Stocks on Breakout

Stocks on Breakout after trading on 30th 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	14d
BLKASHYAP	1846.65	4.20%				Buy > 2080	1725	1845	1836	1844	63	52	22
CMC	878.00	3.81%				Buy > 1470	787	874	1078	1096	47	38	38
GEOINFO	188.45	10.14%				Buy > 282	135	175	195	204	66	48	19
IMPEXFERRO	21.50	4.62%				Buy > 34	18	21	24	24	55	44	22
INDOCO	274.05	3.73%				Buy > 365	254	269	292	298	57	43	27
KRBL	135.35	5.00%	Hold SL 124	135	Buy SL 111	Hold SL 109	109	133	146	127	58	50	34
MANGTIMBER	29.30	3.17%				Buy > 43	25	29	33	35	49	37	25
MUKTAARTS	163.85	3.90%				Buy > 242	141	164	188	189	47	41	30
RAYMOND	364.25	5.47%				Buy > 471	280	360	383	401	60	47	33
SKUMARSYNF	134.15	5.96%				Buy > 171	90	130	143	150	56	46	33
WSI	111.35	5.00%				Buy > 146	90	107	115	109	62	51	21

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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