Nifty corrected to WEma(5313) and bouncing mildly...

We looked for a zigzag correction targeting 5325 as a=c. The "exceeding" could give rise to an impulsive move. In such a scenario, a bounce for the 5399-5313 fall is underway targeting 5346-56-66 zone(5346 almost done) and resume the fall.
However, the last two days, especially the last one would be at the hands of the option writers.
9 Hr Rsi; 9 Day rsi have been very good "Indicators" at critical junctures. They pointed down with -ve div few days ago. "Divergences trades" are the best trades. Never miss them and they are rewarding even after a conservative signal.
Make use of them at extreme points.
Weakness is visible with two consecutive closes below DLEma.
Weekly TA is intact but trading below WHEma and WEma was tested today and the next target during the week could be 5265(WLEma).

Nifty reverses after reaching Month's R.2 @ 5630 with day -ve div.

This MahaShivratri, we listened to "Jaggi Vasudev's" discourse and he said..
Become shameless to know your true potential. He meant "shed all your inhibitions". You won't find your answers in the I-phone but in the "I" packed with God's software.
Shameless here would mean that you are being yourself and not pretending, you are not ashamed to act the way you want to. Shameless would also mean that you do not react to people's opinions.
When I read some of my readers' mail, I feel sad for all their struggles in this financial jungle. But it is their struggle and they'll come out of this with more objective application. It is their Karma and my Karma is to teach...only that. You'll find it Kid's stuff.
I just shed a bit of my inhibitions to demonstrate how various studies such as EW, OI analysis, Pivot table, ORB, divergences could be applied in real time to make money.
Everyone knows how the accelerator works but only the experienced knows how much to press..when to leave it besides manuevouring with steering wheel.
We did anticipate the end of the 3rd wave and whenever it showed continued strength, we accordingly shifted the labels and we even pinned the "Breakout @ 5415" when Nifty stayed sideways for few days.
This correction has equalled the last fall from 5217 to 5077(140 points).
We do not need to know how far the rise or fall will go but we definitely need to know the direction as well as whether we should be in a trade. Part booking as well as trailing SL would take care of the steady money flow.
Whenever subjective opinions take over your intellect, check the TT and take your trades based on its strength/ weakness.
It pays to remember always that markets are irrational and having accepted that fact, we could study the prices..its patterns to find a method to make some confident trades.
Day chart shows "3/C" being completed and "4/B" wave unfolding..

Nifty eases off the highs from Overbought short term.

Mr.Rajagopal, inspite of his health problems, has been updating his wonderful "Stock futures file(NF.TA)" as well as his newly developed "Volume Tracker file" everyday. Volume speaks market's language.
Spend your time going through these files that are being uploaded everyday. Get used to the changes that are affecting the prices.There is so much "Wealth" in them.
Never get bogged down by the enormous amount of data in them.
Choose the ones you are interested in and monitor them regularly.
More focused sharing is the next step.
Get well soon, Rajagopal.

Nifty Premarket View

Dear SN,
Let me state this to you.
Monthly TA is neutral and on the verge of turning up again.
Weekly TA is in uptrend, though a bit Overbought.
Daily TA has shown its tendency to stay UP with shallow corrections and it has not closed below "Day low ema" for more than 30-35 days.

Using oscillators to trade works well in a sideways market like I have shown with 9-rsi chart in yesterday's EOD post. In a trending market, you use them to spot divergences alone. Even the divergences do not give much gains if it is in a "3rd wave".

There were many +ve divergences in stocks and I posted nearly 14 stocks in my "Stockwealth" blog and all of them have given quite a lot of returns in short term. Evren the -ve divergence stocks such as Infosys, India cement have fallen.

It is not difficult to spot these divergences. But view the overall market and when you see many such divergences, then your confidence and conviction levels will be high to take a trade in them.

With regard to the chart(Shown below) that you have put up, a divergence that takes 6 months & more may be viewed as a running correction or a 3rd wave in progress. Since that is a day chart, I would prefer a divergence that takes 10 to 15 days to develop (+/-5) for trading purposes and anything more than that loses its relevance..

I hope this clear your doubts. More exposure to the market alone can guide us better as markets keep evolving and we need to learn constantly.

Applying Divergences & ORB with Hour time frame.

Satheesh's quest for knowledge should lead to some profitable trades....only with some patience and persistence..The trick will be to to take a step back and see the bigger picture. That is to see a daily chart and fit in the "hour" chart into it.
1. I credit lots of success to "EW study" but never in isolation. The success rate is good only because it is combined with TA.
2. "Divergences play" alone bring you the biggest riches time and again. The more pronounced they are, the more gains they get you. And when these divergences coincide with a "perceived completion of EW ", the conviction level in a trader goes high to hold on to that trade.
The two lows 4766(3rd wave) and 4675(5th wave) coincided with a clearly pronounced positive divergence and the result has been extraordinary.
Subsequent to that we have had one -ve div but that happened just after a steep rise and the oscillators showed -ve div but it is to "time adjust" the steepness in prices.
Currently a negative div. is developing but there is some "doubts" in the EW count. The strength in bank Nifty & certain stocks may cushion any falls. This one would test one's patience and one should remember the main trend and its trending up within the channel.
3. Macd defines the "Moving average convergence and divergence". One of the potent steep move indications has often come from watching the short term moving averge converging towards a medium term average (Here we have taken 35hour/ 5-day & 70 Hour/10-day sma) and then start to turn away slowly without touching or just touching the medium term average and thus setting up a "fast rise" scenario.This set up often concludes the "corrective or sideways" scenario and commencement of the next up move.
4. For the trend followers, a continuation of Higher high(HH) and Higher Low (HL) will indicate the continuation of trend and they can simple hold on to their position till this set up changes to LH & LL.

I have put up nearly 14 "Stock Charts" in my "Stockwealth Blog" with divergence factor figuring prominently. Exchange your observations by either sending a chart or name of the stock by emailing to me and I will try to put it up for every one's benefit. It is not possible to monitor so many stocks daily consistently.
"Piyush Sharda" asked about "ORB" and selecting the correct day to use it.
I wish there is a simple answer to this. If one has understood the above lesson well, use of "ORB" too could be applied selectively.
Whenever you see an extreme reading in the indicators, use the ORB. It will work bothways meaning if the extreme reading is at the top in an up trending market, you get a corrective move down and ORB will guide you. Similarly when the reading is at the bottom, then the possibility of the correction terminating and the uptrend resuming and ORB will confirm that.
Even if one follows it consistently, the overall results will be very good after deducting the stop losses.

Nifty caves in after persistent -ve div..

Nifty has closed decisively below 5 DMA and broke the channel too and thus turning the short term trend to Down. A correct rally, if any at this stage,may find multiple resistances at previous supports @ 5015 & 5045. Fall may find temporary supports @ 4900-4940 unless global cues are terrible.

Four days gone by, Nifty could not touch the Weekly R1 and reversing towards Week Pivot @ 4934. Bulls may fight for 5028(Week high ema) as well as 5048(Day High ema). It is tough..

Divergence Trade..(Most Potent)

When divergences between price and momentum indicators (roc, rsi & macd)arise, it can lead to some very profitable, high probability trades.
These set-ups are counter trend tactics, and as such, one must employ a hard stop in the event that the trend reasserts itself and you are on the wrong side. Contrast this tactic with the principle: “Trends have a higher probability of continuation than reversal.”
When you play for a momentum divergence trade, you are always playing for a target closer to the price the divergences commenced and playing for a possible shift in buying/selling pressure. Before attempting any such trade, I suggest researching further on this potentially profitable topic.

Some of the most popular Oscillators/indicators for uncovering price divergences include the MACD, stochastic, RSI, Ultimate Oscillator, rate of change, etc. You have to discover which indicator works best for you. Indicators are used as ‘training wheels’ until you can develop an intuitive sense of determining where the buying and selling pressure (momentum of the move) are diverging with the price action. This process takes time, yet indicators can help highlight these conditions. There is no perfect indicator to do this. I am using a fast MACD oscillator in my chart example. You can also spot divergences in other momentum oscillators.
Momentum precedes price in that a slowing of momentum indicates that a possible change in price is yet to come. Do not get caught in the trap of searching for momentum divergences all over the chart. Examine them at the (possible) end of mature trends for greater probability. Again, we are not seeking the end of a trend move (reversal), but just a retest and a small target. In fact, we are playing for a simple retracement swing against the direction of the prevailing trend. This illustration may help:
We are in a mature uptrend and price is continuing higher. A situation develops where the buyers are becoming less aggressive in their momentum (force of buying pressure) and momentum is declining while price is not.
Of importance to note (and the reason behind the divergence in the oscillator) is also price based. Note the steep rise of the previous swing up (creating heightened oscillator/indicator readings) and then the more gradual rise of the second swing up (creating a lower peak in the mathematical oscillator). This sets up the divergence while the reason for it is declining momentum.
If momentum precedes price, then in this case, a decline in momentum forecasts a decline in price as the most probable swing play. If buyers are less aggressive to raise their offers, then it won’t take much effort for price to fall and those who own the stock will begin to sell.
This chart highlights momentum divergences finally reversing the trend:
Divergences are difficult to quantify for a mechanical system, so this is one area discretionary traders may have an edge over programmers.
I did want to highlight another point through the use of various time-frames. Divergences and momentum concepts are valid across all time frames.
There are a few factors to be aware of when identifying momentum divergence plays:
• Momentum divergences are invalidated (and nonexistent) in range bound, consolidating markets
• Only look for momentum divergences in the context of a mature trend (however short the time-frame)
• Momentum divergences work best after a “three-impulse” pattern in a trend( That is two impulse moves followed with a consolidation/pause/sideays move with a final impulse move)
• Momentum divergences are to be played for a target (price correction) commensurate with the time cycle it is noticed and NOT in the higher time cycle.
• The best divergences resemble “double-top” or “double-bottom” chart patterns.
• Keep a stop in the market close to the last pivot point in the event that the strong trend reasserts itself and causes great losses.
• Exit divergence trades which do not resolve within a time parameter.
. Trading momentum divergences is a complex strategy and should only be attempted after repeated exposure and internalization of the price behavior that sets up the pattern.

How to combine EW with macd

RENU asked about reading EW with macd:

Illustrated here with "IOC" & "Nifty" chart:-
(I have chosen IOC as it is not manipulated, nevertheless widely traded in its sector)
1. When the down trend is nearing its "oversold" &" public apathy" & "Panic" situation, you will notice a +ve div in the down move's 4th & 5th wave down OR in "b" & "c" down OR in "c4" & "c5", there by identifying the start of the 1 st wave.
2. First wave generally gets exhausted with the macd moving into +ve area and this can be fine tuned with the help of hour charts. In underperformers, macd may find it difficult to get into positive territory but moves closer to "0".
3. In the Second wave, macd moves back into negative once again. In outperformers, macd may stay above "0" but moves down closer to "0".
4. Third wave upmove takes macd strongly up to the extreme upsides. Then. in outperformers the macd may move down with prices continuing to move up and as the macd moves up again, prices move much higher. This is where the "novice" investors/ traders read the direction of the macd with prices quite literally and miss a huge upmove..Exhaustion in this uptrend can be gauged from the "gaps", "volume" as well as following the 3rd wave subdivisions in the "hourly charts".
5. Fourth wave moves become triangles to carry out time correction if the third wave was very steep and swift Or an alternation to the second wave(if 2nd is flat, then the 4th is zigzag and vice versa). In underperformers, the macd moves into negative while in outperformers it stays above "0" but comes well off its high reading to set itself for a negative divergence base.
6. Fifth wave or the "froth" or the "speculative move" will bring in mostly the retailers with a herd kind of move to new highs while the macd making a lower high thereby developing a negative divergence. In a strongly trending markets, the 5th wave gets extended with series of negative divergences frustrating the bears and confounding the bulls and the falls happen with a sudden reversal when complacency sets into bulls.
7. During the reversal, the first wave down takes the macd into negative territory and the second wave up into positive and the cycle repeats itself in the opposite direction.

Sounds simple..But as you watch the prices move on your monitor, you generally tend to forget all your lessons. Best EW practioners have "military discipline" in them..those who mean business ...be it in any phase/ aspect of life.
When a trading competition was held in the USA for EW practitioners, most of the toppers had military background which gave them the edge over others in carrying out the commands without questioning.
All the EW followers will admit that the most difficult part of EW practice is "to believe in what one sees" . Correct labeling of the charts once the moves are over for posterity is easy . Needless to say here that "you are right only when you make money" and that is "act when you should without questioning".

Nifty sold off after -ve div..