Strong overhead resistance at 4600 saw the Nifty go through a painful intra day correction, finally closing at 4515, giving up all of its intra day gains. In the process, the index also filled a gap up open - not quite bullish.
The primary trend is down, while the Intermediate trend is up. Soon enough, these trends will merge into a single stream. So, what will happen ? Will the primary trend change to UP, or will the intermediate trend change to down ?
We do not have the answers to these questions. We do know that charts will probably alert us to any of the two happenings.
A pivot low has been made at 4150. While the Nifty remains above this number, the intermediate trend remains up. The minor trend changes to down, if the Nfity were to close below 4400.
Sounds confusing, doesn't it ? Because the Trader needs to know: what should I trade ? All of this 'If and But's' make very good reading but do not provide actionable advice to traders.
The Trader has two courses of action, both of which will prove to be correct provided she exercises prudent money management.
First, go with the primary trend. This is a bear market. The strong resistance encountered by the Nifty at predetermined resistance zones tells us that the bulls are exhausted. Day traders can go short below 4500, while swing traders should sell below 4400. An initial stop loss should be somewhere above today's high - 4616.
Second, remain with the intermediate trend, which is UP. Day Traders should buy the first signs of strength with stops below that day's low. Swing Traders should buy before close of trade if the day is closing strong, or, buy above the high of the previous day. Stops will be below 4400. A minor down trend starts below 4400, thus long positions are not advised once a down move starts.
If the trade goes in your favor, good for you. If you find yourself in the wrong direction, the stops will ensure that your losses are manageable. You will be ready for another trade.
With some thought, you can develop another trading plan. All such plans will be successful if you know when to get out if you are wrong.