Wave Strategy Home Forums Trader’s Forum Master of Technical Analysis (MOTA) March 2020

This topic contains 2 replies, has 1 voice, and was last updated by  Debashis Lahiri 2 months, 1 week ago.

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  • #201615 Reply
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    Ashish Kyal, CMT

    Please post your charts and Questions under this thread.

    #201616 Reply

    Debashis Lahiri

    Hi ashisji ……want to immensely thank you for your initiative, which is very useful for all of us ……

    one question :

    how to treat stoploss ( or how to initiate position) if market opens with a gap-up by way of break-out from trend line resistance or breakdown from trendline support  ……… should we treat opening gaps by observing for 1 hour ?

    #201660 Reply

    Debashis Lahiri

    A bit long question on a “real life scenario” :

     

    A trader identifies a stock for trading in futures.

    (A)     STOCK NATURE :

    ·         It’s a downward trending stock & follows channels brilliantly.

    ·         Track record shows that it scales the channel by forming b/w say 11 to 14 daily bars/candles each time (b/w support & resistance zone, or vice versa) , with an interim mid level consolidation/distribution of about 4 to 6 daily bars/candles.

     

    (B)    TRADING STYLE

    ·         Trade 1 : The trader SHORTS at resistance channel zone (with slightly more lot size) & SQUARES UP, say 50% as it touches the mid level support zone and remaining 50% as it touches the main lower channel support zone.

    ·         Trade 2 : The trader fresh BUYS at support zone on the day that he receives price confirmation ( ie closing above the prior day’s high ). He does it with 50% lot size of Trade 1 as the trading direction is contrary to the main trend.

    He maintains a stop-loss below the support zone by keeping a provision of say 2 times the average daily movement (ADM) of the candle bars, thus providing for false break-downs. ( assume, overnight stoploss placing not allowed as per software)

     

    (C)    AN EXCEPTIONAL EVENT OCCURS :

    The very next day after Trade 2 , the stock opens up with say a 3 or 4 ADM gap-down.

     

    QUESTIONS :

    (1)    Ref to Trade 2 :  In chart set-ups, what alternative chart set-ups for RSI, ROC etc ( if would have formed ) would have looked like which would have given a greater probability of success ?

    ( should the trader have looked for just positive divergence on RSI chart before initiating a buy, or other specific bullish setups of RSI, etc )

    (2)    Ref to Exceptional event : as the market opens, what should the trader do ?

    (a)    Square up his positions on opening , book loss and wait on the side-lines, OR

    (b)    Take the risk for an hour, see whether the candle gives a pull-back in trying to fill up the gap or go up to touch the lower support trend line, or at least the initial stop-loss level of 2ADM. If so, then

    (i)                  Should he just square up those positions at that level ?, OR

    (ii)                 Not only square up his existing positions BUT ALSO , REVERSE his positions and take short at that level ?

    (iii)               If he takes the risk for an hour, but prices immediately upon open appears to be giving a follow-on by swiftly drifting lower, what should he do ?

    (a)    Simply exit, OR

    (b)    If he observes, the prices have fallen and reached a previous longer term support zone, then take the risk of again buying and averaging (with a stoploss) and then exit fully on a bit of pull back to next trendline resistance or 23.6% fib retracement, or whatever as per situation ?

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