Chapter-02b Trend Questions by Members

8/13/2019 Chapter-02b Trend Questions by Members

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Being an investor, you are looking at medium to long time frame. For a clearer perspective, always look at your weekly charts. We

have lower pivot highs and lows ,basically still a downtrend on the weekly. Trendline 1 as drawn by you is more or less correct. NotTrendline 2 the more points, meaning the more pivot highs that it connects in a downtrend line the stronger that trendlinebecomes. Trendline 2 is connecting all the highs, not the pivot highs, so inaccurate from a daily/weekly chart perspective. But for anintraday to few days perspective, not wrong. That trendline can be traded a break above that trendline is a buy. But that doesn'tmean we are in an uptrend. Just good for 1 - 2 days sniper attack on the intradays.

We basically need a breakout over 106 to say that we are headed back into an uptrend. For now, it's downtrend on the daily/weeklyAnd Bank.

Great going, my friend. A questioning mind is a mind that is learning. Feel free to ask your doubts. Shall answer to the best of mycapacity.


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QUESTION

Anyway, in the case of Andhra Bank, u said it should cross 106, how could u calculate that figure? Is it a figure which the trendlinemeets when extended towards the price axis. I thought it should break at least 110 which is the previous pivot high. Please correctme if I am wrong.

REPLY BY SAINT

Yep, basically whenever that trendline breaks to the Up. If we are going to remain in this downtrend for more time, then that figurewill keep coming downwards.

106 is the break over the trendline which gives us an indication that things are moving to the up. Yes, right you are, the previous pivothigh is 110 and over that is confirmation that we are in an uptrend.

QUESTION

Yes, got it!! That means, if it goes above 106 then the uptrend is in question and it will be in our watchlist and we wait for it to cross110 , which is when we will be sure of the uptrend and we are in trade.

REPLY BY SAINT

Yep, you got it but just a correction of language so that we are both on the same page.

A break above 106 and we have apossibleuptrend, theprevious downtrend is in question. A break over 110 is confirmation.

QUESTION

As you have explained in your earlier posts, we should follow the trendline. We will be able to spot the change of direction in trendlineafter market hours. While one is buying a stock which is in uptrend, even when we buy it after delaying it by a day, we will still be ableto ride the trend and be able to make some money (our ultimate aim). But how to judge the downtrend of the stock during markethours? Why I am asking this is when we analyse the charts after market hours and come to the conclusion that the particular stock isin downtrend, we will not be able to sell it. By next day, it may have fallen further and we may have lost some more money. Pleaseexplain the methods one can adopt during market hours to judge downtrend so that we can limit our loss or sell it while we haveconsiderable profit?


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REPLY BY SAINT

If you have been playing that trendline, let us say, you've been buying each time the stock pulls back to the trendline and your ideawas to stay in that stock so long that uptrendline holds. So far so good as long as the uptrendline holds.

A crack in the intradays to the downside does not qualify as a break in that trendline till we get a close below that trendline but Iagree with you, what would you do, while watching that stock intraday, it cracked to the down. It may or may not close below thetrendline, but what would you do in such a case? Stick with the plan your idea is to get out on a break of trendline. Get out if itbreaks. If by the end of day, the stock does not close below the trendline, no problem, that means the trendlines are still valid andyou look to re-enter.

QUESTION

Please clear something for me. We are in a uptrend and i am in the trade. Do I get out once the up trend line is broken or if it makesa lower pivot low. Does this depend on our trading strategy. Cause if we wait it to make a lower pivot low or even go down as far theprevious pivot we have lost our profits if we had entered the trade when it started moving up from the previous pivot low. Or is thisthe trade off we have to take in the market

REPLY BY SAINT

As you rightly pointed out, depends on your strategy. If you've been playing the uptrendline all along, you are not about to tolerateany break in the uptrendlines. One crack and you are out on the other hand, if you are willing to give it some room, wait for thebreak of the previous pivot low as that gives you a clearer idea of a change in trend.

Which one do you do? I personally would get out half my position on a trendline break, leaving my stops for the back half a bit belowthe previous pivot low. If taken out, I am out.

Just have a look at Satyam below I had been playing the trendlines all along. Had been in it from late Sept till date. That uglymove last Friday took out half my position, but still in back half as the previous pivot lows were not cracked yet. If you got out full onFriday, you would not have been wrong either.


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QUESTION

Also if we are in a down trend and it breaks above the trend line and moves up. Do we enter now and we let it make a higher pivotlow. Because the higher pivot low might be very high and we loose out on profits. Also, how much of a correction would u call a pivot.

Could you please attach a file of the smallest correction you would consider a pivot.

REPLY BY SAINT

Same as above. Buy the break above the down trendline, But buy half. Why? Quite a lot of false breakouts. So buy half and then addthe other half when we get a pullback forming a higher pivot low.


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QUESTION

For drawing the trendlines, these are drawn on the arithmetic scale, or do you use the logarithmic? I have Metastock and I noticedthe two. So just wondering, which you use.

REPLY BY SAINT

There are two types of scales: a) Arithmetic b) Semi-logarithmic

An arithmetic scale displays the price levels evenly in rupee terms as they move up. So therefore, a Rs.10 move from 10-20 or from100-110 or from 500-510 will look the same as they are all a difference of Rs.10.


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A semi-log scale displays price levels in percentage terms as they move up. A move from Rs.10 to Rs.20 is a 100% gain will looklarger than a move from Rs.100-110 is a 10% gain or a move from Rs.500-510 which is only a 2% gain.

I use the semi-log scale try it out, the rise looks smoother and the trendlines fit all the way. Which also means that a break intrendline is cause for some action.

On Metastock, go to the Y-AXIS of your charts. Right click it. Go to Y AXIS Properties. Tick the Semi-Log scale. Click apply. That's it.

QUESTION

With my limited knowledge got from you I analysed the following stock of Morarka Finance and found it in an up trend mood andgaining momentum. Am i correct? Please verify with the attached image and reply.

REPLY BY SAINT

Most importantly, pour through thousands of charts. A day comes when patterns jump out of charts and grab your attention.

On MORARKA FINANCE, first look at the weekly charts so as to get a proper perspective. Attached below the weekly charts.Basically in sideways trend. Don't try to draw trendlines in a sideways trend-up or down. So far we are having equal pivot highs andlows from March 2005 till date. It tried to put in a breakout in Sept 2005 only to be brought back to the sideways range.

Once it puts in an uptrend again, then you are back to drawing trendlines again.


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QUESTION

Everything seems okay to me but trendline break and previous pivot low are two things we used intermittently. I assume that both are

one and same.

Whenever the previous pivot low is broken then Uptrend is in question, so do we get out of the trade.

Here in this context what is trendline break, is it small crack in the uptrend move, I mean is it a decline or anything else. When Ilooked at the weekly charts on Satyam (7th Apr), its a small decline. Saint, please add If I am missing out anything.


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REPLY BY SAINT

When you get out of a trade is entirely up to you the fact that this stock put in an accelerated up move, take out your trendlinesand draw it. Why? Because we don't want to give back too much when the pullback starts.

We therefore already have a bearish divergences on the RSI and TRIX. What do we do? We get cautious, we get our hands readyon the trigger, but we DO NOT do anything. We wait, and wait till we get a break in trendline. Then, we are out. We are alwaysREADY to pull the trigger, the Bearish divergences tell us GET SET and the trendline break tells us GO!!

Now, if your mindset is very long term and these pullbacks mean nothing to you, then take some profits off the table in a trendlinebreak. But hold the rest till we get a break in the previous pivot low on the weekly charts ie 720.If it does not break 720, the uptrend is

still on and you will see higher highs and lows.

So, that decision depends on the type of trader that you are.

But you must understand this, a break in the uptrendline is not a downtrend. It puts that run up in question.


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QUESTION

Please tell me something to draw trendlines. At times, we see a tick the price action is or real body is very small but the fluctuation isvery large. So we draw the trendline near the opening closing or at the bottom of the tick. I was seeing Riddhi Siddhi. The priceopened close above 230 but the tick is till 210. So where should the trend line be for such fluctuations.

REPLY BY SAINT

Connect two or more lows, then extend that line, you will notice many times the price trying to break through the trendline but forming

a tail and still having its body within that trendline.

Go with the eye.........

QUESTION

Is there a reason why a trend line acts as a support (What is the underlying logic behind it) or cause we see it in so many charts we

take the number of repetitions as a proof and follow it.

Another thing I noticed was that the price was always bouncing back on intermediate trend line (acting as support) and the shorttrend line went above the price pattern and number of time acted as the resistance level. Is this also common to see?

REPLY BY SAINT

My mind does not work in the "why something happens" mode, and therefore I may not be the best to answer it but I wonder ifthese patterns and lines develop because we are all looking at the same thing and drawing the same lines.

It could be as simple as fear and greed. Countries may be different, the year may be different, but human emotions don't changemuch, I guess. And it gets reflected on our charts.

A chart is never the mapping of what that particular company is about, but of the emotions of hope and expectations, fear and greed,of the investors in that company. The chart tells us of human emotions, and therefore, as astute traders, we buy into fear and sell intogreed,and enjoy the profits made in the difference.


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And therefore trendlines, patterns and all the paraphrenalia is learnt to come to that very important point.......to assess when fear hastruly set in, and is time to buy once we get a signal, or when greed has got a bit out of whack, and is probably time to exit.

And,Yes to the second doubt, my friend....

QUESTION

Lets say we are in a trade at Rs.500. The stock rallies and then reaches 550. All this while creating higher tops higher lows. On thedaily chart however we see that there is a small black candle. Lets say this is because it closed at 550 yesterday and today hasclosed at 540. What do we do now?

Weekly charts our pivot is at 500 and the stop is obviously at lower levels ... how do we confirm or in other words verify that this is notthe start of a downtrend.

REPLY BY RAHUL(ACKNOWLEDGED BY SAINT)

Quote:

On the daily chart however we see that there is a small black candle. Lets say this is because it closed at 550 yesterday and todayhas closed at 540.

Hi sorry to answer this as u had posted it to Saint. First of all black candle is not formed cause the day close is below the previousday close. A black candle forms if the close is below todays open itself.

Quote:What do we do now? Weekly charts our pivot is at 500 and the stop is obviously at lower levels ... how do we confirm or in otherwords verify that this is not the start of a downtrend.

Now booking profit is up to u. If u are a trend follower you would book part profits when trend line is violated. Then u would exit therest when the previous pivot low is also taken as that would mean uptrend is in question. Remember trend is valid till the proof ofevidence proves otherwise (as Martin Pring says)


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QUESTION

If you look at the charts of Bombay Dyeing & Bajaj Hindustan, on the daily charts, both are showing an uptrend. But, if you look at theweekly charts, then the previous pivots have not been taken out.

So, as a "Short term" trader, what should one do? Buy now or wait for the weekly trend to get confirmed. I am very confused!

REPLY BY SAINT

Always better to have both the weekly and daily in line before attempting to go long. No problems actually if you are an adept hand atthis else, stay clear of this rally till the intermediate trends give you a signal to go long.

Just posting BOM DYE chart....


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QUESTION

For a given time period, is it a rule that you have only one trendline? Basically what are the rules of drawing a trend lines? Is thereany rule on how to draw a trendline or we look in the charts and connect multiple highs/lows to form the trendlines?

REPLY BY SAINT

Think the below chart explains itself.......feel free to ask though if something is not clear.


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QUESTION

At what stage in a intermediate downtrend do we say that we are in a bear market? How do we make out the difference between amajor trend move and an intermediate trend move?

REPLY BY SAINT

To answer your query, we need to go into the basics of Trends Let us get into it from the beginning. Then let's address your doubt.

TRENDS

As per time frames, we can classify Trends into

A) SECULAR TRENDSB) PRIMARY TRENDC) INTERMEDIATE TRENDD) SHORT TERM TRENDS

A) SECULAR TRENDSEvery short term trend has within it one to several intraday uptrends and downtrends. Every intermediate trend has within it one toseveral short term uptrends and downtrends. Every primary trend has within it one to several intermediate uptrends and downtrends.So too, every secular trend has within it one to several primary uptrends and downtrends.

What we mean by Bull market is a market in a primary uptrend. What we mean by a Bear Market is a market in a primary downtrend.

A SECULAR BULL MARKET has primary uptrends (Bull mkts) greater in magnitude and duration as compared to its primary

downtrends (Bear mkts). Expect the bull markets to unfold longer than the bear markets in a secular bull move.

Vice versa for the SECULAR BEAR MKT.A secular bear market has primary downtrends greater in magnitude and duration ascompared to its primary uptrends.Expect the bear markets to take longer to unfold than the bull markets in a secular bear move.

A Secular trend usually lasts about 10-25 years.

Let us get into the others tomorrow maybe we can also have a look at some secular trends on charts.


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Few examples of Secular Moves

SENSEX an example of a Secular Bull Market.NIKKEI a Secular Bear.Charts below


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Okay, in continuation we now know what a secular, primary trends and intermed trends are. We know that each larger time framehas within it smaller time frames of trends. Now,to your question we have an intermed uptrend followed by an intermed downtrend

followed by an intermed uptrend, so on so forth.

Few rules1) After an intermediate uptrend, the correction should be only 33-66% of that cycle (One intermed cycle = one intermed uptrend andone intermed downtrend).-- Greater the retracement, the increased likelihood that the primary trend has reversed to the down.

2) Substantial increase in volume during the price decline

The above are the basics if you are playing with indicators as well, then all the negative divergences, moving average crossoversputs you on Caution Mode.

Have a look at the chart below.......please do ask if anything is not clear.


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QUESTION

From the chart, I see that support is taken at a higher point from 1994-2003 before sensex took off in 2003. The low of 1993 wasnever tested.

Is it possible to say that unless we test that low and breach with high volumes, we are not yet in primary bear downtrend? You haveput benchmark at the support line in accordance with the theory. But in practice sometimes indices may bounce back from the lowestpoint formed after the first high of the consolidation period (in yellow background)

REPLY BY SAINT

These are long term charts and we are looking more at the secular trend of SENSEX. What we call as bear market in commonparlance is a primary downtrend and not a secular downtrend.

So, a break of 8799,and we classify this move as a primary downtrend and as for this Secular Bull to become a Bear, we are farfrom that scenario.

As it stands now, we are in a SECULAR BULL MARKET, in a PRIMARY BULL MKT. Breaking 8799, we go into a PRIMARY BEARMKT, but still very much in a SECULAR BULL MKT.

And for a long term trader or investor, there can be nothing sweeter in a secular bull mkt than taking profits, watching the mkts getinto a primary bear mkt, and buying more at the lows.

QUESTION

I do hope you are right about the intermediate downtrend. With all the divergence in ROC and TRIX in the monthly charts of nifty, Ihope we dont go into a primary bear trend. Enclosing the monthly chart. Would like to know your views...


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REPLY BY SAINT

Just have a look at the chart above says everything.

Basically, this correction from the May top is too deep to be wished away as yet another intermediate downtrend. Calling it a primarydowntrend as markets plunged on May22 is being a bit premature. An intermediate downtrend is one till it isn't. But the next wavedrop to June 14th lows takes it down to more than 80% correction of the previous intermediate cycle.

My personal opinion is that this no more looks like an intermediate downtrend in a primary uptrend. I feel we are starting off the firstleg of a Primary Downtrend. We are still very much in a Secular Bull Market though

But as always, we can confirm that only once the market drops below 2595. We are at that spot of bother on the charts where thebullish orientated trader sees things going to new highs and the bearish ones seeing new lows. It would be wrong to say that this is aPrimary Downtrend for sure till confirmation. To say that this is nothing but an intermediate downtrend would be dangerous andwrong that statement in red should be modified to "This downtrend is nothing but an intermediate downtrend till we get aconfirmation that this is a primary downtrend. But the depth of this retracement is giving rise to the possibility that it'slooking more and more like the first leg of a Primary Downtrend"

And yes agreed on the indicators bit as well.

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Chapter-02b Trend Questions by Members