Bull therapy 101-thread for technical analysis with the fundamentals


(PE_Ratio) #178

Contradicting things mentioned in two places. Which book are you referring to?


(Left this forum) #179

Fractal is a mathematical term. Fractal is an abstract object to describe and simulate at once for different objects occurring and bouncing at same time. Although fractals were derived from basic geometry it differs from it as the shape of fractals take different shapes as abstract expands or contracts. Confusing, right? And what is the relationship with stock market? I banged my head for 6 months to understand basics of fractals.

Markets are random, speculators try to find out patterns which can increase probability of more chaotic price movements. Basic fractals are used by consolidating more days (say an abstract) and establishing a relationship.

Example- use 5 price bars, when a highest high occur in the middle and two lower lows on both sides it indicates bearish turning point.

Bit advanced fractals is using multiple averages or multiple time frames. By using clustered time frames like a moving average, one can determine behaviour underlying fractal structure.

Fractals are to be created by individuals, customised not ready made. Once you understand logic it should help you creating own abstracts.

To understand usage of fractals we need to dive into chaos theory which itself is a big subject. To simplify in market terms, if the stock market is a fixed objective universe, then it may appear different in different situations and using different tools. Suppose if you use specs to see a sunny day it may appear shadow, if you remove specs it will become bright. Or you take picture of hand and X-ray of hand. They will look different. So, in reality how market appears to us has less to do with what is actually there than with how we perceive it. A particular paradigm through which we see market determines our feelings and behaviour.

For example, when a river flows, it’s not water which makes it fast or slow. Rather the underlying structure which makes it fast or slow. Say Ganga River in Himalayas is faster than Kashi. Reason is underlying rock to a flat surface river bed not the water itself.

Fractal is a geometry used to measure irregularity and perception. The measurement is done for underlying structure. An underlying structure can be created with parts, plan, source and purpose.

My logic behind multiple moving averages

Purpose of fractal- to know trend strength and characteristics. Individual moving average does not smoothen out turning point. For example, when 50 DMA crosses 200 DMA in hindsight it looks trend is changing downwards. At the day how do I know what investors
and traders are behaving?

Source: To use moving averages source is market data on different time frames.

Parts- individual moving averages to reflect short term and long-term behaviour e.g. 3 DMA to 60 DMA.

Plan- I am planning to use at the time of trend change, break downs and breakouts etc.
Look at Bodal Chemicals below:

On the day 50DMA crosses through 200 DMA, look at closely support levels were yet to be broken can you say with conviction downtrend has started? You can check the date when 50DMA ripped through 200DMA i.e. 24 Jan 2018.

image

Let’s use multiple moving averages- a fractal

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By 24 Jan what we can see is below:

Investors have joined traders in selling. Both investors and traders have started selling, you can see expansion in moving averages.

The gap has been widening between investors and traders showing trend strength is increasing.

You have to create your own fractals basis four structures mentioned above. Putting them on to chart is drawing or bit manual work. In this case I have plotted individual DMA’s on chart by selecting 3,5,8.10,12,15,30,35,40,45,50, 60.

Fractals is one of tool to link abstract to behaviour visually. Welcome to world of practical behavioural finance!

Caution- fractals or any other abstract (a combination of mathematics and behaviour) can be extremely confusing and counterproductive. As most of times we do not interpret properly which leads to consecutive losses. But fractals stimulate visual thinking and forms a habit to connect right side of brain. So, I keep doing one or two as experiment, far away from the main objective.


(Agarwala) #180

Thanks @The_Confused_Consult
I will try my hand on fractals, as guided by you. Here is a chart of Aarti Industries that shows alternate patterns of contraction and expansion of moving averages.

@PE_Ratio
The book is Carney’s Harmonic Trader.


(Left this forum) #181

Aarti Industries

Till Dec middle investors and traders were not sure on this stock. Of course, this period comes after sustained buying till Aug 17. Then suddenly from 15 Dec you can see traders expanded heavily. They were ready to pay much higher price. Though investor agreed with traders they went bit slow, expansion was milder than trader. Once traders started booking profit from Jan 1st week (see the contraction in traders) they even cut through investors average. Investors although subdued have been holding to their beliefs and separation between them has been fairly consistent. This belief prompted traders to join buying queue till the time they have become inactive due to recent market selling.

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Traders: have been fairly active, given multiple opportunities to book profits. Still buoyant on this stock.

Investors: strongly supported trend through thin and thick.

Rebound: even traders sold, the trend rebounded within a week. This shows ability to recover.

Trend strength: separation between traders and investors has been fairly reasonable. Even with recent market corrections. This indicates superior trend strength.

Volatility- Multiple expansion and contractions can be seen in short term moving averages. Stock in short term is bit volatile.

Look at 29 Dec 2017, when volume expanded by 20 times with a 6% rise. Result came in 03 Feb, After three years company reported a double digit growth in both Sales and EPS. Well now we know some people have analysed this before! What happened after results? It tried to move up but got into a consolidation range finally.

Very strong accumulation is seen here, even with a big spread day on 05 Jan, hardly supported by volume. Ultimately stock ended positive. Excellent ROE supporting the long-term investors to hang on for more time.

But bigger question what could have been ideal position to enter?

image

See the date 15 Dec 2017. After multiple weeks of contraction with low volume stock zoomed above 50DMA with 40-50% higher volume.

I think at this time this is still consolidating, I don’t see that constructive pattern in longer base. But if we look at last 2/3 weeks a constructive base is forming with contraction in price and volume. I would like to see a breakout from this zone after 2 weeks or more of contraction. That will allow the process to suck up the weak hands.

image


(manivannan.g) #182

@Capsule91 This is NCL industries chart. Can this be considered as Cup and Handle pattern ?


(Shan) #183

@The_Confused_Consult Any idea if Fourier transform has been used to study these patterns. Just academic curiosity.


(Left this forum) #184

Is this a stock name, I could not found, possibly I am typing something wrong.


(duranvskp) #185

This is what Mr.Shan is talking about


(Left this forum) #186

Apologies for being naive on this. Just had a glance, don’t think have ever tried. Bit mathematical formula heavy, happy to give it a shot if someone can simplify a bit in stock market sense.


(PE_Ratio) #187

Sanwaria Consumer is breaking out of descending triangle.


(PE_Ratio) #188

Excellent reversal from the Potential Reversal Zone.

Also the Elliott Wave count suggested an uptrend after the correction.


(Capsule91) #190

@manivannan.g

Sorry sir, this does not qualify…


1.Cup depth exceeds 33%
2.Too much volatility at the base
3. Volumes do not comply…

When i started researching cup and handle patterns i used to be liberal… gradually matured up to see, its a very strict pattern actually…

The breakout u see, is a symmetrical triangle breakout with regular joe trendline play…

Can you please mention any stock fundamental effect to this pattern breakout that happened in 2016 and early 2017???

Disclaimer… not invested


(PE_Ratio) #191

I wouldn’t use the harmonics alone. Because Harmonics just indicate the reversal. But it can also happen that after a short while, it comes back and tests PRZ. So, I’d still consider PRZ a setup for trade. But when used with Elliott Wave, it helps find the end of corrective/impulsive wave. Here in this case, both EW and Harmonics confirm that the reversal was somewhere between 220 and 240, which actually happened. Now I can be bit confident that outer degree wave 3 started and also I know where and when it will end.


(Ameetmehtadesign) #192

Hi PE_Ratio! glad to see you again here, and have been tracking Ajmera closely. Putting in my wave counts, and IMHO one last leg still remains…Putting two charts, the second one being the closeup of the correction (with a slightly alternate wave count in smaller fractal)…the corrective waves seem to be in sync with fibo ratios which also is indicating it will respect guidelines of corrective waves…shall welcome your views on it. Cheers.


(PE_Ratio) #193

You may be correct. That’s an alternative wave count. In that case, one last leg of correction will take the stock to 200 or 210 levels. And then the outer degree impulsive wave will start.
Here’s my alternative view count. This indicates that wave C has ended and the outer degree impulsive wave has started. (Zoomed the chart to show the count)

Also, look at the support line formed by connecting points 2 and 4. That’s another reason why I thought wave C has ended.

Let’s see how the waves develop. Would be an interesting case.


(PE_Ratio) #194

Support turned into resistance.


(Nitin ) #195

Hi…Which book you recommend to learn technical analysis. My focus is to make buy and sell decisions for long term holdings…Thanks


(Capsule91) #196

Profits in stock market by HM gartley


(PE_Ratio) #197

I would recommend learning Elliott Wave Principle instead of the traditional Technical Analysis. Why? (Below is an extract from the book named “Visual Guide to Elliott Wave Trading”)
Technical studies like these do a good job of illuminating the way for traders, yet they each fall short for one major reason: They limit the scope of a trader’s understanding of current price action and how it relates to the overall picture of a market. For example, let’s say the MACD reading in XYZ stock is positive, indicating the trend is up. That’s useful information, but wouldn’t it be more useful if it could also help to answer these questions: Is this a new trend or an old trend? If the trend is up, how far will it go? Most technical studies simply don’t reveal pertinent information such as the maturity of a trend and a definable price target—but the Wave Principle does.

As an investor, what I would like to know the best points for entry and exit. If I manage to enter in the beginning of a bigger wave 3 and exit at the end of bigger wave 5 (can last for 1 to 5 yrs), then that would maximize my returns. I can’t do this with the traditional technical analysis. With TA, I can only say where the price is going to be in short term. That would be helpful for traders, but not for investors. I would suggest reading the following 2 books.
https://my.elliottwave.com/resources/education/ereader/FH5/EWP/EWP.aspx#p=1 (free book, written by the best guys in EW)
And another good book is “Visual Guide to Elliott Wave Trading”.


(Agarwala) #198

Hi @PE_Ratio and @Capsule91
I have significant exposure in NALCO from 64 levels. Will you both comment on its charts? should I hold or exit at these levels. The following points may be important:

  1. There is 38.2 percent retracement from the bottom.
  2. On Wednesday, in a falling market, NALCO rose with high volumes
  3. I consider it a value buy at current levels
  4. The share is trading immediately below long term averages

Thanks in advance