Chart Patterns – By looking at this word most of you might have thought that I’m going to talk about those patterns which are usually mentioned in every other classical Technical Analysis text book. What I feel is that trading is simple when you keep it simple. When you load your chart with unnecessary indicators, patterns etc., you are going to land in a big trouble.
But then what is that chart pattern which is going to give you 70% accurate trades? They are none other than “Horizontal & Trend line Supports and Resistances”. Yes you read it right. If you remember a few days back I’ve written an article on trading daily support and resistances. This is somewhat similar to that and we are going to use the conjunction of Trendlines and Horizontal Lines.
How to trade?
- First draw a Trend Line Support or Resistance on the chart
- Then make sure its already broken on Daily Time Frame or it’s in Conjunction with Horizontal Support or Resistance
- A “U” or “inverted U” shape must exist near to that support or resistance.
- In intraday timeframe on break of that U or inverted U shape, put a Buy Stop / Sell stop order above the Daily resistance or below the Daily Support
Follow the below example in Bata India carefully
Trendline support is already broken on 24 Feb 2020 and a horizontal support is yet to broken. So, we’ll be ready the next to spot a inverted U shape and below 1750 we will put a sell stop order.
On 25th inverted U shape is seen and a sell stop order is put below 1750. Now, the reason for an inverted U shape is because, when the day’s low is broken, panic selling can be seen which will force the longs to close their position. When longs are closed it creates more selling in the market. And the reason for break of trendline support on Daily timeframe is because when a significant support is broken bulls loose their strength.
On Nov 14 2018, there’s a conjunction of Trendline and Horizontal Resistance at 901.5 in Titan . Next day we will wait for a U – shape above or below the resistance line.
There was no trading opportunity at 901.5, since the first 5 min candle was a long range candle. We will wait for a U shape and put a buy stop order at 912.
Here, because there’s was a conjunction of resistances, bears were so strong. To defeat such strong bears, bulls need more strength than bears. Ultimately the bulls won by breaking the resistance and we waited for a confirmation by spotting a U shape.