but in 2009 you see things correcting and so somewhere in
2009 you plan to invest in a few of the best stocks and this is when
you select the best performing blue chip company i.e. Infosys.

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Figure 24 - Infosys 2 Years [Daily]

Looking at the above charts it feels like no matter where you invest
you are bound to make money. Isnt that what you are thinking?
Let us find out whether or not we can make money out of Infosys
no matter at what time we invest.

First let us see what happens if we invest at the breakout.

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Figure 25 - Infosys 1 Year [Daily]

We see how stock forms a high and then slight correction for few
days / months and continues its upward journey. I have shown 2
black arrows where we see a clear break out but there are lot more.

Many argue that you should buy on dips and that is true for certain
type of investors but it does not work for all. At least it does not
work for me because I become very impatient with the losses and
try to cut losses quickly these days.

Let us try a buy in dips theory. Infosys forms a high of close to2700
in January 2010. You want to buy on dips and so you buy at close
to 2500. Very good buy from the top but see how the stock dips
more. It goes to 2375 as well. As an investor now you will not be
concerned about return on your capital but more concerned about

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return of your capital. The time when stock sees 2500+ you will
come out of the stock but I will stick my neck out and purchase
after 2700 and I will make 100+ Rs in the stock where as buy on
dips will have the money invested remained invested to get your
capital back and consider that stock market is not for me.

So am I challenging the Warren Buffets method of investing i.e.

buy when every one is selling & sell when everyone buys? No I am
not challenging it but to explain how I am not challenging it let me
tell you few of my personal examples.

If you are in the equity market you may have heard the term about
momentum stocks. Essar Oil was one of those momentum stocks. I
was lucky to purchase Essar Oil around 120 and sold after few days
near 300, stellar profit.

Now after I sold it off stock touched 350+.

Figure 26 - Essar Oil All Time [Monthly]

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I was just scratching my head why I sold it off. This was at the time
when I had very little idea of stock market and chart patterns but I
was following books by Warren Buffets and so I waited for the
correction in Essar Oil.

In a few days market corrected and I purchased 3 times more Essar

Oil at 250.

And guess what it came back in double digits and I was still holding.

Few years of my investment and it touched 180 once again. I

thought I will get 250 but then back to 150.

After almost 2 years I got out of Essar Oil at 140ish.

Didnt I follow the principle of Buy when every one sells and wasnt
I a long term investor?

Many will argue that you selected the wrong stock buddy.

So I give one more example.

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Figure 27 - Reliance Industries All Time [Monthly]

Reliance Industries was one of the best performing stocks pre-

January 2008. It touched a high of 3000+ and when the market
corrected I purchased it at around 2400. What a solid entry for me.
20% lesser than the peak and the stock was falling like anything
when I got into it. I was pretty confident this is the last stock I will
need to be the next millionaire.

Guess what?

The result was not very different from Essar oil. Reliance industries
went up and touched 2500 in roughly 2 years but went back to
2000. Split of 1:2 and so trading close to 2000 and 2200. I sold off
at 2000.

In Essar oil I lost 40% and in Reliance Industries I lost 20%. In

Essar oil I made a profit in the spike and so results of both the 2
year long trade was almost a loss.

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I can just continue giving my examples on this but I will stop here
with the last one.

Figure 28 - Tata Steel 2 years [Daily]

Purchased Tata Steel in the fall at 600 and the stock touched 450
and so I was out of this stock at close to 500 after few months of
my investment.

So now you can clearly see that Warren Buffets method of

investment does not work for me. You may be wondering then for
whom does it work? One of the richest investor on this planet cant
be wrong.

Let me answer his way investment that an example from the Indian
market.

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I hope you have not forgotten the Satyam Scam yet?

This is what the chart of Satyam look. The stock from 197 goes
down to 12 in few hours if not minutes.

Figure 29 - Satyam computers monthly [Hourly]

Do you remember any buyers in the fall? No it was not Tech

Mahindra but it was L&T. They purchased Satyam computers when
every one was selling.

L&T started purchasing Satyam before the fall but were one of the
major buyers in the fall. The reason they purchased was they
wanted to acquire Satyam computers and wanted the management
control. Their average buy price as far as I remember was close to

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80 Rs. They sold Satyam computers holding roughly after 1 year at

close to 120 Rs. Good 50% gains.

Buy when every one sells and sell everyone buys worked perfectly
for them.

After seeing the Satyam example let me answer why I am not

challenging Warren Buffets method of investing.

If you know Warren Buffets style of investment you may be aware

that he not only invests financially in companies but likes to be part
of the decision making team as well. His method works great when
you want to be part of management and are ready to take that
company to the next level.

I am not that big an investor and this is one reason Warren Buffets
method of investment does not work for me.

So I follow a very simple rule now.

Never buy on dips and do not even try to average on

dips. Get out of the stock even if with a loss. You never
know the bottom and so will never be able to catch the
bottom. You can again get back into the stock at lower
levels when sentiments are good.

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Chapter 7. Morning panic and Afternoon fade

pattern

If you are an investor and if you are holding any stock which comes
out with some bad news in the evening or just before market open.
What do you do? Get out of the stock as early as possible. Isnt it?
The same news is heard by majority of investors and you are not
alone to get that news. Now think what will happen when everybody
starts selling. It creates morning panic.

I do not recommend holding a stock which has bad news floating

around. In fact I personally never prefer to hold any stock which
has any news (good or bad) floating around and you should
definitely sell the stock but it is also important that you realize that
you SHOULD NOT be selling the stock in the morning panic. Ideally
wait for the morning panic bounce to come and that is the right
time to get out of your position.

Remember any panic will always be followed by a

trading bounce but the bounce will never be strong
enough to get the stock back to where it was and so
never expect to get to a point from where it started
falling and so try to use the bounce to minimize your
losses.

Many a times I have seen that it takes roughly an hour after the
morning panic for the bounce but again instead of catching the top
of the bounce remember your aim is to minimize your loss.

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See the chart below for Punj Lloyd where we see a morning panic in
the first fifteen minutes and the stock soon bounces. This bounce
should be the right time to get out of the stock or even go short on
stock.

Figure 30 - Punj LLoyd Intraday [1 min]

If you are a trader you can short the stock in the spike but if you
miss the spike for shorting, wait for the stock to break below the
morning panic low. This level is far safer for shorting with very low
level of risk and higher chance of handsome returns.

Ideally management may give some interview on TV about the over

night bad news and we should wait for the market to decide on the
outcome of the news. If market does not respect the explanation
slowly the stock will break down below the morning panic low.

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Many large investors have stop losses close to those levels and so if
you can short around that level you are sure to make money in the
afternoon fade as well as next day morning panic.

Figure 31 - Punj Lloyd 2 days [2 minutes]

Remember never buy when you see mid-day spike after morning
panic. It is not buying that creates the spike but mainly short
covering.

Sharp down opening with a mid day spike is a classic

case of short in the spike and not a buy.

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Chapter 8. Higher Top Higher Bottom Chart

pattern

Higher top higher bottom is yet another chart pattern that can help
you understand the trend in the market. I mainly use it on Indices
to identify the trend and depending on the type of trend (Bullish or
bearish) I go long or short on stocks.

Let us look at the Nifty chart for today.

Figure 32 - Nifty Intraday [2 minutes]

We need to break this chart into parts to understand the higher top
and higher bottom pattern.

Let us see the first hour of chart first.

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Figure 33 - Nifty First Hour

What we see in the nifty chart above is it creates a peak, corrects,

then again a new peak. The second peak is higher than the first one
forming a higher top. Then from the second higher top it corrects
again but the second bottom is higher than the first bottom and not
lower.

Why higher top higher bottom works?

There are mainly 2 types of traders.

1. Buyers in the form of building long positions or covering their

shorts.

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2. Sellers in the form of short selling or selling their long

positions.

For market to go higher you need more buyers or in other words

more people should think that market will give them better
opportunities if they are buyers. Similarly for markets to go lower
you need more people selling.

Now each peak means people buy and when it corrects from that
peak means people are selling their long positions but sellers are
not that many and so bottom is lower than the previous bottom and
lot more people are willing to buy and so forming a new high.

At the time of writing this chapter it is still not the end of trading
day. I have explained what trades I did today in my post How to
Trade in Market on my blog? I expected the bullish trend in the first
half but did not see the trend continuing and so was ready to take a
small loss.

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Chapter 9. Lower Top Lower Bottom Chart pattern

Like higher tops and higher bottoms indicate strength, lower tops
and lower bottoms indicate weakness in the markets and the best
way to trade the market is remain out of it or short selling. Never
ever try to guess the bottom.

Here the idea is very similar to higher top, higher bottom pattern.
Here the second peak is lower than the first peak and is mainly
because of the short covering and not fresh buying but the second
bottom is much lower than the first bottom.

This is the effect of what lower tops and lower bottoms can do.

Figure 34 - Nifty Intraday [1 min]

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You see that market opens in red and forms a bottom but then that
bottom is clearly broken in the next leg down and though the Nifty
tries to form a base but it just could not. Slowly but surely the
anticipated support levels gets broken and people think the next
support few points down.

You may have doubt that some peaks are higher than first one in
one case. Yes true but only single peak should never be used as a
point of decision making. Ideally it should form couple more to get
the idea of a trend reversal.

Ideally news channels at the end of the day may report 5880 was a
clear support that is held and many investors will also suggest that
as support.

Dont be fooled by such news because this is not support being held
but all the supports being broken. Yes it was held but that does not
give us any sign of going long. See what you have in store the next
morning

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Figure 35 - Nifty 2 days [5 minutes]

You can clearly see that 5880 was a support for an hour the next
morning. This could be the effect of news channels and other media
reports. The support we see may be used by traders for short
covering and nothing more that that. A bounce was not above the
morning high and so a break out pattern is not formed nor was the
W formed but what we see is a morning panic with a trading bounce
and then an afternoon fade pattern. See the weakness which
ultimately leads to a disaster.

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Chapter 10. Volume patterns

Have you ever wondered why do we need a human when every

trigger is just mathematical and can be done with the help of
machines aka charts? The answer is - we humans are much more
intelligent than the dumb piece of processor when it comes to
understanding the market sentiments. Volume plays a very vital
role when understanding the sentiments and applying the chart
patterns. It is short yet one of the most important chapters and so I
will suggest you to re-read the complete book once again after
reading this chapter.

A particular stock can only go higher for only one single reason -
Buyers. People should buy the stock for it to go over higher. Buyers
can be cash market buyers or short sellers who have short position
open in that particular stock and want to cover up.

A buy signal is when we see a surge in volume.

A higher volume means more buyers are looking to buy a stock.

Stock cannot move up unless it has more buyers than sellers. So if
you see a good volume building up you can apply the chart patterns
to determine a buy or sell signal.

Volume cannot rise when the sentiments are bleak and so fall in
market comes when we see a decline in volumes. This is when the
market participants are all down and out and no one is willing to put
their hands out to buy the stocks. May be a temporarily short
covering bounce can pull the market up in the down trend but
nothing more than that.

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One more important point to note here is that we are talking about
real traded volumes and not buyers standing in queue in an
exchange.

Let me show you what I mean. If you have traded in market using
any online interface yourself, you may know that you have 2 fields
to enter for your trade quantity. One is actual quantity and other is
disclosed quantity. See the web interface order form of Sharekhan
below.

Figure 36 - Sharekhan Trade Form

Disclosed quantity is what you are able to see when you see the
orders in queue and not actual order quantity and this can be used
to show large buyers / sellers standing in queue but may not be
actually large quantity orders and so work on the traded volume
and not numbers in queue.

Now you may be wondering why we have two quantities. It is given

as a protection for large investors to execute big orders without
other investor taking advantage of those orders.

Heres how.

Let us say investor A wishes to buy a large quantity of XYZ stock

trading currently at 105 Rs. Trader B sees a large order at 105 Rs.

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Trader B now can easily take the advantage of the large order
because he now knows large order will not allow the price of the
stock to go below 105 Rs. He places an order at 105.05 Rs which
executes instantly before the large order and almost at same price.

To protect such misuse exchanges have disclosed quantity while

placing the order where the investor can disclose a very small
quantity for the orders placed. As expected every coin has two
sides. Now this disclosed quantity can be used to show people large
buy orders where as actually the orders are small and vice versa.
Many brokers do not allow too much variation of the disclosed
quantity as well but the important point to note here is that we
should understand the contained information as well as understand
what information is right for you to grab and what to leave.

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Chapter 11. Cup and handle Pattern or U pattern

Cup and handle pattern or U pattern is more like a breakout pattern

where we see a spike but soon after the spike, stock consolidates
for some time in a very tight range and then we see a second spike
which is higher then the first one and much stronger. See the chart
of Titan Industries below.

Figure 37 - Titan Industries [2 minutes]

With experience you can use this pattern in a slightly different

manner. I prefer to do that. I take the risk of anticipating the
breakout before it actually happens for more gains. Remember that
greed is your biggest enemy and if you are not ready to cut your
losses quickly wait for the break out to actually happen and dont

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anticipate it will happen after you buy. In fact I will advice you
paper trading before you apply the anticipated trades.

Paper trading is a way to simulate a trade without actually

trading with real money. The purpose is to gain additional
trading experiences.

To anticipate a break out the stock should first form a very tight
range and stock neither breaks up nor breaks down.

Look for the last peak and buy based on breakout pattern it will be
around 3670. We see a very tight range forming a very good flat
plateau. An anticipated buy will be above 3650 on good volumes
giving extra 20 bucks in profit. Remember if it turns out to be a
false one you should be ready even to book a loss. If you are not
ready to book a loss, then dont opt for an anticipated over risky
position. It can lead to disasters.

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Chapter 12. Double bottom or W-bottom Pattern

A "W-Bottom" is formed with two reaction lows. The second low is

not decisively lower than the first and ideally above the first low.

Figure 38 - Nifty Intraday [2 minutes]

I have marked 3 W bottoms in the above chart. Let us analyze each

of them.

First W From left Consider you are sitting in front of a charting

software and analyzing the Nifty chart. Time is 10:45 AM. You see a
down tick at 11:00 AM which bounces from 5905 level. You see a
second down tick few minutes after the first but the second leg
down does not go below the first leg. So once Nifty breaks above

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the middle leg of W you can safely bet that the uptrend in Nifty will
continue. Pretty much like a mini breakout chart pattern.

There is a different way of looking at the same W as well. Leg down

at 10:30 AM and second one at 11:00 AM but the second leg down
is not decisively below the first and so instead of reading it as break
down you should wait for a break down. Decisive break down would
be below a major psychological level of 5900 and break out would
be above 5930.

Now let us focus on the second W which is a miniature W but it is

quite different from the first one. We see that the second leg down
is slightly lower than the first leg.

See my stress on the word slightly here. You should wait for the
break up or down to be decisively.

The point I want to stress here is Break down or break out should
always be decisive and not miniature.

In the second W level of 5920 or even 5910 crack in a leg down can
be assumed to be a break down pattern because that would mean
decisive break down from previous lows.

The third W we see is like a higher top higher bottom pattern we

saw earlier.

Non-W or M Pattern

We just saw a W pattern but to understand W in totality we must

understand what is a not a W pattern or in real terms an M pattern.
When reading into any chart pattern you should understand what it

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takes to be a non-W or M Pattern that you can mistakenly consider

as W pattern.

W pattern is not only about looking at legs down but also focus
should be on the legs upward. The second leg up should be higher
than the first leg up. If you mistakenly read an M-pattern as a W-
pattern this is what you end up with.

Figure 39 - Titan Industries 1 Month [Hourly]

Let us analyze the above chart to see why we can easily make the
mistake of reading an M-pattern as W pattern.

1. We see a first correction in Titan Industries to 3600 levels.

Second leg of correction does not breach 3650 indicating a
bottom of 3600.

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2. The second leg up is slightly above the first leg indicating

signals of breakout.

Both the above points can lead us to believe that it is clearly a

breakout after a bottom but there are 2 major issues for it to not
consider a W.

1. The breakout is not decisive but slight breakout.

2. The volumes did not pick up and you can clearly see that in
the next tick in the above chart.

To err is to Human and if you misread the pattern as W instead of M

you should be coming out of your investment even with a loss.

Significance of Ws and Ms

Let us see how forming of a W or an M in a chart can help. There

are two things to understand from a W.

1. Forming of bottom

2. Break out

Likewise there are two things to understand from an M.

1. Forming of top

2. Break down

Ws and Ms can be used to understand the market

sentiments. W with a break out means positive outlook
and M with a break down means negative outlook.

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Chapter 13. Application of Multiple Chart patterns

We are heading towards the final chapters of the book. We focused

on many patterns individually but in real trading environment any
single pattern does not help much. So let us take a fresh stock and
apply multiple patterns to see how we can benefit from what we
have learnt.

Figure 40 - Hindustan Zinc 1 Month [Hourly]

Above chart is for Hindustan zinc for a month. Around December

28th we read the chart pattern as follows:

1300+ is high for the stock but soon after stock hits a high, it
consolidates around price range of 1275.

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Once 1300+ (the previous high) is taken out by the stock we see
stock touching 1400+. Break out chart pattern.

We see break out is good volumes, Volume pattern.

Once the stock moves above 1300 the market corrects. See the
Stock chart compared to Nifty.

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Figure 41 - Nifty Compared to Hindustan Zinc

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As expected with market stock corrects as well but we see stock

bounces off the level 1325 though the market slides a more. After
the bottom we see a second leg up in the stock which is higher than
first, forming a W pattern. At times you may have more than two
legs down. The significance of a W is not about the number of leg
downs but understanding the support levels.

After a W we see higher top higher bottom pattern which takes the
stock pass 1450.

Figure 42 - Hindustan Zinc Multiple Patterns

We see a breakout, volume, W and a miniature higher top higher

bottom pattern in just one stock clear indicating a strong stock in a
very weak market scenario.

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Let us also see an application of Bollinger bands to the same stock.

Figure 43 - Bollinger Bands on Hindustan Zinc 1 Month [Hourly]

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Chapter 14. Insider Trading Tips that Always works

for me

Earning Days

Many retail investors are tuned to business channels and buy stocks
as they see earnings news on TV. Remember the market always
moves ahead of news and not after the news being reported. I will
not only suggest to stop watching news channels for investment tips
but will tell you a sure shot strategy that works for me for earnings
day gain.

First thing you should understand is earnings outcome is not a

signal to buy but it is a signal to sell. Fund managers and other
larger investors calculate the earnings before hand. There is no
rocket science behind it and one of the simplest ways of doing it is
based on the advance Tax numbers. If a company pays more tax
you can safely assume earnings will be better than expected. Using
those data large investors take up position so when earnings are
reported on every news channels there is a buzz in the retail
investor category and they start buying. This is when large
investors offload their positions to make decent gains.

So what should you do if you see good earnings number?

Keep that stock in your radar and when earnings plethora settles
down then buy the stock.

What strategy works for me?

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I always keep track of the results day for companies I invest into
and so when they report good numbers the spike is inevitable and
that is when I offload. You can even continue to hold the stocks for
good companies with good earnings report but ideally I prefer to
sell and take my profit home. Re-enter the stock once again when
the plethora settles. Ideally I always wait for the break out chart
pattern after the earnings reporting. This means the spike due to
earnings is taken out and there is lot of fresh buying into the stock.

Never ever decide after seeing on TV

In the earnings day tip I told that you shouldnt take decisions
based on news being reported on news channel and let me give you
a very specific example.

Todays date is 12th January 2011. It is important to note because

we want to be comparing when the news is reported and how things
go before and after the news.

At around 11 AM in the morning we saw one of the worst numbers

for Index of Industrial Production (IIP) data.

IIP growth for the month of November 2010 is reported at 2.7%.

IIP growth for November 2009 (YoY) and for October 2010 (MoM)
was above 10%.

In short month on month (MoM) as well as year on year (YoY)

comparison we see a decline in IIP number by more than 70%.

What should be your immediate reaction to the news?

Yes of course off load your positions to the extent you can.

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Now let us see the Nifty chart for today.

Figure 44 Nifty 12th Jan 2011 [2 minutes]

Clearly you can see that just after the bad news being reported on
news channel market bounces. People think this bounce is a good
shorting opportunity and see yourself how things work for the entire
day.

Many argue that nifty bounce is purely based on oversold territory

and based on what happened in the last few trading sessions. For
those who are not sure how things traded in last few sessions let
me recap. Let us see the daily Nifty chart for 2 weeks.

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We see a two consecutive days where Nifty fell 300 points. I

remember 10th January morning analysts suggesting a short
covering rally in the market but it was no rally but yet another 150
point Nifty slide.

So instead of arguing about the type of rally in Nifty let us see the
charts for L&T which is much more linked to IIP numbers.

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Figure 45 - L&T Intraday on bad IIP numbers [2 minutes]

We know the news was reported on TV at around 11 AM and see for

yourself the chart for L&T today and decide for yourself if you
should be selling / shorting after seeing the news on TV or not.

IPO investing

With time the way you invest changes. I remember my Dad

invested few thousands in Reliance petroleum IPO and has made lot
of money. Days when you invest in good company IPOs and forget
are gone. IPO nowadays is purely a route to get money from the
investors. Investment bankers responsible for IPO pricing focus on
how much more money they can make for the Company
management and do not think about investor.

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You may have noticed lot more advertising mainly on the business
news channels about the company when they have an IPO coming
up. Use the management advertising and marketing to your
advantage. Use the marketing and promotions by the management
for IPO to get the listing gains and if you think company has good
fundamentals and is good enough to invest, do so after few days
when the dust settles down.

Dont invest in an IPO. It is just a trading play these

days.

Targets by finance groups

One bad practice that I see floating around is that any XYZ group
sets the upside target of any ABC company by 10%. I am sure you
have seen such news. The news is nothing but to pump the stock
price so they can come out of it. At least I think it that way. I never
buy this theory that XYZ group does social work for Indian retailers
to help us make money.

How to find right stock to short and when?

From the volume pattern we know for sure that stock needs higher
volumes to keep going higher. At times you can see some stock just
runs-up on high volume without any news. Check out Google news
to see the reason for the run-up and if you dont see any news
associated with the stock you can keep an eye on the stock for the
next few days. Once the volumes fade and the price starts to crack
support, it is a classic case for shorting.

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I track Thinksoft Global because I applied in the IPO of this

company and I know the history of this stock which is it runs up on
any given day for no reason. May be someone tries to pump this
stock or whatever I dont know but it happens quite often than not.

Figure 46 - ThinkSoft Global 1 Month [Hourly]

You see the surge in volume for few hours. Now let us see the daily
chart for the complete month as well.

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Figure 47 - Thinksoft Global 1 Month [Daily]

See how the decline in volume started the next day. Third day is
when I shorted the stock in the morning spike because I saw the
morning spike did not have the volumes that were present in the
earlier couple of days and there was also no news reported about
the stock. So I knew this run-up is not based on any news but some
house has recommended this stock as buy and nothing more than
that and so it cannot continue the run-up for long enough.

Apart from this shorting strategy, you know the morning panic and
after noon fade pattern can also work in your favour for shorting.

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What if you miss a trade?

Never ever regret any missed trading opportunity. I miss way too
many trading opportunities just because I have many other things
to do. One of the most frequent one is not getting out of my bed
before market opening. Remember life gets in your way.

Let me show you one more example of missed trading

opportunities. You may have seen some incomplete charts in this
book. By incomplete I mean charts are not for the complete day
end. This is because I noticed a pattern which I could either use for
trading or I could write this book. At times I opted for working on
this book. I dont regret those missed trading opportunity and this
helps me not to try and force a trade. I want things to align before I
trade. In simple words I dont run after trading opportunities but
wait for them to come to me.

How to plan your trades?

If you follow my blog shabbir.in you may know that I prefer to

publish some posts after the market close. This is done purely
because I dont want my readers to take impulsive actions. Have
everything planned ahead of market time. The possible stock, the
entry point, the profit you are fine with, the loss you are ok with
because when trading is on you dont have the time to think but to
execute your plans as per your chart.

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Targets and stop losses

Always follow a target if not stop loss. I personally have never

traded a stop loss order till date because I always use a mental stop
loss and not auto stop loss order.

The reason I use mental stops is because I never like my orders be

seen by other investors who can take advantage of triggering my
stop loss. This does not mean I dont use stop losses. I do use them
but I do not use automatic stop loss orders. When I have a stop loss
triggered I come out of the position manually.

Strategy that works almost every week

In stock market traders and to some extent large investors dont

prefer to have their positions open for a long time and so every
week ends i.e. Friday. If the current week (Monday to Thursday)
saw up trend expect a correction on Friday. Likewise if the current
week saw a correction, expect short covering on Friday. Do
remember that short covering happens only on Nifty stocks in
Indian markets. You cannot have an overnight short position in cash
market here in India.

What type of order to place - Market or Limit?

You should always place a limit order and never ever think about
placing a market order. Market order means if there are no stock to
be traded it just takes the spike up or down to execute your order.
Ideally if you want to execute a large order and dont see that many
shares available you can place a higher priced limit order but it
should always be a LIMIT order.

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More questions? Email me at [email protected] and I will be more

than happy to add them to this book for the rest of us. Make sure
you put in the emails subject line as question for chart pattern
book.

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Chapter 15. Summary

Research before you invest and not after.

Balance your risk and reward. Always aim for profit but dont
expect a profit.

Write your trades. It has helped me a lot to evolve as trader

cum investor.

Buy only when you see a breakout and not when you expect
the breakout. Dont run after opportunity but wait for the
opportunity to come to you.

Never be greedy because greed is your biggest enemy. Aim

small, miss small.

Read the charts and not the recommendation.

Concentrate on one stock at a time.

Always book profits and dont regret on missing more profits.

Instant decisions can prove fatal especially reacting too early

on your brokers tips.

Follow the price action with targets and stop losses.

Invest in markets your surplus money that you will not need
in future and not everything you have.

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Table of Figures

Figure 1 - Dish TV - Intraday [5 Minutes] ................................. 11

Figure 2 - Price Chart for Dish TV ............................................ 13

Figure 3 - Candle Stick .......................................................... 13

Figure 4 - Volume Chart of Dish TV.......................................... 14

Figure 5 - Dish TV Intraday [5 Minutes] by Google Finance ......... 15

Figure 6 - Dish TV Intraday [5 Minutes] by Yahoo Finance .......... 15

Figure 7 - Infosys Yearly [Daily].............................................. 18

Figure 8 - Infosys Intraday [1 min].......................................... 21

Figure 9 - Infosys - 1 Year [Daily] ........................................... 22

Figure 10 - Infosys 1 Year [Daily]............................................ 25

Figure 11 - Reliance Industries 1 Year [Daily] ........................... 27

Figure 12 - Reliance Industries 1 Year with 1 EMA [Daily] ........... 28

Figure 13 - Nifty Yearly [Daily]................................................ 31

Figure 14 - Nifty Yearly [Daily]................................................ 32

Figure 15 - Nifty Yearly [Daily]................................................ 33

Figure 16 - Nifty Yearly [Daily]................................................ 34

Figure 17 - Bharti Airtel Intraday [5 minutes] ........................... 36

Figure 18 - Nifty Intraday [1 min] ........................................... 39

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Figure 19 - NTPC 6 Months [Daily]........................................... 41

Figure 20 - NTPC 1 Year [Daily] .............................................. 42

Figure 21 - Dish TV Intraday [2 minutes] ................................. 44

Figure 22 - Dish TV 2 Days [2 minutes].................................... 46

Figure 23 - Reliance Industries [1 min] .................................... 47

Figure 24 - Infosys 2 Years [Daily] .......................................... 49

Figure 25 - Infosys 1 Year [Daily]............................................ 50

Figure 26 - Essar Oil All Time [Monthly] ................................... 51

Figure 27 - Reliance Industries All Time [Monthly] ..................... 53

Figure 28 - Tata Steel 2 years [Daily] ...................................... 54

Figure 29 - Satyam computers monthly [Hourly] ....................... 55

Figure 30 - Punj LLoyd Intraday [1 min]................................... 58

Figure 31 - Punj Lloyd 2 days [2 minutes] ................................ 59

Figure 32 - Nifty Intraday [2 minutes] ..................................... 60

Figure 33 - Nifty First Hour..................................................... 61

Figure 34 - Nifty Intraday [1 min] ........................................... 63

Figure 35 - Nifty 2 days [5 minutes] ........................................ 65

Figure 36 - Sharekhan Trade Form .......................................... 67

Figure 37 - Titan Industries [2 minutes] ................................... 69

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Figure 38 - Nifty Intraday [2 minutes] ..................................... 71

Figure 39 - Titan Industries 1 Month [Hourly] ........................... 73

Figure 40 - Hindustan Zinc 1 Month [Hourly]............................. 75

Figure 41 - Nifty Compared to Hindustan Zinc ........................... 77

Figure 42 - Hindustan Zinc Multiple Patterns ............................. 78

Figure 43 - Bollinger Bands on Hindustan Zinc 1 Month [Hourly] .. 79

Figure 44 Nifty 12th Jan 2011 [2 minutes] .............................. 82

Figure 45 - L&T Intraday on bad IIP numbers [2 minutes] .......... 84

Figure 46 - ThinkSoft Global 1 Month [Hourly] .......................... 86

Figure 47 - Thinksoft Global 1 Month [Daily] ............................. 87

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Disclaimer

This book is for educational purpose with real examples from Indian
stock market. History has proved that chart patterns do repeat but
many a times they dont as well and so make sure you take the
right educated decision of what could happen with stock.

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