How to find Resistance and Support?

The support and resistance (S&R) are specific price points on a chart which are expected to attract maximum amount of either buying or selling. The support price is a price at which one can expect more buyers than sellers. Likewise the resistance price is a price at which one can expect more sellers than buyers.

The Resistance

Resistance is which stops the price from rising further. The resistance level is a price point on the chart where traders expect maximum supply (in terms of selling) for the stock/index. The resistance level is always above the current market price.

 Resistance is caused by heavy selling that overpowers buying and occurs at specific Resistance levels.

 The Support

Having learnt about resistance, understanding the support level should be quite simple and intuitive. As the name suggests, the support is that prevents the price from falling further. 

The support level is a price point on the chart where the trader expects maximum demand (in terms of buying) coming into the stock/index. 

Whenever the price falls to the support line, it is likely to bounce back. The support level is always below the current market price.

 Support is caused by heavy buying that overpowers selling and occurs at specific Support levels.

 IMPORTANT POINTS TO BE NOTED

Entry in Confirmation Candle means in next candle.

Do Price Analysis

Don’t do time analysis

Time Analysis do only for Scalp trading and Intraday Trading

Construction/Drawing of the Support and Resistance level

Here is a 4 step guide to help you understand how to identify and construct the support and the resistance line.

Step 1:- Load data points – If the objective is to identify short term S&R load at least 3-6 months of data points. If you want to identify long term S&R, load at least 12 – 18 months of data points. When you load many data points, the chart looks compressed.

 1. Long term S&R – is useful for swing trading

2. Short term S&R – is useful intraday and BTST(Buy Today and Sell Tomorrow) trades

Step 2:- Identify at least 3 price action zones – A price action zone can be described as ‘sticky points’ on chart where the price has displayed at least one of the behaviors:

1. Hesitated to move up further after a brief up move

2. Hesitated to move down further after a brief down move

3. Sharp reversals at particular price point

 

Step 3:- Align the price action zones – When you look at a 12 month chart, it is common to spot many price action zones. But the trick is to identify at least 3 price action zones that are at the same price level.

 

Step 4:- Fit a horizontal line – Connect the three price action zones with a horizontal line. Based on where this line fits in with respect to the current market price, it either becomes a support or resistance.

Happy Trading & Happy Investing

Query related message me on Twitter- https://twitter.com/garimalakhotiya?s=03

If you want to Open the Demat Account- https://zerodha.com/open-account?c=BY8956    

 

 

Three White Soldiers and White Marubozu Candlestick Patterns

 

Three White Soldiers:

The Three White Soldiers is multiple candlestick pattern which is formed after a downtrend indicating bullish reversal.

These candlestick charts are made of three long bullish bodies which do not have long shadows and open within the real body of the previous candle in the pattern.

White Marubozu:

 

The White Marubozu is a single candlestick pattern which is formed after a downtrend indicating bullish reversal.

This candlestick has a long bullish body with no upper or lower shadows which shows that the bulls are exerting buying pressure and the markets may turn bullish.

At the formation of this candle, the sellers should be caution and close their shorting position.

Happy Trading & Happy Investing

If any Query message me on Twitter- https://twitter.com/garimalakhotiya?s=03

Open Demat Account from this link- https://zerodha.com/open-account?c=BY8956    

Bullish Engulfing and Morning star candlestick pattern

Bullish Engulfing:

 

Bullish Engulfing is multiple candlestick chart pattern which is formed after a downtrend indicating bullish reversal.

It is formed by two candles, the second candlestick engulfing the first candlestick. The first candle being a bearish candle indicates the continuation of the downtrend.

The second candlestick is a long bullish candle which completely engulfs the first candle and shows that the bulls are back in the market.

 

Traders can enter a long position if next day a bullish candle is formed and can place a stop-loss at the low of the second candle.

The Morning Star:

 

The Morning Star is multiple candlestick charts pattern which is formed after a downtrend indicating bullish reversal.

It is made of 3 candlesticks, first being a bearish candle, second a doji and third being a bullish candle.

The first candle shows the continuation of the downtrend, the second candle being a doji indicates indecision in the market, and the third bullish candle shows that the bulls are back in the market and reversal is going to take place.

The second candle should be completely out of the real bodies of first and third candle.

Traders can enter a long position if next day a bullish candle is formed and can place a stop-loss at the low of the second candle.

Happy Trading & Happy Investing

https://twitter.com/garimalakhotiya?s=03

https://zerodha.com/open-account?c=BY8956    

How to see Candlestick Charts?

 

Candlestick charts were originated in Japan over 100 years before the West had developed the bar charts and point-and-figure charts. In the 1700s, a Japanese man known as Homma discovered that as there was a link between price and the supply and demand of rice, the markets also were strongly influenced by the emotions of traders.

A daily candlestick charts shows the security’s open, high, low, and close price for the day. The candlestick’s wide or rectangle part is called the “real body” which shows the link between opening and closing prices.

This real body shows the price range between the open and close of that day’s trading.

When the real body is filled, black or red then it means that the close is lower than the open and is known as the bearish candle. It shows that the prices opened, the bears pushed the prices down and closed lower than the opening price.

If the real body is empty, white or green then it means that the close was higher than the open known as the bullish candle. It shows that the prices opened, the bulls pushed the prices up and closed higher than the opening price.

The thin vertical lines above and below the real body is known as the wicks or shadows which represents the high and low prices of the trading session.

The upper shadow shows the high price and lower shadow shows the low prices reached during the trading session.

There are 30 types of Candlestick charts, but we discussed 2 candlestick in 1 blog

Hammer:

 Hammer is single candlestick pattern which is formed at the end of a downtrend and signals bullish reversal.

The real body of this candle is small and is located at the top with a lower shadow which should be more than twice of the real body. This candlestick chart pattern has no or little upper shadow.

The psychology behind this candle formation is that the prices opened and seller pushed down the prices.

Suddenly the buyers came into the market and pushed the prices up and closed the trading session more than the opening price.

This resulted in the formation of bullish pattern and signifies that buyers are back in the market and downtrend may end.

Traders can enter a long position if next day a bullish candle is formed and can place a stop-loss at the low of Hammer.

Piercing Pattern:

 

Piercing pattern is multiple candlestick chart pattern which is formed after a downtrend indicating bullish reversal.

It is formed by two candles, the first candle being a bearish candle which indicates the continuation of the downtrend.

The second candle is a bullish candle which opens gap down but closes more than 50% of the real body of the previous candle which shows that the bulls are back in the market and a bullish reversal is going to take place.

Traders can enter a long position if next day a bullish candle is formed and can place a stop-loss at the low of the second candle.

Happy Trading & Happy Investing

https://twitter.com/garimalakhotiya?s=03

https://zerodha.com/open-account?c=BY8956   

How to use RSI Indicator?

Relative Strength Indicator (RSI) is a momentum indicator.

The RSI fluctuates between 0 and 100%. The RSI is considered  70%  then it is overbought price and  when below 30% then it is oversold price. 

In above picture, i add the RSI indicator, in this we know that when to buy and sell. If Rsi value is cross above 60 then we want to buy and if rsi value goes below 30 then we want to buy.

The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to meet the needs of the user. 

If the trading period is adjusted to use fewer days, the RSI will be more volatile and will be used for shorter term traders. 

HAPPY TRADING & HAPPY INVESTING

How to Pick best stocks?

Check the Debt of Particular company. 

Then Analyse with Fundamental Analysis and Technical Analysis

Reading Financial news

Use Software like investing.com, tradingview etc

Stock perform well when it is above 200 MA on daily charts 

When RSI is above 60, then stocks is perform well in weekly charts

HAPPY INVESTING & HAPPY TRADING

How to check if stock is overvalued or undervalued?

 The most important formula to understand the valuation of company i.e. Price to Earning Ratio

The profit of the company should ideally decide, whether you should invest in the company or not.

If the profits are increasing, more people would be interested invested  in the company, this would increase the demand for the company, eventually the share price.

If the profits are falling, people would like to sell their shares, this would eventually increase the supply and low demand, results in fall in the share price.

The share price should ideally move in relation with earning:

PE Ratio:- Price per share divided by Earning per share

In an ideal world, share price should move with the earnings.

That does not happen in real world, sometimes the price goes much above even though the earnings are not too high, this would be due to multiple reasons like macro environment, Govt Policy, Lot of Inflow money, Expectations of better earnings in future and sometimes without any reasons.

First, check the PE ratio of the company last 3 years

• Identify the median PE
• Then compare the current PE with median PE
• If the current PE is morethan the median PE, then company is overvalued.
• If the current PE is lessthan the median PE, then company is undervalued.

Secondly, you need to look a PE of the Industry. For example, if Infosys is trading at PE of 25 then what is the PE ratio of IT industry.

There should not be too much of difference if companies at par.

You can see the median PE in screener.in 

Happy Trading & Happy Investing