Stocks on Breakout

Stocks on Breakout after trading on 8th 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
BALKRISIND	790.85	6.96%	Hold SL 726	708	Hold SL 726	Hold SL 621	726	760	699	654	81	77	22
BANKBEES	1080.00	5.47%	Hold SL 1015	981	Hold SL 1001	Hold SL 927	1015	1040	995	955	84	72	21
GLAXO	1085.15	4.31%	Buy SL 1021	1085	Buy SL 990	Hold SL 969	990	1057	1042	1033	80	61	21
HDIL	1208.65	6.34%	Hold SL 1110	714	Hold SL 1110	Hold SL 800	1110	1199	1023	846	88	83	53
KOTARISUG	23.50	3.52%	Hold SL 22	20	Hold SL 20	Hold SL 15	21	23	20	15	83	76	46
MCDOWELL-N	2057.90	5.83%	Buy SL 1925	1998	Hold SL 1925	Hold SL 1815	1925	2038	1948	1933	72	60	11
POLARIS	130.15	6.72%	Buy SL 118	126	Hold SL 110	Hold SL 110	110	130	123	115	74	65	18
REIAGRO	982.30	4.71%	Hold SL 876	740	Hold SL 876	Hold SL 679	876	964	786	786	88	79	36

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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