Teach a Man how to fish

Day Trader :He trades intraday.He buy and sells,shorts and covers within that
day.He
closes all positions by the end of the day.He takes no risks overnight.He basically
uses the
5 and 10 min charts for his trading with the 15min and the 60 min charts as
backdrop.
Swing Trader :A trader who trades the daily charts,fine tuning his entry using the
60min
charts.His trades last 2-5 days.
Position Trader :Nearly equivalent to investing,but nearly can be an important
distinction.He trades the weekly charts which means he holds trades from weeks
to
months.
UPTREND,DOWNTREND,SIDEWAYS TREND
UPTREND :An uptrend on a chart of any time frame is nothing but a series of
higher highs
and higher lows.
DOWNTREND:A downtrend on a chart of any time frame is nothing but a series of
lower
highs and lower lows.
SIDEWAYS TREND :A sideways trend is nothing but relatively equal highs and
lows.
TRENDLINES :
An UPTRENDLINE is nothing but a line that connects two or more LOWS,in a chart
in an
uptrend.The more points that meet up to this line,the stronger this line is.This
trendline acts
as support,as prices blast off,then pullback to this line before taking off
again.Therefore,in
an UPTRENDLINE,the 2nd point is always higher than the 1st point,and the 3rd
higher than
the 2nd.
A DOWNTRENDLINE is nothing but a line that connects two or more highs in a
downtrend.Once again,the more number of points that connect,the stronger the
line is.This
downtrendline acts as resistance.Each down move is followed by a pullback rally
to this
trendline which acts as resistance only to be met with more selling and lower
prices.In
DOWNTRENDLINE,the 2nd point is always lower than the 1st,and the 3rd lower
than the
2nd. A break in the UPTRENDLINE signals a possible change in trend.So too with
the break in
the DOWNTRENDLINE.
MAJOR ,INTERMEDIATE and NEAR TERM TRENDS.

Simply put,major trends last for greater than 6 months.Intermediate trends last
between 3
weeks to 6 months.Near term trends last from a few days to 3weeks.
From a charts perspective,the major trend is seen by looking at the monthly
charts.The
intermediate trend from the weekly charts,and the near term trend from the
daily charts.
What is seen as a downtrend on the daily charts may be nothing but a pullback
on the
weekly charts,and is not even evident on the monthly charts.What is seen as a
downtrend on
the weekly charts and a catatrophic crash on the daily may be nothing but a
monthly
pullback.
It is important as traders to know these different time frames and trade
accordingly.The
practical aspects of profitting from this knowledge,we can come to later.
For now,we don't know much......but a step at a time for now.We have our
charts.All we
know is that in any chart of any time frame,we can have only 3 possibilities in
direction,and

only 3 possibilities in categorisation.The eye can only see what the brain
knows........these
early days are to be spent in teaching the brain so that the eye sees the
pattern from a
mile.Pour over your charts and train yourself in detecting which trend the
stock is in
currently.It is a first step but an important first step.
SUPPORT AND RESISTANCE
SUPPORT is that area where buying interest exceeds selling interest,and
therefore a
previous decline gets halted at this area and turns back up again.It is marked by
drawing a horizontal line connecting two or more bottoms.
RESISTANCE is that area where selling pressure exceeds buying interest.It is an
area
where previous rallies get halted and turn down again.It is marked by drawing a
horizontal line connecting two or more tops. Support and Resistance are not
absolute points.They are areas. When Support breaks to the downside,we call
that a Down Side Breakout or
Breakdown.When Resistance breaks to the upside,we call that a Breakout.
When we get a breakdown below support,that area of support now becomes an
area of
resistance.Have a look at the JNPR charts below.That area of support broke down
and
that same area is now acting as Resistance. A breakout above Resistance,and
that same area of resistance now becomes a new Support. These are important
areas for every trader,either as an entry point or an area to take profits.
We had discussed regarding trendlines in the beginning. Basically same
principles
applied here,the only difference being these are sloping lines as opposed to the

horizontal lines discussed yesterday,but same principles.

At that time we had discussed about Uptrendlines and Downtrendlines.The
Uptrendline
acts as Support each time prices decline and come towards it.So too the
downtrendlines
act as resistance as prices rally to the trendlines and fall from it.Example in the
attachment below of DELL.Prices hit the downtrendline and resume its
decline.Therefore the dntrendline acts as Resistance.
So too with an uptrend..........
And as was discussed regarding the breakout over resistance and breakdown
below
support,the same applies here.We have an uptrendline,we have prices taking
support at
this trendline.And as the trendline breaks,we say that the uptrend is in question.
A break in an Uptrendline is not a Downtrend.........it merely tells us that this
uptrend
that we have been trading and making profits from is now in question.So too with
the
Downtrendline.A breakout above the downtrendline does not mean that the stock
is
now in an uptrend,it merely means that the downtrend is now in question.
To assess uptrends and downtrends,we are back to pivot highs and pivot lows as
has
been discussed.
Summary
Okay,so far we ,as beginners in the market interested in trading trends,...we
have taken
that first step.So far,we know nothing much.We do not know of any complicated
indicator,or any stylish chart pattern.We have no idea of Elliot's,or Gann,or
Fibonacci.We know only that :
=The market moves in trends.We have an uptrend,downtrend and sideways
trend.
=That there are different categories to Trends.We call it Major(when we are
talking

long term and of the monthly charts),Intermediate(off the weekly),and

near term or
short term(off the daily).
=We know that a series of higher highs and lows is termed a rally.That a
series of lower
lows and highs is termed a decline,that a series of higher pivot lows and
highs is called
an Uptrend,and a series of lower pivot highs is called a downtrend.
=And about Supports,Resistances and Trendlines.
TRADING with TRENDS,PIVOTS and SUPP/RES
BUYING DECLINES &SHORTING RALLIES :
Let's make this as simple as we can.......We know what an uptrend is,a series of
higher
pivot highs and lows.Vice versa in a dntrend.Now,for some rules........we only BUY
in

an uptrend.So long the uptrend is held,we do NOT think of shorting.Yes,one could

always do a sniper attack on an intraday basis or at max,on an overnight
basis.That is
one's decision to make.
The most often repeated line "The trend is your Friend",means we never cross
the
trend.The trend is UP,therefore we buy declines.When the trend is DOWN,we
short
rallies.If you can't short for whatever reason,then a downtrend is reason to stay
out till
we get a change in trend to the Upside.
Therefore,it is very important to be able to detect the change in trends in the
first
place.Therefore,our minds must work like this.....
Look at the charts.Take the weekly charts.Why,the weekly? Because we are
looking
at intermediate to long term.Are we making higher pivot highs and lows?If the
answer
is YES,then we are in an UPTREND.And in an UPTREND,we think "BUY"
DECLINES".That's it!!We let people play God ,but we stick to our plan.
==If the answer is NO,the previous pivot low just got cracked to the
downside,we are
thinking of getting out of our longs in that particular stock or index.Now we are
thinking, "SHORT RALLIES"
In a downtrend,every rally is a shorting opportunity.In an Uptrend,every decline is
a
buying opportunity.
The market changes from Uptrends to Downtrends,again and again........we are
not here
to predict tops and bottoms.We are not here to anticipate anything.We are here
to
follow the trend.And as uptrends change to the down,we change from BUYING
DECLINES to SHORTING RALLIES.
Forgive me for repeating this many times.......but in trading,basics is everything
and the
rest just icing on the cake.The rest of what we will learn in future increase our
odds.......but these basics are the Gospel Truth of Trading.
TRADING using TRENDS,PIVOTS,SUPP/RES
THE BUY SET-UP
Okay,now that we know what an Uptrend is,and that come what may,we will
stick to
our rules,which is:First detect the change in trend which requires a higher pivot
high
and low,then once we are in an uptrend,we BUY DECLINES.
Now comes our next point of worry........yes we got our uptrend,and now the
declines.But when do we buy?Do we buy on the first day?Is there anything else
we are
looking for before we come to that decision?
Have a look at the chart of EDUCOMP below.We have a decline after that big

bar.Bearish candle No 1,we do nothing.We wait.Bearish candle No 2,we do

nothing.Bearish candle no 3,things looking more and more juicy.Then we get that
bullish candle.That first bullish candle is still making lower highs and lows,but is
giving us an indication that bulls are gaining in strength.Now we are ready to
strike,and
yet,we do not move.We now look to buy,we do not buy as yet.We buy when the
next
candle takes out the previous candle's highs.
We are in the trade.Our stop is the low of that pivot ie 254-2(to give it some
room)=252
In EDUCOMP,we are getting our next buy set up as of now.We have three bearish
candles and then that bullish candle so far reflecting a change in sentiment and
therefore a possible change in direction.And like before,a buy set up means we
look to
buy,we do not buy as yet.When the next candle takes out this week's high,then
the trade
is triggerred.
The Uptrendlines therefore act as Support,once cracked to the downside,notice
how the
Downtrendlines act as resistance.
In what way does this knowledge help us in our trading?We detect a change in
downtrend,and we enter the stock,once again using all that we have learnt so
far.The
trendlines allow us to stay in that trade as long as the trendlines hold.
The moment we get a close below the Uptrendline,we are out.If you are looking
to
short,wait for a feeble rally towards the former uptrendline.That's an area to
short.
Vice versa for the downtrendlines.......Have a look at the 2nd chart of
POLYPLEX,self
explanatory.
Positive Divergence of Price wrt MACD
A positive divergence occurs when MACD begins to advance and the security is
still in a
downtrend and makes a lower reaction low. MACD can either form as a series of
higher lows
or a second low that is higher than the previous low. Positive divergences are
probably the
least common of the three signals, but are usually the most reliable and lead to
the biggest
moves.
Chart Patterns
Again and again,certain patterns seem to develop on our charts.And we realise
that the
probability of reversal or continuation is greater with certain patterns.Not saying
that
the reverse cannot take place.Anything is possible and therefore we have our
stops...........but these patterns usually either reverse or continue trends.Knowing
abt
chart patterns is one more weapon in our arsenal.

Two types:
a)Reversal Patterns:These patterns reverse trends.Eg.Double Top,Double
Teach A Man To FishBy Mr. Saint
www.traderji.com 35
Bottom,Head and Shoulders,Cup n Handle.
b)Continuation patterns:These indicate a possble contination in trends.
Eg.Triangles,Bull flag,Bear flag,Pennant

Patterns

Summary
We have so far,as beginners to charts,looked into what a trend is.Are we in an
Uptrend,Downtrend or Sideways Trend?We have looked into some
terminologies..........lower highs and lows are called Declines.Lower highs and
lows by
themselves do not constitute a downtrend.Lower pivot highs and lows.we call it a
downtrend.Higher highs and lows make up a rally.Higher pivot highs and lows
make up
an Uptrend.
We have seen some basics on Trendlines,Supports and Resistance.We realise that
a
break in an Uptrendline does not mean we are in a downtrend.A break in that
Uptrendline merely means that the ongoing uptrend is in question.Breaking a
previous
pivot low,and then we say we are in a downtrend.
We have seen the basic Buy Setup,which is nothing so far.There are a few things
to add
to that as we go ahead.
Now we have started Chart Patterns............now the question that may arise is :
Do we
really need to know this at all?Can't we make beautiful profits even without
knowing
zilch on Chart Patterns?Well,the answer is a Yes and a No on both.
Our motive as traders trading the trend is to make profits as long as that trend is
on,and
to detect a change in trend and exit when that is seen.We therefore need not
have the art
of prediction.We identify a change in trend,latch on to that stk with a good
entry,and
hold till that trend changes.We therefore follow trends,and not predict them.
So,although you have many books that will tell you on what a first target is(no
harm in
getting out as prescribed),but the trader trading trends stays in as long as the
trend is up
unless something else is the bother.
Most importantly abt knowing Chart Patterns,it gives one an idea as to what the
general
population of tech guys are thinking.We have an ascending triangle.So everyone
is
expecting a breakout.Well,so are we.But if we get a breakdown,we take our stops
and
reverse strategy fast leaving those who don't do it in a Pray-Wish-Hope Mode and
finally selling off at much lower prices fuelling the move down further putting a
huge
smile on our faces.
So know the patterns,so that we can all see what everyone is looking at.So that
we can
trade along with everyone else,or against them.But your basics are the most
important.Trade the Trend and out when previous Pivots crack

Answer to some query

When you get out of a trade is entirely up to you.......the fact that this stock put
in an
accelerated up move,take out your trendlines and draw it.Why?Because we don't
want to
give back too much when the pullback starts.
We therefore already have a bearish divergences on the RSI and TRIX.What do
we
do?We get cautious,we get our hands ready on the trigger,but we DO NOT do
anything.We wait,and wait.....till we get a break in trendline.Then,we are out.We
are
always READY to pull the trigger,the Bearish divergences tellus GET SET,and the
trendline break tells us GO!!
Now,if your mindset is very long term,and these pullbacks mean nothing to
you,then take
some profits off the table in a trendline break.But hold the rest till we get a break
in the
previous pivot low on the weekly charts ie 720.If it does not break 720,the
uptrend is still
on and you will see higher highs and lows.