In this post we will be discussing:
- Why trading in this pattern works
- When to enter the trade and how to place target and stop loss
Trading with this pattern gives you more than 80% success rate.
In the market there are two participants – buy and seller.
Buyers – always want the stock price to go up. Lets say you purchased a stock for 10 rupee, you will then always to sell it at 20, 30 and more.
Seller – always want the stock price to go down. If you are trading in intraday futures and options you can sell a stock first and then buy it at a lower price. Let’s say i sold a stock for 10 rupees and by the end of the trading session if I’m able to buy it at 5 rupees then the difference amount that five rupees will be my profit. So remember a seller can sell first and when he closes the position if the stock price is lower than what he sold it for, the difference amount is his profit.
There always be a constant fight between the buyers and sellers, lets understand this by taking following reference image as example:
In this chart, you can clearly see stock has formed a high level and no candles breach that high level. Now at this high level sellers got activated. They want to push the market down. There is then huge pressure at this level and market therefore goes down and settles at the low level. This low which was created in the process is where buyers will get activated. As we know buyers will want the stocks to go up, as he can only make profit when the market goes up. So at this low point buyers will start pushing the stock price up. In the process a new level is formed.
We call this new level as lower high. We call this lower high because this high is lower than the previous high. For instance at the 1st high level stock was trading at 100 rupees but now at this new high it will be trading at 90 rupees which is lower than than previous high. This also means the buyers were not able to push market above the previous high level. From the level you will notice sellers got activated and have started pushing the market down. They don’t want the stocks price to go higher than this.
They will therefore push the stock price down. As you can see in the process a new low position is formed. We call it higher low. Again following the same logic, the sellers were not able to push stocks price further down below the previous low levels, we there call it by higher price level from the previous low, more specifically using term – higher low.
This trends always continue in the market and in the process of such buyer and seller competition new higher low and lower highs are formed. This type of fight is always there in the market.
When we notice the market creating lower highs and there is seller’s pressure the first thing that we need to do is we need to draw a trend line with maximum number of touches. This level will now act as a strong resistance level.
Similarly join all the higher low levels to get the support level. We will now read it this way. From resistance level sellers will always try to push the market down and from the support level buys will try to push the market up.
now if we remove these candles with the following pattern you will notice range becoming closer and closer. Now as soon as you see marketing creating this type of symmetrical pattern don’t directly jump into the market. We need to wait and observe the market because there is indecision between the buyers and sellers.
If the buyers get strong they will easily break the resistance level and it will go up. Now this is the time when we need to join the buyers.
On the other side, if sellers get stronger they will take the market down. This is when we should join hands with the sellers.
Always remember as we only trade with a very small amount and lot sizes in 1-2, we cannot change the market direction. We therefore need to join hands with them .This way to can easily make profit in 1:2 or more ratios.
Few live market examples:
Bank nifty 5 mins time frame:
Enter the trade only if you get breakout or breakdown.
Now you will notice in the above chart, market has given breakdown. Your entry therefore has to be when the 2nd red candle is formed from the lower of the breakout candle and the stop loss you can set at the last lower high level.
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