Technical analysis is a study of historical price and volume of the stock to predict its future behavior.

Technical analyst study these price movement and identify formation of patterns that are formed repeatedly and the behavior of price after formation of patterns. If probability of price movement after these pattern, in certain direction, is very high then, analyst can bet on the buying or selling of the stock. Technical Analyst have identified hundred of different pattern, indicators, oscillators, theories etc and have well documented them for benefit of mass. One of the example of such pattern is double top. It tells that after formation of the pattern, the chances of share price falling is very high. Based on these studies, analyst in the past have identified certain repeatable patterns on probability of predicting future price movement of a share. Technical analyst heavily rely on charts and generally have very advanced software tool to analyze the data. Technical analysis though are very common in stocks but can be used in lot of other financial instruments as they are also are affected by similar market forces as in stocks. Basic principles of Technical analysis Technical Analysis is based on these three principles: Price Discounts Everything. Technical analyst believe in efficient-market hypothesis (EMH). This means the current value of the stock, is fair value of the stock and has correctly factored in all the information that could affect the price of the stock at any given point of time. Price Moves in trends Technical analyst believes that share price moves in trends whether upward or downward or sideways. And they will continue to do so in future. They go by this assumption to trade in stocks. History repeats itself. Technical analyst believe that market movement in a certain situation would be similar to its movement in the past. Or Investors in certain scenario, even though they are irrational, will behave in similar way as they behaved in past. This typical movement are studied by analyst and are used to take advantage in trading stocks for a given situation. Charts in technical Analysis Charts are very important tool used by technical analyst. Commonly used charts are 1. Line Chart. 2. Bar Charts. 3. Candlestick Charts.

Technical Indicators /Oscillators Technical indicators are derived from Volume of stocks using certain formula, and are usually displayed together with price chart, to provide analyst a different perspective. Some of the formula are very simple while other are complex but most of the tools/website like www.topstockresearch.com, provide them free of cost so individual investors don't have to dive down to calculate them. Commonly used indicators/Chart Pattern Moving Average Relative Strength MACD Bollinger Double Top Candlerick PatternsBullish EngulfingPivot PointPrice Volume Volatility Cautions Technical analysis is more of an art than science. It requires lot of experience to trade using technical analysis. In real life, the pattern formation may not be as clear as theoretical examples. Secondly, since they are purely based on past price movement, and prior sequence of events, they do not guarantee similar behavior in future. Therefore, it is very important to keep a stop loss when playing in stocks. Always use stop loss when relying only on technical analysis.

Learn Moving Average

What is Moving Average?

It

is

the

average

price

of

stock

over

period

of

time.

Why are Moving Averages Used? Moving average helps us to understand the trends of the market. It also gives us buy or sell signal. Moving averages are commonly used to predict areas of support and resistance. The price

movement is also smoothed out so that the traders can better understand the trends. What are different kinds of Moving averages ? a) Kinds of Moving averages are: b) Simple Moving Average(SMA) c) Exponential Moving Average(EMA) d) Weighted Moving Average(WMA) e) Cumulative Moving Average(CMA) Though there are dozens of moving averages but the most common moving averages used by technical analysts is simple moving average and exponential moving average. Therefore we will limit the scope of this tutorial to simple moving average and exponential moving average.
Interpreting buy and sell signal using moving averages.

Moving average provides buy or sell signal. A trader can choose whether to buy or sell depending on the crossover of moving average and the current price lines on a chart. Long term investor looks for long term moving average and short term trader looks for short term moving average. A buy signal is generated when the security's price rises above its moving average and a sell signal is generated when the security's price falls below its moving average. What are commonly used moving averages period ? Their are many moving averages right from short moving average to high moving average but most common of them are 15 days, 50 days, 100 days and 200 days. How to choose a Moving Average period ? There is no magical Moving average period. Use of any moving average period will provide similar result. For example both 60 day moving average and 70 day moving average will provide similar results but will give buy/sell signal at slightly different time. The key is to stick to one MA otherwise your trade can get messed up. One of the common way to choose a MA is to divide the period of interest by 2(two). For Example, A trader looking at a stock movement for 40 days then he will choose 20 day moving average is suitable. If you are looking at a stock movement for 20 days then a 10 day moving average is suitable and so on. Generally it is preferable to stick to 15, 50, 100 and 200 days moving averages as they are used by lots of big investors and market reaction to these averages is more likely. The convention that TopStockResearch will follow to represent different moving averages.

a) Red line represents 15 day Moving Average. b) Blue line represents 50 day Moving Average. c) Green line represents 100 day Moving Average. d) Yellow line represents 200 day Moving Average.

Below Chart of Steel Authority Of India Limited showing price verses different moving averages.

Our website provides free Stock screening based on Moving Averages. It can be found at below link: 15/50/100 Days Moving Average Support/Resistence Stock where 15,50,100 Days Moving Averages are crossing Over Stock Uptrend/Downtrend by 15/50/100/200 day MA Stocks with Sideways Movement based on 15/50/100/200 Day SMA Disadvantages of Moving Average Although they are highly simple to use and plot in our system.But like everything, Moving Average do have certain drawbacks to deal with.Some of the disadvantages of Moving Averages are: - Moving averages lags the current price since they are the data from the past. - It's ineffective in sideways market. - Since it's slow it misses turning points and trends. Due to above shortcoming analysts have designed more complicated yet effective way to deal with price and moving average.One of them is Exponential Moving Average. Exponential Moving Average Another kind of moving average is exponential moving average (EMA). There are certain advantages of EMA like it considers the the importance on the most recent stock prices than the earlier stock prices. Our website provides free Stock screening based on Moving Average. It can be found at below link: Stock Screening based on SMA/EMA Support/Resistance and Crossovers

Tutorial on Relative Strength Indicator(RSI)

Example/Case Study
What is RSI?

Trading with RSI divergence

Videos

Suggestion/Feedback

RSI stands for Relative Strength Indicator. It is a momentous oscillator used to identify trend reversal. Who invented RSI ? RSI was invented by Welles Wilder Jr. What is concept of RSI? RSI calculates strength of stock trend and helps to predict their reversals. RSI value oscillates between 0 to 100. As per Wilder when RSI value is above 70 its is considered as overbought and when RSI is below 30 it is considered as oversold. Some traders use 75/25 or even 80/20 to define overbought and oversold. A value between 35 to 65 is a no entry or exit point for traders who rely on RSI as primary indicator. However their movement can help supplement other indicators signal. Another use of RSI is to determine divergence between price and RSI. Divergence indicates trend reversals.

Divergence: A divergence is formed when

a. In a downtrend RSI is making higher high and higher lows while price is making lower high and lower lows. b. In a upward trend RSI is making lower high and lower lows while price is making higher high and higher lows. Uses of RSI 1.Identify overbought stocks. 2.Identify oversold stocks. 3.Identify trend reversals. 4.Identify direction of the trend . 5.Excellent tools for swing traders . Tips to trade with RSI. 1. A general rule of buying when RSI moves from below 30 to above with combination of another indicator like rise in volume or Moving average crossover or any other indicator of your choice. 2. A general rule of selling when RSI moves from above 70 to below with combination of another indicator like rise in volume or Moving average crossover any other indicator of your

choice. 3. When RSI trend is falling and price trend is rising and RSI is in overbought state then a reliable sell signal is generated. 4. When RSI trend is rising and price trend is falling and RSI is in oversold state then a reliable buy signal is generated. 5. For those who use end of the day data may profit from RSI in 1-7 days or more days. 6. Less risky traders should wait for RSI move above 30 from below 30 to take a position. Aggressive traders sometimes even take 35/65 as oversold and overbought range. 7. RSI values can be altered for different types of stocks. For extremely stable stocks or small price ranging stocks a value of 35 may be a good entry point and for highly volatile stock a value of 25 may even be considered as high risk. 8. Trend reversal at 70 /30 is considered to be 75% accurate. 9. Trend reversal for divergence is considered to be about 80% accurate. Divergence looses its significance in sideways market. Warning
a. Buying stock just based on its value below 30 may lead to losses. In stock down trend RSI may stay below 30 for long time with continuous fall in price. b. Similar to aforementioned point selling just based on RSI above 70 may reduce your profit. c. In extremely strong trend , RSI can yield wrong results. d. In some cases RSI and price divergence can last for longer time before trend reversal. Traders needs to be patient with it. e. Not all stock movement will generate RSI buy/sell signals. Other tutorials related to RSI for better understanding can be found at: Example/Case Study Trading with RSI divergence Videos Our website provides free Stock screening based on Overbought/Oversold conditions. It can be found at: 1.Stock screening based on RSI 2.Stock screening based on Stochastic

Learn Moving Average Convergence/Divergence (MACD)

Example/Case Study When MACD should be avoided ? Video Tutorials On MACD Suggestion/Feedback What is MACD? MACD stands for Moving Average Convergence and Divergence. MACD is a calculated by subtracting fast Exponential Moving Average and a Slow Exponential Moving Average. These

average moves towards and away from each other and hence the name was given as Moving Average Convergence and Divergence. Mr. Gerald Appel invented MACD in the late 1970s. MACD is so popular because it is one of the most reliable and easy to use technical indicator. Even though it is lagging indicator, it provides signal before moving average cross over. MACD gives signal for trend continuation and reversal therefore used both by bulls and bears. Though MACD calculation may be difficult and time consuming but most of the common charting package and stock analysis site provides it. EMA used to calculate MACD
Any any two EMA(Exponential Moving Average) can be used to calculate MACD but most common are 26 and 12 EMA. Here in TopStockResearch 12 and 26 day Exponential Moving Average is used.

Major component of MACD

1. MACD line. Its a graphical representation of difference of fast exponential moving average and slower Exponential moving average. 2. MACD Signal line is 9 period EMA of the MACD line. 3. Zero Line. It is constant line with default zero line. It also acts as signal line. 4. MACD Histogram- It is plot of difference between MACD line and signal line.

How to use MACD There are three different indicators in MACD that provides signal to technical analyst. They are: 1. MACD and signal line crossover. When MACD line moves above Signal line a Buy signal is generated. Aggressive traders may jump at this point. This is easy to spot and its occurrence is also quite common but decision based alone on this indicator may lead to losses. This signal should be verified by other indicators. If after this indicator if MACD crosses above zero line then it's reliability is considered better. 2. MACD moving above zero line. When MACD line crosses above zero line buy signal is generated. This is equivalent of 12 day EMA crosses above 26 EMA. Reliability of this is better than MACD and signal line cross over. 3. MACD and price divergence. When price is making higher highs and higher lows and MACD is making lower highs and lower lows, a trend reversal is generated. This is one of the rarest signal spotted of all MACD signal. MACD price divergence is one of the most reliable signals.

MACD and TopStockResearch 1. Exponential Moving averages used by TopStockResearch are 12, 26. 2. Colors which represents MACD are: Blue is for MACD. Red is for signal line. Green for MACD Histogram. Grey for MACD zero line. Advantages of MACD
a. It is solid indicator that helps to identify stock trends. b. It provides signal much before moving average crossover.

Disadvantages of MACD
a. It being an lagging indicator it gives signal after trend has started. b. In volatile market it gives too many wrong signal. c. MACD price divergence by many is considered as unreliable as it depends on derivative of derivative therefore it is much far from its base. Other tutorials which further enhance better grasp on MACD can be found at: Example Of Trading With MACD When MACD should be avoided. Video Tutorials On MACD Our website provides free Stock screening based on MACD. It can be found at below link: MACD crossing Above Signal Line MACD crossing Above Signal Line with Jump In volume MACD crossing Above Center Line MACD crossing Below Signal Line with Jump In volume

Learn Bollinger Band

Example/Case Study Suggestion/Feedback What is Bollinger Band? Bollinger Bands, one of the most popular indicators, is an envelop around stock price indicating price range of the stock based on stock volatility. When price moves towards upper band it is often considered as overbought and when it is near lower range it is considered as oversold. Who created Bollinger Band ? John Bollinger a noted technical analyst invented Bollinger Bands. His finding was influenced by J.M. Hurst's who came with notion of trading envelop around stocks. What are the components of Bollinger band? Bollinger band has three important dynamic

lines 1. Middle Bollinger Band - This is a plot of 20 period simple moving average. 2. Lower Bollinger Band - Middle band - 2 * 20 period standard Deviation. 3. Upper Bollinger Band - Middle band + 2 * 20 period standard Deviation.
Concept of Bollinger Band

Bollinger Band indicates volatility around price of a stock. When price reaches upper band it is considered as overbought and could be a good exit point and when stock approaches lower band it is considered as good entry point. These are highs/lows or support and resistance. When stock has high price fluctuation the band expands and when volatility is low they contract to adjust with change in price volatility. In normal distribution, 68% of the time price should be within one standard deviation and 95% of the time it should be within two standard deviation.
Usages of Bollinger Band

a. They provide excellent support and resistance in sideways market . To identify sideways market look for stocks where 50/100 DMA is flat (parallel to date axis). b. They can be used for to determine trend reversal. When stock breaks upper band and stay above it for few trading sessions then it is considered to be bullish and when stock breaks lower band ans stays below for some trading sessions bearish signal is generated. c. In strong bullish cycle when stock is moving along with upper band and then moves towards middle band it can be considered as bullish trend reversal. In the same way when stock is moving lower band and then moves towards middle bearish trend reversal can be detected. d. They gives very good idea of volatility of the stock. The wider the band the more volatility it has. e. A very narrowing band means indecision on price movement and a possible break out is imminent. Breakout of Bollinger Band 1. When the price break upper Bollinger band and both upper & lower band is expanding then probability of further up movement is high. If both bands are expanding fast means trend reversal has happened. If the price breaks below lower band and both upper & lower is expanding then chances are that it will further go down. 2. When price break upper band and and both bands are not expanding means false signal of break out. 3. When bands starts contracting after a trend means momentum in trend is loosing.
Our Website provides free Stock Screening Reports on Support/Resistance By Bollinger Bands at: Stock Broke Support Stocks Nearing Support Stocks Nearing Resistance Stock Broke Resistance

Limitation a.They alone do not provide absolute buy and sell signal.

b. In strong trending market, Bollinger bands looses its significance. They tend to give many wrong signals. Its best to avoid they in such situations. c. In actual scenario, Price break above Bollinger band is far more than 95% (as per normal distribution) and not all break gives signal of trend reversals. d. They often need support of another technical indicator to determine action. Color 1. 2. Convention Dashed grey Black of lines Bollinger which lines Band and TopStockResearch represents bollinger band. represent price.

Caution

for

new

Traders

Bollinger bands are dynamic and they move depending on volatility. So the support/resistance to may not be valid on any other day. That is why it is said it provides relative highs and lows or support/resistance.

Tutorial on Pivot Point

What is pivot point ?

A pivot point (or fulcrum) is a point around which future price movement is expected to range Concepts of Pivot point Based on previous days high, low and closed, pivot point, three resistance R1, R2, R3 and three support S1, S2, S3 are calculated. It is believed that stock price will range around pivot point most of the time. When stock price reaches first resistance it has a tendency to react to pivot point and in the same way when it moves towards first support it has tendency to react to pivot point. The more movement away pivot point like R3/S3 the more tendency to retrace. Origin of Pivot Point in stock trading Use of pivot point is noticed from trader trading in trading zone of the market using pens and papers. These traders used to use these support and resistance to trade in stocks. Even when sophisticated tools have come these points have not lost its significance. In fact they are used along with tools like candlestick, RSI etc.

Tips on trading with pivot point When market opens above pivot point then it is likely to stay above it. Traders may use this option to long and watch R1 as first resistance. When market opens below pivot point then it is likely to stay below it. Traders may use this option to short and watch for S1 as immediate support. Some traders wait for 15-30 minutes to watch pivot point position to take their call. Stop loss for buy call can be S1 and stop loss for sell call can be S1 to control losses. Avoid using pivot point when some news that can affect price of the stock is expected. When stock opens above R2 or below S2 then some influence is suspected. It may be safe to avoid them till it moves closer to R1 and S1. They In work strong well in sideways market market avoid or non using trending pivot market. point.

trending

Pivot point prediction can be done only for next trading day. Other useful information's helpful while learning Pivot Points
If price is influenced by external news then pivot point looses its significance.

Pivot point are not dynamic like moving average. Their value stay same throughout the day. In absence of external factors, pivot point is considered as ideal balance between bulls and bears force. Pivot point can be calculated for week, month etc. Formula for Pivot Point Calculation Pivot point (P) = (H + L + C) / 3 Resistance1 (R1) = (P x 2) - L Support1 (S1) = (P x 2) - H Where H - Highest Price of Previous Day, L - Lowest Price of Previous Day, C - Closing Price of Previous Day

Online calculation of pivot can be found Here

Pivot Point and TopStockResearch Pivot Point in TopStockResearch is shown with three support (S1, S2, S3) and three resistance(R1, R2, R3) respectively for each stock. Our website provides free Stock screening based on Pivot Point. It can be found at below link: Pivot Points( Intraday Support/Resistance) for Indian Stocks

Tutorial on Double Top Pattern

Double Bottom What is Double Top Pattern ?

Double top is a trend reversal chart pattern formed after good bullish price move (a continuous price move for a good duration) where the upward price movement looses its steam (first top) and it retraces a bit (to neck line or mid point). Then again it moves in direction of original trend and reaches the first top level there by forming second top. It again cannot move above first top and start moving to neckline. Once the neck line is broken its fall in price is steep. Understanding Double top in details Double top is formed when the stock moves up for many days and the movement is steep towards the end. And then it falls from there by about 10-15 %. After this it again tries to move up and reaches level of previous high but cannot cross its previous high. After this it again starts falling to a level of neckline. Once it retraces below neckline a downtrend starts. Please note that in actual practice, the two top may not be exactly at same level. Generally, second top is a slightly lower level but 1-2 % higher then first level is also acceptable. A significant higher second top may be dealt with lot of suspicion as it may indicate continuation of uptrend. Volume in double Top has a lot of significance as it can help to confirm formation of the pattern. Volume during first top should generally be much higher than volume during second top formation and volume during midpoint formation should be much lower than volume during neckline break out. Please avoid aggressive positioning when volume is not supporting the move. For aggressive traders a strict stop loss is recommended. It is very fairly common to see a pullback near to neck line after formation of the pattern. It should generally be seen as a healthy thing as it gives better confirmation of neckline as resistance. In some case the pull back may happen few times. If this happens too many times then it may not be typical double top pattern. In case of pullback, it is recommended to keep a stop loss of about 3% above neck line.

Our website provides free Stock screening based on Double Top/Bottom Pattern. It can be found at below link: Double Bottom

Understanding Double Top Pattern

Double Bottom Double top formation generally happens when knowledgeable investor sense value in stock and start accumulating thus resulting in slow and steady rise in price with gradual jump in price. Seeing the trend many more people jump in to make quick bucks. This leads to higher jump in price. Once this is known to lot of uninformed people, they jump in and moves the price to a very high level (Top 1). But this price is unsustainable and smart investors starts booking profit resulting in fall in price to a level of midpoint. To lot of uninformed people who missed the boat during first rally, jump in considering it 'buy on dips' opportunity and raise the price to previous high but this time Volume is less. As the higher point is unsustainable, the price falls to neckline where it may get some support. Once the neckline is broken with good volume a typical trend reversal starts to reach a fair value but the downward momentum can take it to below fair price range and thereby making a classic double top pattern. Gap between the two tops should be at-least 5-10 trading period. In case of short term traders it can be as low as few mins and few months for long term traders. For traders who trade based on Daily closing price may want to have at-least 5-10 trading session between two tops. In TopStockResearch.com,we try to identify double top pattern based on at-least three different period with gap varying from 5 days to a month. If the gaps are too close then it may indicate a short term resistance in longer term uptrend move. Double top pattern is a bearish reversal pattern. What it means is, the relevance is high only when the stock is in Uptrend and has no or little meaning when the stock is in consolidation zone. Traders are strongly advised not to get confused with consolidation zone. It is one of the most commonly formed pattern and easy to identify. Its reliability is as good as 70-85% when volume is taken in consideration.
Reports on TopStockResearch.com

We at top stock research try to screen stock movement to find possible candidates for double top formation. We deliberately identify these stocks slightly before there formation to give heads up to potential traders and not after their formation thereby limiting the scope of returns for them. Please note that not all screened stocks actually form double top. All we want our investors to keep these stocks in their radar. With our site please also note that we do mention, price and volume of the stock at both the tops and at the midpoint. The high end report of Double Top Chart Pattern Double Bottom Chart Pattern

As you have now learn better about the double top pattern, with this double top stock screener, we hope you will be able to take advantage of it in much better way.

Double Top Candlestick Pattern - Example 1

Learn Double Top and Bottom Pattern at Double Bottom

Prev Next

Stock Screener for Double Top and Bottom Pattern is at: Double Top Chart Pattern Double Bottom Chart Pattern

Tutorial on Candlestick
History of Candlestick It is believed that usage of candlestick originated from Japan in 1700 by rice traders. Over years, its popularity grew significantly as more and more analyst found value in using them. Currently, there are more than 100 patterns recognised based on candlestick formation. In this era you will hardly find one charting tool that does not have candlestick charting in it. That itself speaks on the value that this way of representation provides. What is Candlestick ? Candlestick is one of the most popular way of representing price movement of a stock in graphical manner. To give context of where candlestick fits, it may be useful to mention other common type of charts. They are line char, bar chart etc. A simple example of all three type

Composition of candlestick
A candle stick composes of four different points of price movement in a day. They are

Open price

Close price

High Price

Low Price

Parts of candlestick

Candle Body: Using these four price, a candle stick is drawn in such a way that the range of opening price and closing price is plotted as a candle (rectangular structure). The higher the difference between Opening and closing price , the higher is the length of the candle. The width of the candle is more than width of the standard line and is generally kept in such a way it is quite easily visible.

Candle Wick( Shadow) : Candle wick is a thin line at top & bottom of candle body. This line starts from centre of top and bottom portion of candle.

1. Upper-wick : It is a thin vertical line drawn from centre of top end of the body to the highest price of the day. 2. Lower wick : It is a thin vertical line drawn from centre of bottom end of the body to the lowest price of the day.

Types of candlestick

Bullish candlestick : A bullish candlestick is formed when the closing price of the share is more than the opening price. Bearish candlestick : A bearish candlestick is formed when the closing price of the share is less than the opening price. Doji :A doji candlestick is formed when closing price is same as opening price.

Color convention. Initially, bullish candle stick were kept blank (white color with black border) and bearish candlestick were filled with black color. This, however, is not universal convention. Different tools uses different color scheme.
Color convention in Topstockresearch

We at our site always believe in keeping things simple and obvious convention so that our visitor can concentrate on the actual analysis rather than trying to understand the conventions. Continuing with the same philosophy , we color bullish candlestick in green ( denoting bullish sentiment ) so that user can look to invest provided other parameter are supportive. And bearish candlestick as red to give a warning to the investor of looming negativity in the stock.

Stock Screener of Indian Stocks Forming

Bullish Candlestick Chart Patterns Bearish Candlestick Chart Patterns One Day Candlestick Chart Patterns

Understanding candlestick to gauge market sentiment.

Single candle As we have learnt how a candle stick is formed. Now lets try to understand on what we can make out of it. In most simplest form, a bullish candlestick denotes that there was some optimism on the stock price upward move at the end of the candlestick period. And in the same way a bearish denotes general pessimism on the stock. On carefully observing them, it provides more than open , close , high & low price. It can tell how market is perceiving the stock on a given day. For example if the close price is much higher than opening price (long candle) then it denotes general bullish sentiments on the stock. In other word when the stock opened the buy sentiment was much lesser than towards the end of the day. Or buying pressure was more than selling pressure. This indication is more when the upper wick is small. Similarly, when closing price is much lesser than opening price then it signal weakness in the stock A small body with small wick signals less volatility in the stock. Also known as Doji. A small body with very long wicks means lack of direction on the price movement and coupled with huge volatility. Multiple candle stick pattern. As we now understand what a single candlestick can provide. Similarly, when more than one candle stick in combination can provide very meaningful interpretations on price movements , trend continuation, trend reversals etc. Advantages of candlestick

It provides more information than just price point. Patterns formed by candlestick are easier to identify. They can provide important trend reversal. They provide latest market mood in a very easy form. They can be used in conjunction with other indicators.

Bullish Candlestick Chart Patterns

Bullish Engulfing Three White Soldiers Bullish Piercing Three Inside Up Morning Star Bullish Harami Three Outside Up

Morning Doji Star Abandoned Baby Bullish

Tutorial on Price Volume

What is Volume?

Volume means amount of contracts that were traded for a stock (or any other financial asset like Future, commodity etc) in the defined period of time. Use of Volume in Technical Analysis. Volume is used to confirm strength in current trend and is an indicator to identify trend reversal. Any price trend supported with volume movement is considered as reliable. The higher the volume the bigger market participation is which means a larger mass is validating price movement and it will take much stronger news to change the direction of the trend. When Volume Precedes Price Technical Analyst carefully monitor volume movement of stock. Volume is one of the very few leading indicator. In lot of scenarios volume gives a heads up of price movement. Below are two examples of it. a. Price volume divergence, as described in following section. b. When stock is range bound for long time and suddenly there is small but consistent increase in volume activity without much change in price indicates that smart investors have started accumulating the stock and up trend is about to start.
Price Volume Divergence

Price Volume Divergence is defined as when price is making higher high but volume is falling indicates strength in upward movement is weakening and a trend reversal is imminent. It means broad market participation do not agree with the upward trend. It may be safe to exit such stocks. If the stock you are monitoring has traded with low volume on a day then it may be worthwhile to see broader markets volume to confirm. It could be result of holiday season either locally or globally or market is expecting some big news. Just by picking on one day poorer volume may lead to error. Its often better to let volume trend form before taking the call. Volume & Support/Resistance If volume starts to decrease towards important support and resistance means that probability of support/resistance holds is high. If support/Resistance is broken with low volume then it may considered as false move. If volume towards support suddenly jumps and price not going down means bottom has reached. If volume towards resistance suddenly jumps and price not moving up means top has reached. When price moves above Resistance with high volume means trend reversal and uptrend is likely. When price moves below Resistance with high volume means trend reversal and downtrend is likely.
How To Use Volume For Stock Trading?

Price volume negative divergence- As explained earlier.

Volume pattern towards major support & resistance- As explained earlier. When market is moving high and price is rising means momentum is intact. Entering such script is considered to be safer. On the days when price falls/retreats the volume should also be low. This would mean that even with price fall market participants are not willing to exit. When stock in uptrend suddenly drops by 5-10 % with huge volume means trend reversal may happen. In a sideways market with low volume and price range a sudden price change with volume rise is considered as beginning of new trend. Its especially important to note that only price change without volume may mean false signal. When stock is in down trend a sudden price rise with volume spike is considered as trend reversal. When Stock is falling with high volume then it means downward momentum is intact. Its best to avoid any long position here When stock in downtrend and a sudden price rise by 5-10 % with huge volume indicates trend reversal.

Chart Pattern & Volume Many chart pattern like Head & Shoulder, Double Top etc. uses volume to confirm formation of the pattern. If volume flow is not in sync with the price flow then these patterns are considered as unreliable. Volume Based Indicators There are many Volume Based Indicators such as: Money Flow Index, On balance volume, Accumulation/Distribution and many more.

Warning
Technical Analysis without using volume can yield undesired results. An individuals decision can affect price of stock traded with low volume and hence its reliability can be questioned. Not all price movement is preceded by volume. Our website provides free Stock screening based on Volume. It can be found at below link: 5 Days Price Up Volume Up 10 Days Price Down Volume Down 5 Days Price Up Volume Down 5 Days Price Down Volume Up 5 Days Price Down Volume Down 10 Days Price Up Volume Up 14 Days Price Up Volume Up 10 Days Price Up Volume Down 10 Days Price Down Volume Up 14 Days Price Up Volume Down 14 Days Price Up Volume Down 14 Days Price Down Volume Up

Learn Volatility
What is volatility ?

Volatility is a measure of spread of share price range. Or in simpler words volatile stocks are those stocks that move in higher price band. These are also called high beta stocks. Please note that here we are not calculating beta value. Calculation of Volatility Though there are various measures to calculate volatility of stocks like standard deviation. For simplicity we will use a very simple formula. It is Average of (High-low) period. For example: If stock price of XYZ share is
Date High Low Close

01/01/10 105 96 104 02/01/10 110 104 107 03/01/10 113 104 105 04/01/10 107 97 99 05/01/10 104 93 96 Its 3 days volatility on 3rd Jan will be ((105 - 96) + (110 - 104) + (113 - 104)/3 = (9+6+9)/3 = 8 This means on an average this stock has moved by 8 points every day for last three days.

Period of Volatility A stock or any other asset can be volatile for a small period as low as few min to few months. In TopstockResearch.com we use daily, weekly and monthly volatility.
Why Stock Suddenly Becomes Volatile? There are many reasons for stocks to be very volatile. Some of them are:

Rumor about merger/Acquisition. Quarterly/Annual result coming soon. Government policy change is expected. For example rise in interest rate will affect home loan companies. Launch of new product/service. International price pressure on product/service offered by company. Some accident in the company. Exact loss is difficult to predict, and many more..

How To Take Advantage Of Volatility.(Novice traders should avoid it.)

1. For Intraday traders. A stock as a result of some important news moves violently either up or down depending on the news impact. An example of positive news on stocks.

Generally first or second day, smart or informed traders enter and take long positions. Seeing huge movement, novice/uninformed traders enter and make price move further from its fair value. Price goes up. Smart traders books profit at this point. Price falls. Uninformed traders see this as buy on dip opportunity. They buy more. Price moves up. And this process continues for 2-7 days with high price fluctuation.

Typical trend to note here to take advantage of this price movement. 1. Volume should reduce with every passing day. 2. In candle stick, wick should be longer than body.

2. For swing traders with higher duration Many stock apart from moving with high daily price fluctuation gives fluctuation on weekly/monthly period. These are the stocks that can be traded for good 5-15 % profit in relatively shorter period. For such stocks, its best to identify whether stock is in sideways market. To identify such stock one can refer to almost flattish 50/100 day moving average. When ever the price is below this moving average and towards lower range one can buy and exit when it moves above moving average and towards upper range. To identify Enter when they are near Price In Exit when they are near Price In Also note that Volatility such stock refer to Lower End Of Sideways Market By 50 Days SMAand Higher End Of Sideways Market By 50 Days SMA may proceed a major price movement.

Warning: In general, it is best to avoid share that are highly volatile. Only professional traders may try to take advantage of this. If you feel confident to play such stocks then we strongly suggest to play with small capital and with a strict Stop loss. Other wise one wrong move can wipe out good portion of your capital.
Stock Screening Based On Volatility:

3 Days Period

5 Days Period

15 Days Period

30 Days Period

5 Week Period

10 Week Period

20 Week Period 50 Week Period 3 Months Period 6 Months Period 9 Months Period

Tutorial on Bullish Engulfing Candlestick Pattern

Bullish Engulfing Candlestick Pattern generally forms at the bottom of a downtrend, or near a potential support. Basically this pattern is made up of two candlestick or can say it takes 2 day for the pattern to be formed.
1.Smaller Bearish Candlestick (Day 1) 2.Larger Bullish Candlestick (Day 2)

On Day 1, a bearish candlestick (Open price is higher than the close price) is formed shown as red candlestick in the Fig. Below. On Day 2, a bullish candlestick(open price lower than the close price) is formed which completely overshadows or engulfs the body of bearish candlestick formed on Day 1, shown as green candlestick in the below Fig.

1.The open price of the Day 2 candlestick is lower than the close price of Day 1candlestick . 2.The close price of the Day 2 candlestick is higher than the open price of Day 1 candlestick . Bullish Engulfing Candlestick Pattern is a very common trend reversal pattern. Though it is not easy to pick this pattern but if done correctly one one can easily catch the trend reversal/buying Signal, and its highly rewarding. The strength of this pattern is increased by the size of the engulfing candlestick. The bigger the engulfing candlestick the more significant is the pattern. The first day the small bearish candle may looks like a continuation of downtrend but its small size irrespective of wicks may show that the bearish signal is weakening. This is confirmed by the Long Bullish candlestick formed

the next day.The larger candlestick tell a lot more about the market sentiments that the bull is taking over the bear. On combining this pattern with any other technical indicators like Volume, Stochastic, RSI, MACD etc, further confirms this pattern and one can quickly pick up the trend change or the buy signal. For example evidence of higher volume on the third day further strengthen this pattern reliability. Similarly a price gap up the next day (Day 3) support further, this pattern of trend reversal.
Stock Screener of Indian Stock with Bullish Engulfing formation Corresponding Pattern Bearish Engulfing Pattern

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An Example of Bullish Engulfing Pattern