Monday, October 20, 2008

How Low is Low ?

Short term trading is about momentum. In fact, even investing is a lot about long term momentum, but we will leave that issue for now.

If we assume that the Nifty is ready for a bounce (it is!), what are the resistance levels at which it can stop ?
All numbers discussed here are for Nifty October Futures. The first, most obvious resistance is at 3135 - 3155 zone. This is the zone that provided support on Wednesday, Oct 16. if this zone is taken out (meaning the Nifty continues higher), A-B-C targets for the Nifty are at 3208, 3306 and 3463.

The easiest way to catch this up move, is to use a trend indicator on an intra day chart. Keep the trend definition a bit wide to allow for the increased voaltility. For example, instead of using a 13 period average, use 34 period. If the futures approach any of the suggested resistance levels, switch over to the smaller period average to ensure tighter stops.

If our analysis is wrong, and, the Nifty continues to move down, then what ? Well, there is no support for the Nifty - a statement I have made many times. In case of a decline, traders should follow intra day charts to go with the downside trend. A change in trend will be a signal to exit.

Please remember that the Nifty cash index made 27 month lows on Friday October 18. This is NOT bullish. Yet, all markets will change their trend. If you are a short term trader, catch this change of trend with charts. If you wish to take positions, then the signals have not come in yet.

1 comment:

B M Kajaria said...

The way the market is falling nifty and sensex will test 2004 lows