iCharts Discussions

[rameshraja]

Trend Determination Methodolgy

I use this simple method to find the trend of the market, be it Nifty or stocks. I use this simple statistical output as an additional tool to my Chart Analysis to find likely Support and Resistance Levels and its not Grail.

I use End of the day data for daily trading and use weekly and Monthly datas for Swing trading.

Let me explain below, an example for Day Trading and same method can be used for Weekly and Monthly, for Swing Trading:

I take Previous Day Open / High / Low / Close of officially announced figure from Exchange.

Weighted Average = (HIGH + LOW+ CLOSE +CLOSE ) DIVIDED by 4.

Spread : High Minus Low.

To calculate,likely Support and Resistance Levels, the following ratios of Fibonacci to be used.

13 / 23.60 / 38.20 / 50 /61.80 / 78.60 / 88.60 / 1.00 / 1.130 / 1.236 / 1.382 / 1.500 / 1.618 / 2 / 2.236 / 2.618 / 3.140 / 3.618 / 4.236


Calculation:

Spread multiplied by all the above ratios and added to Weighted Average. This will give different Levels of Resistance and when deducted from Weighted Average it will give Various Support levels of above ratios.

How to use the above Levels:

Nifty or Stock has the tendency to face stiff resistance around 23.60% and by stretching it can move to 38.2% and 50%. So also, will try taking Support at these levels on downside. The trend of the day will be determined when it breaks 61.80%.

If it breaks 61.80% of Resistance Level, then wait for the market to pullback to 38.20% and make Long entry with Stop placed a few ticks below 23.60%. and look for Targets of 1 to 1.382 and 1.618 of Expansion Levels. If the day, happens to be very bullish/ bearish, it can move to 2 and above ratios.

Same is exactly true for Shorting the Nifty or Stocks when it breaks 61.80% with the above mentioned method for long entry.

What if Stop of 23.60% stop is takenout:

I quit the trade once if Stop is takenout, and look for bounce to 50% ratio, to takeup reversal trade and go along with the flow of market, taking stop at few ticks above 61.8% or look at chart to keep Stop.

Once when stop of 23.60% is takenout, Market has the tendency to bounce once again closer to 50% and move to test Weighted Average Price and the levels on the otherside.

When you have these levels along with Chart, you will invariably find market facing resistance and Support at 38.2% and it will not be so easy to clear 61.80% so easily, as one of the breeds “BULL or BEAR” need to wrest control for the direction of trend.

During the day, if market doesn’t break 61.80% on anyside, then I assume market is in sideways and whenever it happened like this, I have only incurred loss on that in my trading as my trades get locked in stops.

I use 5 minutes chart with 125 SMA and 30 minutes chart with 34 EMA. I invariably find the Support or Resistance coming closer to 38.2% and wait for breakout.

Spread is a vast subject and fairly very accurate methodologies can be derived and no Professional trader across the Globe speak about this in any public domain and their Spread methodologies are kept close to their heart.

I have explained to you a simple methodology using the Spread, and there are very powerful methods using the Spread can be done.

I use the above method for Day Trading and I use weekly and Monthly data for Swing Trading.

Trade Well and follow the trend !!

[vinay28]

lovely and thank you. two points

you have put "CLOSE" twice in formula for WAVG

the fibo factors given to be used as % in calculation?

[rameshraja]

Mr Vinay

Yes it is % and need to be calculated on Spread. I have already attached worksheet in XLS for ready use. Before jumping on guns, do the backtesting what I explained and then use. Please note, its not a Grail.. and it has draw downs also.

If you are a trader in stocks, wait for Nifty to give direction for the trend and then initiate stock trading. This to ensure, that you have high probablity of your trade. Broadly, stocks move in the direction of Nifty.

Best Wishes

[vinst]

RR sir,

Though I am not a usual participant in daytrade, I take this opportunity to welcome your posts here after a long time.


regards,
vin

[ravionlinek]

rameshraja
.............

Fibbs Work Very Well in trend, its fell Only if market is in sideways movement..........

..........
Best Of Luck........

[lambuhere1]

Sirji

'Will this be applicable to your 181-81 theory also ?

Or that theory is unrelated to this.

Wonderful and simple explanation

[vinst]

[rk_a2003]

RR

In your description you mentioned Weighted Average = (OPEN + HIGH + LOW+ CLOSE +CLOSE ) DIVIDED by 4.

In Excell WA =(HIGH + LOW+ CLOSE +CLOSE ) DIVIDED by 4.

Which is right?

Thanks & Regards

[rameshraja]

Mr Rk

Sorry for the typing error. Open figure to be eliminated. Let me edit the same now.

Thanks for bringing to my attention this error.

[vinay28]

typographical error in both doc and excel files? OPEN figure to be eliminated or CLOSE which has come twice in both to be eliminated?

[rameshraja]

Mr Vinay

Typing error in the the text only. Excel Sheet working is correct. I have given open figure in excel sheet to have reference of previous day open, but for purpose of calculation, open is not considered.

To your other querry, Close to be taken twice to arrive at weighted Average.

I am repeating again. Calculation for Weighted Average = (HIGH+LOW+CLOSE+CLOSE)/4

I am sorry .. to have troubled you all.

[vinay28]

no trouble at all ramesh. was confused that's all. thanks for clarifying everything

[lambuhere1]

[vishyvaranasi]

[vinst]

RR sir,
I want to take an example of DLF with data of week 23-Jan to 27-Jan-2012 to generate levels.
levels were to be traded in week 30-Jan to 3-Feb-2012.


Open High L ow Close
DLF 214.00 225.40 212.00 212.9

Trend Direction ----> 224.08 207.52

As trading began, DLF broke below 207.5.
We wait it to come up to 0.382 level on bearish side : 210.7 and short with SL at 0.236 level of bearish side which was 212.7.
Shorting level came and SL was triggered as DLF crossed abv 213.

Now to take the reversal trade on long side, should we wait for DLF to fall to 0.5 level of bearish side (which was 209.1) ?