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Human Resources/MBA FINANCIAL MANAGEMENT (Assignment question)


Hi leo sir,

I am a student of MBA(FM). I have red your answers for management questions in 'Allexperts' and it was great help to me for my Assignment. Thanks for your support.

Below are few questions to which i would want your help in answering them.

1.How would you characterize the behaviour of the stock during the period [e.g., aggressive, neutral, defense, etc.] relative to the market? State why, in terms of :
a.Underlying statistical relationships, and
b.Company basics [e.g. products, services, operations and financing]
2.Imagine that the stock market has been declining. A technician is looking for signs of an upturn in the market. What sorts of readings should he be expecting from
a.Breadth of the market   
b.Volume of trading
c.Odd-lot trading
d.Short - selling

3.You are attempting to construct an optimum portfolio. Over your holding period, you have forecasted an expected return on the market of 13.5 percent with a market variance of 25 percent. The Treasury security rate available is 7 percent [risk-free]. The following securities are under review:     
Boeing          3.72   0.99   9.35
Bristol-Myers         0.6   1.27   5.92
Browning-Ferris         0.41   0.96   9.79
Emerson Electric      -0.22   1.21   5.36
Mountain States Telephone   0.45   0.75   4.52

looking forward to your kind co-operation.

The concept of price action trading embodies the analysis of basic price movement as a methodology for financial speculation, as used by many retail traders and often institutionally where algorithmic trading is not employed. Since it ignores the fundamental factors of a security and looks primarily at the security's price history — although sometimes it considers values derived from that price history — it is a form of technical analysis. What differentiates it from most forms of technical analysis is that its main focus is the relation of a security's current price to its past prices as opposed to values derived from that price history. This past history includes swing highs and swing lows, trend lines, and support and resistance levels. At its most simplistic, it attempts to describe the human thought processes invoked by experienced, non-disciplinary traders as they observe and trade their markets.
Price action is simply how prices change - the action of price. It is readily observed in markets where liquidity and price volatility are highest, but anything that is bought or sold freely in a market will per se demonstrate price action. Price action trading can be included under the umbrella of technical analysis but is covered here in a separate article because it incorporates the behavioural analysis of market participants as a crowd from evidence displayed in price action - a type of analysis whose academic coverage isn't focused in any one area, rather is widely described and commented on in the literature on trading, speculation, gambling and competition generally. It includes a large part of the methodology employed by floor traders[ and tape readers.[ It can also optionally include analysis of volume and level 2 quotes.
The trader observes the relative size, shape, position, growth (when watching the current real-time price) and volume (optionally) of the bars on an OHLC bar or candlestick chart, starting as simple as a single bar, most often combined with chart formations found in broader technical analysis such as moving averages, trend lines or trading ranges.The use of price action analysis for financial speculation doesn't exclude the simultaneous use of other techniques of analysis, and on the other hand, a minimalist price action trader can rely completely on the behavioural interpretation of price action to build a trading strategy.
These patterns can often only be described subjectively and the idealized formation or pattern can in reality appear with great variation.

Analytical Process
A price action trader's analysis may start with classical technical analysis,  including trend lines, break-outs, and pull-backs, which are broken down further and supplemented with extra bar-by-bar analysis, sometimes including volume. This observed price action gives the trader clues about the current and likely future behaviour of other market participants. The trader can explain why a particular pattern is predictive, in terms of bulls (buyers in the market), bears (sellers), the crowd mentality of other traders, change in volume and other factors. A good knowledge of the market's make-up is required. The resulting picture that a trader builds up will not only seek to predict market direction, but also speed of movement, duration and intensity, all of which is based on the trader's assessment and prediction of the actions and reactions of other market participants.
Price action patterns occur with every bar and the trader watches for multiple patterns to coincide or occur in a particular order, creating a 'set-up'/'setup' which results in a signal to buy or sell. Individual traders can have widely varying preferences for the type of setup that they concentrate on in their trading.

An candlestick chart of the Euro against the USD, marked up by a price action trader.
This annotated chart shows the typical frequency, syntax and terminology for price action patterns implemented by a trader.
One published price action trade is capable of giving a name and a rational explanation for the observed market movement for every single bar on a bar chart, regularly publishing such charts with descriptions and explanations covering 50 or 100 bars. This trader freely admits that his explanations may be wrong, however the explanations serve a purpose, allowing the trader to build a mental scenario around the current 'price action' as it unfolds, and for experienced traders, this is often attributed as the reason for their profitable trading.
Implementation of trades
The price action trader will use setups to determine entries and exits for positions. Each setup has its optimal entry point. Some traders also use price action signals to exit, simply entering at one setup and then exiting the whole position on the appearance of a negative setup. Alternatively, the trader might simply exit instead at a profit target of a specific cash amount or at a predetermined level of loss. A more experienced trader will have their own well-defined entry and exit criteria, built from experience.
An experienced price action trader will be well trained at spotting multiple bars, patterns, formations and setups during real-time market observation. The trader will have a subjective opinion on the strength of each of these and how strong a setup they can build them into. A simple setup on its own is rarely enough to signal a trade. There should be several favourable bars, patterns, formations and setups in combination, along with a clear absence of opposing signals.
At that point when the trader is satisfied that the price action signals are strong enough, the trader will still wait for the appropriate entry point or exit point at which the signal is considered 'triggered'. During real-time trading, signals can be observed frequently while still building, and they are not considered triggered until the bar on the chart closes at the end of the chart's given period.
Entering a trade based on signals that have not triggered is known as entering early and is considered to be higher risk since the possibility still exists that the market will not behave as predicted and will act so as to not trigger any signal.
After entering the trade, the trader needs to place a protective stop order to close the position with minimal loss if the trade goes wrong. The protective stop order will also serve to prevent losses in the event of a disastrously timed internet connection loss for online traders.
the price action trader will place the initial stop order 1 tick below the bar that gave the entry signal (if going long - or 1 tick above if going short) and if the market moves as expected, moves the stop order up to one tick below the entry bar, once the entry bar has closed and with further favourable movement, will seek to move the stop order up further to the same level as the entry, i.e. break-even.

Behavioural observation
A price action trader generally sets great store in human fallibility and the tendency for traders in the market to behave as a crowd. For instance, a trader who is bullish about a certain stock might observe that this stock is moving in a range from $20 to $30, but the traders expects the stock to rise to at least $50. Many traders would simply buy the stock, but then every time that it fell to the low of its trading range, would become disheartened and lose faith in their prediction and sell. A price action trader would wait until the stock hit $31.
In a modern day market, the price action trader would first be alerted to the stock once the price has broken out to $31, but knowing the counter-intuitiveness of the market and having picked up other signals from the price action, would expect the stock to pull-back from there and would only buy when the pull-back finished and the stock moved up again
Two attempts rule
One key observation of price action traders is that the market often revisits price levels where it reversed or consolidated. If the market reverses at a certain level, then on returning to that level, the trader expects the market to either carry on past the reversal point or to reverse again. The trader takes no action until the market has done one or the other.
It is considered to bring higher probability trade entries, once this point has passed and the market is either continuing or reversing again. The traders do not take the first opportunity but rather wait for a second entry to make their trade. For instance the second attempt by bears to force the market down to new lows represents, if it fails, a double bottom and the point at which many bears will abandon their bearish opinions and start buying, joining the bulls and generating a strong move upwards.
Also as an example, after a break-out of a trading range or a trend line, the market may return to the level of the break-out and then instead of rejoining the trading range or the trend, will reverse and continue the break-out. This is also known as 'confirmation'.
Trapped traders
"Trapped traders" is a common price action term referring to traders who have entered the market on weak signals, or before signals were triggered, or without waiting for confirmation and who find themselves in losing positions because the market turns against them. Any price action pattern that the traders used for a signal to enter the market is considered 'failed' and that failure becomes a signal in itself to price action traders, e.g. failed breakout, failed trend line break, failed reversal. It is assumed that the trapped traders will be forced to exit the market and if in sufficient numbers, this will cause the market to accelerate away from them, thus providing an opportunity for the more patient traders to benefit from their duress
Since many traders place protective stop orders to exit from positions that go wrong, all the stop orders placed by trapped traders will provide the orders that boost the market in the direction that the more patient traders bet on. The phrase "the stops were run" refers to the execution of these stop orders.
Trend and range definition
A 'bear' trend where the market is continually falling, interrupted by only weak rises.
The concept of a trend is one of the primary concepts in technical analysis. A trend is either up or down and for the complete neophyte observing a market, an upwards trend can be described simply as a period of time over which the price has moved up. An upwards trend is also known as a bull trend, or a rally. A bear trend or downwards trend or sell-off (or crash) is where the market moves downwards. The definition is as simple as the analysis is varied and complex. The assumption is of serial correlation, i.e. once in a trend, the market is likely to continue in that direction.
On any particular time frame, whether it's a yearly chart or a 1 minute chart, the price action trader will almost without exception first check to see whether the market is trending up or down or whether it's confined to a trading range.

A trading range where the market turns around at the ceiling and the floor to stay within an explicit price band.
A range is not so easily defined, but is in most cases what exists when there is no discernable trend. It is defined by its floor and its ceiling, which are always subject to debate. A range can also be referred to as a horizontal channel.

OHLC bar or candlestick
Bar and candlestick terminology is briefly:
•   Open: first price of a bar (which covers the period of time of the chosen time frame)
•   Close: the last price of the bar
•   High: the highest price
•   Low: the lowest price
•   Body: the part of the candlestick between the open and the close
•   Tail (upper or lower): the parts of the candlestick not between the open and the close
Range bar
A range bar is a bar with no body, i.e. the open and the close are at the same price and therefore there has been no net change over the time period. This is also known in Japanese Candlestick terminology as a Doji. Japanese Candlesticks show demand with more precision and only a Doji is a Doji, whereas a price action trader might consider a bar with a small body to be a range bar. It is termed 'range bar' because the price during the period of the bar moved between a floor (the low) and a ceiling (the high) and ended more or less where it began. If one expanded the time frame and looked at the price movement during that bar, it would appear as a range.
Trend bar
There are bull trend bars and bear trend bars - bars with bodies - where the market has actually ended the bar with a net change from the beginning of the bar.
Bull trend bar
In a bull trend bar, the price has trended from the open up to the close. To be pedantic, it is possible that the price moved up and down several times between the high and the low during the course of the bar, before finishing 'up' for the bar, in which case the assumption would be wrong, but this is a very seldom occurrence.
Bear trend bar
The bear trend bar is the opposite.
Trend bars are often referred to for short as bull bars or bear bars.
With-trend bar
A trend bar with movement in the same direction as the chart's trend is known as 'with trend', i.e. a bull trend bar in a bull market is a "with trend bull" bar. In a downwards market, a bear trend bar is a "with trend bear" bar.
Countertrend bar
A trend bar in the opposite direction to the prevailing trend is a "countertrend" bull or bear bar.
There are also what are known as BAB - Breakaway Bars- which are bars that are more than two standard deviations larger than the average.
Climactic exhaustion bar
This is a with-trend BAB whose unusually large body signals that in a bull trend the last buyers have entered the market and therefore if there are now only sellers, the market will reverse. The opposite holds for a bear trend.
Shaved bar
A shaved bar is a trend bar that is all body and has no tails. A partially shaved bar has a shaved top (no upper tail) or a shaved bottom (no lower tail).
Inside bar
An "inside bar" is a bar which is smaller and within the high to low range of the prior bar, i.e. the high is lower than the previous bar's high, and the low is higher than the previous bar's low. Its relative position can be at the top, the middle or the bottom of the prior bar.
There is no universal definition imposing a rule that the highs of the inside bar and the prior bar cannot be the same, equally for the lows. If both the highs and the lows are the same, it is harder to define it as an inside bar, yet reasons exist why it might be interpreted so. This imprecision is typical when trying to describe the ever-fluctuating character of market prices.
Outside bar
An outside bar is larger than the prior bar and totally overlaps it. Its high is higher than the previous high, and its low is lower than the previous low. The same imprecision in its definition as for inside bars (above) is often seen in interpretations of this type of bar.
An outside bar's interpretation is based on the concept that market participants were undecided or inactive on the prior bar but subsequently during the course of the outside bar demonstrated new commitment, driving the price up or down as seen. Again the explanation may seem simple but in combination with other price action, it builds up into a story that gives experienced traders an 'edge' (a better than even chance of correctly predicting market direction).
The context in which they appear is all-important in their interpretation.
If the outside bar's close is close to the centre, this makes it similar to a trading range bar, because neither the bulls nor the bears despite their aggression were able to dominate

The outside bar after the maximum price (marked with an arrow) is a failure to restart the trend and a signal for a sizable retrace.
Primarily price action traders will avoid or ignore outside bars, especially in the middle of trading ranges in which position they are considered meaningless.
When an outside bar appears in a retrace of a strong trend, rather than acting as a range bar, it does show strong trending tendencies. For instance, a bear outside bar in the retrace of a bull trend is a good signal that the retrace will continue further. This is explained by the way the outside bar forms, since it begins building in real time as a potential bull bar that is extending above the previous bar, which would encourage many traders to enter a bullish trade to profit from a continuation of the old bull trend. When the market reverses and the potential for a bull bar disappears, it leaves the bullish traders trapped in a bad trade.
If the price action traders have other reasons to be bearish in addition to this action, they will be waiting for this situation and will take the opportunity to make money going short where the trapped bulls have their protective stops positioned. If the reversal in the outside bar was quick, then many bearish traders will be as surprised as the bulls and the result will provide extra impetus to the market as they all seek to sell after the outside bar has closed. The same sort of situation also holds true in reverse for retracements of bear trends.
ioi pattern
The inside - and outside - inside pattern when occurring at asto higher high or lower low is a setup for countertrend breakouts.] It is closely related to the ii pattern, and contrastingly, it is also similar to barb wire if the inside bars have a relatively large body size, thus making it one of the more difficult price action patterns to practice.
Small bar
As with all price action formations, small bars must be viewed in context. A quiet trading period, e.g. on a US holiday, may have many small bars appearing but they will be meaningless, however small bars that build after a period of large bars are much more open to interpretation. In general, small bars are a display of the lack of enthusiasm from either side of the market. A small bar can also just represent a pause in buying or selling activity as either side waits to see if the opposing market forces come back into play. Alternatively small bars may represent a lack of conviction on the part of those driving the market in one direction, therefore signalling a reversal.
As such, small bars can be interpreted to mean opposite things to opposing traders, but small bars are taken less as signals on their own, rather as a part of a larger setup involving any number of other price action observations. For instance in some situations a small bar can be interpreted as a pause, an opportunity to enter with the market direction, and in other situations a pause can be seen as a sign of weakness and so a clue that a reversal is likely.
One instance where small bars are taken as signals is in a trend where they appear in a pull-back. They signal the end of the pull-back and hence an opportunity to enter a trade with the trend.

Price action traders who are unsure of market direction but sure of further movement - an opinion gleaned from other price action - would place an entry to buy above an ii or an iii and simultaneously an entry to sell below it, and would look for the market to break out of the price range of the pattern. Whichever order is executed, the other order then becomes the protective stop order that would get the trader out of the trade with a small loss if the market doesn't act as predicted.
A typical setup using the ii pattern is outlined by Brooks.[An ii after a sustained trend that has suffered a trend line break is likely to signal a strong reversal if the market breaks out against the trend. The small inside bars are attributed to the buying and the selling pressure equalling out. The entry stop order would be placed one tick on the countertrend side of the first bar of the ii and the protective stop would be placed one tick beyond the first bar on the opposite side.
Classically a trend is defined visually by plotting a trend line on the opposite side of the market from the trend's direction, or by a pair of trend channel lines - a trend line plus a parallel return line on the other side - on the chart.[These sloping lines reflect the direction of the trend and connect the highest highs or the lowest lows of the trend. In its idealised form, a trend will consist of trending higher highs or lower lows and in a rally, the higher highs alternate with higher lows as the market moves up, and in a sell-off the sequence of lower highs (forming the trendline) alternating with lower lows forms as the market falls. A swing in a rally is a period of gain ending at a higher high (aka swing high), followed by a pull-back ending at a higher low (higher than the start of the swing). The opposite applies in sell-offs, each swing having a swing low at the lowest point.
When the market breaks the trend line, the trend from the end of the last swing until the break is known as an 'intermediate trend line or a 'leg'.[A leg up in a trend is followed by a leg down, which completes a swing. Frequently price action traders will look for two or three swings in a standard trend.

A trend is established once the market has formed three or four consecutive legs, e.g. for a bull trend, higher highs and higher lows. The higher highs, higher lows, lower highs and lower lows can only be identified after the next bar has closed. Identifying it before the close of the bar risks that the market will act contrary to expectations, move beyond the price of the potential higher/lower bar and leave the trader aware only that the supposed turning point was an illusion.
A more risk-seeking trader would view the trend as established even after only one swing high or swing low.
At the start of what a trader is hoping is a bull trend, after the first higher low, a trend line can be drawn from the low at the start of the trend to the higher low and then extended. When the market moves across this trend line, it has generated a trend line break for the trader, who is given several considerations from this point on. If the market moved with a particular rhythm to and fro from the trend line with regularity, the trader will give the trend line added weight. Any significant trend line that sees a significant trend line break represents a shift in the balance of the market and is interpreted as the first sign that the countertrend traders are able to assert some control.
If the trend line break fails and the trend resumes, then the bars causing the trend line break now form a new point on a new trend line, one that will have a lower gradient, indicating a slowdown in the rally / sell-off. The alternative scenario on resumption of the trend is that it picks up strength and requires a new trend line, in this instance with a steeper gradient, which is worth mentioning for sake of completeness and to note that it is not a situation that presents new opportunities, just higher rewards on existing ones for the with-trend trader.
In the case that the trend line break actually appears to be the end of this trend, it's expected that the market will revisit this break-out level and the strength of the break will give the trader a good guess at the likelihood of the market turning around again when it returns to this level. If the trend line was broken by a strong move, it is considered likely that it killed the trend and the retrace to this level is a second opportunity to enter a countertrend position.
However in trending markets, trend line breaks fail more often than not and set up with-trend entries. The psychology of the average trader tends to inhibit with-trend entries because the trader must "buy high", which is counter to the clichee for profitable trading "buy high, sell low". The allure of counter-trend trading and the impulse of human nature to want to fade the market in a good trend is very discernible to the price action trader, who would seek to take advantage by entering on failures, or at least when trying to enter counter-trend, would wait for that second entry opportunity at confirmation of the break-out once the market revisits this point, fails to get back into the trend and heads counter-trend again.
In-between trend line break-outs or swing highs and swing lows, price action traders watch for signs of strength in potential trends that are developing, which in the stock market index futures are with-trend gaps, discernible swings, large counter-trend bars (counter-intuitively), an absence of significant trend channel line overshoots, a lack of climax bars, few profitable counter-trend trades, small pull-backs, sideways corrections after trend line breaks, no consecutive sequence of closes on the wrong side of the moving average, shaved with-trend bars.


Trend Channel
A trend or price channel can be created by plotting a pair of trend channel lines on either side of the market - the first trend channel line is the trend line, plus a parallel return line on the other side. Edwards and Magee's return line is also known as the trend channel line (singular), confusingly, when only one is mentioned.
Trend channels are traded by waiting for break-out failures, i.e. banking on the trend channel continuing, in which case at that bar's close, the entry stop is placed one tick away towards the centre of the channel above/below the break-out bar. Trading with the break-out only has a good probability of profit when the break-out bar is above average size, and an entry is taken only on confirmation of the break-out. The confirmation would be given when a pull-back from the break-out is over without the pull-back having retraced to the return line, so invalidating the plotted channel lines.]
Shaved bar entry
When a shaved bar appears in a strong trend, it demonstrates that the buying or the selling pressure was constant throughout with no let-up and it can be taken as a strong signal that the trend will continue.
A Brooks-style entry using a stop order one tick above or below the bar will require swift action from the trader] and any delay will result in slippage especially on short time-frames.
For example:
Microtrend line
If a trend line is plotted on the lower lows or the higher highs of a trend over a longer trend, a microtrend line is plotted when all or almost all of the highs or lows line up in a short multi-bar period. Just as break-outs from a normal trend are prone to fail as noted above, microtrend lines drawn on a chart are frequently broken by subsequent price action and these break-outs frequently fail too. Such a failure is traded by placing an entry stop order 1 tick above or below the previous bar, which would result in a with-trend position if hit, providing a low risk scalp with a target on the opposite side of the trend channel.
Microtrend lines are often used on retraces in the main trend or pull-backs and provide an obvious signal point where the market can break through to signal the end of the microtrend. The bar that breaks out of a bearish microtrend line in a main bull trend for example is the signal bar and the entry buy stop order should be placed 1 tick above the bar. If the market works its way above that break-out bar, it is a good sign that the break-out of the microtrend line has not failed and that the main bull trend has resumed.
Continuing this example, a more aggressive bullish trader would place a buy stop entry above the high of the current bar in the microtrend line and move it down to the high of each consecutive new bar, in the assumption that any microtrend line break-out will not fail.
A pull-back is a move where the market interrupts the prevailing trendd or retraces from a breakout, but does not retrace beyond the start of the trend or the beginning of the breakout. A pull-back which does carry on further to the beginning of the trend or the breakout would instead become a reversal or a breakout failure.
In a long trend, a pull-back oftens last for long enough to form legs like a normal trend and to behave in other ways like a trend too. Like a normal trend, a long pull-back often has 2 legs. Price action traders expect the market to adhere to the two attempts rule and will be waiting for the market to try to make a second swing in the pull-back, with the hope that it fails and therefore turns around to try the opposite - i.e. the trend resumes.
One price action technique for following a pull-back with the aim of entering with-trend at the end of the pull-back is to count the new higher highs in the pull-back of a bull trend, or the new lower lows in the pull-back of a bear, i.e. in a bull trend, the pull-back will be composed of bars where the highs are successively lower and lower until the pattern is broken by a bar that puts in a high higher than the previous bar's high, termed an H1 (High 1). L1s (Low 1) are the mirror image in bear trend pull-backs.
If the H1 doesn't result in the end of the pull-back and a resumption of the bull trend, then the market creates a further sequence of bars going lower, with lower highs each time until another bar occurs with a high that's higher than the previous high. This is the H2. And so on until the trend resumes, or until the pull-back has become a reversal or trading range.
H1s and L1s are considered reliable entry signals when the pull-back is a microtrend line break, and the H1 or L1 represents the break-out's failure.
Otherwise if the market adheres to the two attempts rule, then the safest entry back into the trend will be the H2 or L2. The two-legged pull-back has formed and that is the most common pull-back, at least in the stock market indices.
In a sideways market trading range, both highs and lows can be counted but this is reported to be an error-prone approach except for the most practiced traders.
On the other hand, in a strong trend, the pull-backs are liable to be weak and consequently the count of Hs and Ls will be difficult. In a bull trend pull-back, two swings down may appear but the H1s and H2s cannot be identified. The price action trader looks instead for a bear trend bar to form in the trend, and when followed by a bar with a lower high but a bullish close, takes this as the first leg of a pull-back and is thus already looking for the appearance of the H2 signal bar. The fact that it is technically neither an H1 nor an H2 is ignored in the light of the trend strength. This price action reflects what is occurring in the shorter time-frame and is sub-optimal but pragmatic when entry signals into the strong trend are otherwise not appearing. The same in reverse applies in bear trends.
Counting the Hs and Ls is straightforward price action trading of pull-backs, relying for further signs of strength or weakness from the occurrence of all or any price action signals, e.g. the action around the moving average, double tops or bottoms, ii or iii patterns, outside bars, reversal bars, microtrend line breaks, or at its simplest, the size of bull or bear trend bars in amongst the other action. The price action trader picks and chooses which signals to specialise in and how to combine them.
The simple entry technique involves placing the entry order 1 tick above the H or 1 tick below the L and waiting for it to be executed as the next bar develops. If so, this is the entry bar, and the H or L was the signal bar, and the protective stop is placed 1 tick under an H or 1 tick above an L.
A breakout is a bar in which the market moves beyond a predefined significant price - predefined by the price action trader, either physically or only mentally, according to their own price action methodology, e.g. if the trader believes a bull trend exists, then a line connecting the lowest lows of the bars on the chart during this trend would be the line that the trader watches, waiting to see if the market breaks out beyond it.
The real plot or the mental line on the chart is generally comes from one of the classic chart patterns. A breakout often leads to a setup and a resulting trade signal.
The breakout is supposed to herald the end of the preceding chart pattern, e.g. a bull breakout in a bear trend could signal the end of the bear trend.
Breakout pull-back
After a breakout extends further in the breakout direction for a bar or two or three, the market will often retrace in the opposite direction in a pull-back, i.e. the market pulls back against the direction of the breakout.
Breakout failure
A breakout might not lead to the end of the preceding market behaviour, and what starts as a pull-back can develop into a breakout failure, i.e. the market could return into its old pattern.
Brooks observes that a breakout is likely to fail on quiet range days on the very next bar, when the breakout bar is unusually big.
"Five tick failed breakouts" are a phenomenon that is a great example of price action trading. Five tick failed breakouts are characteristic of the stock index futures markets. Many speculators trade for a profit of just four ticks, a trade which requires the market to move 6 ticks in the trader's direction for the entry and exit orders to be filled. These traders will place protective stop orders to exit on failure at the opposite end of the breakout bar. So if the market breaks out by five ticks and does not hit their profit targets, then the price action trader will see this as a five tick failed breakout and will enter in the opposite direction at the opposite end of the breakout bar to take advantage of the stop orders from the losing traders' exit orders.

Failed breakout failure
In the particular situation where a price action trader has observed a breakout, watched it fail and then decided to trade in the hope of profiting from the failure, there is the danger for the trader that the market will turn again and carry on in the direction of the breakout, leading to losses for the trader. This is known as a failed failure and is traded by taking the loss and reversing the position. It is not just breakouts where failures fail, other failed setups can at the last moment come good and be 'failed failures'.
Reversal bar

A bear trend reverses at a bull reversal bar.
A reversal bar signals a reversal of the current trend. On seeing a signal bar, a trader would take it as a sign that the market direction is about to turn.
An ideal bullish reversal bar should close considerably above its open, with a relatively large lower tail (30% to 50% of the bar height) and a small or absent upper tail, and having only average or below average overlap with the prior bar, and having a lower low than the prior bars in the trend.
A bearish reversal bar would be the opposite.
Reversals are considered to be stronger signals if their extreme point is even further up or down than the current trend would have achieved if it continued as before, e.g. a bullish reversal would have a low that is below the approximate line formed by the lows of the preceding bear trend. This is an 'overshoot'.
Reversal bars as a signal are also considered to be stronger when they occur at the same price level as previous trend reversals.
The price action interpretation of a bull reversal bar is so: it indicates that the selling pressure in the market has passed its climax and that now the buyers have come into the market strongly and taken over, dictating price which rises up steeply from the low as the sudden relative paucity of sellers causes the buyers' bids to spring upwards. This movement is exacerbated by the short term traders / scalpers who sold at the bottom and now have to buy back if they want to cover their losses.
Trend line break
When a market has been trending significantly, a trader can usually draw a trend line on the opposite side of the market where the retraces reach, and any retrace back across the existing trend line is a 'trend line break' and is a sign of weakness, a clue that the market might soon reverse its trend or at least halt the trend's progress for a period.

a.Breadth of the market  in  stock  market
A technique used in technical analysis that attempts to gauge the direction of the overall market by analyzing the number of companies advancing relative to the number declining. Positive market breadth occurs when more companies are moving higher than are moving lower, and it is used to suggest that the bulls are in control of the momentum. Conversely, a disproportional number of declining securities is used to confirm bearish momentum.
A large number of advancing issues is a sign of bullish market sentiment and is used to confirm a broad market uptrend. Traders will specifically look at the number of companies that have created a 52-week high relative to the number that created a 52-week low because this data can provide longer term information about whether the bullish or bearish trend will continue.
Advance/Decline Line
The advance/decline line is the most popular of all internal indicators by far. It is a very simple measure of how many stocks are taking part in a rally or sell-off. This is the very meaning of market breadth, which answers the question, "how broad is the rally?" The formula for the advance/decline line looks like this:
A/D Line = (# of Advancing Stocks - # of Declining Stocks) + Yesterday\'s A/D Line Value

The most popular data used for the A/D line is from the NYSE or Nasdaq markets. It is cumulative and normally plots a line similar to the price chart of the given index. The A/D line can be used alone or together with the price chart to look for divergences. A divergence suggests that a move in the price chart is unsupported by the broad market, and it should, therefore, be taken as a warning of an impending turning point in the index or market.

A traditional technical indicator, such as a moving average or a stochastic oscillator, can be applied to the chart or used to smooth the signals it gives.

Advance/Decline Spread
A variation on the A/D line is the A/D spread. Just as its name implies, the A/D spread charts the difference between the number of advancing stocks and declining stocks in a given market on a given day. Unlike the A/D line, the spread is not a cumulative chart, so each day is calculated separately. The formula for the A/D spread looks like this:
A/D Spread = # of Advancing Stocks - # of Declining Stocks

The chart of the A/D spread is an oscillator that revolves around a zero line. The A/D spread is interpreted much like any oscillator with overbought and oversold levels near the extremes of the chart. When the A/D spread crosses above its zero line, this means more stocks are advancing than declining, and vice versa.

This oscillator is extremely fast, so a moving average is usually applied to slow the chart's movements and signals. The technician can fine tune the number of days set for the moving average to the market data.

Advance/Decline Ratio
Another variation on the A/D line is the advance/decline ratio, which divides the advancers by the decliners. Here is the formula:
A/D Ratio = # of Advancing Stocks / # of Declining Stocks

This formula creates values that cannot be less than zero because it is a fraction (or ratio). A value of 3 means that three times as many stocks advanced as declined. Any value less than 1 means more stocks declined than advanced. Because of the nature of fractions, the chart is more legible using a logarithmic scale. Like the A/D spread, this chart moves quickly, so it's usually smoothed with a moving average.

Absolute Breadth Index
The absolute breadth index is a measure of internal volatility. It calculates the absolute value of the difference between the number of advancing and declining stocks, making it a slight variation on the A/D spread. The formula for ABI looks like this:
ABI = | (# of Advancing Stocks - # of Declining Stocks) |

Because the ABI is an absolute, its value will always be positive. The chart is a representation of the volatility in the spread between advancers and decliners. The ABI can be smoothed using a moving average to facilitate drawing longer-term trend lines. A fast-paced, choppy chart of the ABI can indicate a choppy, range-bound market.

Breadth Thrust
Breadth thrust is an internal indicator that is somewhat more complicated and harder to find. It is a ratio of moving averages that creates an excellent judge of market momentum. The formula looks like this:
Thrust = x-Day Moving Average of Advancing Stocks / x-Day Moving Average of (Advancing Stocks + Declining Stocks)

Since this formula creates a ratio whose denominator is a sum of both advancers and decliners, the value cannot be greater than 1 or less than zero. The breadth thrust indicator, therefore, creates a percentage value that moves just like a traditional oscillator from 1 to 100 (or .01 to 1.00).

Breadth thrust can be read just like a stochastic or RSI, where overbought and oversold levels are at the extremes. Divergence with the underlying price chart points to weakening momentum. The number of days to set for the moving averages should be determined by the time-period being evaluated.

Arms Index (TRIN)
Developed by Richard Arms, TRIN is a double-ratio that divides the A/D ratio by the A/D volume ratio. The formula is somewhat long but, fortunately, the TRIN charts for the NYSE and Nasdaq are some of the easier internal indicators to find on the internet. For those who are curious, here's the formula:
TRIN = (# of Advancing Stocks / # of Declining Stocks) / (Volume of Advancing Stocks / Volume of Declining Stocks)

For reasons that should now be obvious, the value of TRIN cannot be less than zero. The Arms Index is read somewhat counter intuitively. A value of less than 1 means advancing stocks are getting more than their share of volume, which is bullish for the market. When the value of TRIN is more than 1, declining shares are taking an outsized amount of volume, which is bearish for the market.

TRIN is usually smoothed using a moving average, which should be tuned to the time-period being evaluated. Trend lines drawn from the moving average reveal the direction of market momentum. (Remember that the value for TRIN moves down as advancing volume goes up).

McClellan Oscillator
Searching for an even more refined internal indicator, Sherman McClellan designed his own oscillator. Though the calculations for McClellan's Oscillator are far too complicated to compute by hand, they help demonstrate how the indicator works, so here they are:
McClellan Oscillator = [ 19-Day Exp. Moving Average of (# of Advancing Stocks - # of Declining Stocks) ] / [ 39-Day Exp. Moving Average of (# of Advancing Stocks - # of Declining Stocks)]

This formula creates a ratio comparing the 19-day and 39-day EMA of the A/D spread. The chart is an oscillator that ranges from +100 to –100 with overbought and oversold levels usually found at +70 and –70 respectively. The McClellan Oscillator can be read just like any other oscillator and is usually not smoothed, but it can be charted with a moving average as an indicator line.

b.Volume of trading  in  stock  market
The total quantity of futures contracts bought and sold during a trading day. The volume of trade numbers, reported as often as once an hour throughout the current trading day, are estimates. Final, actual figures are reported the following day. In the meantime, investors can use tick volume, or the number of changes in a contract's price, as a surrogate for trade volume, since prices tend to change more frequently with a higher volume of trade.
Volume tells investors about the market's liquidity. Higher volume means higher liquidity and better order execution. When investors feel hesitant about the direction of the stock market, futures trading volume tends to increase. Volume also tends to be higher near the market's opening and closing times, and on Mondays and Fridays. It tends to be lower at lunchtime and before a holiday.

(1) Volume gives us some indication of a stock's liquidity -- the higher the volume the more buyers and sellers out there.
(2) Volume may indicate a special event. Most stocks trade at an even pace for days or weeks at a stretch -- often until something unusual occurs. Heavy volume may indicate that the company has (or is about to) released important news. That news might be an earnings announcement, a new product, a change at the executive level, an acquisition, a merger or a new corporate alliance.
Sometimes, however, trading spikes up and the price subsequently moves up for no apparent reason. Very often the reason is a major purchase by large institutions hedge funds or mutual funds. So by itself, a price jump on big volume is not a reason to buy or hold a stock. It's just a heads up that major players may be accumulating shares.
$TIP: Any investor or fund company that becomes the "beneficial" owner of more than 5% of a stock, must notify the SEC within 10 days. You can find this information in Forms 13-D and 13-G at:
(3) Trading volume for one isolated day generally tells us very little. You want to track the average daily volume of trading over time to see what is taking place, what the consensus is about the stock.
Volume and technical analysis...
Technical analysts also use volume as a barometer of market sentiment. They believe that when a large number of shares is traded that the stock's price is "accurate" because it represents a consensus between many buyers and sellers.
Technical analysts use volume also to predict trends. You should not make your personal buy and sell decisions based on their five basic rules -- but they're interesting guidelines. However, don't take them as gospel.
1) When prices are going up and the volume is increasing, prices will continue to rise.
2) When prices are going up and the volume is decreasing, prices will either increase at a slower rate or start to drop.
3) When prices are falling and volume is increasing, prices will fall further.
4) When prices are falling and volume is also falling, then prices will slow down or they will start to increase.
5) When volume is flat, that is neither rising nor falling, it has no impact on price.
In addition to an individual security's trading volume, there is another popular volume concept known as "stock market volume." It's based on the fact that the number of shares traded during the day is totaled by each exchange (and NASDAQ) after it closes.
To see a consensus take hold in the overall market, there must be huge volume -- at least 10% higher than usual. You may find it interesting to track market volume as well as an individual stock's volume, over time.

the basic signals conveyed by volume data are easy to read. When a stock is traded, the transaction is recorded and included in the daily volume. When volume levels spike for a stock, index or exchange, the spike points to a price at which a large portion of ownership has changed hands. These prices are significant because they mark a break-even point for the new shareholders and are likely candidates for support/resistance levels - the larger the spike, the more significant the price.

Over time, if price moves steadily upward with strong volume, this indicates that buyers are accumulating shares and supply is becoming increasingly limited: bulls are winning the fight. Conversely, if price moves steadily downward with strong volume, sellers are unloading shares and outstripping demand: bears are taking this battle.

Cumulative Volume Index
By separating the up volume from the down volume, traders can design internal indicators to support their assertions about the direction of the given stock, index or market.

The first indicator we examine is called the cumulative volume index, or CVI. CVI is calculated by subtracting the down volume (that is, how many shares of losing stocks changed hands) from the up volume (the tally of shares traded in winning stocks) each day and adding that number to the previous day's value for CVI.

The formula looks something like this:

CVI = (Up Volume - Down Volume) + Previous Day's CVI

A chart of cumulative volume is usually drawn with a line connecting each day's value. The chart can be analyzed in the same manner as a price chart: by drawing trendlines to indicate direction and support/resistance levels. The actual value of cumulative volume is not important - only the direction and pattern of the chart matter.

The chart of cumulative volume is most useful when drawn together with a price plot. In this format, look for cumulative volume to reach new highs or lows in tandem with price. This situation indicates that the majority of shares are taking part in the market's direction, so the move can be confirmed. When cumulative volume fails to track the movement in price, a divergence is signaled, indicating that the majority of stocks are not taking part in the move. Look for reversals near these locations on the price chart.

On-Balance Volume
On-balance volume (OBV) is quite similar to the cumulative volume index, but OBV adds or subtracts each day's volume from the previous day's volume based on whether the price moves up or down.

If today's price is higher than yesterday's, the formula for on-balance volume looks like this:

OBV = Previous Day's Value + Today's Volume
If today's price is lower than yesterday's, this is the formula:

OBV = Previous Day's Value - Today's Volume

A chart of OBV is interpreted in the same way as a chart of cumulative volume. The chart should look similar to the price chart, and it can also be studied with trendlines and moving averages.

Up/Down Volume Spread
The up/down volume spread is similar to cumulative volume, except the difference isn't added together each day. The formula is simply this:

Volume Spread = Up Volume - Down Volume

This calculation creates a fast oscillator that revolves around a zero line. Traders can fine-tune a moving average of volume spread to smooth the signals. As the oscillator crosses the zero line, watch for a change in trend. When the oscillator reaches its extremes, the market could be overbought or oversold. Again, here it is useful to study volume spread in conjunction with a price chart.

Up/Down Volume Ratio
Just as its name indicates, the up/down volume ratio is up volume divided by down volume:

Volume Ratio = Up Volume / Down Volume

A value of 3, for example, indicates that three times as many shares advanced as declined on a given day. The chart can be smoothed using a moving average if so desired. Look for a peaking ratio value at new highs to confirm an upward move in stocks. Fractional values indicate market weakness and should be used to confirm new lows on the price plot.

Accumulation/Distribution & the Chaiken Oscillator
Designed by Marc Chaiken, the accumulation/distribution indicator is based on the assumption that when a stock or index closes near its high of the day, traders are accumulating shares. In other words, accumulation/distribution weighs volume according to how close to a given day's high or low a stock or index closes. The formula for weighted volume looks like this:
Weighted Volume = Volume [(Close - Low) - (High - Close)] / (High - Low)
This value is then used to calculate accumulation/distribution:
Accumulation/Distribution = Weighted Volume + Previous Day's Value
The same rules for interpreting the other volume indicators apply to the accumulation/distribution line. It is used to confirm price movement in a given stock or index. It should be plotted in its own pane and can be smoothed with a moving average.

A similar indicator called the Chaiken Oscillator further refines the accumulation/distribution line by calculating the spread between its three-day and 10-day exponential moving averages. The formula looks like this:
Chaiken Oscillator = Three-day EMA of A/D - 10-day EMA of A/D
Below is an example of a bar chart of the Dow Jones Industrial Average with its accumulation/distribution line and Chaiken Oscillator below it:

As the Dow Industrials reach a new intermediate high in early September, the accumulation/distribution chart below it confirms the move by also reaching a new intermediate high, but the Chaikin Oscillator points to slowing momentum because it fails to reach the level of its last peak.

Force Index
The force index combines price and volume into one value, attempting to measure the force behind a move in price. It can be read as an oscillator or cumulatively. Here's the formula:
Force Index = Volume(Today's Price – Yesterday's Price)
Crosses above and below the zero line can be read as a change in market trend. Because of the volatility of the force index, using a moving average to smooth and fine-tune the signals can be helpful.

In Conclusion
Keep in mind that this overview is not to meant to be an exhaustive study, but a useful primer for the novice market technician. It may be difficult to find a free source for a few of these charts but provides free charting tools, and many of these indicators are included. Most professional trading software packages include all of the above data and charts for those willing to pay a steep price.


c.Odd-lot trading  in  stock  market
An order amount for a security that is less than the normal unit of trading for that particular asset. Odd lots are considered to be anything less than the standard 100 shares for stocks. Trading commissions for odd lots are generally higher on a percentage basis than those for standard lots, since most brokerage firms have a fixed minimum commission level for undertaking such transactions.
Odd lots may inadvertently arise in an investor's portfolio through reverse splits or dividend reinvestment plans. For example, a 1-for-8 reverse split of a security, of which the investor holds 200 shares, will result in a post-split amount of 25 shares.

While trading commissions for odd lots may still be higher than for standard lots on a percentage basis, the popularity of online trading platforms and the consequent plunge in brokerage commissions means that it is no longer as difficult or expensive for investors to dispose of odd lots as it used to be in the past.
Simply stated, an "Odd Lot" is a stock order comprised of less than 100 shares of stock.  So any stock order from 1 share to 99 shares is considered to be an odd lot.
This is the pertinent information traders should know about odd lot orders:
•   An odd lot is a number of shares less than 100 (1-99)
•   A "Round Lot" is 100 shares of stock
•   Any number of shares that is a multiple of 100 is a round lot (i.e. 100, 600, 1,600, etc)
•   An order for a number of shares greater than 100, but not a multiple of 100 (i.e. 142, 373, 1,948, etc) is a "Mixed Lot" (AKA PRL, or partial round lot, order)
•   Odd-Lot orders are not posted to the bid/ask data on exchanges
•   Odd-Lot executions are not posted to the tape (i.e. the odd-lot orders which are executed will not show up on reporting data such as Bloomberg as trades)
•    Odd-Lot orders are taken into the order book at the exchange they are routed to.  When the exchange is able to match an order from the other side of the book with the odd-lot, it will be filled.  This could lead to delay on execution of an odd-lot.
•   There are numerous guidelines for the routing of odd-lot orders:  Odd-Lot orders to initiate positions will not be routed to primary exchanges; Odd-Lot orders can be routed to primary exchanges, but only if the order in question is to close out a preexisting position; IB will not direct-route odd-lot orders which initiate positions to primary exchanges, therefore these type of orders should be Smart Routed so that IB's routing system can send the order to an ECN for execution.  The exception is that odd lots can be routed to NYSE/ARCA/AMEX, but only as part of a basket order or as a market-on-close (MOC) order.
•   A mixed lot or PRL (i.e. 257 shares) direct-routed to NYSE/AMEX will be submitted in whole to the exchange (applies to both market and limit orders).  If the order is direct-routed to NYSE/ARCA, only the round lot portion of the order will be submitted and, if it is executed, the IB system will cancel the remaining odd-lot portion of the order.  If the order is routed via IB Smart Routing, all market centers are eligible to receive the order according to the Smart Routing logic (including NYSE/ARCA, but only for the round lot portion of the order).
•   IB will not route odd-lot orders for HOLDRS.  The odd-lot portion of a PRL order for HOLDRS will be rejected by the IB system after the round lot portion of the order is executed.
•   Individual exchanges may impose certain restrictions on odd lot orders, in addition to any of the restrictions mentioned above
An odd lot is an order for anything less than 100 shares. This is the opposite of a "round lot," which are orders in multiples of 100 shares. However, thinly traded stocks sometimes trade in 10-share increments.
How It Works/Example:
Investors, particularly individuals, are frequently unable or unwilling to bear the expense of trading shares in even round lots. Nearly all brokers accept odd-lot trades, but some may charge a higher commission for doing so. However, the advent of electronic and online trading platforms has reduced, and in some cases eliminated, these odd-lot premiums.
Why It Matters:
Odd-lot orders tend to be placed by small personal investors rather than institutional traders. Thus, the ratio of odd-lot buying to odd-lot selling is often used to evaluate small-investor sentiment. Trends in odd-lot short sales may also be indicative of negative sentiment by small investors.

The controversial odd-lot theory states that odd-lot traders are poor market timers and that profits can therefore be made by trading contrary to odd-lot trading patterns.

d.Short – selling  in  stock  market

The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit. Short selling may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one. Since the risk of loss on a short sale is theoretically infinite, short selling should only be used by experienced traders who are familiar with its risks.
Consider the following short-selling example. A trader believes that stock SS which is trading at $50 will decline in price, and therefore borrows 100 shares and sells them. The trader is now “short” 100 shares of SS since he has sold something that he did not own in the first place. The short sale was only made possible by borrowing the shares, which the owner may demand back at some point.

A week later, SS reports dismal financial results for the quarter, and the stock falls to $45. The trader decides to close the short position, and buys 100 shares of SS at $45 on the open market to replace the borrowed shares. The trader’s profit on the short sale – excluding commissions and interest on the margin account – is therefore $500.

Suppose the trader did not close out the short position at $45 but decided to leave it open to capitalize on a further price decline. Now, assume that a rival company swoops in to acquire SS because of its lower valuation, and announces a takeover offer for SS at $65 per share. If the trader decides to close the short position at $65, the loss on the short sale would amount to $15 per share or $1,500, since the shares were bought back at a significantly higher price.

Two metrics used to track how heavily a stock has been sold short are short interest and short interest ratio (SIR). Short interest refers to the total number of shares sold short as a percentage of the company’s total shares outstanding, while SIR is the total number of shares sold short divided by the stock’s average daily trading volume.

A stock that has unusually high short interest and SIR may be at risk of a “short squeeze,” which may lead to an upward price spike. This is a constant risk that the short seller has to face. Apart from this risk of runaway losses, the short seller is also on the hook for dividends that may be paid by the shorted stock. In addition, for heavily shorted stocks there is a risk of a “buy in.” This refers to the fact that a brokerage can close out a short position at any time if the stock is exceedingly hard to borrow and the stock's lenders are demanding it back.

While short selling is frequently vilified and short sellers viewed as ruthless operators out to destroy companies, the reality is that short selling provides liquidity to the markets and prevents stocks from being bid up to ridiculously high levels on hype and over-optimism. Although abusive short-selling practices such as bear raids and rumor-mongering to drive a stock lower are illegal, short selling when done properly can be a good tool for portfolio risk management.

First, let's describe what short selling means when you purchase shares of stock. In purchasing stocks, you buy a piece of ownership in the company. The buying and selling of stocks can occur with a stock broker or directly from the company. Brokers are most commonly used. They serve as an intermediary between the investor and the seller and often charge a fee for their services.
{C}When using a broker, you will need to set up an account. The account that's set up is either a cash account or a margin account. A cash account requires that you pay for your stock when you make the purchase, but with a margin account the broker lends you a portion of the funds at the time of purchase and the security acts as collateral.

When an investor goes long on an investment, it means that he or she has bought a stock believing its price will rise in the future. Conversely, when an investor goes short, he or she is anticipating a decrease in share price.

Short selling is the selling of a stock that the seller doesn't own. More specifically, a short sale is the sale of a security that isn't owned by the seller, but that is promised to be delivered. That may sound confusing, but it's actually a simple concept. (To learn more, read Benefit From Borrowed Securities.)

Still with us? Here's the skinny: when you short sell a stock, your broker will lend it to you. The stock will come from the brokerage's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to your account. Sooner or later, you must "close" the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money.

Most of the time, you can hold a short for as long as you want, although interest is charged on margin accounts, so keeping a short sale open for a long time will cost more However, you can be forced to cover if the lender wants the stock you borrowed back. Brokerages can't sell what they don't have, so yours will either have to come up with new shares to borrow, or you'll have to cover. This is known as being called away. It doesn't happen often, but is possible if many investors are short selling a particular security.

Because you don't own the stock you're short selling (you borrowed and then sold it), you must pay the lender of the stock any dividends or rights declared during the course of the loan. If the stock splits during the course of your short, you'll owe twice the number of shares at half the price.

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