The Nifty moved up by 155 points today, a gain of 3.57% over yesterday's close. Yesterday's post had this suggestion:
The second range is between 4360 and 4200. This is the range which can easily be broken out from, tomorrow. If this happens, traders should go long, with proper stops.
The Nifty moved around 4360 in the morning, then took off to close at 4508, a big gain. As the Nifty was trading above 4360 in the morning itself, what did you do ? Did you buy ?
Traders can take a trade with confidence when they have a complete trading plan. Buying on a breakout of 4360 was a significant part of today's plan. Yet, there were other components.
Where should the protective stop be ?
For a day trader, the stop should be below a three standard deviation of the ATR. This was around 25 points. If you had entered at the open, you would be stopped out duirng the period of drift, just before the market took off. There is no way to avoid such a stop loss. The correct approach is to renter if and when the morning highs are broken.
For a swing trader, who is tracking the market with 60 minute charts, the 2 standard dev stop ws 80 points. An early morning trade lasted throughout the day.A t the close, the trader could take profits on whole or part of the position.
My point is: There was a sense that a move aboe 4360 should be used to go long. Yet, even with this widely available idea, traders could have made mistakes and actually lost money on such a trending day. Why ? because they did not have a plan.
Always have a trading plan, written down, that will act as a guide during trading hours.