Trading Plan For Each Market Situation.

Any Market(Commodity , Equity , Currency) remains in Consolidation or range bound for 70% times , extreme volatile 5% , 20% times in trend which includes normal & extreme both & 5% non trending or non trading .

We must have trading plans for 

a) Consolidations.

b) Trending (Normal & Extreme)

c) Non trending.

 Consolidation Trading Plan:
Strictly keep r/r 1:2 & follow your stop losses as market may remain in range & moved in both directions so chances are higher for stop loss hitting.

Technical formations: Triangles, rectangles, pennant, horizontal channels are the common formations.

Volumes: Random & low compared to trending market.

How to trade Consolidation: First of all find major upper & lower level for break out. Usually rsi took support at 40/30 & resist at 60/55 level. Make position near resistance & support with small stop losses.

Success ratio: 50-60% ratio is good enough n happy trading as most of the time we remain in this zone almost 70%. So if we go with 50-60% ratio with r/r 1:2 we can earn good amount for life spanning n savings too.

Trading quantity: Trade with risk capitates but suggests keeping small sized quantity.
Stress level: Medium, need to control over quantity traded n playing each n every move of market. But can be controlled by keeping patience.
Fear & Greed Factor: Both come simultaneously with randomness. Market test your patience n force to put trades, some spikes can be seen.

Risk of Ruin: Medium to low, as major part of your trading goes in brokerages even if you go with small stop losses.

Trending Trading Plan:

In trending market keep a risk reward ratio of 1:4 or above or we can simply follow trailing stop loss method to retain maximum profit from current trend.

Technical Formation: Breakout from reversal pattern like head & shoulder, Double top/bottom , cup n handle , triple bottom/top , wedge formation , triangles .Breakout from Continuation pattern like all consolidation patterns, Channels, pennants, flag, triangles, rectangles.

Volumes: High at breakouts, medium in between trend & extremely high or low at top/bottom. (Sign of reversal).

Extreme Technical Formation: Bump & Run, Channel, small flag & pennants.

How to trade Regular Trending Market:

First confirm the breakout from both reversal n continuation pattern then take entry with proper sl go ahead for target. In trending market RSI for bulls took support near 40 & find resistance near 80 zone & remain in upper range while in bear market took resistance near 65 n supports at 20-25.Also u can remain in trend with the help of moving averages for trailing stop loss method or can use parabolic SAR. In trending market you must have a rock solid exit strategy to remain in full trending market.

Success Ratio: If u enter correctly in market than your success ratio can be up to 100% . Normally 80% success ratio is achieved during this period. As maximum profit will make in this move only .We have to get maximum out of it & earning could be life changing amount.

Trading quantity: Normally enter with medium to large quantity n add more positions in pullbacks & corrections.

Stress level: low when entered properly & extremely high when entered wrong n holding it. This is the market condition when u should remain n play each n every pullback n correction as r/r ratio is favourable n works for you.
Fear & Greed Factor: Greed is commonly at high level, fear remains at low level. Confidence of participant is high.

Risk of Ruin: Very high if play against the trend. Low as everyone makes money in it; small or big J

How to trade Extreme Trending Market:

Normally moves are very large n swings are also very large. One should keep focus on entry & exit for this kind of movement. Usually suggest to follow trailing stop loss method to gain maximum out of it n be with this extreme move. Exit is more important in this trend coz swings are very large n when trend changes it is not easy to pretend, while return in this move is too high so on risk is also too high. From risk/reward ratio one should focus on risk prospective instead of reward as price action is too fast so as gains.

Technical Formation: Most Common formation is bump n Run, Extended channels, extremely overbought /oversold indicators. RSI values trades b/w 90-95 to 60-55 for bulls & 55-60 to 15-10 for bears.

Volumes: Volumes remain high during full trend & extreme at end of trend due to major short covering/fresh buying. (Sign of reversal)

Trading quantity:  Again I suggest risk is more imp than return in this kind of market. Even small quantity can give u awesome returns in terms of profit.

Stress level: Very high for those who are on wrong track, low for who are on right side?

Fear & Greed Factor: Greed is at extreme level n fear joins the party in later part of trend. Over Confidence is commonly witnessed. One should try to keep emotions in control.

Risk of Ruin: Very very high if play against the trend & Low for who are on right track as money flows in particular direction. J

Non Trending Market:
It is advised not to trade this kind of market as we can see either no volatility in this phase of market , volumes shrinks a lot which provides lot of confusion in mind whether trade it or not fear n greed both comes simultaneously n create more panic situation. This market only creates brokerages which creates risk of ruin to very high level. Confidence level is at lowest level.

Correlation B/w Currency & Commodities

Today We  will discuss Correlation b/w Currency & Commodities.

Correlation (Definition) :In the world of finance, how two securities move in relation to each other can be defined as mutually correlated to each other.

It can be classified as:
1) Positive Correlation(Directly proportional)
2) Negative Correlation(Inversely proportional)

1)Positive Correlation:It can be defined as when one security moves in any direction(up or down ) ,the other follows it significantly.

2)Negative Correlation: It can be defined as when on security moves in any direction (up or down), the other do exactly the opposite of first one.For eg. if xyz security moves up ,then second security moves in downward direction.

This are the basic that one should keep in mind before we move forward. Now we will discuss this funda in Indian scenario. We will understand this concept with the help of 2 Commodities Gold & Crude oil in respect to  1 currency USDINR.

In India , as we all know that around 70-80% of crude oil is imported in India. As per international market treaty , we have to pay them in USD. Also prices in Gold are decided according to International market  n coz of higher demand in gold from Indian people n jewelers we have to import gold from International market to fulfill our local demand  & pay them again in USD. So basically price of USDINR will increase as long as we import things n pay them in terms of dollar.

The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of 6 foreign currencies.
It is a weighted geometric mean of the dollar's value relative to other select currencies:

• Euro (EUR), 57.6% weight
• Japanese yen (JPY) 13.6% weight
• Pound sterling (GBP), 11.9% weight
• Canadian dollar (CAD), 9.1% weight
• Swedish krona (SEK), 4.2% weight
• Swiss franc (CHF) 3.6% weight

Here we will discuss USDINR impact on MCX Futures(both gold & crude).
Whenever there is increase in price of USDINR , MCX Gold Prices will also increases , means it has direct correlation with MCX Gold prices in Indian terms. But in International terms Gold have negative correlation with respect to Dollar Index.
Below is the chart showing the negative Correlation between DX & LGD (International Gold).
While this correlation is because It is assumed that value of any currency is measured in terms of how much gold that country has in reserved . USA has the highest gold reserve as compared to all other nations & Many nation had agreed to consider US dollar as benchmark Currency for trade prospective in anywhere around the world. So US dollar remain in demand every time.That is why USA is assumed to be Powerhouse of World Economy.

Why Negative Correlation: It is just coz US dollar has made its standard to be equilant to gold.

Below is the chart of MCX Gold Future & LGD .One can easily see a wide gap b/w MCX gold in red & LGD in blue. This wide gap is due to fluctuation in USDINR. As  USD gain prices in INR also Increases irrespective of prices in LGD n vice versa.

 Below is the chart of USDINR (spot) & MCX Gold. We can see a direct correlation b/w USDINR & Mcx Gold . Simple reason behind this is we import gold from International market & we have to pay them in terms of dollar. So whenever there is rise price of dollar MCX gold will follow the same pattern.

CRUDE OIL

 Another Commodity is Crude oil (Black Gold).Below is the Chart of WTI crude & US dollar Index.It also has Negative correlation with USD coz USA is the largest consumer of Crude Oil.USA also has to import  crude oil from gulf countries , pay them in dollar . 

 Below is the chart of MCX Crude(red line) & WTI Crude(blue line). Prices are directly proportional but we can see some wide & narrow gap which is due to fluctuation in prices of INR w.r.t USD. As gap expand means rise in price of USDINR , while contracting gap literally means sell off in USDINR prices. While cross over shows out performance of Crude due to dollar fluctuation.

Below is the chart of MCX Crude (Red), WTI Crude (Blue), USDINR (spot).

Below is the chart of MCX Crude(Blue) & USDINR Spot(red). We can see some wide/narrow gap which is due to rise/fall  in price of WTI crude while appreciation/depreciation in INR as compared to USD. 

 
 Conclusion : From the above facts , figure & chart we reach to following conclusion.
Gold: If we are trading gold in Indian rupee , we have to keep a track on 2 things.
1) Price in International market i.e. LGD
2) Movement in USDINR.

We have direct correlation with LGD & appreciation in price of USD in terms of Indian market. It means whenever there is increase in price of USDINR , price of Gold in Rupee term will also gain though LGD have no major move or in downtrend
Also , price of gold in rupee term will loose its value when there is decrease in price of USDINR , though LGD have uptrend or sideways move.
& have negative (inverse) correlation With US DOLLAR INDEX.

One should adapt proper strategy to avoid conjunction in prices in LGD & MCX Gold along with USDINR movement.
  Also MCX gold follow its particular trend near to festival season  irrespective of what ever trend it has in LGD.

Crude Oil:  If we are trading Crude Oil in Indian rupee , we have to keep a track on 2 things.
1) Price in International market i.e. WTI Crude Oil
2) Movement in USDINR.

Like Gold , Crude is also very much  sensitive to USDINR , means a rise in price of USDINR will boost prices in Crude in Indian terms & vice versa though what ever trend WTI Crude follow.

but WTI Crude Oil have negative correlation with US Dollar Index.
One should adapt proper strategy to avoid  conjunction in prices in WTI Crude Oil & MCX Crude along with USDINR movement.
    Also MCX Crude Oil closely follow USDINR movement. A fall in WTI Crude along with appreciation in INR w.r.t USD will add on falling pressure in MCX crude oil prices, like it is happening current market .

CandleStick Pattern

Today i want to share 2 candlestick formation which i rely most

1) Abandon Baby Formation
2) Kicker 

Definition:
1) Abandon Baby Formation: It is a 3 candlestick pattern & need confirmation in 4 th candle. It is basically a reversal pattern. First candle is long black/white candle ,second one is gap up/down candle which can be hammer ,doji ,small body , long legged candle & third one is again gap up/down candle with body more than 2nd one.Most important aspect of this formation is gap b/w this 3 candles. thats why the name abandon baby.

Volume Aspect: 1st Candle:- Usually normal to high
                           2nd Candle:- Mostly high in rare case low volume but both are positive
                           3rd Candle :-High to medium high as compared to last 10 candles in normal case. 

2) Kicker : It is a 2 candle pattern & need confirmation in 3rd candle. It is basically a very strong reversal pattern. First candle can be any pattern but need to at least small body in uptrend or downtrend & second one can be any pattern . But whats important is opening & closing of both candles. Here i am explaining the bearish kicker . The first candle is usually a long black candle after some long down trend n closed near to low of candle with small to medium volume as compared to previous candles & second candle opens above the opening of previous candle n closes even higher than previous candle.

Volume Aspect: 1st Candle:- Usually medium as compared to last candles
                           2nd Candle:- Mostly higher n should be higher as compared to last 5 candles for    proper reversal.

I am putting some example from various market in different scenario.
Please enlarge pics if not witnessed clearly.

 

Above is the Chart of Bank nifty ,Kicker is shown in three different circle n just see after ward move

Above is chart of USDINR SPOT (weekly). Bullish Kicker & Abandon Baby both are encircled.

Above is the chart of NIFTY . There are three abandon baby formation shown in circle with one kicker not shown in chart hope u can find it. Please enlarge chart if not seen properly.   

 

 Above is the daily chart of Nifty Classic example of kicker formation with rsi divergence . Just see rally afterwards

 Above is the chart of soya refined  bearish kicker formation is witnessed.

Above is the chart of Soybean , First circle shows abandon baby formation & last circle shows bearish kicker formation. Now if u add other study with this pattern u will get stronger move like in this example there is bullish divergence in rsi. it might be a good trade setup.

    

Conclusion:

                     In all above chart one can easily witness the afterward move. Both formation when use with other trading system like divergence , trend line breakout , or moving averages can give us an early sign of reversal & it can be used for some handsome profit as risk from that level is negligible.
                 In both formation volume is the most important aspect & usually strong hand enters here as emotions n sentiments both are at their extreme. One should not avoid this signal of reversal as early sign of trend change & must review his study or strategy at once.

Divergences

 In technical analysis we  heard of term "Divergence" many times. Today we will understand some basic concept about divergence.

 Divergence : It can be define as whenever there is a misunderstanding b/w price n indicator they used to get divert from each other and moved in opposite direction to each other.

In this post i will show you 2 types of divergence :
1) Classic
2) Hidden

1) Classic Divergence: It can be define as whenever price make a new high(low) while indicator does not follow the price pattern n make lower high or higher low. It can be easily understood with an example.

Above is the hourly chart of nifty , classic divergence is shown with blue line ;Nifty made a new high after passing previous high of 8141 but not able to sustain at higher level n made a high 8180 While indicator does not make new high when nifty make New high of 8180. This is called as classic negative divergence. After which nifty falls down.
                     We can calculate divergence target also. It has many way to calculate but i will show one of my method to use for calculation. It is just simple maths ,get the highest value(highest peak(8180)) n lowest high (trough(8050)) ;  subtract trough from peak
 i.e. 8180-8050 = 130.
Now subtract it from lower end i.e.
8050-130 = 7920.This is our estimated target. Market made a low 7925 n reverse.
Another method is calculate difference b/w 2 peaks & subtract it from trough for target zone.
here first peak is 8141 & second 8180 n trough low 8050.
So, 8180-8141 = 39
8050-39 = 8011 which would be our probable target zone.

Special Note :
1) One should keep in mind that as long as difference b/w the 2 peaks(no. of candles) should be  less the more stronger would be reversal in terms of price n time both.
2)Above method is fruitful in every time frame.
3) Above calculation is for negative divergence same can be use for positive divergence ; instead of subtraction we use addition in calculation.

2) Hidden Divergence: It can be define as when indicator make a new low but price doesn't make new low this type of divergence occurs. It can easily be understood by example:

Above is the Hourly chart of Bank Nifty. There are 2 hidden divergences first one is marked with black line n second with blue line . As the name suggest they cannot be easily witness n understood once in view but with expertise one can gain big move as they are the most powerful types of divergences n usually occur in trending market n give sharp reversal as u can view in above example.

 Above is another example of hidden divergence in hourly chart of Castor Seed.In this chart one can easily witness that price doesn't make new low but indicator make a new low after that price show sharp reversal in terms of time n price both.Also there is a good support at that zone 4315-4325 range shown by horizontal blue line. Price took support at that level n bounces back .

Special Note:
1) Steeper the angle b/w peaks(troughs) in price n indicator both; more powerful reversal chances are there.
2) There is no specific(theoretical) method to calculate target but one can use both method as shown above in classic divergence for rough estimated target.

Disclaimer: Method shown above is only experienced while trading n analyzing shown here for Educational purpose;One should expertise before applying method to their trading system.
Market is subject to risk. Please consult your adviser before investing.

Nifty Weekly Chart 19-12-2013

 Above is the snap shot of Nifty weekly chart after the close at all time high on 9th dec. 2013. Though we have made all time high after Election result ; market would not able to sustain at higher level seen pressure whole week.

Second snap is of Nifty weekly chart on 19-12-2013 in morning just after Fed tapering & Indian Monetary Policy on 18-12-2013.
           In above chart nifty is trading in a Expanding Broadning  Formation which is a type of TOPPING formation whose last leg is about to come in near future targeting towards scary levels. Once it breaks 6100 level on weekly closing basis ; gates are opened for 5922/5770/5480/.........4800 ????????
         Though a little upside may be seen up to 6340 in normal conditions , while this formation has exception that it might  thrust above the upper trend line (may be up to 6550) which will create more panic selling in that case.
                          This all is not going to happen in one day but one may remain cautious at higher level not be trapped at this level. The above explanation is for educational purpose.
                          

World Tracks Them :DJIA & SP 500 25th Sept. 2013

Above is daily & weekly chart of  Dowjones (DJIA)  & SP 500. Chart hint  some bad news is about to come .The world tracks them as Mr. Obama (President of USA) said in his recent speech .  We track them , no levels for now . Will update when levels break . One should be cautious for the time being.

Crude Oil A Confusing Move ???? 23 august 2013 (For Educational purpose only )

 

 Above is daily chart of Nymex WTI Crude oil which is currently trading at $105.13 trading in a narrow range of $109-$102 from last 2 months. Now this Triangular formation is about to mature with in 1-2 week. Particularly it  may give breakout in upward direction if it don't break the level of $102 on closing basis & may find its first resistance at upper trend line @ 107.50-108.10 range. Above it ,we can see Crude oil to reach $114. & If not so then we can consider it to be a distribution phase & price may decline to south ward direction.

Above is daily chart of USDINR spot which is currently trading at 64.59 With a steep upward move from last 5 days. This steep move had a great impact on Indian crude prices & also USDINR always have direct impact on CRUDE prices in india as they are directly proportional to USDINR .i.e. if USDINR is UP, CRUDE prices in INR is also UP  & vice versa ;  invaliding  falling in International crude prices upto some extent or it may consolidate with in a range  what ever trend may be in International market.

 

Above is daily  chart of Crude oil in Indian Currency. Here it has some different formation as compared to NYMEX Crude. It is due to sharp rise in USDINR .Now if in near term if we see some decline in USDINR we can expect Crude prices to fall upto some extent though it may catch north direction in NYMEX.

           Crude at present trading at 6729 (sept. future) , if it break 6650 level we can see some downside ,it may find its first support at 6436 level below 6650 . While 6150 will act as trend reversal level & act as strong support for crude for last 3 months. A move above 6850 might resume its uptrend & may test 7000 level.I will suggest to be cautious at this level & one should track USDINR move before entering any trade as it may play an important role b/w NYMEX & MCX prices.