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Fake Stop Loss Price Break Outs ని ఎలా avoid చేయాలి? | ATR average true range, Parabolic SAR - YouTube
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Hello Friends. Welcome to Day trader Telugu
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we'll be discussing two indicators in this video
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the first indicator in it is, the trade we take up
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if that trade is profitable to us
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and if it brought us some profits
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at what point will it reverse?
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if we take the Buy position, it will increase for some time
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and at which point will it go downside?
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that reversal point will alert us
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with respect to this indicator, we can perform trailing stop-loss
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and we can know the reversal point and can exit there too
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but did you observe this?
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most of the time, the point at which we place the stop-loss
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the market will touch the stop-loss exactly
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and after triggering the stop-loss
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and again the stock or index moves in our direction
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fixing a stop-loss is good but
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due to these fake stop-losses
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the probability of our winning will be decreased
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and how to avoid the fake stop-loss breakouts?
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we can avoid this with the help of this second indicator.
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this entire concept will be based on stop-loss
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so, I'm not making separate videos for this
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before starting the video
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if at any point of the time, the data we share with you
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is valuable to you
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like this video and encourage our efforts
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and if you are new to this channel
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take a glance at the previous videos on this channel
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and if you think they are useful
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subscribe to the channel and hit the bell icon
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so, the first indicator is Parabolic SAR
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there will be two chart settings in any trading platforms like upstox or Zerodha
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one is the Trading view and the other one is chart IQ
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so, I'm using the trading view now
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to switch to Chart IQ, press the switch to Chart IQ button here
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but in the trading view platform,
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ATR indicator will appear
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so, I'm using the trading view platform
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so, before the ATR indicator, let's discuss Parabolic SAR
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for that, you can see indicators here
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at the indicators
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if you type Parabolic or SAR in the search box, you'll find the parabolic SAR
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apply it to the chart
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after applying it, you can see the dots like this
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for better visibility,
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I have increased the width of those dots
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so, we can see the candlesticks as well as parabolic SAR on the chart
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then, how should we understand the combination of these two?
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I'll explain each step at a time
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and finally, I will conclude it
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theoretically, if we look at this
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If we can see the parabolic SARs above the price
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then according to parabolic SAR
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the price will decrease from that point
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and if the parabolic SAR dots are formed below that price
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then there is a possibility that price will move upwards
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we can observe the same on the screen, particularly in this example
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the point at which, it is formed below or the indication of Bullish
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from there, the price moved rapidly towards up
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if the price is below Parabolic SAR then it is bullish
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and if the price is above Parabolic SAR then it is bearish
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and when the dots formed below rise towards up
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then it is the indication that the market is changing its course from bullish to bearish
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so, by this logic, the stop-loss and the target are placed
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if we take a trade here
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after rallying, if this comes at the topside here or at this point
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at any of these two points, if the below point moves towards up
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the gain from here will be enough
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and there may be a chance of market reversal
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the below dot moving up, that price point is considered as the target
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then the parabolic SAR indicates you to exit from that trade
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if the dot above the price is formed below the price
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means, if the indication of bearish changes to bullish
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then the people who are trading related to bearish
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the above dot when formed below
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it can be stop loss or even target too
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if they are with the gains
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they can be satisfied with the gains and can place this as a target
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and this indication will be provided by the parabolic SAR
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it is simple yet why doesn't everyone use this?
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the answer lies within this chart
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actually, when there are trending markets
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we don't get many fakes
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but if the market is in the range-bound
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it will be up for some time and then the market will correct itself
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and again it will be down
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and then up
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and down
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so, when the market is consolidated like this
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the market will confuse you multiple times and
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changes your views of bullish or bearish within a short period of time
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so, Parabolic SAR works better only in the trending markets
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and one more observation is,
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when the difference or distance between the candlestick and the Parabolic SAR is more
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then there is a possibility of strength in that trend
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so, when the distance between the dots decrease and become minimal
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then, the downside dot moves to upside
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and the upside dot moves to downside when both the points touch
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let's say a beginner started a trade
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in this volatile condition or on the upside or on the downside
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and he doesn't know where to exit
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he is confused about where to book his profit
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at any point, he has to exit the intraday trade
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so, simply apply the Parabolic SAR on the chart
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at the point of reversal like this
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when the downside moves to upside or vice-versa
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and when it suggests you to exit the market
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then before taking any immediate action
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after considering the rest of the parameters
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like if you have knowledge on candlesticks
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or support or resistance
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after considering all these factors
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if you have further confirmation on this chart that it is genuine
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then atleast, it can be used as an alert
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this can be the alert we need to exit the market
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but the ATR indicator is more interesting than this one
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ATR is completely different
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I'm removing this parabolic SAR so that we can discuss only ATR
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both Parabolic SAR and ATR, Average True Range
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were invented by Welles J. Wilder
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if we have a trade confirmation as Bullish
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and if we enter that trade, where do we place the stop loss?
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previously, it may have been supported here
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if it closes below this level, we will exit
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and we can gain good profits from it
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but suddenly, the stock price after falling for a bit
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when you observe here, at that level, the price breaks and closes
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the main reason for this is when the retailers take up a trade
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the same logics are used here as we discussed here, previously
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previous swing high or previous swing low
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or placing the stop loss below the important candle
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or placing the stop loss above the strong candle
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retailers do these common things
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so, most of the retail trader's stock processes will be here
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when big players need liquidity, they hit this stop loss
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after grabbing the liquidity
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again they take the price upside
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and the market comes near to the stop loss we placed
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touches it and reverses
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but we can remove these fake stop loss hits
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the point at which we are going to place our stop loss
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just look at the candle near it
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you can see ATR below on the screen
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it is 14 here
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I will explain its meaning
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you can see another value beside it, 31.9
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let's round it off to 32
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it means
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the point at which you are going to place the stop loss
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if we place the stop loss 32 points below from that point
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as we are buying
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so, when we buy, we place the stop loss below the buying point
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usually, as a retailer, we should have placed our stop loss
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at 17,257
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but as the ATR value is
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31.9198, which means 32.
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so, we have to place it below 32 points
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so, if we place the stop loss at 17225
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then we wouldn't have left at this fake breakout
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can we escape from every fake breakout by using this method?
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it is not 100% sure but most of the breakouts can be escaped
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because we know this logic
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that we should place it below a level
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so, how much is that level?
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we can place the stop loss here
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at the previous support or resistance
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but it is very far
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It works on a simple logic
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Average True Range
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the true range of a candle
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last 14 candles or we can consider the last 14 to 20 candles
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we can choose either 14 or 20 but use the default value of 14
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the average true range of the last 14 candles is measured
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and the average from it
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the indicator will decide the true range of the candles that are going to form
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and also, we will know the true range of the candle that give fake breakouts
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below that level
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or if we are selling, above that level
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from the point of the stop loss, we are going to place
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there will be a definite advantage by placing a stop loss using an ATR
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so, this is the process while buying
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or if you are selling
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ideally, it is swing high
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the point we are going to place the stop loss is 17,494
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if we add nearly 22 to it
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and we'll place the stop loss at 17,517
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we'll give some more edge to the stop loss
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there are two most important factors here
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the first one is, ATR depends on the time frame
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let's see how this changes with respect to the time frame
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I've drawn a vertical trend line at the exact swing high
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so, when you see there, the ATR is nearly 22
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now, let's observe the ATR value in multiple time frames
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we are currently in 5 mins
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let's change it to 15 mins
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at 15 mins, ATR is 46
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for the hourly time frame, ATR is 103
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which means, instead of the stop loss we were going to place
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ATR is indicating to place the stop loss 103 points away from the original
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if you look at the daily time frame
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298, which is nearly 300 points
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ATR is indicating to place the stop loss 300 points away from the original
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so, how should we understand this?
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the first thing, when I explained about the time frame
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I explained the trade execution time frame
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so, we should use only the trade execution time frame in ATR
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Scalping, Intraday, Swing or Positional trades that we take
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there will be variation in their stop losses and targets
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so, there will be variation in their ATRs
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so, when you have a doubt about selecting the time frame for the ATR
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select the trade execution time frame
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and select the ATR accordingly
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this is the first factor
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the second one is,
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the stocks that are volatile
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those stocks have high ATR when compared to non-volatile stocks
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for this, let's observe two stocks that have the same price
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ITC and Tata Power. They both have a price range of 220 to 240
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the latest ATR of ITC is nearly 5
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but the latest ATR of Tata Power is at 10
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also, observe the activity of the ATR
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whenever the price rallies very high
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when big candles are being formed
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then the true range increases
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so, the Average True Range (ATR) value also increases
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and when the candles are small
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it won't have any price activity or strength
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then the ATR value also decreases
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so, the stocks that are highly volatile
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and when the big candles are formed
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in those stocks, the ATR will be high
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when compared to non-volatile stocks that have small candles
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so, ATR is not constant for every stock
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so, from this, we should understand that there can't be a fixed stop loss
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like considering stop loss of 0.5% or 5 points for every stock
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is not at all viable
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Tata Power must have a different stop loss
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ITC must have a different stop loss
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because of their volatility
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which also gives us the ATR
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there is another point related to ATR
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sometimes, we place some blind trades
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not for a proper entry but
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based on some news or our conviction
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if we consider some trades like this
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then by using ATR, we can place the target and stop-loss
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for example,
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let's say a stock is at Rs.100
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without having a proper setup, if we enter with a buy position
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if the ATR value is 2
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for stop loss, we can take 1*ATR
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and for target, we can take 2*ATR
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or else, for stop loss, we can take 0.5*ATR
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and for target, we can take 1*ATR
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or for target and stop-loss, we can take 1*ATR
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based on our view, even in the blind trades
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by using ATR, we can place the target and stop-loss
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I hope this video is interesting and you already liked this video
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if in case you haven't yet
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If you think the content is useful to you, then like it
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I'll be back with another interesting video.
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This is today's video
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then like this video
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Until then take care
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JAI HIND
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