Algorithmic

Trading
NMIMS
SESSION 8 &9 - TECHNICAL ANALYSIS
TOPICS:
- CONTINUATION CHART PATTERNS
- TYPES OF CONTINUATION PATTERNS
- TYPES OF MIXED CHART PATTERNS
 Continuation Chart patterns (REVISION)

Continuation Chart Patterns:

- These chart patterns indicate that an existing trend will continue further in
the same direction. E.g.: Triangles, Pennants, Flags, Wedges & Rectangles.

- Preferred by Trend Traders while trading volatile/ high beta stocks

(E.g.: HCL Tech., Vedanta, Divis Labs, Tata Steel etc. )

- Trend traders usually prefer trading them using a Pyramiding strategy and strictly with
stop loss orders(sharp & fast reversal risk - fake breakouts).

- When Continuation Patterns are spotted at the end of the trend (near Demand Zone or
Supply Zone), Trend traders only take entry post the breakout of Support or Resistance
with high volumes and favourable Candlestick patterns as confirmation tools.

- When Continuation Patterns are spotted in the middle of the range, Trend traders take
entry based on retracement levels shown by Fibonacci or Dow or Gann.
Continuation Chart patterns (Retracement levels)
 Continuation Chart patterns (Retracement levels)

E.g.: HCL Tech Stock is in a uptrend and Fibonacci retracements based bounces are seen around
23.6% and 50%. So traders who took kept a watch on prices at these retracement levels have
managed to get some very good profitable BUY trades.
 Types of Continuation patterns - Contracting Triangles

- What it is: Essentially it’s a consolidation in a tight range which is becoming smaller & smaller
- Trendlines: Here 2 trendlines must be drawn only if tops & bottoms touch atleast twice.
- Volume behavior: Generally Volumes drop due to non consensus in market players
(mostly day traders/ scalpers) regarding the future direction of price
- Confirmation of Entry: Close above the upper trendline (close below the lower trendline
in case of descending triangle).
- Profit Target: Base of the biggest triangle (first triangle) to be added from the breakout
point (deducted in case of descending triangle)
- Stop loss: Breakout of the trendline on the other extreme (relatively limited risk).
 Types of Continuation patterns - Pennants

- What it is: Much smaller version of the symmetrical contracting triangle

- Prior price behavior: Steep rise (or fall)
- Volume behavior: Generally Volumes drop due to non consensus in market players
- Confirmation of Entry: Close or break above the upper trendline for Bullish Pennant
(close below the lower trendline for the Bearish Pennant).
- Profit Target: Height of the pole must be added to the point of breakout.
- Stop loss: Breakout of the trendline on the other extreme (relatively limited risk).
- CAVEAT: It sometimes acts like reversal pattern so fake breakouts are equally likely.
 Types of Continuation patterns - Flags

- What it is: Parallel channel that slopes down during an uptrend (Bullish Flag) or
slopes up during a downtrend (Bearish Flag).
- Volume behavior: Generally Volumes drop due to non consensus in market players.
- Confirmation of Entry: Close above trendline (Bullish flag) or below trendline (Bearish flag).
- Profit Target: Height of the immediately prior move (Flag Pole) to be added to trendline
post breakout.
- Stop loss: Breakout of the trendline on the other extreme.
- Trading tips: Flags typically occur around 50% of the entire move and tighter range flags
give more profits than wider range flags
 Types of Mixed patterns - Wedges

- What it is: Same as triangle pattern but here both trendlines move in the same direction.
- Price behavior: Falling wedges are considered bullish and rising wedges are bearish.
- Volume behavior: Generally, we see a drop in volumes.
- Confirmation of Entry: Close above (below) the appropriate trendline validates an entry.
- Profit Target: Widest portion added to the breakout point.
- Stop loss: Breakout of the trendline on the other extreme.
 Types of Mixed patterns - Rectangles

- Rectangles are patterns where prices trade in a range wherein traders prefer to buy
at the bottom and sell at the top of this range till they see a breakout with high volumes
post which they take aggressive positions in the direction of the breakout.

Scenarios of price action:

a) Rectangles as a Continuation Pattern:
- When the pattern range is very tight + short lived + middle of an uptrend it indicates accumulation & price
may break out above the range & continue its upmove (Refer Chart)
- When the pattern range is very tight + short lived + middle of a downtrend it indicates distribution & price
may breakdown below the range and resume its downfall again.
 Types of Mixed patterns – Rectangles (Cont’d)

b) Rectangles as a Reversal Pattern:

- At the end of a downtrend near the Demand Zone when the pattern range is very tall + prolonged it indicates
accumulation near the support level and we may see a price reversal through a breakout of the Rectangle’s
trendline in the upward direction.
(Refer Chart: Any breakout must accompany High Volumes or there is a risk of it being fake.)

- At the end of an uptrend near the Supply Zone when the pattern range is very tall + prolonged it indicates
distribution near the resistance levels and we may see a price reversal through a breakdown of the Rectangle’s
trendline in the downward direction.
Algorithmic
Trading
NMIMS
2ND SEGMENT OF SESSION 9 –
- 4 TRADER CASELET (PART C)
- ZERODHA KITE VIDEO TUTORIAL
- PRESENTATION – GROUP NO. 8:
”THE WARREN BUFFET WAY”
 CASELET 1b) – TRADER BEHAVIOUR at SUPPORT &
RESISTANCE

Please provide your observations/ learning to the newly added Part C from our
earlier Caselet on 4 Traders (Mr. A,B,C & D).

Form Groups of 5-7 people, discuss your observations to Part C amongst the group
and communicate your ideas key observations (bullet points) per group to the class.

Note: Time limit for reading & noting of Group level summary (bullet points) is 15 minutes.
Learnings from CASELET 1b) – TRADER BEHAVIOUR at SUPPORT &
RESISTANCE
Learnings from CASELET 1b) – TRADER BEHAVIOUR at SUPPORT &
RESISTANCE
 2) Video Session – TRADING DEMO of ZERODHA

Zerodha Kite Trading Tutorial link:

https://www.youtube.com/watch?v=cXjbB9TuQeo

Please revise the said video and note down important points as this is important
from the knowledge point of view.
Thank You