QUESTION

I have been following this thread since the beginning and as a beginner i have a learnt a lot. But I have difficulties in recognizing the trend. Some charts are so messy, I cannot get any clear pattern. 1) For example, please have a look at the chart of Bank of India which is below In the chart, the stock makes higher lows which might be an uptrend but again it makes lower highs which can be a downtrend. What kind of trend is this? I think as long as it will not break the support, its in an uptrend. Am i correct? Anyway is it advisable for an investor to enter that stock which is forming lower and lower highs. 2) Next query is on Andhra Bank. Please see the chart It was in a downtrend since late July and recently there is a small rally but it did not still cross the downtrend line no. 1 ( the one in red which is drawn from the high of July to the high of January) But if we consider another downtrend line no. 2 ( the one in black from the high of Jan to the high of late Feb) then there is a breakout above the downtrend line. Now which trendline should an investor consider. Or should the investor take into consideration another trendline (in red) which is below trendline no. 2 considering the fact that 'more the points which connect a trendline the more stronger the trendline' as u said in a previous post.

REPLY BY SAINT
As for BANK OF INDIA, you are right. There really is no clearly discernable trend on the daily charts. In sideways trend. For a clearer perspective, open up your weekly charts of BOI. We are still in an uptrend, still higher pivot highs and lows. The week ending Feb 10th, we got a pivot low there at 118.So far that is our previous pivot low. That would be where our stop would be if you are in this trade. (Always, give it some room, so the stop is at 118-1=117). A break of 117 and this uptrend is in question. So long as this area holds, BOI is still in an uptrend. Now, as for new entries into BOI is another matter, watch for a pullback or more sideways pattern to enter. Look out for that trendline. If that trendline holds, good area to buy. Cracking that trendline to the down, and again, this uptrend on the weekly charts is in question.

Being an investor, you are looking at medium to long time frame. For a clearer perspective, always look at your weekly charts. We have lower pivot highs and lows ,basically still a downtrend on the weekly. Trendline 1 as drawn by you is more or less correct. Not Trendline 2 the more points, meaning the more pivot highs that it connects in a downtrend line the stronger that trendline becomes. Trendline 2 is connecting all the highs, not the pivot highs, so inaccurate from a daily/weekly chart perspective. But for an intraday to few days perspective, not wrong. That trendline can be traded a break above that trendline is a buy. But that doesn't mean we are in an uptrend. Just good for 1 - 2 days sniper attack on the intradays. We basically need a breakout over 106 to say that we are headed back into an uptrend. For now, it's downtrend on the daily/weekly And Bank. Great going, my friend. A questioning mind is a mind that is learning. Feel free to ask your doubts. Shall answer to the best of my capacity.

QUESTION
Anyway, in the case of Andhra Bank, u said it should cross 106, how could u calculate that figure? Is it a figure which the trendline meets when extended towards the price axis. I thought it should break at least 110 which is the previous pivot high. Please correct me if I am wrong.

REPLY BY SAINT
Yep, basically whenever that trendline breaks to the Up. If we are going to remain in this downtrend for more time, then that figure will keep coming downwards. 106 is the break over the trendline which gives us an indication that things are moving to the up. Yes, right you are, the previous pivot high is 110 and over that is confirmation that we are in an uptrend.

QUESTION
Yes, got it!! That means, if it goes above 106 then the uptrend is in question and it will be in our watchlist and we wait for it to cross 110 , which is when we will be sure of the uptrend and we are in trade.

REPLY BY SAINT
Yep, you got it but just a correction of language so that we are both on the same page. A break above 106 and we have a possible uptrend, the previous downtrend is in question. A break over 110 is confirmation.

QUESTION
As you have explained in your earlier posts, we should follow the trendline. We will be able to spot the change of direction in trendline after market hours. While one is buying a stock which is in uptrend, even when we buy it after delaying it by a day, we will still be able to ride the trend and be able to make some money (our ultimate aim). But how to judge the downtrend of the stock during market hours? Why I am asking this is when we analyse the charts after market hours and come to the conclusion that the particular stock is in downtrend, we will not be able to sell it. By next day, it may have fallen further and we may have lost some more money. Please explain the methods one can adopt during market hours to judge downtrend so that we can limit our loss or sell it while we have considerable profit?

REPLY BY SAINT
If you have been playing that trendline, let us say, you've been buying each time the stock pulls back to the trendline and your idea was to stay in that stock so long that uptrendline holds. So far so good as long as the uptrendline holds. A crack in the intradays to the downside does not qualify as a break in that trendline till we get a close below that trendline but I agree with you, what would you do, while watching that stock intraday, it cracked to the down. It may or may not close below the trendline, but what would you do in such a case? Stick with the plan your idea is to get out on a break of trendline. Get out if it breaks. If by the end of day, the stock does not close below the trendline, no problem, that means the trendlines are still valid and you look to re-enter.

QUESTION
Please clear something for me. We are in a uptrend and i am in the trade. Do I get out once the up trend line is broken or if it makes a lower pivot low. Does this depend on our trading strategy. Cause if we wait it to make a lower pivot low or even go down as far the previous pivot we have lost our profits if we had entered the trade when it started moving up from the previous pivot low. Or is this the trade off we have to take in the market

REPLY BY SAINT
As you rightly pointed out, depends on your strategy. If you've been playing the uptrendline all along, you are not about to tolerate any break in the uptrendlines. One crack and you are out on the other hand, if you are willing to give it some room, wait for the break of the previous pivot low as that gives you a clearer idea of a change in trend. Which one do you do? I personally would get out half my position on a trendline break, leaving my stops for the back half a bit below the previous pivot low. If taken out, I am out. Just have a look at Satyam below I had been playing the trendlines all along. Had been in it from late Sept till date. That ugly move last Friday took out half my position, but still in back half as the previous pivot lows were not cracked yet. If you got out full on Friday, you would not have been wrong either.

QUESTION
Also if we are in a down trend and it breaks above the trend line and moves up. Do we enter now and we let it make a higher pivot low. Because the higher pivot low might be very high and we loose out on profits. Also, how much of a correction would u call a pivot. Could you please attach a file of the smallest correction you would consider a pivot.

REPLY BY SAINT
Same as above. Buy the break above the down trendline, But buy half. Why? Quite a lot of false breakouts. So buy half and then add the other half when we get a pullback forming a higher pivot low.

QUESTION
For drawing the trendlines, these are drawn on the arithmetic scale, or do you use the logarithmic? I have Metastock and I noticed the two. So just wondering, which you use.

REPLY BY SAINT
There are two types of scales: a) Arithmetic b) Semi-logarithmic An arithmetic scale displays the price levels evenly in rupee terms as they move up. So therefore, a Rs.10 move from 10-20 or from 100-110 or from 500-510 will look the same as they are all a difference of Rs.10.

A semi-log scale displays price levels in percentage terms as they move up. A move from Rs.10 to Rs.20 is a 100% gain will look larger than a move from Rs.100-110 is a 10% gain or a move from Rs.500-510 which is only a 2% gain. I use the semi-log scale try it out, the rise looks smoother and the trendlines fit all the way. Which also means that a break in trendline is cause for some action. On Metastock, go to the Y-AXIS of your charts. Right click it. Go to Y AXIS Properties. Tick the Semi-Log scale. Click apply. That's it.

QUESTION
With my limited knowledge got from you I analysed the following stock of Morarka Finance and found it in an up trend mood and gaining momentum. Am i correct? Please verify with the attached image and reply.

REPLY BY SAINT
Most importantly, pour through thousands of charts. A day comes when patterns jump out of charts and grab your attention. On MORARKA FINANCE, first look at the weekly charts so as to get a proper perspective. Attached below the weekly charts. Basically in sideways trend. Don't try to draw trendlines in a sideways trend-up or down. So far we are having equal pivot highs and lows from March 2005 till date. It tried to put in a breakout in Sept 2005 only to be brought back to the sideways range. Once it puts in an uptrend again, then you are back to drawing trendlines again.

QUESTION
Everything seems okay to me but trendline break and previous pivot low are two things we used intermittently. I assume that both are one and same. Whenever the previous pivot low is broken then Uptrend is in question, so do we get out of the trade. Here in this context what is trendline break, is it small crack in the uptrend move, I mean is it a decline or anything else. When I looked at the weekly charts on Satyam (7th Apr), its a small decline. Saint, please add If I am missing out anything.

REPLY BY SAINT
When you get out of a trade is entirely up to you the fact that this stock put in an accelerated up move, take out your trendlines and draw it. Why? Because we don't want to give back too much when the pullback starts. We therefore already have a bearish divergences on the RSI and TRIX. What do we do? We get cautious, we get our hands ready on the trigger, but we DO NOT do anything. We wait, and wait till we get a break in trendline. Then, we are out. We are always READY to pull the trigger, the Bearish divergences tell us GET SET and the trendline break tells us GO!! Now, if your mindset is very long term and these pullbacks mean nothing to you, then take some profits off the table in a trendline break. But hold the rest till we get a break in the previous pivot low on the weekly charts ie 720.If it does not break 720, the uptrend is still on and you will see higher highs and lows. So, that decision depends on the type of trader that you are. But you must understand this, a break in the uptrendline is not a downtrend. It puts that run up in question.

QUESTION
Please tell me something to draw trendlines. At times, we see a tick the price action is or real body is very small but the fluctuation is very large. So we draw the trendline near the opening closing or at the bottom of the tick. I was seeing Riddhi Siddhi. The price opened close above 230 but the tick is till 210. So where should the trend line be for such fluctuations.

REPLY BY SAINT
Connect two or more lows, then extend that line, you will notice many times the price trying to break through the trendline but forming a tail and still having its body within that trendline. Go with the eye.........

QUESTION
Is there a reason why a trend line acts as a support (What is the underlying logic behind it) or cause we see it in so many charts we take the number of repetitions as a proof and follow it. Another thing I noticed was that the price was always bouncing back on intermediate trend line (acting as support) and the short trend line went above the price pattern and number of time acted as the resistance level. Is this also common to see?

REPLY BY SAINT
My mind does not work in the "why something happens" mode, and therefore I may not be the best to answer it but I wonder if these patterns and lines develop because we are all looking at the same thing and drawing the same lines. It could be as simple as fear and greed. Countries may be different, the year may be different, but human emotions don't change much, I guess. And it gets reflected on our charts. A chart is never the mapping of what that particular company is about, but of the emotions of hope and expectations, fear and greed, of the investors in that company. The chart tells us of human emotions, and therefore, as astute traders, we buy into fear and sell into greed,and enjoy the profits made in the difference.

And therefore trendlines, patterns and all the paraphrenalia is learnt to come to that very important point.......to assess when fear has truly set in, and is time to buy once we get a signal, or when greed has got a bit out of whack, and is probably time to exit. And,Yes to the second doubt, my friend....

QUESTION
Lets say we are in a trade at Rs.500. The stock rallies and then reaches 550. All this while creating higher tops higher lows. On the daily chart however we see that there is a small black candle. Lets say this is because it closed at 550 yesterday and today has closed at 540. What do we do now? Weekly charts our pivot is at 500 and the stop is obviously at lower levels ... how do we confirm or in other words verify that this is not the start of a downtrend.

REPLY BY RAHUL (ACKNOWLEDGED BY SAINT)

Quote: On the daily chart however we see that there is a small black candle. Lets say this is because it closed at 550 yesterday and today has closed at 540. Hi sorry to answer this as u had posted it to Saint. First of all black candle is not formed cause the day close is below the previous day close. A black candle forms if the close is below todays open itself. Quote: What do we do now? Weekly charts our pivot is at 500 and the stop is obviously at lower levels ... how do we confirm or in other words verify that this is not the start of a downtrend.

Now booking profit is up to u. If u are a trend follower you would book part profits when trend line is violated. Then u would exit the rest when the previous pivot low is also taken as that would mean uptrend is in question. Remember trend is valid till the proof of evidence proves otherwise (as Martin Pring says)

Your stop loss should not be below as once the price moves so much above you should have had trailing stop losses. And in any case if it was below then also if u are a trend follower you should exit by now. Now candlestick would be a different understanding. It depends where the small black candle has formed. Has it formed within the body of the previous white candle, above it, below it. If it has formed within the body then it could be a Harami pattern. Above would be a Evening star. All these need confirmation the next day. Also, a confirmation just shows that current trend has ended. It does not tell us if it will reverse, it could move sideways. It might be a small correction a large one. Magnitude cannot be judged. Hence, candlesticks are more beneficial if used with other indicators. A confirmation with trend line being violated, or any other indicator turning negative is more useful. Though u can use it individually too but a confirmation is a must.

QUESTION
Was going through the weekly charts of Tata Steel. And to my untrained eye, it seems like the long term trend in Tata Steel is still intact ... the reason: the trend line drawn from 05/21/04 still holds and it looks like this line is a strong support. It tried to breach this line on 08/27/04..and again on 11/04/05 and also a few days back and it looks this line is a strong support! However, it is not in an uptrend ... lower pivots lower lows ... since the top 700+ ... so ideally what should i do now? My logic says buy 50% because i am not sure this trend line will hold and also because it is not in an upward trend! Again saint please take your time.. Also please excuse me if you find this question too easy or lame to be answered. I could not attach the graph coz I am not sure how to attach a graph from adget n metastock..!

REPLY BY SAINT
I am sorry, my friend, but I wish I could see what you are looking at in the TISCO charts. As it is difficult to post what you see, have a look at the attachment below. Hope it answers a few doubts ... TISCO is still in a long term uptrend, but still in an intermediate downtrend more has to happen before we get truly bullish again. Once again, we are talking about traders, not investors. This retracement puts a doubt in the head if this truly can be classified as an intermediate downtrend we will know in due course of time. A rally is in the offing, but I truly doubt if TISCO is going to take out highs and form new highs in the upcoming rally. So therefore, if you are planning an intermediate trade long, stay clear now. Short term is another matter.

QUESTION
If you look at the charts of Bombay Dyeing & Bajaj Hindustan, on the daily charts, both are showing an uptrend. But, if you look at the weekly charts, then the previous pivots have not been taken out. So, as a "Short term" trader, what should one do? Buy now or wait for the weekly trend to get confirmed. I am very confused!

REPLY BY SAINT
Always better to have both the weekly and daily in line before attempting to go long. No problems actually if you are an adept hand at this else, stay clear of this rally till the intermediate trends give you a signal to go long. Just posting BOM DYE chart....

QUESTION
For a given time period, is it a rule that you have only one trendline? Basically what are the rules of drawing a trend lines? Is there any rule on how to draw a trendline or we look in the charts and connect multiple highs/lows to form the trendlines?

REPLY BY SAINT
Think the below chart explains itself.......feel free to ask though if something is not clear.

QUESTION
At what stage in a intermediate downtrend do we say that we are in a bear market? How do we make out the difference between a major trend move and an intermediate trend move?

REPLY BY SAINT
To answer your query, we need to go into the basics of Trends Let us get into it from the beginning. Then let's address your doubt.

TRENDS
As per time frames, we can classify Trends into A) SECULAR TRENDS B) PRIMARY TREND C) INTERMEDIATE TREND D) SHORT TERM TRENDS A) SECULAR TRENDS Every short term trend has within it one to several intraday uptrends and downtrends. Every intermediate trend has within it one to several short term uptrends and downtrends. Every primary trend has within it one to several intermediate uptrends and downtrends. So too, every secular trend has within it one to several primary uptrends and downtrends. What we mean by Bull market is a market in a primary uptrend. What we mean by a Bear Market is a market in a primary downtrend. A SECULAR BULL MARKET has primary uptrends (Bull mkts) greater in magnitude and duration as compared to its primary downtrends (Bear mkts). Expect the bull markets to unfold longer than the bear markets in a secular bull move. Vice versa for the SECULAR BEAR MKT.A secular bear market has primary downtrends greater in magnitude and duration as compared to its primary uptrends.Expect the bear markets to take longer to unfold than the bull markets in a secular bear move. A Secular trend usually lasts about 10-25 years. Let us get into the others tomorrow maybe we can also have a look at some secular trends on charts.

Few examples of Secular Moves SENSEX an example of a Secular Bull Market.NIKKEI a Secular Bear.Charts below

Okay, in continuation we now know what a secular, primary trends and intermed trends are. We know that each larger time frame has within it smaller time frames of trends. Now,to your question we have an intermed uptrend followed by an intermed downtrend followed by an intermed uptrend, so on so forth. Few rules 1) After an intermediate uptrend, the correction should be only 33-66% of that cycle (One intermed cycle = one intermed uptrend and one intermed downtrend). -- Greater the retracement, the increased likelihood that the primary trend has reversed to the down. 2) Substantial increase in volume during the price decline The above are the basics if you are playing with indicators as well, then all the negative divergences, moving average crossovers puts you on Caution Mode. Have a look at the chart below.......please do ask if anything is not clear.

QUESTION
From the chart, I see that support is taken at a higher point from 1994-2003 before sensex took off in 2003. The low of 1993 was never tested. Is it possible to say that unless we test that low and breach with high volumes, we are not yet in primary bear downtrend? You have put benchmark at the support line in accordance with the theory. But in practice sometimes indices may bounce back from the lowest point formed after the first high of the consolidation period (in yellow background)

REPLY BY SAINT
These are long term charts and we are looking more at the secular trend of SENSEX. What we call as bear market in common parlance is a primary downtrend and not a secular downtrend. So, a break of 8799,and we classify this move as a primary downtrend and as for this Secular Bull to become a Bear, we are far from that scenario. As it stands now, we are in a SECULAR BULL MARKET, in a PRIMARY BULL MKT. Breaking 8799, we go into a PRIMARY BEAR MKT, but still very much in a SECULAR BULL MKT. And for a long term trader or investor, there can be nothing sweeter in a secular bull mkt than taking profits, watching the mkts get into a primary bear mkt, and buying more at the lows.

QUESTION
I do hope you are right about the intermediate downtrend. With all the divergence in ROC and TRIX in the monthly charts of nifty, I hope we dont go into a primary bear trend. Enclosing the monthly chart. Would like to know your views...

REPLY BY SAINT
Just have a look at the chart above says everything. Basically, this correction from the May top is too deep to be wished away as yet another intermediate downtrend. Calling it a primary downtrend as markets plunged on May22 is being a bit premature. An intermediate downtrend is one till it isn't. But the next wave drop to June 14th lows takes it down to more than 80% correction of the previous intermediate cycle. My personal opinion is that this no more looks like an intermediate downtrend in a primary uptrend. I feel we are starting off the first leg of a Primary Downtrend. We are still very much in a Secular Bull Market though But as always, we can confirm that only once the market drops below 2595. We are at that spot of bother on the charts where the bullish orientated trader sees things going to new highs and the bearish ones seeing new lows. It would be wrong to say that this is a Primary Downtrend for sure till confirmation. To say that this is nothing but an intermediate downtrend would be dangerous and wrong that statement in red should be modified to "This downtrend is nothing but an intermediate downtrend till we get a confirmation that this is a primary downtrend. But the depth of this retracement is giving rise to the possibility that it's looking more and more like the first leg of a Primary Downtrend" And yes agreed on the indicators bit as well.