I am not a certified analyst. The charts shown and the content in the blog are for educational purpose only and in no way is a buy or sell recommendation. Readers are advised to use discretion.

Tuesday, 29 July 2014

Taps on DP

A Pattern, I have observed many times & am using it is TAPS on DP. Its coming frequently in Nifty nowadays. The criteria, i look for is:-
1) A Range Formation between 2 DPs.
2) Price starts knocking at one of the DPs (>2 times). The more the knocks, the better.
3) HL or LH formations as per the BO requirement. If the Taps are on DP above you, see for HL requirements & LH for Taps on DP below you.  A TRAP pattern will be an added advantage !!
4) Tails on that DP are better (For me, Tags on BB are equivalent).
5) Enter Above/ below the DP on BO of Candle Tail.
I will give few examples without BB from recent days..

a) See a Range marked with 2 DPs. We would have exited in this range having no position. Now, Price started making LH & tails on lower DP. Knocking started. Nearly 5 Taps on DP. A BO was evident in this case  & we can enter with confidence.

b) A Big Range formation. HL formation in Price in the range. Although a BOF in the starting, we would have exited earlier. 4 Taps on DP. we can go long on BO of upper DP.

c) A nice range after BOF, which would have made us out. Nice Taps (3 ~4) on upper DP. An entry on BO was a nice one !!

All these are recent charts of last week. hope you enjoyed..


17 comments:

  1. Deven

    Very valid observations. Will help in identifying the right PP breakouts
    Conventional TA states that S/R levels become stronger after each test
    http://www.incrediblecharts.com/technical/support_resistance.php
    This is not right. In fact they get weaker and weaker with each test as the resting orders gets exhausted
    HH/HL indicates that every time the rejection is getting weaker and weaker.

    Thanks a lot for sharing these observations
    ST

    ReplyDelete
    Replies
    1. Hi ST,

      Thanks for your comment. Just learning from you only..

      Regards,
      Deven Malhotra

      Delete
    2. Hi ST,
      Deven's 3rd point is important. BO is occured at the direction of price knocks when fulfill this point.

      See the images in incredible charts link given by you. I think that is also right. Because HH's formed at support & LL's formed at resistance. In our case S/R level is DP.

      Delete
    3. Sorry for creating confusion. Price repeatedly taps or knocks a support.Successive rejections are of lesser magnitude. So price will make successive lower highs and finally a BO happens. Opposite in case of Resistance.
      Incredible chart situation is different. Here successive rejections are stronger and price makes higher highs. Finally a price reversal happens. Read the last sentence in my first comment as "Lower Highs indicates weaker rejections from support and Higher Lows indicate weaker rejection from Resistance"

      ST

      Delete
  2. Deven

    Very good observation. Thanks for sharing. As the range gets established between two DPs and it breaks out,
    it will be more powerful.

    Thanks

    URD

    ReplyDelete
    Replies
    1. Hi URD,

      Yes, easy to take BO trades in such cases..

      Thanks,
      Deven Malhotra

      Delete
  3. Deven kindly update what is the meaning of taps thnx

    ReplyDelete
    Replies
    1. Hi Amber,

      Taping is just a word given to the touch & Knocks to DP for easy remembrance. You can call it anything, but the concept is that orders are getting exhausted there & responsible Buyers/ sellers are leaving space.

      Thanks,
      Deven Malhotra

      Delete
  4. Deven

    Good observation, it supports PP breakout trades.Thanks for sharing.

    VKM

    ReplyDelete
  5. Deven, thanks for the writeup. An important question is after which tap should we enter. Should we wait for 3 taps, 4 taps? If the HL criteria is being met , then enter at any DP and your SL will not be hit. But if HL criteria is not being met, then you will get repeatedly stopped out trying to enter the break of DP.
    Take for e.g your third chart, marked as (c). The last low before the BO seems to have broken the previous low. You would have been stopped out. Note that before this low, the criteria of HLs were being met so if you had entered the previous DP break , you would have been stopped out since this low broke the previous low.
    Now that the previous low has been broken and price has reverted upwards thereby trapping some new shorts, the probability of a successful BO is higher. Your comments please?

    P.S : Is it a coincidence that in the first and second chart where the HL criteria was being met, price came back to DP after some time, while in the third case when the HL criteria was not met (as the final low below the DP broke below the previous low trapping fresh shorts), price did not come back to DP. Or am I reading too much from the charts?

    ReplyDelete
    Replies
    1. Hi PA Trader,

      Thanks for good analysis. But we can't bind the mkt for 3 or 4 or more taps, but it should be more than 2, what i have observed in Nifty. To answer your questions-
      1) The Criteria of HL needs to be met, otherwise it will form a cigarette pattern type & can BO in any direction (if range is long enough).
      2) For BO trades, we always take them at the break of Candle Tails as SL orders are always above them only. (sorry for confusion, I meant tails BO only by DPs. Corrected in post)
      3) Yes you pointed out right in chart 'c'. If we would have entered earlier, it would have definitely happened. It happens in the game (as i haven't cherry picked the charts, so happy to see an example of failure also). but we can always re-enter..
      4) I haven't marked all DPs just to show the pattern, so it might be possible in the first 2 charts, that it was rejected from some strong DPs & last chart accompanied a TRAP pattren
      (chart a = 25.07.2014 , Chart b = 24.07.2014 , Chart c = 16.07.2014 & that day, i was trapped in this short !!)

      Any suggestions are always welcome, to trade this pattern better !

      Thanks,
      Deven Malhotra

      Delete
  6. Devenji,
    Thanks for the highly informative post.
    S.Karthikeyan

    ReplyDelete
  7. Just an observation to share...
    While observing PP trades, I had noticed that most successful PP trades happen after taps (FTC). PP entries without prior taps usually reversed, or lost momentum. I did not specifically observe for HH/LL.

    ReplyDelete
  8. 3 taps done at IRH, but PDH and BRN above. What next?

    ReplyDelete
    Replies
    1. I will go for it now if it breaks the candle high with SL below recent pivot..

      Delete