Traders first priority is to take a trade basis the trend. Trend in simple terms means, following the direction of the Market.
Which also means, being with the forces who create the direction, who drive the prices, who move the market, SmartMoney.
Traders Small or Big who buy or sell in large quantities and have the money power to play with prices by buying or selling at important price points.
They decide if the Price is Undervalued for a Buying Opportunity or Over Valued for Selling Opportunity.
They have the power to hold positions and keep rolling it over for Years or Decades if they decide to do.
Hence, when we see Support or Resistance breaking, we see BIG movement in Prices, as it triggers their SL.
1. Short Term Trend
2. Medium Term Trend
3. Long Term Trend.
Short Term is upto 20 Days
Medium Term is upto 100 Days
Long Term is above 200 Days.
One can also plot the same on Daily, Weekly and Monthly time frame.
Hence as a retail its important to know “ What Trend Are We In - Basis that you should plan your trade."
3. No Trend / RangeBound / Flat
Charts only speak the language of Direction - Hence EYES are Weapons of a Trader. See What It Tells You and Act.
Uptrend does not mean selling will not come or Downtrend does not mean rally will not come.
After all Trading is about Demand and Supply - Power to Pull or Push.
Next question which will come to ones mind is HOW DO I FIND the TREND ?
There are 3 ways in which one can find a Trend:
1. Simple M A
2. Exponential M A
3. Weighted M A
I use #EMA
We Never Sell in an Uptrend, We wait for the Dip to Buy.
We Never Buy in a DownTrend, We wait for the Rally to Sell.
We avoid taking trades in Flat or No Trend Markets.
Traders who find Trend with in a Trend even on 1 minute charts are known as Price Action Traders.
Remember this difference, it will save a lot of Money.
The exponential moving average (EMA) is a weighted moving average (WMA) that gives more weighting, or importance, to recent price data than the simple moving average (SMA) does. The EMA responds more quickly to recent price changes than the SMA.
Term: Cross Over and Cross Down to be remembered.
I decide which one to use when and we will cover the same in below tweets.
I use all of the above EMA, as even a Day trader should know the over all trend before taking a trade on shorter time frames.
3, 7, 9, 20, 50, 100, 200.
Please remember, EMA Trading is like playing “Snake and Ladder Board Game” - A Player moves ahead if he jumps the Snake / get a ladder and Comes Down If the Snake Bites.
Even EMA Moves in the similar direction.
1. Short Time Frame EMA has to Cross Over Long Time EMA - 3 Cross Over 7 or 20 Cross Over 50 Cross Over 200 - UPTREND.
2. Short Time Frame EMA Cross Down Long Time Frame EMA - 3 Cross Down 7, 20 Cross Down 50 , 50 Cross Down 200 - Down Trend.
Golden Cross: This happens when 50 Day EMA Crosses Over 200 Day EMA post a Down Trend
Death Cross : This happens when 50 Day EMA Crosses Down 200 Day EMA Post an Up Trend.
This is used during the Long Term Trend Identification.
Never forget this Rule.
Here we End Trend Identification Subject, Now we will cover Range Identification post which we will look at Entry, SL and Exit using Charts.
How to Find Key Levels to see the Actions of SMARTMONEY ?
Please Remember, SmartMoney Just doesnt BUY, they Do Sell. They Sell at a Particular level and come to Cover or Fresh Buy only at a Particular Price Point and Not before That.
Any Area where there is Consolidation for couple of days - Its an area where Buyer and Sellers Fight in a Range. Check the Eclipse areas in the Chart. When Price Stays in a Tight range, it creates a Key Price Point for future.
A Strong resistance is followed by a BIGRed candle, every time Bulls try to Break that during a rally & a Strong Support is where the Price dips below the level, but Close is above the mark and followed by Big Green candle
This section we will discuss on how should One use EMA and what are the rules which governs EMA movement.
The Universal rule for EMA usage for Day or Short Term Traders is :
3 , 7, 9 and 20
Application can be On any time frame : 1, 3, 5, 10, 15, 30, 60
During high VIX I use 50, 100 and 200 as the swings could be deep and during Low VIX I restrict it to 3,7,9 and 20 EMA.
Uptrend - 3 is Support and Down Trend 3 Becomes Resistance.
This helps me in Identifying the Max Upside and DownSide in a day
As mentioned earlier, #EMA follow the Snake and Ladder Game Theory when in practice.
Every Time 3 EMA does a Cross Over of 7 EMA on a Particular Time Frame, the Current Time Frame 7 Becomes a Strong Support and Resistance comes at 3 EMA of Next Time Frame.
15 Mins 3 Cross over 7 = 30 Mins 3 Cross Down of 7.
30 Mins 3 Cross Over of 7 = 60 Mins 3 Cross Down Over 7
60 Mins 3 Cross Over 7 = Daily 3 Cross Down 7 EMA.
Daily 3 Cross over 7 = Weekly 3 Cross Down 7
Weekly 3 Cross over 7 = Monthly 3 Cross Down 7
In Bullish markets they will make HH and HL and in Bearish Markets they will make LL and LH.
Logic: 3 Cross over 7 hits the next time frames 3 and returns
3 WEMA Cross Over 7 WEMA is Medium Term Uptrend.
3 MEMA Cross Over 7 MEMA is Long Term Uptrend.
Reverse Holds Good When 3 Cross Down 7 on Daily, Weekly and Monthly.
So if you start using 20, 50 EMA - Then you get to know the Support.
EMA follows certain rules for Uptrend and DownTrend Confirmations.
1. It always follows a sequence of Cross Over or Cross Down.
In an Uptrend Market Fast Moving Avg (Short time frame) gives Push Up to Prices and Lower Time Frame acts as strong support.
3 Is Fast 7 is Slow
7 Is Fast - 9 is Slow
9 Is Fast - 20 is Slow
20 Is Fast - 50 is Slow
50 Is Fast - 100 is Slow
100 Is Fast - 200 is Slow
You get this.
In Sep when Nifty Fell, from that time 50 EMA While Line is Above acting as resistance and Before Sep 50 EMA While Line was Support - below the Candles.
Simple 3 and 7 EMA. (Red and Yellow)
Monthly 3 Cross Over 7
Weekly 3 Cross Over 7 &
Daily 3 Cross Down 7
So on a daily chart it is Bearish
Weekly Its Still Bullish
Monthly Its Highly Bullish
We always take trades which are best trades. Where we Know Our Entry, Our Exit and Our SL.
If a Stock is 3 Cross Over 7 On Monthly or Weekly then Its in Uptrend and the fall is Created only to get the orders filled.
A Stock will be Considered Bullish when 3 MEMA is Cross Over 7 MEMA.
You have to look for Opportunity to Buy the Stock when it comes down on Daily or Weekly.
Entry : When 30 Mins Chart Shows - 3 Cross Over 7 - Target is Exit at 60 Mins 3 EMA and SL is Close below Lowest 7 EMA on 15 or 10 or 5.
Remember: Price can go to any extent, the Close is KEY.
Operator to shake out weal hands, will take the price down in a uptrend.
Same applies in a downtrend but in reverse fashion.
High would be 3 / 7 EMA of the Highest time frame and Sell off will come.
To construct a moving average ribbon, simply plot a large number of moving averages of varying time period lengths on a price chart at the same time. Eg: 3, 7, 9, 20 and 50.
When the ribbon folds – all of the moving averages converge into one close point on the chart – trend strength is likely weakening and possibly pointing to a reversal.
The opposite is true if the moving averages are fanning and moving apart from each other, suggesting that prices are ranging and that a trend is strong or strengthening.
For a DownTrend to Confirm that its a Long Term Bearish Market 3 Cross Down Has to happen on All.
One Doesn’t wear an Underwear on Pants
Retail being Short Term Traders, advise to use 9 or 20 EMA as SL for all your Trades.
Entry is 3 Cross Over 7.
Exit is Next Time Frames 3 EMA.
Few use Touch and Go SL. Few Use Closing Basis Stop Loss.
Remember Price can go to any extent, the CLOSE is Key. Hence take a call on SL basis your Profile and Bank Account Size.
1. Screen as many charts as you can.
2. Look at all the time frames and record the price.
3. Monitor on a daily Chart where Support comes and Where Resistance comes for Stocks which are in Uptrend and Stocks which are in DownTrend.
4. Keep a record of all stocks.
6. Carry paper trades basis your understanding and record if you got it right or wrong.
7. Position size should always be fixed.
8. Follow a standard position size if you are Index Trader.
9. Do not apply this in OPTIONS.
10. Good Luck.
Will Open a New Tweet for Comments.
Never Trade Against the Trend - As you will never know where the Buyer / Seller will come and take you for a ride.
Be with the Force Always !!!