Pay Attention To Price Action PDF

Pay Attention To BECOME A PRO MONEY WILL FLOW Price Action FOCUS = SUCCESS! PAPA by Avadhut Sathe 2  PAPA INDEX Introduction……………………………………………………………………………………………………………..6 Doji at Top/Bottom…...

Pay Attention To BECOME A PRO MONEY WILL FLOW Price Action FOCUS = SUCCESS! PAPA by Avadhut Sathe 2  PAPA INDEX Introduction……………………………………………………………………………………………………………..6 Doji at Top/Bottom………………………………………………………………………………………………….12 Engulfing Patterns…………………………………………………………………………………………………..15 Hammer at Lows of Bullish Engulf…………………………………………………………………………..18 High-wave Candle…………………………………………………………………………………………………..19 Shadows……………..………..………………………………………………………………………………………..20 Accumulation..….…………………………………………………………………………………………………...21 Distribution…………………………………………………………………………………………………………….22 Counter Attacks……………………………….……………………………………………………………………..23 Sandwich Pattern………………………………………………………………………………..………………...26 Gaps……………………………………………………………………………………………………..……………….27 3 INDEX Importance of 3 Candlestick Patterns…………………………………………………..………………..29 Identifying Slowdown in Momentum…………………………………………………………………….34 Mother Candle……………………………………………………………………………………………………...36 HA for Trailing SL…………………………………………………………………………………………………...38 Using Candles with EMAs and Bollinger Bands……………………………………………………...40 Timing the Market………………………..………………………………………………………………….……43 BB with 3 Std. Deviation………..……………………………………………………………………..……….46 Fake Breakout/Breakdown……………………………………………………………………………………..48 Genuine Breakout/Breakdown……………………………………………………………………………….49 Adapting To Market Conditions………………………………………………………………………………50 4 Do you Qualify for this workshop !? Markets rise when i. There are more buyers than sellers ii. Buyers are more aggressive than sellers iii. Sellers are afraid and demand a premium iv. More shares or contracts are bought than sold a. i and ii b. ii and iii c. ii and iv d. iii and iv Find out - when Markets Fall!? 5 Introduction TA is Simple: Why Complicate things? Candlesticks do speak a lot.…be a Good Listener! Market is a battle field between the Bulls and Bears. They try to intrude into each others territory and while doing so they print a picture. That’s what candles are all about. Candles shows who is dominating at that particular period. Its always about being with the dominating force in the market. So listen to the candlesticks very carefully.….they always tell you a STORY! 6 Candlesticks Make TA easy!  They help to minimize complications of decision making involving many parameters, as it focuses only on price action!  Even Fundamental Analysts could use it to time the entry and exits based on candlesticks and their view of the stock / market.  They help you identify the resistance and support areas.  They help to derive proper stop loss.  They help momentum traders to pause and enter at the right time.  They help swing traders to time entry and exits.  They help to “Time” the major tops and bottoms! 7 Candlestick Pattern Japanese rice traders began using candlestick charts in 16th century. Body of each candle represents distance between opening and closing prices. The upper and lower tail (if exists) mark high and low for the day respectively White / Green Candle: If closing price is higher than opening price Black / Red Candle: If closing price is lower than opening price A candlestick represents data for specific period i.e. in daily chart it represents price action for the day and on a 30 minute intra-day chart it represents price action for that 30 minute period. Always ask yourself: “Why are you in the trade?” Answer lies in PA: PRICE ACTION 8 Bulls vs. Bears 9 Understanding Resistance & Support Candles that help you arrive at support and resistances: Hammers, Shooting star, Candles with Long Shadows, Gravestone Doji, Long Legged Doji 10 Support / Resistance in the context of candles Which scenario is more bullish - Case I or II? and Why? Case I Case II Because long lower shadows are more stronger signals than smaller ones. 11 Doji: use to time the top / bottom Significant only at the end of the trend. Confirmation only after the following candle. One must ignore Dojis in the middle of the range. Significant Ignore Significant 12  Various scenarios Uptrend – top – correction – rally - doji at double top – confirmation candle  Dojis within flag: Ignore / do not pay attention Dojis within trend: Ignore / do not pay attention Infosys – Mar 07, 2014 confirmation Dojis in sideways flag – ignore Dojis within trend, no follow-up – ignore 13 Will you short after this Doji? Nifty 50: Mar 05, 2014 Doji Market approaching the major resistance. A Doji near the top. Will you short!? 14 Engulfing Patterns: Bullish Engulf - only when found near the bottom of the trend, ignore the rest. Bearish Engulf - only when found near the top of the trend, ignore the rest. Hence, preceding trend matters. Size of the body matters the most. When to ignore?  When they are not confirming potential reversal  Within a range or flag Bullish Engulf pattern at the top of a trend could turnout to be bearish, how? - Combine the two, its like a hanging man. 15 Classic Bearish Engulf Sun Pharma – Mar 03, 2014 Bearish engulfing outside candle confirming the resistance. Do you see 3 black crows in this chart? 16 Engulfing Patterns: Check The Context Nifty 50 – Daily chart Last Bearish Engulf, next day Nifty gaps up with an open above previous day’s (Red candle) open 17 Hammer near the lows of Bullish Engulf HDIL – Feb 2014 Also observe the shadow near the bottom 18 High-wave candle Long upper lower shadows on either side with small body. Market does not know what it wants to do, this is important information. Confused market….lost sense of direction. Shriram Transport Finance – Jan 02, 2014 Trend reversed after this High-wave candle 19 Shadows Upper Shadows : Indicate inability of Bulls to control the price action. Lower Shadows : Indicate inability of Bears to control the price action. HDIL – Top in 2014 Will you buy on these new highs? Are Bulls in control? Will you Buy at support trend line? 20 Accumulation at the Bottom It means that the particular asset is being accumulated or bought. Accumulation can be generally identified by a sideways action with many neutral candles at the bottom/support and no major follow-up on the downside. Reliance Industries: Daily chart early 2014 21 Distribution at the Top It means that the particular asset is being distributed/sold. In other words, players getting out of their existing investments. Distribution can be generally identified by a sideways action with many neutral candles at the top/resistance with no major follow-up on the upside. Mind Tree: Weekly chart early 2019 22 Bull Counter Attack Nifty 50 – Bull Counter Attack After counter attack, price finds support Bulls counter attacking successfully 23 Bear Counter Attack Nifty 50 – Bear Counter Attack After counter attack, price encounters resistance Bears counter attacking successfully 24 Identifying Counter Attacks Nifty 50 – Dec 2013 Bear Counter Attack After the attack, subsequent hammers confirm the major support and hence, the Stop Loss 25 Sandwich Pattern Sandwich pattern is a combination of Red-Green-Red-Green candles. The colour sequence is mostly alternate (Red v/s Green) and there is no limitation to number of candles too. Nifty 50 – Jul 08, 2010 26 Gaps In a technical chart, gap is an area from where the price has opened up or down from the previous day’s close with no trading occurring in between. They are found mainly on daily charts. They indicate major resistance / support levels and can be used to find targets. Significant Gaps :  Breakaway gaps - Usually found in 3rd wave. Use Elliot wave principles to identify breakaway gaps  When a major support / resistance is broken with the Gap 27 GAPs YES Bank – Jul 24, 2013 3rd wave gap Stock gapped down BELOW the previous support. This is a significant gap. Hence, short with SL above that gap. 28 Three Candlestick Patterns 3 candle patterns are more significant than 2 candles or a single one viz.  Morning / Evening stars  Three Black Crows  Three White Soldiers VOLUME Confirms the Price Action!!! 29 Evening Star Bank Nifty – July 08, 2019 Heavy Volume selling on Jul 08, 2019. Making it the perfect SELL candidate for traders, even in the Bull Market 30 Morning Star Nifty 50 – Aug 29, 2013 Morning Star with heavy volume buying at the bottom of a downtrend 31 Three Black Crows Sun Pharma – Mar 7 – 11, 2014 Three Black Crows High of the second or third candle becomes major resistance and hence, good level to short 32  Three White Soldiers Gap which was resistance will become support Also, 2nd Soldier will be major support 33  Identifying Slowdown in Momentum Many small body candles with tight higher high action YES Bank: 5/3/14 to 14/3/14 Intra-day Chart Could you spot the 3 black crows? 34 Mother Candle Reversal Mother candle broken down by the bearish can trigger a reversal sign: 35 Mother Candle Reversal Mother candle broken out by the bullish indicated a buy entry: 36 HA for Trailing SL HA helps you to be stay in the trade without any noise. Below example of a bullish trade shows how: 37 HA for Trailing SL Below shown is a shorting selling trade where SL is trailed using HA: 38 Using Candlesticks With Other Parameters EMAs: They provide natural support / resistances.  Use Hammers as buy signal on declines to EMA support levels.  Use shooting stars as sell signal on rallies to EMA resistance levels. Bollinger Bands  Shooting stars that fail to challenge the upper band confirm the resistance.  Hammers that fail to challenge the lower band confirm the support. 39 Hammer with EMAs In continuation patterns one may use Hammers for entry on correction near supporting EMAs. You should combine such entry signals with other parameters such as Oscillators, and Bollinger Bands. Bata Weekly Chart 40 Shooting Star with Bollinger Bands A shooting star that fails to challenge the upper band confirms resistance. You may take fresh short position. Will you sell this shooting star? Will you buy this hammer? 41 Timing the Market Why?  To reduce your risk and increase the reward! How?  Use double screens: Intra-day-Daily or Daily- Weekly combination  Potential Engulfing patterns  Potential Morning / Evening stars  Potential Fake breakdowns / breakouts 42 Timing the Entry! Tata Chemical – Nov 29, 2012 Enter based on the intra-day when price starts crossing the major hurdle 43  Timing the Entry! Visualize the chart using intra-day – daily combination Yes bank : Intra-day 30 min chart Yes bank : Daily chart Will you short after the Gravestone Doji? Will you buy when the Doji high is taken out? 44 Bollinger Band – 3 Std. Deviation In a bullish or bearish momentum trade, when a candle goes beyond the “BB with 3 std. deviation”, there are higher chances of a pull back. Candle going beyond the upper BB of “3 std. deviation” shows extreme excitement whereas candle going beyond the lower BB of “3 std. deviation” shows extreme panic, in market participants. BB with 3 Std. Deviation helps you: 1. To exit at a better price and 2. To not take an impulsive entry in a momentum trade 45 Bollinger Band – 3 Std. Deviation Below example shows how “BB with 3 Std. Deviation” helps understanding the possibility of a pull-back and thus, preventing impulsive entries: 46  Identifying Fake Breakdown Why?  Fresh trades with much better risk / reward.  They help derive new support. Fake breakdown confirmed by Morning Star and Bollinger Bands 47 Identifying Genuine breakouts / breakdowns Genuine breakouts/breakdowns usually have a SHAKEOUT just before the breakout/breakdown. 48 Adapting To Market Conditions Never take an anticipatory trade! Have momentum on your side. Always trade in the direction of major trend. Use Moving Averages and MACD to find main trend. Entry:  Buy oversold condition in an up-trend on bullish signal in PA  Short Sell overbought condition in a down-trend on sell signal in PA Exit:  Book profits on bullish signal in downtrend (for Bears holding short position)  Book profits on bearish signal in uptrend (for Bulls holding long position) Follow what market is doing; not what you want market to do!  If it doesn’t act as forecasted, do not try to justify your decision. Exit ASAP and enter on confirmation only. Always check the preceding trend while considering a signal from the candlestick patterns. Check the overall context! 49 Head & Shoulder Pattern This is a well know reversal pattern. However, it’s important to wait for confirmation before entering the trade. Tata Communication : March 2014 Will you short here in anticipation of a H&S breakdown? 50 Following The Trend Reliance Communications - Downtrend Identify Entry-Exit Levels. What is your preferred Hat? 51 Overall Context Reliance Communications - Downtrend Which Hammer is more bullish and why? Will you buy based on these hammers? 52 Never Compromise: Money Management Rules A perfect candle doesn’t necessarily mean a good trade if it doesn’t fit into proper risk/reward of 1:3. risk reward Shorting after 3 black crows or on pullback to high of 2nd red candle? Weigh the Risk/Reward in both cases! 53  THANK YOU!!! Learn to Listen Learn to Ignore Keep it Simple Reduce your Risks Outsmart Competition Follow the market action (not your mind)! Practice the 3-Ms for success!!! 54  Our Motto at ALL-FOR-ONE ONE-FOR-ALL DEVELOPING CHARACTER THAT DESERVES SUCCESS! www.avadhutsathe.com