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Power of Doji...One Day Reversal...

tushar
12/31/2015 12:38:12 AM
  1047
  0

Power of Doji...One Day Reversal...

Doji...A Neutral Candle...as we have learned in traditional technical analysis...

Doji is made up of none or extremely minor body and extended tails on upward and downward side as High and Low values of that particular time period...

Doji are mainly formed due to equal pressure from both sides. The bulls and bears both have equal force for that particular time frame. That is the reason why it is called neutral...

But actual story is different when doji are appeared on the chart, provided at appropriate place. Then it gives devastating results...

For example, see the image above, it shows the daily chart of IGL - a future listed company. On 29th December, just before 2 days of expiry, a clear cut doji appeared on the chart at top.
 
The counter was in upmove since 9th December, 2015 after a hammer appeared on the charts. The close recorded was 459.95. 

Since then it was in continuous uptrend. But the doji appeared on 29th, which ordered a hault to this rally. the close on the day of doji was recorded at 534.5.
The rally gave 74 rupees upmove which estimates at approximate 16% in just 13 trading sessions. if a person has traded it positional in Future, then he might would have earned 75000 to 80000 Rs approximate from 1 lot. The lot size of IGL is 1100.

This wonderful upmove was haulted by a clear cut doji. The doji appeared was at the top of the upmove. And see the effect. The stock opened gap up, open was equal to high on the daily candle and it came down at 526.40 after hitting low of 521.15. If we consider the low then the difference between open and low price is 18 Rs approximate. Again if a trader has short the stock in futures, then he might would have potential of earning 1100*18=19800 Rs. But Tops and Bottoms are almost impossible to track in the stock market. Although 10000 Rs earning is not a big deal in such a good confirmed call.

It is just not enough. Our SmartTrader+ software has generated Sell call in the counter. It means that it will further go down from here. As such, there is another significant incident occured on the chart. Today's red candle has covered the previous doji candle completely. It is a perfect bearish engulfing. It indicates the immediate downmove for short term - 2-5 days in IGL daily chart. Traders can stay short on this counter for this period. 

Now, one may think that after the incident occurred, any body can write like this. True, but we are not only talking about past incidences recorded on the chart. I want to say that, whenever a doji candle appears on the top of any upmove or downmove, the immediate reversal occurs in majority of cases. The success ratio of this pattern is very high. 

For instance, I just want to show you one more opportunity for tomorrow's trading session. It is the last trading day of December expiry. Just watch the chart of BEL. Similar Doji has appeared on the chart. The stock is in upmove since 14th December, 2015 at closing price of 1186.05. The high recorded today is 1375.95, the upmove rally gave 16% profit approximate. Our SmartTrader+ gave buy sell on 18 December, 2015 at closing of 1233 Rs. Now, suddenly what happened and why I am suggesting this stock for tomorrow's trading session? The reason is, the good old Doji, that is also appeared on the top of the upmove and the other strong indication in that the doji candle is gap up. When a Doji appear on the chart at the top or bottom, with considerable gap up or gap down, then it is a clear indication of reversal of that particular trade. 

The one day reversal method has been explained by Jhon Magee and Robert Edwards in their book "Technical Analysis of Stock Trends". 

Now, if we consider Morning Star or Evening Star pattern, it consist of three candles. First one is either bearish or bullish candle having considerable body. The next day, a Doji with slight Gap Up or Gap Down. It is the third day when the pattern get completed provided the body of the third day is in reverse direction from that of the first day candle and also the size of first and third day candles are almost near if not exactly equal.

What does this indicate? the reversal actually takes place with the doji at the top or at the bottom. So friends, enjoy confirm or say sure shot calls type trading with a little knowledge of Doji. 

We suggest to short BEL tomorrow and the stop loss should be high of the doji candle(If not gap up). Make sure that the stock is trading below the close of yesterday before entering. Now, please don't ask for the target....We at NSEData.com always suggest trying to take maximum profits by trailing the stock price. 
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