Category: Trading Strategy

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How to trade using Inside Gap Trading Strategy?

March 19, 2022

How to trade using Inside Gap Trading Strategy?

There are 2 types of inside gaps:
• Price gaps up in downtrend
• Price gaps down in uptrend
For our example in this episode, let’s take price gapping up in a downtrend.

Different parts of Inside Gap Trading Strategy

There are three major parts which forms this pattern.
1. Prior downtrend – The market should already be in an downtrend, price should have dropped big the previous day
2. Gap up– Price gaps up the next day well above the low and closing price of the previous day.
3. Pullback – this is the critical point of this strategy and has 2 outcomes.
a. If the stock gaps up and then sell off (which is pullback to the downside) and remains below the high of the day, it’s possible that the stock has reached its high of the day.
b. However, if a stock gaps up and pulls back to the downside, but then rallies to break above its opening price, the up move is probably not a trap and the stock should make new intraday highs – this is no trade zone for us

How to trade using Exhaustion Gap Trading Strategy?

February 19, 2022

How to trade using Exhaustion Gap Trading Strategy?

This price action step up is usually designed to trap you into a potentially weak market and into a poor trade, catching stop-losses on the long side, and generally panicking traders to do the wrong thing.

Different parts of Exhaustion Gap Trading Strategy
The Exhaustion gap means a gap formation at the end of an uptrend. Consider a stock is in uptrend for a long time and it is in the end of an uptrend, price gap ups.
When do you mean by end of uptrend? Simple – Price gaps up into/near a supply zone. This kind of gap is called Exhaustion gap. This is a sign of weak market. This type of gaps are created to trap traders.

There are four major parts which forms this pattern.
1. Prior uptrend – The market was on uptrend for at least last 2-3 days. Market was already trending
2. Gap up near or into supply zone – Price gaps up the next day near a supply zone or into a supply zone.
3. Reversal candlestick pattern – Price struggles to move up after the gap up and continue to be range bound for a while. Price then forms Reversal candlestick pattern near the supply zone. This is the signal for price reversal to the downside.
4. Closing the gap – When prices close under the gap, it gives the confirmation of the exhaustion gap. An exhaustion gap occurs with extremely high volume.

How to trade using Runaway Gap Trading Strategy?

January 15, 2022

How to trade using Runaway Gap Trading Strategy?

Different parts of Runaway Gap Trading Strategy
The Runaway gap means a gap formation in the middle of a trend. Consider a stock is in uptrend already and in the middle of an uptrend, price gap ups. This kind of gap is called Runaway gap. This is a sign of trend continuation. This type of gaps will get filled soon of it is created.

There are three major parts which forms this pattern.
1. Prior uptrend – The market was on uptrend the previous day. Market is already trending
2. Gap up & drop – Price gaps up the next day and after 2-3 candles, price starts dropping towards previous day’s closing price, filling the gap created earlier in the day.
3. Reversal candlestick pattern near previous day’s closing price – Price continue to drop till the previous day’s closing price and Price forms Reversal candlestick pattern near previous day’s closing price. This is the signal for price reversal to the upside. Note, in this case, price may not close the gap fully.

How to trade using Breakaway (or Breakout) Gap Trading Strategy?

December 18, 2021

How to trade using Breakaway (or Breakout) Gap Trading Strategy?

Different parts of Breakaway (or Breakout) Gap Trading Strategy
The breakaway gap means breaking the important support or resistance or significant trend line in the form of the gap. This generally appears after if there is significant price build up or price consolidation near the support or resistance zone on the previous day.

There are three major parts which forms this pattern.
1. Consolidation – The market consolidates on the previous day, forming tight candles throughout the last hour of the previous day. This consolidation happens near a major support or resistance area.
2. Gap up & Rally – Price gaps up the next day above the consolidation zone or above the resistance area and continue to rally from there. This event had flipped our resistance zone into support zone, so we can call it flip zone.
3. Pullback – After a brief rally, price starts dropping towards the flip zone (previous resistance, which has turned into support now)

How to trade Pennant Pattern?

November 20, 2021

How to trade Pennant Pattern?

Pennants are drawn with two trendlines that eventually converge. A key characteristic of pennants is that the trendlines move in two directions—that is, one will be a down trendline and the other an up trendline.

Different parts of Pennant pattern
There are three major parts which forms this pattern.
1. Raising up-trendline – A up-trendline, which is raising, indicating buyers are not willing to let the price go down
2. Falling down-trendline – A down-trendline, which is falling, indicates sellers are not willing to let the price to rally
3. Price Sandwich – Price should be sandwiched or trapped between the up and down trendlines, making a price consolidation.

How to trade using Triple Bottom Pattern?

October 16, 2021

Different parts of Triple Bottom pattern
There are four major parts which forms this pattern.
1. First Valley – V/U Shaped – The market does a pullback during a downtrend and forms an V/U shape. At this point, there’s no way to tell if the market will reverse because a pullback occurs regularly in a trending market.
2. Second Valley – V/U Shaped – The price gets rejected at the same area, again. At this point, the market makes a pullback and forms a consolidation. This is a first sign that the market could reverse higher. This forms the second V/U shape
3. Third Valley – V/U Shaped – Again, the market attempts to break out lower and fails, again. The price gets rejected at the same area once again. This forms the third V/U shape. Now the 3 “spikes” are visible after 3 failed attempts to break out.
4. The trendline – This is the last line of defence for the sellers. If the price breaks above it, the market could reverse, head higher and begin the start of a new uptrend.
Once you identify the Triple Bottom formation, just draw a straight line at the top which connects swing high of the valley. We will get a technical breakout when the price gives breakout above the line drawn.

How to trade ascending, descending and horizontal channel Patterns?

September 18, 2021

Today we are going to learn about Channel pattern
The channel is a powerful yet often overlooked chart pattern and combines several forms of technical analysis to provide traders with potential points for entering and exiting trades, as well as controlling risk. The first step is to learn how to identify channels. The next steps include determining where and when to enter a trade, where to place stop-loss orders, and where to take profits.

Channel Elements:
A channel occurs when the price of an asset is moving between two parallel trendlines.
1. Upper Trendline: The upper trendline connects the swing highs in price. If price breaks out of a trading channel to the upside, the move could indicate that the price will rally further.
2. Lower Trendline: The lower trendline connects the swing lows in price. If the price breaks below the bottom of the channel, on the other hand, the dip indicates that more selling could be on the way.
3. The channel can slant upward, downward, or sideways on the chart.

Types of Channels
A channel consists of at least four contact points because we need at least two lows to connect to each other and two highs to connect to each other. Generally speaking, there are three types of channels:
1. Channels that are angled up are called ascending channels.
2. Channels that are angled down are descending channels.
3. Ascending and descending channels are also called trend channels because the price is moving more dominantly in one direction.
4. Channels in which the trendlines are horizontal are called horizontal channels or rectangular trading ranges.

How to trade using Double Top Pattern?

August 21, 2021

Different parts of Double Top pattern
There are three major parts which forms this pattern.
1. First Peak – Inverted V/U – The market does a pullback and forms an inverted V/U shape. At this point, there’s no way to tell if the market will reverse because a pullback occurs regularly in a trending market.
2. Second Peak– Inverted V/U – The price gets rejected at the same area, again. This is a first sign that the market could reverse lower. This forms the second inverted V/U shape
3. The trendline – This is the last line of defense for the buyers. If the price breaks below it, the market could reverse, head lower and begin the start of a downtrend.
Once you identify the double top formation, just draw a straight line in bottom which connects swing lows of the peaks. We will get a technical breakout when the price gives breakout below the line drawn.

How to trade using Head and Shoulders Pattern?

July 17, 2021

A Head and Shoulders is a bearish reversal chart pattern and as the name suggests it looks like head and shoulders.
Different parts of Head and Shoulders pattern
There are four major parts which forms this pattern.
1. The left shoulder – Inverted U – The market does a pullback and forms an inverted U shape. At this point, there’s no way to tell if the market will reverse because a pullback occurs regularly in a trending market.
2. The head – Inverted V/U – The market trades above the previous high. However, the sellers took control and push the price lower towards the previous swing low (forming the Neckline and a big inverted V/U shape).
3. The right shoulder – Inverted U – The buyers make a final attempt to push the price higher, but it failed to even break above the previous high (the head). Then, the sellers take control and push the price towards the Neckline, forming another inverted U shape.
4. The neckline/trendline – This is the last line of defence for the buyers. If the price breaks below it, the market could reverse, head lower and begin the start of a downtrend.
Things to Remember,
1. H&S formation should be as straight as possible and it should not be sloping up or downside too much. A perfect H&S should have equal highs on both side of the head but this is not possible all the time. So slightly sloped H&S also ok, but not too much tilted!!
2. The lesser the height of the second shoulder, the better it as this indicates the consolidation, so a sharp move or too much height on the second shoulder isn’t a good sign and such trades should be avoided.
Connecting Head & Shoulders through Trend line
Once you identify the head and shoulder formation, just draw a straight line in bottom which connects head and shoulder. We will get a technical breakout when the price gives breakout below the line drawn.

How to trade using Cup and Handle Pattern?

June 19, 2021

Today we are going to learn about Cup and handle Pattern
So for we have seen Triangle pattern and Flag pattern and I hope you have liked it and understood better. This week let us learn about another bullish pattern – Cup and handle.
A cup and handle is a continuation pattern of bullish trend. It is one of the easiest pattern to identify through naked eye and it looks like Tea cup as the pattern name suggests.
Different parts of Cup and handle pattern
There are two major parts which forms this pattern.
1. CUP – It is a part where price makes a U shaped pattern and marks a consolidation period. The shape may look like bowl or rounding bottom. Avoid V shaped Cups
2. Handle – This part is formed when price making another small U shaped pattern which is 1/3rd height of CUP. Handle should be formed in shorter period of time than the time it has taken to form the CUP.
Things to Remember,
1. CUP formation should be as straight as possible and it should not be sloping up or downside too much. A perfect cup should have equal highs on both side of the cup but this is not possible all the time. So slightly sloped cup also ok but not too much tilted!!
2. The handle part should not go below the 1/3rd height and the width of the handle should be smaller than the width of the cup. Just like a Tea cup cannot have bigger handle than the size of the cup, right!!! Example: If a cup takes 8 hours of time to get formed then the handle should not take more than 1 to 2 hours.

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