Every trader’s dream in the stock market is to catch the “bottom” or “top” but performing such feat with a consistent record seems be a mammoth task. Most of the time, we thought that a bottom has formed and the stock is expected to stage a rally. However, the reverse occurs as the stock continues its downward spiral.

How do we solve this dilemma?  The solution is that we will try to detect a trend reversal configuration rather than pin-pointing the exact  “bottom” of a stock. Over here, we are trying to establish the birth of a bullish trend and by identifying the early stages of a bullish trend , we can still rake in a potential high return with a higher success rate.

The first step is to detect a series of higher lows and higher highs in the price action of a stock. As seen in the chart of Ajisen, it has been trading in a downtrend after hitting a high of HKD15.60 on 2nd November 2010. But fortunes have started to change for Ajisen as it has started to display a series of higher lows and higher highs since recording a low of HKD11.62 on 29th December 2010. Another interesting element is that the price action has started to trade above the 20 and 50-day moving averages. The second step is to detect a significant increase in trading volume. Rising prices must be accompanied by an increase in volume in order to be sustainable. On 11th January 2010, the trading volume has a significant “spike up” above the volume 50-day moving average.

Thus all these positive configurations suggest that Ajisen may have further upside potential. A break above the immediate resistance at HKD14.38 may see a further rally to set sight on the next resistance at HKD15.60. On the other hand, a violation below the immediate support at HKD13.44 may damage the bullish trend to trigger a sell-off towards the next support HKD12.72.