One of the basic principles of technical analysis is: price moves in trends. The meaning is that once a trend started it is assumed to continue unless proved otherwise. To my understanding, the trend is now Down for the Nifty. The down move started when the Nifty broke down below the 4400 - 4250 trading range after the big news event - the budget.
So, we assume that this trend will continue until proved otherwise. How is the downtrend cancelled?
First, by actually moving down. At some point, maybe 3600 to 3800, the selling may stop and bullish patterns emerge.
Second, by moving up and going against the down trend. To me, a close above 4400 will be conclusive proof that the downtrend has failed. The 4400 number is taken because it was the top of the trading range.
What can happen?
Scenario 1: The Nifty can continue to move down, with the force of two different bearish patterns behind it - the trading range breakdown and a bearish head and shoulder. There are pattern targets as well as support in the 3600 - 3800 range. A lot of factors including Q1 earnings and world markets will influence the Nifty's final support.
Scenario 2: The election gap is not filled. Inspite of the bearish patterns, somehow the Nifty manages to stay above 4090 and slowly move up again, or move up sharply - take your pick.
Since the markets can do anything, both scenarios are possible. probability favors the first scenario, that is why we have to go short with stops.