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How to use the trading levels [*** NOW OBSOLETE ***]
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Author How to use the trading levels [*** NOW OBSOLETE ***]
SwingTrader
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Post: #1   PostPosted: Sat Apr 11, 2009 6:26 pm    Post subject: How to use the trading levels [*** NOW OBSOLETE ***] Reply with quote

How to use the trading levels posted here:

CAUTION: These are not trading recommendations. This information is just for educational purpose only. THE RISK IS ALL YOURS. None of the levels posted by anybody including me are magical. Market is greater than any such derived levels. Price will do what it has to do so good stop loss/profit capturing/exit strategy is extremely important. Without your discipline these levels are useless, with your discipline these levels start to work.

These levels are basically excellent supporting tools for your main trading method. These levels provide logical stop loss levels, profit captuing and exit points for your trades. But with sufficient experience one can directly trade based on these levels.

MAIN CONCEPTS

LOC is the key level especially on days when price hits resistance or takes support at R1 or S1 immediately after MARKET OPEN (range days). This usually indicates a period of prolonged sideways movement, possibly for the whole day. On such a day LOC will be a key level and it will provide strong support/resistance. Trades can be initiated on such days on a bounce off LOC/R1/S1 levels. On such days oscillator such as STS (13,8,5) on NF 5 min chart will indicate the turning points very clearly.

Trend days are indicated by price moving beyond R1/S1 levels. Oscillators won't work on trend days. Moving averages and other trend identification indicators can be used to confirm such days.

On most days (around 90% of the days) the level at which support/resistance is hit immediately after market open will be a very critical level. On trend days this level will never be tested for the rest of the day. On range days this level will provide extremely strong support/resistance. A break of this level indicates major change of intraday trend. This level can be any of the levels from S5 to R5. So make sure you identify the KEY LEVEL AT WHICH MARKET HITS SUPPORT/RESISTANCE IMMEDIATELY AFTER MARKET OPEN.

WHAT IS BREAK OF A LEVEL

On a 5 min chart a level is broken if there are minimum TWO CLOSES beyond the level. One can take an entry in the direction of the move and place a stop BEYOND AT LEAST 50% of the distance between the level just broken and the previous level. Example: If price is trading between R1 and R2 and then after that there are TWO CLOSES above R2 then one can go long and place an initial stop loss below the 50% point between R1 and R2. Ideally, the stop loss has to be beyond R1 level but the minimum it should be less than 50% point between R1 and R2.

MOVING / TRAILING STOPS

Once you are in a trade, as subsequent levels are hit/touched in the direction of the trade, move stop level to just below the previous level. Once there is a CLOSE beyond a level the stop can be moved midway between the level just broken and the previous level. If one is trading multiple lots/multiple units of shares, keep offloading partial positions (capture part of the profits) and lighten up your positions as levels are broken.

KEY MARKET OPEN STRATEGY (FOR EXPERIENCED TRADERS ONLY)

As I said above, on almost all the days market will immediately take support or hit resistance at a certain level. This will happen within the first 15 mins of market open. Experienced traders can take a trade at this time. If a level is supporting the price the there could be a bounce up from there so a long trade is possible. If a level is providing resistance then the price could fall from there so a short can be initiated. INITIAL STOP LOSS should be placed beyond the level that is providing support/resistance.

Please watch the previous charts posted in this forum for examples and also make sure you watch for few days live after market open before you attempt this.

NOTE: Please post all your questions in this forum topic only. I will post replies here. Do not call me or email me with questions about this during market hours. All discussion about the levels will happen here only.

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Last edited by SwingTrader on Fri Jul 09, 2010 10:18 am; edited 2 times in total
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mbh
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Post: #2   PostPosted: Sat Apr 11, 2009 7:31 pm    Post subject: Amen! Reply with quote

[b]None of the levels posted by anybody including me are magical. Market is greater than any such derived levels!

ST Hi,

This by far the most profound statement made, I hope all the noobs understand the depth of it. You are doing a wonderful service to the traders by posting these levels Gratis, which otherwise or on many occasions have been given some fancy names and peddled in the garb of quick fix (sure levels)methods promising to make people rich.
The levels like you said are there to facilitate decision making process and are not a system unto themselves. With proper Money Management techniques, if followed, then it becomes a complete trading system.Its not about how fast one can drive its all about how well you can drive!

I wish all the new traders and old alike will benefit from these levels and incorporate them in their trading strategy.

Cheers!

PS:I am glad you didnt say these levels will make u obscenely rich and stuff Wink
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Post: #3   PostPosted: Sun Apr 12, 2009 12:13 pm    Post subject: Thanks for the detailed explanation Reply with quote

Dear SwingTrader,

Thanks for the detailed explanation. But there is one more thing I would like to know. I was just now referring to your Intraday chart for 8.04.09, which shows the market moving up all the way from S5 To R5 from open to close. Is it also possible that the market may open lower or higher than S5/R5 and what action should be taken if this does happen? For example, the principle behind Pivot Point trading is that if the market opens with a gap at S2/S3 or R2/R3 levels, one should trade in the opposite direction. How does this differ from your Intraday levels?

Regards,
Makhijani
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Post: #4   PostPosted: Sun Apr 12, 2009 9:06 pm    Post subject: Reply with quote

mbh,

Smile So true....I hope new traders understand this. Once they understand this clearly, they are on their way to trade successfully.

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Post: #5   PostPosted: Sun Apr 12, 2009 9:26 pm    Post subject: Re: Thanks for the detailed explanation Reply with quote

Makhijani wrote:
Dear SwingTrader,

Thanks for the detailed explanation. But there is one more thing I would like to know. I was just now referring to your Intraday chart for 8.04.09, which shows the market moving up all the way from S5 To R5 from open to close. Is it also possible that the market may open lower or higher than S5/R5 and what action should be taken if this does happen? For example, the principle behind Pivot Point trading is that if the market opens with a gap at S2/S3 or R2/R3 levels, one should trade in the opposite direction. How does this differ from your Intraday levels?

Regards,
Makhijani


It can happen from time to time....market can open beyond R5 or S5. I usually post further levels after market open like R6/R7 or S6/S7 as necessary.

But wherever the market opens please follow the trading rules I have given in this topic if you want to use these levels. Most of the trading rules I have given force you to trade with the trend. The only counter trend trade rule I have given is the trade that you may get few mins after market open when price hits a support/resistance and do note that this trade is for experienced traders only as you may have to be quick in entering the trade and may have to ocassionaly exit the trade quickly too.

Kindly do not try to use Pivot Point trading rules or CAM trading rules with my levels. The way my levels are computed are different from pivots or cam. Do not mix trading strategies, this will lead to confusion.

One advise....just observe the levels for few days. Do not use them in your trading until you get comfortable with the trading rules. Convince yourself that these levels and rules work for you, only then trade.

Of course, do read the CAUTION I have posted with the trading rules before you use my levels in your trading Very Happy

Good Luck!!!

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Post: #6   PostPosted: Mon Apr 13, 2009 4:06 pm    Post subject: Thanks Reply with quote

Dear SwingTrader,

Thanks for the clear explanation. Will do as you say. I was watching the gyrations of the market today from 3337 ( at 10.20am) to 3367 or so when the market just took off like a rocket from 2.20pm onwards.

Now I am looking forward to your Intraday chart along with your comments.

Cheers,
Makhijani
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Post: #7   PostPosted: Mon Apr 13, 2009 5:05 pm    Post subject: Trading levels usage example Reply with quote

Here is trading levels usage example with possible trades marked (of course, this is easy to do after the market Very Happy). Only with experience one would be able to take many of these trades.

NOTE: I am posting this chart and explanation as an example, time would not permit me to do this everyday.

I have numbered possible trades. Here are the explanations for each numbered possible trade on the chart:

1. The first trade is the special market opening trade. Wait for 1st 5 min bar to complete. Now the picture will be clear about which level is offering support or resistance. If in doubt wait for another bar to complete, this will get clearer. Today the 2nd 5 min bar made it clear that price had hit resistance at R2. This was clearer once price broke down below R1, it was a short at this point with a stop midway between R1 and R2.

2. This is the regular short trade on TWO prior closes below a level (R1). The short was at open of the 4th bar of the day with stop between R1 & R2.

As price breaks down below BULL level, stop is moved to midway between BULL & R1.

As price breaks down below LOC level, stop is moved to midway between LOC & BULL.

Positions are lightened as levels are hit. The profits depend on how positions are lightened before the final exit between BULL & LOC (where the large green candle hits the stop level indicated). These skills - exiting positions & capturing profits - are the key and separate skilled traders from beginners.

3. This is a regular LONG trade after price breaks above LOC level and then there are TWO closes above LOC after that. Initial stop loss is between BEAR & LOC.

As price hits BULL level, stop is moved up to midway between LOC & BULL.

Stop is hit giving a marginal profit or a scratch trade (no loss no profit)

4. A near repeat of trade no. 3. A long trade where stop is moved above and is hit again. Another scratch trade or probably a marginal loser. Note: the entry price was near 3360 level.

NOTE: As the day progresses LOC is providing support.

5. Regular LONG trade (entry price around 3360) with stop midway between BEAR & LOC.

Stop moved to 3360 (approx midway between LOC & BULL).

Price nearing 3380 with profit nearing 20 pts, at least some of the position would be lightened up to book profits. If not there then atleast at on the way back to BULL level.

The remaining position exited at entry price (stop was moved to this point previously).

6. Price had found support the 3rd time at LOC (this time more precisely). This trade was again a regular LONG trade after TWO closes above BULL level with stop midway between LOC & BULL.

Stops moved up multiple times to finally a point between R3 & R4 where it got hit and profits were captured (hopefully with part of the position unloaded on the way up to above R4).

7. Regular SHORT entry around 3403 (TWO closes below R4 level) with stop midway between R3 & R4.

Stop moved down to midway between R2 & R3 as price broke below R2.

Stop moved down to midway between R1 & R2 as price broke below R1.

Position closed below 3380 before mkt close.

NOTE: THE ABOVE WAS FOR EXAMPLE ONLY. I DON'T WANT TO IMPLY THAT YOU MAY BE ABLE TO CAPTURE ALL THE PROFITS INDICATED. WITH EXPERIENCE THOUGH PERFORMANCE INCREASES AND RISK LEVELS DECREASE SIGNIFICANTLY.

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Post: #8   PostPosted: Mon Apr 13, 2009 9:16 pm    Post subject: Thanks again Reply with quote

Dear SwingTrader,

Thank you so much for marking today's chart with all possible trades and giving a detailed explanation for each one of them. Very educative. Really good of you to take so much trouble. I'm sure it will help me and all other icharts members do much better in future.

Thanks again.

Cheers,
Makhijani
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Post: #9   PostPosted: Sat Apr 25, 2009 2:13 pm    Post subject: Important Point Reply with quote

One important thing that I wanted to be more clear about is that the level at which market gets support or encounters resistance immediately after market open (within few 5 min bars after open) will be the most important level for the day. If price is below this level it is bearish and if the price is above this level then it is bullish.

For example: If price encounters resistance at R1 few mins after market open (few bars) then R1 becomes the key level for the day....sort of an additional LOC for the day. LOC still stays as a key level and there is a high probability of the market bouncing of this level but breakout/breakdown (two closes on a 5 min chart beyond the level) of R1 would immediately change my bais towards the market.

Examples of key levels: Please go through the levels for the other days, I am listing key levels for all the days that I have posted levels here:

24.04.2009 : BULL
23.04.2009 : BULL
22.04.2009 : LOC
21.04.2009 : S1
20.04.2009 : BULL
17.04.2009 : BULL
16.04.2009 : LOC
15.04.2009 : R3
13.04.2009 : R2
09.04.2009 : R1
08.04.2009 : S5
06.04.2009 : R1
02.04.2009 : R5
01.04.2009 : LOC
31.03.2009 : BULL
30.03.2009 : S2
27.03.2009 : LOC

Please post any questions here. I cannot stress enough the importance of identifying the KEY LEVEL FOR THE DAY if you use my levels. That level will be very important for the rest of the day, it will be sort of additional LOC.

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Post: #10   PostPosted: Sat Apr 25, 2009 8:18 pm    Post subject: Reply with quote

Dear Sir.

Thanks for above most importatnt thing of additional LOC lvl in 5 mint charts- bar details.

AS you said *That level will be very important for the rest of the day, it will be sort of additional LOC.*. We should follow your message as a rule.

After complited 5 mint 2 basr beyond the LVL in 5mint charts then only should take entry/ action.


Thanking you.
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Post: #11   PostPosted: Sat Apr 25, 2009 8:47 pm    Post subject: Reply with quote

Trading is like WAR between Bulls & Brears, with LOC either of them can have upper hand at sometime or other and take control of the situation. Very Happy
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Any recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all the risks involved in the stock markets.
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Post: #12   PostPosted: Sun Apr 26, 2009 3:09 pm    Post subject: Reply with quote

Dear SwingTrader,

I was going through this topic once again and comparing the charts of 13.04.09 and 24.04.09 for a better understanding of how to get the full benefit of your levels. I have a few questions and some doubts -

1. I think you advise to close the positions the same day and not to carry them overnight even if in profit. Right?

2. On 24.04.09, looking at candles 4 and 5 one would think that the first support was at Bull level and take a long trade, but then the market declined below the recommended stop at 3403. Although later on the market did cross this level and advance to R2, the Bull level was actually acting as a strong resistance for nearly 3 hours.

In such a situation is it better to wait longer till things become clear before taking action?

3. From your posts of 13.04.09, I understand that we should exit when the stop is hit instead of reversing the trade and should wait for the proper signal before taking the next trade.

4. Regarding the short trade No. 7 on 13.04.09 - although the 3rd last candle opened around 3403 just below R3, it closed below 3380 (R1). This trade is possible only if one takes immediate action on the basis of only ONE close below R3 instead of two.

5. You have mentioned lightening of positions at different levels. In the normal course, where do you advise positions should be lightened - just above/below a new level or midway or at some other place?

Looking forward to your expert advice,

Makhijani
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Post: #13   PostPosted: Sun Apr 26, 2009 9:37 pm    Post subject: Reply with quote

ravin_06 wrote:
Dear Sir.

Thanks for above most importatnt thing of additional LOC lvl in 5 mint charts- bar details.

AS you said *That level will be very important for the rest of the day, it will be sort of additional LOC.*. We should follow your message as a rule.

After complited 5 mint 2 basr beyond the LVL in 5mint charts then only should take entry/ action.


Thanking you.
Smile


This is true for any level...once there are two closes on a 5 min chart above/below a level, the trade can be taken. This is the most common trade - I call it the regular long/short trade. There are better entries but can be late (better because they are safer entries). I will elaborate on those entries by posting examples soon.

As I have said before, these levels need to be used a supporting tools for a trading method. You can take the regular long/short trades as described above but there will be whipsaws (false/wrong trades) due to volatility. One other method I will be posting is a typical breakout in the direction of the trend signal to ride the short-term trend.

There are other advanced strategies using oscillators to identify price extremes for the day to take a counter-trend trade to capture price reversals. But these are advanced anticipatory trades against the trend. I put in lot of effort to not go against the trend. I like to be safe and not brave so I take trades in the direction of short-term trend (the regular trades attempt to capture this trend).

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Post: #14   PostPosted: Sun Apr 26, 2009 9:59 pm    Post subject: Reply with quote

Makhijani,

Here are the answers/clarifications for you queries:

1. I think you advise to close the positions the same day and not to carry them overnight even if in profit. Right?


Yes, no carrying of positions.

2. On 24.04.09, looking at candles 4 and 5 one would think that the first support was at Bull level and take a long trade, but then the market declined below the recommended stop at 3403. Although later on the market did cross this level and advance to R2, the Bull level was actually acting as a strong resistance for nearly 3 hours.

Yes, this happens from time to time (atleast about 25-30% of the time). I usually reverse such trade at day's low to capture whatever I can but I have not discussed this to avoid confusion. Trades failing 25-30% of the time in a trading method is statistically fine if one is strict about stop loss. Such trades cannot be avoided.

In such a situation is it better to wait longer till things become clear before taking action?


No, that trade was fine. One has to act fast in such trades and one needed to go long at that point, it is a correct trade and works 65-70% of the time. This particular time it didn't work which is fine. Make sure SL is in place when you trade...these are fast moving trades since they are are mkt open so be careful. These trades are for experienced traders only, watch for many days and see what happens to all those trades and only then think about trading this. Go through charts for all days I have posted and see what would have happened.

3. From your posts of 13.04.09, I understand that we should exit when the stop is hit instead of reversing the trade and should wait for the proper signal before taking the next trade.


Do not reverse the regular trades. Wait for a proper short signal.

4. Regarding the short trade No. 7 on 13.04.09 - although the 3rd last candle opened around 3403 just below R3, it closed below 3380 (R1). This trade is possible only if one takes immediate action on the basis of only ONE close below R3 instead of two.


Actually after the price started falling the 1st close was below R4, the second close was below R3 (which also means it was below R4). So since there are two closes below R4 it is a valid regular trade. But yes, this could have been taken only on immediate action or maybe a bit sooner (just before the actual completion of the bar that closed below R3) based on your judgment & anticipation.

5. You have mentioned lightening of positions at different levels. In the normal course, where do you advise positions should be lightened - just above/below a new level or midway or at some other place?

Positions can be lightened once a new level is hit. Capturing profits is an art. Once can try and be mechanical about it and it is generally recommended that profits be captured as the price is moving in your favour. This can, of course, be counter productive if you get a trend day when price moves from say S5 to R5 but these are rare and if you anticipate one, you can later keep part of your position and ride the trend all the way. Again, capturing of profits is recommended when the price hits a new level in the direction of your trade. Once a new level is hit, stops also have to be moved in your favour to lock in the rest of the position at a profitable level.

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Post: #15   PostPosted: Sun Apr 26, 2009 10:11 pm    Post subject: Reply with quote

Thanks, SwingTrader! But I am still not convinced about the last short trade of 13.04.09. There was one close below R4, followed by a close above R4. Next, there was a close below R3 and then the price fell all the way from that point to below R1. So, waiting for the second close would have meant no trade.

Best wishes,

Makhijani
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