Monday, September 26, 2011
A "V" day today.A tussle of war between bulls and bears for the "V"ictory!!Still bears have the upper hand as of now...hmm
"LAZY "Z" PATTERN
Today's 60 min chart showed up a different pattern which is very interesting and would like to share with you.How it pans out tommorrow ,am eager and waiting to see...
This pattern called the "Lazy Z " pattern which Timothy Morge - the median line expert outlined in one of his Articles in detail.Based on the same , I'll run through this chart..
The traditional method for buying at a prior support is when price touches it and putting a stoploss below.If price plunges through the low, one get's stopped out.The reason,breakout traders, enter new short positions.These new short orders push the price lower,and executing stoploss orders left by those who have long positions at the "percieved" support.But once,the breakout traders orders and the stoploss orders are done, price moves back above the trendline and heads higher - as the new short positions entered on the break below begin to get stopped out!This Timothy Morge calls it getting washed and rinsed!
His description of the Lazy Z pattern:
1.Price makes a new low for the move,zooming through a median line or trend line.
2.Because New short positions were taken by the breakout traders, a wash and rinse rally ensues,shaking out the "weak"positions.
3.Once the new weak short positions are washed out of the market,price goes on to make new lows for the move.
We now wait for a retest of the Median /Trendline and sell at that point.The stoploss would be above the previous minor swing high.The stoploss should be protected , as when prices move up again we'll again have another round of sellers entering on retest of the swing high and push prices lower.Only if the move is strong , our position will get stopped out.So the trade decision is well planned one against the one when we enter Buy on retest of earlier supports / or Sell on breakdown of earlier support as a small stoploss point cannot be defined as per price bars.
Here in the Nifty Chart ,
1.At 4911 , previous Swing Low percieved as a buy point / support for the down move buyers would have entered with stoploss below.
2.Next day , the price plunges through the median line support,hitting stoploss points of buyers and new short position buyers ,dragging it to a new low.
3.Once the selling stops , the price moves up,picking up the stoploss of sellers and heads higher to hit the Median line.
4.Here we find price hitting resistance with prices again moving down,so sellers/short positions are being established again and pushing price to new Low.This confirms the presence of more sellers in the market.
The day ends with again a short covering rally closing near the Median Line.The pattern now is to Sell at the retest of the Median line / closer to the previous minor swing high .The stoploss would be above the minor Swing High.The new move towards the downside can be expected when the momentum builds up with more sellers trying to sell closer to test of the swing high.
Hope you enjoyed this Post!!
My plan would be to sell at the range between 4920-4900.In the event price does not reach this range,would prefer to enter the break of the midpoint of the swing from 4759 to close of today.