Bull and Bear Market

Bull and Bear Market

When you are into the work of stock trading, you often hear the terms “bull” and “bear”. These terms are used to define market conditions. It is important to know and understand what the terms indicate, in order to understand the functioning of the market. Let’s understand what are bear and bull markets and which one is better Bear or Bull market? And then let’s dig deeper into it.

What Are Bear and Bull Markets?

The words Bull and Bear are used to describe whether the market is appreciating or depreciating in value. Sometimes, these terms are also used to determine how investors think about the market and the subsequent trends.

In simple words, when the stock market rises high, it is said to be bullish or bull market. It is characterized by a continual increase in market share prices. When the market is bullish, most investors often believe that the uptrend will remain for a longer period of time.

On the other hand, the market is said to be bearish, when it is facing a downfall. A bear market is the indication of decline. In Bear Market, the share prices start dropping, and the economy of the country slows down.

Which one is better Bear or Bull market?

Both bear and bull markets have different impact on your investments. When the market is bullish, short term or intra-day trading takes a peek. On the other hand, the bear market brings long-term investment opportunities to investors. So it’s a good idea to spend some time to govern the market and make investment decisions accordingly.

Open vs High

Opening price is significant especially at the beginning of the market, to determine day trading strategies. The price at which stock first trade on trading day is known as opening price. Open vs high-low generally gives you the first impression of how a stock will perform throughout that trading day. Hence, the effect of news, events reflects on opening price, at times leading to the opening of stock in gap up or gap down.

When this opening price is compared with High or low, it helps the trader to take an effective position in the market. Therefore, a specific feature where High price can be compared with low prices, would be beneficent for the trader.

Open vs High low can be understood into two sections, in order to generate Buy & Sell signal:-

Open  equals to high

This indicates Bearish trend as prices will probably move below high price. In other words, a trader can go Short.  Whereas Previous high will help a trader to identify breakout by comparing it with current day’s high price.

Open equals to low

This indicates Bullish trend, thus a trader can go long. Here prices will possibly move upward beyond low price. However, previous low can help in determining the breakouts.

We have thus developed open v/s high-low feature for traders to identify intra-day trading strategies and even the ‘%chg’ option plays an important role for intra-day traders. This feature in TruedataCheetah is shaped in such a way where a trader can certainly take position by just observing the results.

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Studying Breadth of the Market

Market Breadth – ADS (Advance, Decline, Same) Feature in TrueData Cheetah is similar to the breadth indicator. Breadth Indicator measures the number of advancing and declining stocks using a mathematical formula. It reflects Market Sentiments. Looking at ADS,  a Trader would get an idea about how a Market Performing. It also has a third line ‘Same line’ which shows the percentage of stocks which are neither advancing nor declining, it shows stock with no % change in their close price.

The advance-Decline line can be better understood by Studying convergence and divergence:-

Convergence

Bullish- when advance line converge towards decline line from bottom to above, then it’s a bullish convergence. It generally shows signs of trend reversal in the market from Bearish to Bullish.

Bearish – when advance line crosses the decline line by moving down, it leads to bearish convergence.  This typically indicates a bearish reversal in the market.

Divergence

After convergence, ADS forming new highs or new lows. This can be used to identify a trend where fewer stocks are declining and the decline in the index may be nearing an end. Thus a trader can identify a stock in a group by using ‘% chg’  for trading.

Similar trading pattern could be followed in Bearish divergence.

Ratio

A/D ratio if above 1.25 shows a bullish trend in the market whereas if below indicates a Bearish Trend, if A/D ratio is between 0 and 1, this indicates bearish to choppy market. Using  A/A+D formula shows a strong bullish trend if above 0.60 or bearish trend if below 0.50.

This TrueData Cheetah feature is therefore significant while trading as it gives you an overall view of the market.

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Trade with Market Profile

Trading is a continuous learning experience. Market Profile is one of the best tool to organize market generated information and help in spotting Intraday and positional trading opportunities. Market Profile is not a time-based chart rather it organized the Trading Data and charts the relative frequency of trading at various price levels.  By organizing the trading data in terms of Alphabets (TPO) one can Study the Market structure and market dynamics. The structure depicted by the Market Profile reflects market-generated information; it represents the actual buy and sell orders transacted in the market place.

Let’s look at the important concepts of Market Profile

1. TPO 

TPO or Time Price Opportunity is the basic building block of Market Profile. Each and every letter in the chart represents a TPO. Which in turn represents a point of time where the market touches a price. Each consecutive letter generally denotes a 30min period of Market Activity.

2. Initial Balance (IB)

Initial Balance represents the first hour of trade. Typically the high and low range of the letters ‘A’ & ‘B’. Longer the length of the Initial Balance stronger the conviction of Long term and Short term players. It’s generally the first 60-mins of trading sets the tone of the day and gives us an upper and lower price range to use as a reference point for the day

3. POC

The price that recorded the highest trading activity.

4. Value Area

The Value Area represents the range of prices that contain 70% of a day’s trading activity.

5. Value Area High (VAH)

The upper level of the value area.

6. Value Area Low (VAL)

The lower level of the value area.

When there is a series of single tail letters above VaH & VaL, it is called as a single print buying &selling tail respectively. This kind of tail represents a strong reaction by the Other time frame trader(OTF).

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What is Volume Profile & How does it works?

What is Volume Profile?

Volume Profile is a visual representation of how much volume occurs at each individual price over a certain period of time. It helps traders to identify support and resistance. By looking at the volume we can see where the most activity is taking place historically.

The important ingredients of Volume Profile include:-

·         Value area: The Value Area represents the range of volume that contains 70% of a day’s trading activity. Prices in value areas are the most acceptable prices.

·         Initial Balance: Initial Balance represents the first hour of trade to predict how the market will perform during the rest of the day or to identify volatility to avoid trading.

·         VPOC: The price that recorded the highest trading activity.

·         Value Area High (VAH): The upper level of the value area.

·         Value Area Low (VAL): The lower level of the value area.

This is used to identify Support and Resistance. Volume The profile also includes High volume nodes (HVNs) where prices are deemed as fair prices. These are the prices where traders spend most of their time. HVN attract market activity. In contrast to HVNs, where prices are deemed as unfair prices are known as Low volume nodes ( LVNs), at these prices, traders spent no or little time. LVN tends to reject market activity.

How does volume profile works?

Basically, Volume Profile takes account of total volume traded at a particular price level during the specific duration and divides the total volume into either “buy volume” or “sell volume”. This makes easier for the trader to understand the information.

How to find Support and Resistance?

The first and most important use of the Volume profile is to find basic support and resistance levels. It is a reactive method to identify support and resistance. This means the method relies on past price movements and volume behavior unlike proactive methods (such as trend lines and moving averages) which are based on current price action and analysis to predict future price movements.

It can also be helpful in applying meaning to price levels where the market has visited earlier.

Bottom Line

Volume Profile is an exceptionally valuable tool for Technical Analysis for the traders. It is a charting tool that does a variety of things that are helpful while trading

The data that is provided by Volume Profile is quite certain. While in its simplest form, it is a great reactive method for analyzing and finding traditional support and resistance areas. It is capable of comparing a real-time event (the current day’s open) with historical events (the previous day’s profile) and make the best decision based on the connection of the two.

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How to Keep an Eye on Intra Day

Market eye filters is made creatively to help you take advantage of market opportunities without using any strategy. Market eye is an event tracker, a type of Market Scanner. There are pre-defined Bullish as well as Bearish events such as high of the day, low of the day, gap up, gap down, etc. Most of the software’s in the market provide this kind of feature but what makes this feature unique in TrueData Cheetah is the option of ‘Filters‘.

Market Eye filters will help you to filter out the choppy market, as a good scanner should not have same stocks repeating itself.

As I mentioned above, taking advantage of market opportunities such as:

1) Gap up/Gap down:–

Breakout occurs when a stock forms a Gap up, trader can take a long position or cover short position or a Gap down, trader can go short or sell long positions.

2) Turn over:–

Volume breakout can lead to market reversal or conviction that breakout is real. Momentum traders are thus benefitted from volume breakout. High volume with gap up or gap down could be identified with this filter.

3) Identifying Support and Resistance:–

When a stock reaches a new high in an uptrend it forms support and similarly, resistance is formed when a stock reaches a new low in down market. Thus Selling in new low and buying in new high can be a profitable trade. Reversals build slowly. Also in case of the first sharp dip always finds buyers and the first sharp rise always finds sellers.

4) % Chg:–

Long candle (bullish or bearish) accompanied with high volume filter is significant.

Removes noise from the market. Only significant movement between tick is identified thus stocks with significant movement can be concentrated upon.

 Thus using our market eye one can trade in any kind of market in the right direction irrespective of noise.

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