Keep in mind the following things before thinking about profiting in bullish and bearish market. First create a favourable group of stocks which can give you potential profit. Concentrate mainly on buy in stocks which shows continuation-type buy patterns and do reverse for the bear market. Before entering an order set a protective stoploss. If the market is so far then it is better to look for another stock or wait for a safer level to purchase. Traders should always be aware about the four stages of market. That is basing area, Advancing phase, top area, and declining phase. Basing area and Advancing phase is not suitable for sell similarly top area and declining phase is not suitable for buy. Always go with message being supplied by technical approach if there any conflict between price volume action and the earnings. Always keep monitoring your self performance by note down it in a diary and analyze your action and keep modifying it.
Daily time frame is commonly used by short traders, and weekly is used by intermediate traders. Intermediate traders must follow the below rules.
With an insight to next major move make a pattern by looking at each high-low-close pricing.
Expanding on breakout and large volume is very important while observing the volume plot.
Observe 30 week moving average if price below declining 30 week moving average never go for a long trade, similarly never go for short if price above rising 30 week moving average.
Go for long trade during uptrend and go for short trade during downtrend.
Four stages of market
Basing area: In this stage 30 week moving average begins to flatten out. Volume become small and trend start sideways.
Advancing phase: Price rise above resistance level. An impressive volume will form at this stage. This is the ideal time to go for a long trade. This is the stage where stock changes from its base into more dynamic stage. The 30 week moving average increase slowly after breakout.
Top area: Again stock shows sideways trend. Forms heavy volume and moves in a sharp and choppy manner. Prices tiptoes below and above MA on declines and rallies.
Declining phase: Stocks price breaks out bottom of support level.
Profit from bullish market
In order to make profit from bullish market you need to wait for stock to enter into second stage. You need some patience because it will take some time to build solid stage 2 momentum, if stock drops back close to its moving average and consolidates which means stage 2 is in progress. If it is a continued buy moving average should clearly trending high and it break out top of resistance zone. Bull and Bear pattern over 4 years: Bear in first year, next year first six month bear next six month bull, most bullish in third year, and tear choppy in fourth year. While considering monthly trend, it is probably bullish in Nov-Jan, April and Bearish in Feb, May, June, September. Day of week, Monday shows worse trend and Friday shows strongest trend. Not buy in stage 3 or stage 4. Buy at the stage where the stock moving into stage one with minimum resistance overhead. There exists some exceptional case for buy first is when stock just breaking out of Stage 1 and far above support it is suitable for buy.
Be careful about a stock. Never buy a stock if its relative strength is poor. Check some conditions before buying. i. e, check market overall direction. Concentrate on best technically supporting stock. Group stocks which are in trading range and shows bullish pattern, Note down the price they need to break out, Narrow down your stock list by eliminating those with less relative strength and with overhead resistance nearby, set stop loss level and discard unacceptable ones, when you go with your stock that meet the buying criteria put stop orders when it reaches half of position, sell stock on first rally if volume pattern is not high enough.
A further tip for buying on daily chart is head and shoulder method. The most powerful and reliable method, there must be a significant increase in volume on the breakout. If impressive volume, favourable relative strength and minimal overhead resistance come together then double bottom method can be adopted which is very profitable.
Profit from bearish market
Always you need to maintain protective stop loss. Keep placing it below round number. When buy on breakout, initially place stop loss below lower end of base. When trending increase stop loss to higher level. You can become more aggressive with stop loss at stage 3. Not necessary to wait for 30 week moving average to be violated for sell process. To get more profit use trendlines way of locking. You can proceed sell at the point where whole position stop loss just under trend line, or half there and half under last correction low. Don’t sell a stock in stage 2, if it is too thin. Sell a stock when market is bearish, Stock should have significant runup before top was formed and should far from significant support areas, indicators must trend low, no major priority volume on the short side. Short trade is well suited in stage 4.
Be careful about the long term market indicators. Such as AD line (Advanced decline line), Momentum index, New high – New low. As long as AD line and Index line move in proposition it means market is ok. When they loss their proposition and if AD line goes down and index line charges higher which indicate market is in trouble. That is negative divergence. When index reaches ultimate low and refuse to drop down further but AD line moves down and down which indicate positive divergence.
Profit from option trading
You can increase your profit in trading option by buying a call option if it is in stage 2 or moving into stage 2. And buy a put option if it is in stage 4 or is first entering that phase 2. You should be more careful about call and put option trading than stock trading. Because you may be going wrong more often with options than with stocks. Selectivity is very important. Always use a very tight protective stop loss throughout the trade. If there is any sign of weakness squreoff your position immediately.
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