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Price Volume Analysis Trading with the Essentials

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  #21 (permalink)  
Old 09-04-2009, 06:52 PM
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Iyer

Excellent thread. Hope to learn a lot from you..

One of the problems we face in the wycoff stuff is to actually identify all the jargon we read and try to assimilate. For example I am not very sure in the case of Nifty if we are going to really jump the creek and the mark up would begin. It does look like it.. But then it may turn out to be big shakeout as well. Experts like Jesse can throw some light on it.
Normally plenty of good news support a mark up phase and there are hardly any good news around... All we have is the prospects of a hung parliament ..or mayawati becoming PM which is equally bad ..


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Old 09-04-2009, 11:22 PM
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Well, I think one will have to keep a certain 'behavior' of the market separate from the 'state' of the market to avoid any confusion since market doesn't really proceed linearly according to predetermined steps. In this case, market may well have 'jumped the creek' but its not necessary that a 'mark up' has begun since there might very well be another 'creek' just above it. To borrow a Market Profile concept, the reason this happens is because markets are 'distributing' in every timeframe and since as traders we can only track so much, its quite impossible to forecast what the effect will on the timeframe one is trading.

Hopefully this make some sense because this took me some time to understand myself.
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Old 09-04-2009, 11:26 PM
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Watch carefully the Jump Over the Creek. Was it violent? Was it with a huge volume? Did the price gapped up right above the resistance and did not come back thereafter? How did it behave subsequent to breakout? How was the range of subsequent candles? What was the volume on subsequent candles? In many cases, a careful analysis of previous trading range will provide ample clues as to how the breakout will be.

Remember what did I say about an ideal selling climax and the subsequent behaviour? Ideally volume should die down upon down candles and must increase on upbars. That implies lesser selling. Overall, volume must be low in the entire trading range. Range must be narrow on down candles and should increase on upcandles within the trading range. Was there violent thrashing all over, I mean violent moves on the upside to the resistance level of the trading range as well to the downside move to the support level of the trading range? If the stock is not behaving as it should have been, then be on the guard. Selling is not over yet. In such suspicious cases, breakout (JOC) may not lead to huge upmoves. In such cases, breakout is only an inducement to the over eager public who want to “average” their holding or to those persons who are prematurely bullish. Composite man is making a false breakout only to wash off his remaining holding (which he could not wash off during the trading range after he realized that selling is not over) and to prepare himself to accumulate at further lower level. If the breakout fails, then it will be regarded as redistribution. A trading range in the middle of upmove is called “reaccumulation”. A trading range in the middle of downmove is called “redistribution”.
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Old 09-04-2009, 11:27 PM
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After the “jump over the creek” there will be again a test of the creek area. This need not be in every case. In some case, the stock price may blast off straight away upon JOC. If this test is on lower volume and narrow range and if this test is successful, then we arrive at the stage for marking up the price. Because, by now composite man has ensured that supply is removed and depending how successful he is in getting his lot during the accumulation stage (i.e. selling climax and subsequent trading range stage), the markup phase will last. Longer the accumulation stage and heavier the accumulation, greater will be the markup phase.
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Old 09-04-2009, 11:27 PM
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To explain “Jump Over the Creek” and “Test of JOC”, “Sign of Strength” etc. I have attached a chart of reliance. Please note this is not an ideal chart. I wanted to post a real time chart.

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Old 09-04-2009, 11:28 PM
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It is this markup phase that is most exciting. Here price moves consistently higher. You can easily notice higher – higher low formation in the chart. Volume will be less on corrections (temporary down trends) and rage of the candle will be narrow during correction. It is the stage where many of us will confuse bull market to the brain. Composite man will also be buying during this markup phase so as to keep the momentum. But his buying will be far less when compared to his buying during the earlier stages referred in earlier posts in this thread. Hitherto sleeping public will wakeup (usually at the final stages of the bull rally) seeing that price is going up as if there is no tomorrow. They also jump in to the moving train so that they must not feel that they are left out of the party. This adds fuel to the fire. Price moves up rapidly. Why price is going up so rapidly? Because, all available supply has been removed by the composite man during the earlier stage and for all practical purpose, there is no worthwhile supply. Every one wants to buy and no supply. Imagine what will happen. That exactly happens here.
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Old 09-04-2009, 11:28 PM
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Our composite man has not accumulated huge quantity at bottom for any philanthropic purpose. He has accumulated it for selling at higher price and to make a neat packet of profit. So during this mad rally there will come one stage where price suddenly breaks down on heavy volume. This down movement is sharp and swift and is accompanied by heavier volume when compared to earlier down moves during the markup phase. You guessed it right. It is our composite man who is selling here. He has to offload huge quantity that too without scaring the other enthusiastic buyers. If he announces that he is selling, then every one will sell and it will be impossible for composite man to make money. This sudden sharp selling is the first indication that the uptrend is nearing an end. Intelligent traders and investors will be looking for an opportunity to get out of the longs. This sudden sharp selling is called “Preliminary Supply”.
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Old 09-04-2009, 11:28 PM
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All stock cannot be disposed off in one shot during the preliminary supply stage. So selling will be stopped temporarily by the composite man. You may remember that stock is already in an uptrend. So, all along public has been seeing higher highs and higher lows. Even the bottom of this preliminary supply will also be higher than its previous bottom. So public will think that this is just another opportunity to buy just like earlier temporary corrections and they will buy again hoping to sell it at still higher price. Remember the greater fool theory? It is easy money baby. Just buy it, hold it and sell it and make money. Easy baby easy. News is also extremely bullish during these final stages. That is how we arrive at “buying climax”.

Aha! You have guessed it and some of you might have even said it openly. “Buying Climax” is just the opposite of “selling climax”. Yes you are 100% correct.
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Old 09-04-2009, 11:28 PM
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Starting from the beginning of preliminary supply and all the way through buying climax the composite man offloads his accumulated stock. It is this persistent selling that prevents further advance of price. After buying climax, price will correct once again. This bottom is known as “Last Point of Supply”. This is the opposite of “Automatic Reaction” high.
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Old 09-04-2009, 11:29 PM
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After forming last point of supply, the price begins to move in a range. That range is in between buying climax top and last point of supply bottom. If any stock is still left with composite operator, all of it will be offloaded during this stage for neat profit. Remember, composite man has brought it at selling climax and subsequent trading range, i.e. at throw away price.
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