Your 'Stepping Stone' in Technicals

Apurva Sheth
I started tracking the markets when I was in junior college. Television & newspapers were the only source for me to track markets in those days. I relied most on expert advice that came on TV for understanding markets. But over a period of time I realized that this advice didn't make much sense to me as I would not be able to practically put an advice to use.

The channels would play contradicting opinions of different experts at the same time and later on when either one of their views was correct, they would re-run that same clip again and again.

The media also had favourite poster boys when markets were either in a bull or bear grip. These are HNIs renowned for their views - one is a perennial bull and the other a die-hard bear. When the markets had rallied quite a bit, either of the channels would run an interview of the bull. On the other side when markets were in a downward spiral, the channels would do an interview of the bear. Both of them may have made money in the markets but imitating them never helped me.

Next comes the analyst/s whom people would use as a contrary indicator. If he had a buy, people would sell and vice-versa. I don't know whether people actually did it but this is the joke that goes around across different groups of people whom I have interacted with over the years.

After reading your views on my last article titled 'Generally' not so useful advice I am pretty sure that most of you may have had similar experiences in the past.

The only way out of this is to either do your own research or get access to research which is unbiased & suits your style of investing.

Last time I told you how Equitymaster provides its services catering to the Primary & Intermediate Trend. Profithunter provides services catering to the minor trend.

I know many of you have subscribed to all or either of these services but there is also a big pool of people (reading this letter) who are still sitting on the fence. Probably you are not very sure about testing these services or may be because you want to do it all by yourself.

This article will appeal a lot more to these people who want to do it all by themselves. Today onwards we are shifting from the 'What' aspect to the 'How' aspect of technicals.

So far I have told you about the philosophy behind technical analysis, the basic elements of charting and very recently about trends. These were the 'What' aspects now I will move on to the 'How' aspect and show you how to use specific technical tools to your advantage. 

First in this series is how to determine a trend.

Charles Dow derived the most basic and oldest method to determine a trend. We know that trends move in 3 direction i.e. up, down and sideways.

But how do we decide it objectively which of these 3 trends is currently active on a particular stock or index.

Peak - Trough Analysis is the simplest of all tools available to determine the trend.

You know it very well that stock prices do not rise or fall in a straight line. Price moves are more or less similar to a snake crawling in the sands leaving behind a trail similar to the one illustrated below.

Peaks & Troughs
Source: Profit Hunter

The chart I have shown above is an example of a stock with rising peaks and troughs or simply put it is forming a higher high and a higher low subsequently. These highs or lows can be separated from each other by a few days, weeks or months. This is immaterial with respect to ongoing trend as long as it is forming higher highs and higher lows the trend (up in this case) is considered as valid.

This principle applies similarly to a stock trending downwards. Here we will look for lower peaks and lower troughs. The picture I have illustrated below shows both an uptrend as well as downtrend based on peak trough analysis.

Peaks & Troughs used to determine uptrend & downtrend
Source: Profit Hunter

A stock can also move in neither of these direction and stay sideways. Here the peaks and troughs will be at same levels or within the previous peaks or troughs. Some traders avoid trading when the stock is sideways while some savvy traders will even trade within these ranges once they get a hang of the levels from where price is likely to change direction.

Peak Trough Analysis on Nifty Weekly chart since November 2010
Source: Spider Software India

I have illustrated above a peak trough analysis of Nifty on weekly charts for you all to see. Do have a look at it and try applying the same principle on a chart of a stock you hold.

HoHo!! Its Christmas tomorrow and I wish you and your family be blessed with love, peace and prosperity that comes with the joyful spirit of Christmas. Enjoy the happy cheer.

P.S:- You can find free charting tool on nseindia.com. Simply click on this link.

What was your stepping stone in the markets? How did you began investing or trading in the markets? Share your story in the Club or share your comments here.

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8 Responses to "Your 'Stepping Stone' in Technicals"
siddarth chauhan
18 Feb, 2017
good interest generated about technicals. Want to know more which will guide me towards more money generation.Like 
Veerabhadrarao
06 Jan, 2015
I agree with Dr PraveenLike 
Veerabhadrarao
06 Jan, 2015
quite interestingLike 
j.j.gandhi
05 Jan, 2015
The explaining of trends is made simple. It generates interest. I am investor/trader. I would like to know wether this works for stocks/nifty so that a correct judgement can be taken. I would read all your articles. Thanks for generating renewed interest. Like 
Dr praveen kumar Shrivastava
05 Jan, 2015
Good article . novice like me, I am able to understand the article. looking for more such articles.Like 
Raviraj
25 Dec, 2014
I've been an investor from 2004 and have been a premium member of EquityMaster since then and have started to apply TA for past 2 years. Why TA ? The correction in 2008 made to analyze my strategy and I learned that by using TA to identify exits on a timely manner will help to capitalize the opportunities provided by the Market. This is by no way against EquityMaster's recommendations as I use TA for own understanding and analysis as I'd like to know why/when I need to enter/exit a stock rather than blindly following others advice.Like 
VIJAY AJMERA
24 Dec, 2014
when i was student my friend advised me to invest in reliance bond. i applied with rs 2000. i received 2 bond of 500. each. i started watching it &gradually rose to double before conversion . so i got interested in shares.& still i have never parted from reliance.Like 
A Bhatta
24 Dec, 2014
Thank U. Very simply elaborated. The link has been made is only showing NIFTY charts, is there any such tool to see the charts any bse stockLike 
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