Trading for Living
The purpose of this article is to introduce you to the fun side Stock Market. How to analyze any stock or crypto using technical analysis with parameters.
I will guide you to take some basic measures before you put in the trade.
Most Importantly, How to earn money to create wealth for living dreams, without losing your hard-earned amount.
To understand the fundamentals of the Scrip/Instrument, Why price moves up and down. I would highly recommend you to read Varsity App along with this.
We will be following a Technical Analysis Approach because if you want to compound money, you buy at low, you exit at high, price moves down, again you buy and exit at high … and so on the journey goes.
But when to exit and enter or when not to trade or when to trade can be identified using Technical Analysis (By Looking at Chart).
Also, fundamental analysis is like marrying the stock forever based on company or industry future and keeping on increasing your shares over a period of time and taking out profit whenever you want, or during any global crisis to avoid losses.
Let's get started with Technical Analysis
I will be using TradingView to analyze the chart of scrip/instrument/stock.
For practice, we will refer to the “Tata Power” as shown in the image
In the above chart, you see, bars indicating price movement happening at every second/minute/hour/day/month of the year.
A) Now I am planning to buy this, but fear is What if I buy and later it falls (Chances cannot be ignored) or it may rise before your expectation.
You might have heard that the market repeats itself.
So definitely if it has gone so up as it seems in the chart, after some point, maybe it will come back to the same price or slightly higher/lower price before moving up.
So we will analyze this scrip when the market started getting support right after the covid crash, and how I identified where it can go over time and identified perfect buying opportunity.
When the covid crash happened Tata Power fell to a price of 27, and now on 08/04–2022 highest price it reached was 297.
B) Identifying its support & resistance from past prices (2003 & 2005) it was sure min it can fall till 27 or max 20 depending on when the market will start taking the support due to crash.
Crash can be due to weather, politics, bubble, manipulation, etc.
As shown in the following image, support lines at price 27 after which it started giving Higher Lows and never looked back
One more thing, just the way before giving any exam, we do a revision to test have we prepared enough/strongly for the exam. Same way, any stock before rising further up test its previous support line, refer to the following chart
Let's see some more examples of testing support and resistance. In the below chart you will see the line acted first as resistance (blue mark) and later it was tested once (red mark) later same price/line acted as supported. In the following script between 2004–2007, we found price level which acted as resistance, later was tested and acted as a support are 20/31/40.
Sometimes if it breach means didn't test previous support, it will either one or two times, you can see breaches are marked with (black mark). Even at the advanced part if you see a gap between candles, even it has to be filled.
EASY RIGHT !!! In case you missed buying opportunity remember to check whether it tested the support, after a breakout or upwards move when it created a new high.
Do not feel FOMO or get trapped in high
Now one more thing, sometimes support can get breached, either it was just pumped due to hype/tips from a broker, was overpriced not respecting fundamental price. You guessed right just like IRCTC… let me show how
But notice one thing, the way it forms a candle while rising, the same way it forms while falling or testing. E.g in the above IRCTC chart you will see how big a candle it formed while going up and the same way it formed big candles while falling.
In addition to human psychology, many people love to sell things at 3 PM.
Same way if you see any stock/index even IRCTC sharp at 3 PM huge selling of shares starts, and when humans (normal retailers) see this behavior even while rising, they enter FOMO and start reciprocating to and get trapped.
In the later part of the article, I will discuss how to identify when stock will test its support, or give a short retracement before a further move.
C) Patterns (Arriving at an interesting & illusionary part of the stock market)
But if you ask me are patterns really formed and a true sign indicating fall and rise, I will say yes because 60–70% of computers are automatically trading along to human participation. If computers are buying and selling definitely there is a maths or algorithm. And When it comes to math a geometrical or symmetrical thing must be formed on a chart RIGHT!!!
But there is an exception, if a person or institution has money that can move stock price on either side, he has the ability to override this algorithm.
So let's have a look at What Patterns Tata Power formed over time and gave us buying or selling signals either short trend or long term.
There are two types of patterns,
a. candlestick (where a single candle tells us the next possibility).
see in the below snap, a stock price was falling, and a hammer was formed (which is a candlestick pattern) indicates a rise if the stock was falling earlier or indicates fall if the stock was rising earlier.
Let me show another side of the hammer as well (to verify whether your perception of the candle formed was true or false, will depend on the next candle formed) otherwise, it was a false assumption or a fake trap.
b) Now coming to another part of the pattern, which is drawn by collectively considering different candles, it will help to gain an idea of what the overall information market is giving about about particular stock we may say it as sentiments of different investors (removing polluted/false indications).
Let me show an example of the Pennant Pattern (where we join the edges of multiple candles in ridge — a valley way) (ignore wicks if coming in between)
Remember even chart patterns Retest themselves either earlier or later, as marked by the red in the chart before the price moves further upside. See the big green candle formed after crossing our Pattern, it's called a breakout.
But sometimes on shorter timeframes, it can be fakeout & later price may fall.
Let me show one more example on large timeframe how we can predict later price
So Don’t rely only on one thing but the market is supreme with infinite money and possibilities if it can give you something, it can take away everything you have. Another side we are competing with the big institutions.
We are fish from a pond, to compete with sharks we have to think their way.
