I have tried to learn all the basic as i can to help me get started in the stock market. Yet, i was not able to identify the trends and their reversals. I applied all that i have learnt but the market seems to behave opposite most of the time. I think it’s just random.
I traded ambuja cement yesterday and made a loss. though not much (Rs. 100, as i am just testing the waters being new to the market), as i had placed a stoploss.
I shorted the stock in the region marked with arrow as shown in the img. My thinking was the the uptrend is over, and there’s a resistance just above the end of the market. Assuming most of the traders are intraday traders i thought after dwelling in the region for sometime, it’s going to fall. So i shorted. The stock also appears to be oversold in the RSI. But to my surprise the stock rose breaking the resistance and then dwelled again.
I don’t know if i have understood the market correctly or not. What would you have done if you were to trade this stock where i did?
if you are starting, i would suggest you to analyse nifty, only stocks with highest market cap,
stocks shows more movement towards news coming regularly and some are operator driven which can be manipulated.
strongest stocks and nifty can be good choice to improve your skill
after getting command over them you can try other stocks too.
I don’t know if it’s what i am assuming is right, but just before i shorted, i checked to see if there’s any news about ambuja cements. And there was none, so i assumed that it’s just a random move on which traders tried to hop on, and those are mostly day traders.
about the first question, basically the decreased momentum of the stock when there’s no news to account for the upward moment, and presence of resistance. I shorted based on these things. but clearly i was wrong. so that’s where i am confused about, where i went wrong?
Let me address your main question about belief in Technical Analysis.
My experience is that Technical Analysis is more like Behavioural Finance than hard Science. In other words, it is a study of human behaviour in the context of money and not some set of rules that can be blindly followed. Every concept worth learning from Technical Analysis ( Support, Resistance, common patterns etc.) is rooted people’s attitudes and emotions with respect to price movements.
Please try to connect every Technical concept to common sense & human behaviour and stay away from excessively convoluted formulas that can not be explained clearly (and were just created to sell books/softwares). For example, if I ask you why a certain RSI level or its combination with Stochastic/MACD would mean that the stock is ready to go down, will you have a logical answer? If not, then you are probably wandering in the voodoo-land.
If you are looking for magic formula or derivations in Technical Analysis, then you will be disappointed. At the end of the day, you are trading with/against people so better to learn how they behave in the world of stock market. I recommend reading some good books like Technical Analysis by Edward Magee or the one by John Murphy.
Yes! I started reading murphy’s “technical analysis for the financial markets” after i completed the zerodha’s guide, to understand the market. I loved his explanations, which were pretty straight forward.
Problem was that , it seems that you are not using Hourly chart and using only 15mn chart , the level that you have marked on 15 mn chart was not a over bought level on RSI on Hourly chart , It reached overbought level only after 3 pm , ( stoch crossover happened after 2.15pm) that was the time to short, or on next trading day , at opening
I don’t follow deep technical analysis. I believe indicators are LAGGARD.
But viewing your entry point, atleast u should have let the candle break the previous yellow candle half mark, if not its LOW.
U entered at DOJI, thinking it as a sign of trend reversal. You should have waited for the succeeding candle after doji to first show weakness by breaching atleast half way mark of preceding long yellow candle.
If the price was showing resistance to go further up, then it was also showing good support at levels where you shorted.
Was just going through your tech analysis of the chart,some pts for recommendations.
First always trade the trend .
Second See the bigger picture. (Larger time frames)
Third rsi importance increase with time frame and viceversa.( Rsi overbrought 80 in 5 min may be bullish 50 in 30 min timeframe.)
Fourth wait for confirmation always at support and resistance levels.
Well, as much as it’s possible of course, other than that of course it’s worth critisizing many things, but criticize wisely, in order to remove any contradictions and analyse in a healthy way, after looking at technical analysis.
