Technical analyst use quite a few tools to arrive at a potential turning point in price. By turning points we refer to support / resistance where price turns around. The tools include Fibonacci Retracement, trendlines, trend channels, moving average and harmonic patterns based on Fibonacci ratios. Then, there is more esoteric tools including Gann Angles and Elliott Wave. But, the key question is does the price turn because there is a trendline or Fibonacci retracement or completion of a harmonic pattern? Or, is there something more logical? How do we identify such high probability turn areas?
Let me have your views / thoughts / comments on this subject. Please feel free to post your thoughts in the “Comments” section below or mail it to me with your charts. We will take this up for discussion later.
Let’s take the case of Jain Irrigation for our study. Direct your attention to the daily chart featured below.
If you notice, price hit a high of Rs.133.40 on July 8 and fell subsequently to Rs.83.40 on August 13. If you notice, the fall was arrested at the 61.8% retracement of the prior rally. We would love to hear your thoughts on why the slide was halted at this level? We are bullish on this stock and expect a rally to Rs.125-130 to begin with. This view would be invalidated if the price falls below the recent low of Rs.83.40. Now, do not send us a message that the risk is too high etc.
We are not trying to share a trading idea via this post. This is meant to be an educational exercise. Post your comments about why price turns? We will take it up for discussion after a week or so.
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Yes, it has found support @ the 61.8% retracement which incidentally is also the top it made in Jan 2013 so a classical example of earlier resistance becoming support.
The so called tools were made by human. Price is not moving as per the tools. But, Market is behaving based upon the human behaviour. Earlier turning points are watched by three types of traders. One who had already entered and making profit. The another one who exited already and cursing themselves. The third one who were sitting side and annoyed. All the three types of traders are waiting for an another opportunity to enter / exit at the turning point. Human behaviour is repetitive and remembers these levels to make use of it. Hence, those previous turning points are more important. The tools are helpful to identify those turning points, levels, zones. When we are using these tools for identifying the levels, zones, the price has to confirm that the previous zones are treated currently also and acting support / resistance. Otherwise, that price action is called change of polarise.
This price zone 85~92 is acting base zone right from 2007. And price had acted as support / resistance zone and some times acted as change of polarise also. To confirm the tools are helping.
To identify such turning zones one can use the previous price support / resistance zone, and to confirm the same, can use the said tools.
After 61.8% retracement of previous high it should now start the journey of EW 5. It won’t be a straightforward journey but with fractals involved in it. At the minimum it should takeout the previous high according to me. But personally I like to identify stocks which is beginning it’s journey of EW3. I guess stocks like Nucleus Software, Ahmednagar Forging, Force Motors, Granules India is in it’s EW3 phase.
It found support at previous price congestion area and turned because of that .
Yes, it has found support @ the 61.8% retracement which incidentally is also the top it made in Jan 2013 so a classical example of earlier resistance becoming support.
The so called tools were made by human. Price is not moving as per the tools. But, Market is behaving based upon the human behaviour. Earlier turning points are watched by three types of traders. One who had already entered and making profit. The another one who exited already and cursing themselves. The third one who were sitting side and annoyed. All the three types of traders are waiting for an another opportunity to enter / exit at the turning point. Human behaviour is repetitive and remembers these levels to make use of it. Hence, those previous turning points are more important. The tools are helpful to identify those turning points, levels, zones. When we are using these tools for identifying the levels, zones, the price has to confirm that the previous zones are treated currently also and acting support / resistance. Otherwise, that price action is called change of polarise.
This price zone 85~92 is acting base zone right from 2007. And price had acted as support / resistance zone and some times acted as change of polarise also. To confirm the tools are helping.
To identify such turning zones one can use the previous price support / resistance zone, and to confirm the same, can use the said tools.
It found support at previous price congestion area and turned because of that .
After 61.8% retracement of previous high it should now start the journey of EW 5. It won’t be a straightforward journey but with fractals involved in it. At the minimum it should takeout the previous high according to me. But personally I like to identify stocks which is beginning it’s journey of EW3. I guess stocks like Nucleus Software, Ahmednagar Forging, Force Motors, Granules India is in it’s EW3 phase.