The Nify has this tendency of breaking from a consoliation through a wide range bar, then going into a huddle, making another consolidation. This seems to be the pattern once again, as the Nifty creates a trading range after a massive 600 point wide range bar last Monday. The range is between 4100 and 4400. Three hundred points is rather wide, but then, we live in volatile times.
What are the possible scenarios?
One. The Nifty spends a few more days inside this range, then breaks out above 4400, giving a target of 4700+. Because the preceding trend is UP, we should assume that the move out of the range will also be up.
Two. The Nifty actually decides to take a deeper correction. It breaks down from the range, moves below 4100 and looks to find support at 3800 approx. This scenario is possible if the world markets decide to begin a correction.
Three. The Index moves out of the range boundaries but does not reach the targets. Instead it defines a wider trading range and spends many weeks in it. This will be the tricj\ky scenario, since a breakout or breakdown will attract many tarders who may find themselves caught as the Index remains inside a trading zone.
There are many other possibilities which I have not discussed since their probability, at the time of writing, is low. The purpose of scenario building is to be mentally alert on the different possibilities in the market. We also go through a mental exercise of planning our responses.