Stocks on Breakout

Stocks on Breakout after trading on 25th January 2008 are as follows :

NSE Code	Close	% Ch	2 day Swing	5 day SWING		20 day Swing	Previous		Mov. Av.		RSI		ADX
				Entry	Action		Sup	Res	20d	50d	5d/th>	>14d
APOLLOHOSP	490.35	5.29%				Buy > 627	365	489	520	503	53	47	35
BOSCHCHASY	466.50	6.16%				Buy > 492	292	455	421	398	70	60	20
CRANESSOFT	153.05	9.48%	Hold SL 130	153	Buy SL 106	Hold SL 106	106	152	143	132	76	62	31
DCHL	220.70	13.65%				Buy > 271	161	219	225	216	62	52	20
GKW	91.85	9.35%	Buy SL 82	94	Hold SL 76	Hold SL 76	76	89	91	85	57	54	30
HONDAPOWER	247.15	8.45%	Buy SL 225	----	Buy > 263	Hold SL 200	200	247	264	258	50	46	26
IVC	320.10	8.14%				Buy > 447	345	320	368	356	39	38	33
KOUTONS	980.65	6.54%	Buy SL 755	981	Buy SL 700	Hold SL 700	700	950	961	843	64	59	22
KTKBANK	258.50	6.31%	Buy SL 235	----	Buy > 263	Hold SL 180	180	255	251	231	61	57	34
LT	3892.65	10.30%				Buy > 4410	3491	3885	4044	4129	54	46	26
RELGOLD	1170.04	3.33%	Hold SL 1075	1031	Hold SL 950	Hold SL 922	950	1169	1102	0	73	67	40
TATAMOTORS	710.45	7.88%				Buy > 824	531	710	739	733	58	47	25
TULIP	971.25	9.01%	Buy SL 831	----	Buy > 995	Hold SL 721	721	960	1012	979	61	50	25
TVSSRICHAK	160.00	6.67%	Buy SL 145	----	Buy > 160	Hold SL 126	126	159	158	138	60	58	23

Importance of charts

No algorithm or trading system can substitute visual inspection of chatrs. Algorithms, can at best, only make filtering easier. Since there is always a risk of loss in stock markets, any trading decision must be taken only after detailed study of charts.

Buy and Sell signals

These are generated using custom designed swing trading algorithms. As one can never know with certainity the extent of gains or losses, the concept of trailing stoplosses is used.

If a stock is in a downtrend, a buy signal is generated if the stock closes above it's "N" days highest high. The trailing stoploss is the "N" days lowest low and will change everyday till an exit is given. Here "N" refers to 2 or 5 or 20 days. Obviously a 2 day swing will generate more signals than a 20 day swing. For best results, use the 2 day or 5 day swing to buy only if the stock is trading above the 20 day swing low.

The methodology is similar moving averages / crossovers. The advantage is reduced whipsaws and more efficient stoplosses.

Above signals work best with trending stocks and are useless with rangebound stocks.

Rangebound trades, whipsaws and false signals

All technical indicators will fail in rangebound stocks / markets and will generate whipsaws and false signals.

Whenever a swing trade results in a loss, it means the stock is rangebound. At this point, one should study the chart and identify areas of support and resistance. Only a break above these levels will create a new trend.

Support and Resistance levels / targets

This is nothing but a "peak" and "trough" based on 5% change. These levels form the basis for calculation of targets.

A break above a "peak" gives a resistance break. Similarly a break below a "trough" generates a support break.

Targets are calculated using Fibonacci retracements.

UP targets = Support + X *(Resistance-Support)

DOWN targets = Resistance - X *(Resistance-Support)

Where X equals 0.382 or 0.5 or 0.618 or 1.618 or 2.618

Depending on formation of support and resistance, targets are automatically calculated. Because of the methodology adopted, it is normal for the stock to trade significantly higher than the target. Once the stock corrects, the new "resistance" is defined and targets automatically calculated.

Oversold and overbought stocks

Interpretation of this is difficult and shd be done in the context of the prevailing trend.

Overbought means great strength. It does NOT mean stock will correct immediately. It is normal for a stock to remain overbought for considerable periods of time.

Oversold means great weakness. It does NOT mean stock will rally immediately. It is normal for a stock to remain oversold for considerable periods of time.

In an uptrend, oversold stocks present a good buying opportunity near supports (buy on declines). In a downtrend, one shd exit overbought stocks (sell on rallies).

Intraday support and resistance levels

This is for daytraders only and can be unreliable due to freak trades.

• Pivot point = P = (H + L + C)/3
• First area of resistance = R1 = 2P - L
• First area of support = S1 = 2P - H
• Second area of resistance = R2 = P + (R1-S1)
• Second area of support = S2 = P - (R1-S1)

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