Getting Started with Structuring Technical Charts

In second session of "How to become Pro Trader" Puneet S. Marwah explained how to structure the charts and its importance. Structuring the chart is one of the powerful & essential tool to determine the entry and exit points for a particular stock.

Process to structure the chart: Technical Charts is a pictorial representation of open, high, low and close of the particular time series for a stock. With the help of technical charts, we can view the movement in price of stock since inception at one go. In order to predict the future price movement of stock accurately, Puneet suggested to strengthen the skills to plot chart structures and develop the ability to draw the support and resistance as accurately as possible.

                  

In the above image, you can see the price movement from Low to Lower Low and from High to Higher High. It can be observed that the blue lines indicate support, intermediary support and resistance. It is easy to identify at what levels the stock can find support & resistance based on the past movement of stock prices. 

What to observe on charts?

a) Price Movements: How the price - open, high, low and close is developed during the particular time series. 

b) CCI Index: The Commodity Channel Index popularly known as CCI, like any other oscillators, helps in identifying overbought and oversold areas. CCI index is arrived based on the corelation between price of the stock and moving average.

 

c) Volumes: At the bottom of the chart the volumes are located

d) MACD: MACD or Moving Average Convergence / Divergence indicates the change in direction and identify the momentum duration basis of the stock price trend

Drawing the structures

Let us proceed to understand now few pointers to keep in mind while drawing the structures

a) Different Frequency: Depending upon the trade you wish to book, you should consider looking at the past performance for that frequency. For example for a monthly trade, plottng the structure on monthly chart will give you better view instead of looking at daily chart. It is good to develop a structure of a chart since inception and slowly moving to the shorter period of yearly, monthly, daily to hourly time series. Analysing the entire history will provide a deeper view to understand the support and resistance enabling you to take an informed decision.

b) Find out support and resistence and draw the trendline: Proceed with drawing the trendline starting with largest frequency available to the shortest one. This will help us in identifying the formation of the structure across different freqency and help us to recognize trade at the right price.

c) Pattern Identification: Once you are through with drawing the trendlines, check what patterns you chart is forming. Puneet discussed about W Pattern during the session which is long term bullish pattern. 

Chart Structuring of Tata Motors [BSE Code: 500570] Date: 7th November, 2016: W pattern is formed on the monthly chart. Technically, 432 will be a buy having stoploss of 412. Chart shows the resistance at 460-461 levels. On the weekly chart it is reversal pattern from the bottom is formed and small ascending traingle formation is appearing on the daily chart. 200 levels will be the best buy to accumulate the stock.

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