Thursday, July 28, 2016

How to trade stocks like Yes Bank using Moving average and Channeling technique?

Dow Theory applied on stocks like Yes Bank. Trading is a systematic process. Moving average and Channels can help to develop trend following systems.

Dow Theory is one of the important subjects of technical analysis.  This theory is 100 years old however it is still one of the most powerful technique to determine the trend in current volatile market environment. Below are the important rules of Dow Theory:

1.      Market has three trends: Primary, Intermediate and Short term trend.
2.      The stock market discounts all the news.
3.      Stock market averages must confirm to each other.
4.      Trends are confirmed by Volume
5.      Trends exist until the market confirms.

These rules can be applied on any asset class. We were able to capture the up move of Yes Bank recently as trading in the direction of medium term trend is less risky and can generate fruitful results.

Yes Bank 60 mins chart: (Anticipated in the morning of 26th July 2016)

Yes Bank 60 mins chart: (Happened till now)

(Part of research published in the morning of 26th July 2016)

Wave analysis:

Yes Bank has continued to move higher after taking support at lower levels. Trend will remain positive unless we see reversal in this stock as per Dow Theory method.

In the month of February 2016 prices made an important low at 663 level and since then up move has continued. In the entire up move from 663 to 1185 level, prices have continued to protect the low of prior week. This structure is intact from last 22 weeks. As per this technique, 1143 is the important support. 10 weeks Exponential moving average is proxy for the same which has been providing strong support to the up move. Although the entire rally is corrective in nature it is better not to catch the top as long as pivot supports are intact on downside.

As shown in 60 mins chart, 100 periods Exponential moving average along with channeling technique has continued to work well during the entire rise. In last session also prices touched 100 periods EMA and bounced back on upside sharply. This suggests that up move has some more steam left on upside. On downside 1155 is the crucial support.

In short, Yes Bank trend is positive with 1155 as support on downside. Move above 1190 will suggests that trend towards 1225 has started where channel resistance is placed.

Happened: Yes Bank is moving in lines with our expectations. Post breaking above 1190 level prices sustained above the pivot support and made high at 1226 level in todays session. It is prudent to trade in direction of the trend unless there is reversal as per Dow Theory and we see clear lower highs and lower lows formation. However, one should be aware about the overbought zone and levels where risk reward is not proper.

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