Sunday, 29 October 2017

GMMA as a strategic guide

The following is the price trend of "TV18 Broadcast" (NSEINDIA).

I'm using it here to explore an indicator named the GMMA (Guppy Mean Moving Average.)

The GMMA is the alternating red and green plot in the following graph. It plots extremely short trading activity (red band) and relatively longer trading activity (green band).

If we look at the GMMA and the price movement simultaneously, the stock is a good buy each time the RED BAND drops substantially below the GREEN BAND.

If we look at the price point of 27th October 2017, we see that the price has jumped up suddenly, and we see that the RED BAND has also moved up substantially and has also DISPERSED.

A dispersing GMMA (red or green) means the associated price trend does not have much steam in it. Dispersion in the lines that make up the GMMA (red or green) mean that the wavelengths that the price movement is composed of are changing in nature and a trend change is on the cards. The shorter wavelengths in the GMMA will influence the short term price trend and so on and so forth. So the dispersion can be used to judge, qualitatively, WHEN the price will eventually turn.

The price in "TV18 broadcast" will fall, in the coming days, as indicated by the current status of the GMMA, as well as the dispersion in the RED BAND.

A confirmation of the above reasoning:
If we look at deliverable volumes associated with the price movement on 27th October, we see that it is mostly because of "traders", i.e. intraday players, who buy and sell very rapidly. So this price level of 27th October 2017 is not sustainable in the short term, because these short term players will surely pull away soon, leading to a crash in price, in the short term.

Please note that although the RED GMMA is dispersing, it is still not widely dispersed, with four of the six red lines still quite close to each other, but surely moving towards a bigger divergence. The (turning) larger wavelength moving averages in the red GMMA will eventually take over the price movement.


A wider dispersal means a bigger pull towards trend change.






Some examples of GMMA dispersal as an indicator of trend change:


Godfrey Phillips:

The RED GMMA dispersing before price trend change.


KPIT Technologies:

The RED GMMA dispering before price trend change. The GREEN GMMA also disperses in the same manner as the RED GMMA, but it has a longer wavelength, which makes it less sensitive to short term fluctuations.


Ajanta Pharma: Please see region marked by blue lines. The focus here is the dispersing GREEN GMMA.

The price movement has been flat since Aug. 10, 2017, but the GREEN GMMA has been dispersing and has stayed dispersed. This would suggest a price rise in the medium term, since the GREEN GMMA has a relatively longer wavelength.

The RED GMMA showed some dispersal before the latest price spike upwards. It is however not dispersed.

Medium term trend change on the cards...


STRATEGY

Step 1... Look for a stock in which the RED GMMA has started dispersing.

Step 2... Look at the stock's P/E ratio to ensure it is not overvalued.

Step 3... A quick glance at company's financials to make sure all is ok.

Step 4... A quick look at the company's 'deliverables'.

Step 5... A quick look at other technical indicators like the 'Force Index' and 'Chaikin Money Flow'.

Thursday, 26 October 2017

The Triple Bottom

After a triple bottom forms, traders tend to get ready to enter a long position once the price breaks out above the previous resistance. This pattern is a reliable indication that the downtrend has reversed.

IF the price breakout is accompanied by strong trading volumes, even better.

via STOCKCHARTS:

Volume: As the Triple Bottom Reversal develops, overall volume levels usually decline. Volume sometimes increases near the lows. After the third low, an expansion of volume on the advance and at the resistance breakout greatly reinforces the soundness of the pattern.

Resistance Break: As with many other reversal patterns, the Triple Bottom Reversal is not complete until a resistance breakout. The highest point of the formation, which would be the highest of the intermittent highs, marks resistance.

Resistance Turns Support: Broken resistance becomes potential support, and there is sometimes a test of this newfound support level with the first correction.

Further reading: Top Stock Research, Chartlink, Mudraa, Munafasutra, AmarStock, StockTwits, Nseguide

Saturday, 25 March 2017

Some Technical Analysis - Bombay Dyeing

Trend spotting using Technical Analysis is an art. Mathematical art. Its insights and predictions are not cast in stone.

A look at the recent price breakout in BOMBAY DYEING:



The RED line is the 15 day EMA. The black line is the daily price movement.


Bombay Dyeing's price has been bouncing up each time it has touched the 15 day EMA line in red, since Dec 2016.


At the same time, the 15 day EMA has been rising. Steadily.

If we look at the ACDL and OBV lines, they have been steady.

If we look at the GMMA, the red GMMA has stayed above the green GMMA for an extended period.

And now comes the clincher - if we look at the CMF line around 6 -14 March 2017, its sudden drop does not affect the price. In the same time period, the ACDL dips as the CMF dips, but the price remains unaffected.

So the price jump around the 14th or 15th had to happen. It could have happened sooner. Or a little later, but it was inevitable.

An alert stock player would have seen this pattern and would have dived in around the first week of Jan 2017.

I missed it. I checked Bombay Dyeing today after almost one year..



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