My video today is about the importance of placing a stop-loss & the points you will need to remember when placing a stop-loss. The video is in Hindi, follow the link to start watching.
Today's three stock picks for the medium term are as below. Do watch the videos in English or Hindi below.
Watch my latest video below on how to choose a time frame for trading/investing. Know the key factors you'll need to keep in mind when choosing the right time frame for your trading & investment needs.
Walgreen Co (WAG) has signaled an exit on the break of important support at 48. Resistance is seen at 48, 46.7 & 45, whereas critical support is at 40 breaking which the stock might see much lower levels. We also derive from the charts that WAG is a highly volatile stock which tends to break important supports and as well as resistances frequently. But having said that, the stock still looks to be downwards but any quick reversals are not to be ruled out.
Supports – 40
Resistances – 48, 46.7, 45
Bharat Forge topped out in early 2011 & has remained in a largely bearish phase, until now. The stock has formed a large base and is showing signs of maybe turning bullish. The entry pivot, as of now, is at 244.5 & on breaching this resistance the stock will move higher. Major resistance above this lies at 283 & on crossing this significantly we might see much higher prices on the stock. Stop loss may be placed at 206.5. If the stock slips further from here without a move up & with no breach of 244.5, these pivots will change drastically and we will have to wait it out for the stock to develop a bullish bias again. But for now the stock does look stable & if an up-move begins it will only be at the pivots as mentioned above.
Supports – 206.5
Resistances – 244.5, 283
Apple Computer (AAPL) topped out reaching $700 in September 2012 & is now at almost half its highest price. Looking at the chart now, we’re able to see the stock has entered into a base forming zone since May 2013. Within this area the stock might slip further, stabilize and form a base or quickly reverse providing a medium term investment opportunity or maybe even do a complete reversal, this is all very unsure as of now. But what we know for sure is that this is a candidate of interest i.e. place it in your watch-list now and watch for a future opportunity to arise because the stock shows signs of entering a base formation stage.
After topping out it broke through 535.5 which was a critical support. Further the stock broke another critical support at 455 recently, hence maintaining its downward trend. Support levels if prices fall further are at 385 & a very strong support is seen at 240. Critical resistances are at 455 & 535.5, important but lighter resistances are seen at 483.5, 502 & a very strong resistance if prices rally up suddenly is seen at 590. A buying possibility has not developed yet in the stock, but it is on our watch list and might be an interesting stock to enter if and when it turns around.
Supports – 385, 240
Resistances – 455, 483.5, 502, 535.5 & 590
The USD/INR currency pair remained sideways for the last 12 months. Within this sideways zone, from April to May, it attempted to begin a new down trend but failed to breach the critical support at 53 & bounced back from 53.5 to signal a new up-trend.
The new upward move began at a close above 54.95 in the month of May. Important resistances at 56.9 & 58.5 have been breached successfully & quickly. Since the up-move has been quick without any consolidation so far, the stop-loss for this move still remains at 53 but we’ll see this changing rapidly over the coming weeks. The pair is in an upward trend with supports at previously breached resistances & as listed below.
Supports – 56.9, 55.45, 53
Resistance – 58.5
We might see a little consolidation over the coming weeks & then again a continuation of the uptrend.
Crude Oil has spent the last 18 months in no man's land, after topping out in early 2012. During the past 6 months the commodity has been showing signs of bottoming out, it has also attempted to start an uptrend at 4947. In the end the trend failed to materialize & dipped to breach an important support at 4925 with a close of 4844 on the 15th of April 2013, it is now on a down trend.The intermediate trend in downwards, so traders can go short on the commodity. The lower supports as of now are 4654 & 4925 (which was previously violated). Resistances - a minor resistance at 5080 & major resistances at 5235 and 5517 for now.
In the long term Crude Oil is still shows signs of bottoming out, but the bottom is so far volatile & on an intermediate down trend. This tells us to be cautious & to stay out of investing in Crude until the trend reverses with a proper base formation or until the breach of an important resistance significantly.
What are candlesticks?
There are many different kinds of stock charts in use, but Japanese candlesticks are probably the most commonly used by many experts all over the world. This style of charting is considered to have its roots in the Edo-period rice markets of Japan. Historians estimate that they took their present form in the latter half of the Meiji period (late 1800s). Originally, they were just sticks drawn in red or black.
In a daily time frame chart, a single green or red candle expresses price movements for a single day; in a weekly time frame chart a single candle expresses price movements for an entire week. Candlesticks are used even on lower time frames for instance 5 minute charts or 60 minute charts.
The graph below shows different types of red & green daily time frame candles, where each candle represents the price action of a single day.
How to read candlesticks?
A candle consists of two parts, "the real body" & "the shadow". The thick part of the candlestick is called the real body, it represents the range of the stock’s opening & closing. The thin lines above & below the real body are called the shadows. Shadow above the real body is known as the upper shadow & under the real body is called lower shadow. Top price of the upper shadow is the high of session & low price of the lower shadow is the low of the session.
As shown in the diagram below, when the color of the real body is green it means the close of the session was higher than the open. The bottom of the real body is the opening price & the top of the real body is the closing price. The shadows represent the high and low of the session respectively.
If the real body is red it expresses that the close of the session was lower than the open. The top of the real body is the open & the bottom of the real body is the close. As in the earlier example the shadows represent the sessions high and low.
How Candlesticks are drawn?
Let us have a look at how candlesticks are drawn. To draw a daily candlestick you will require the open price, closing price, low & high of that days movement. Let's suppose that intra-day stock prices on a day moved from 9:00 AM to 16:00 PM & produce an upward moving line graph as shown below:
Or a downwards moving graph as shown below :
We can express these above line graphs as candlesticks. A green Candlestick expresses that market has closed above the opening price, in other words closing price of the stock is greater than opening price of the stock. The image below shows the price movement of a positive closing market, where market close is higher than market open, which has been mapped into a green candlestick :
A red candlestick, as in the below image, expresses that the market closed below the price of the opening. In other words opening price of the stock is greater than the closing price of the stock. The image below shows the formation of this price action into a red candlestick :
Candlesticks express stock price movements over a set period of time, either one day or one week or an hour etc. Regardless of the time frame, the shape of the candlestick & its combination with the other candlesticks can be used to identify the market’s direction & its relative strength or weakness & that is the main purpose of the candlestick charts.