Tuesday, July 7, 2009

A Trend continues

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.

6 comments:

TOOCOOL7610 said...

dear sir

i have a question, its not related with ur current blog entry but as i am a new reader of ur blog kindly do answer.i read ur blog entry dated june 3rd{enter a trading range} there u have mentioned that any oscilator like , rsi, cci,stochastics, can be used to trade ranges on intra charts but one confusion is with which settings we shud use cci, and stochastics??? default?? as each day is a new day in markets and each day volatility is different in markets 2nd question is that to trade nifty futures i use nifty cash carts as i dont have access to future charts is it fine to trade range trading on cash chart???

regards
toocool

TOOCOOL7610 said...

dear sir

sorry to write again , i forgot to ask in my last post that how to identify trading range and is it best to identify with 60 min chart?? you have mentioned a trading range breakout ie 4400 -4250 but recent high and low in which nifty was tradin was 4440 and 4250 but you saying it as 4400 and 4250. kindly explain, i hope i am not nothering you much.

regards
toocool

wildeazoscar said...

I am getting an EOD ADX(14) reading of 18.75, which is just above the +ve DI(14) at 17.61 and below -ve DI at 24.12

Now, is it the inception of a new trend?

would not it be better to assume a new trend once NIFTY breaks down from the rally from 3600 towards the neckline and ADX rises above 30?

As far as my knowledge goes, one does not trade reversals all out, but as soon as the reversal is confirmed and trend sets in, one trades in heavier volumes.

Please correct me if i am wrong.

Rohan Shenoy said...

Sir,

On the closing of budget day, closing price line chart had formed an almost perfect flag. After Tuesday's closing, there is a upmove but along with a inside day. The candle for tuesday has no lower wick! Does this create an bullish situation?

Thank you,
-Rohan.

Rohan Shenoy said...

Also, head shoulders formation is seen. Does that means we should expect a free fall any time soon?

men said...

Mr. Sudarshan,
For RSI, what is the value you use? Secondly does this value remain the same for the Nifty and other stocks which have a beta from 0.85 to >1 and is it the same for different time frames( intraday and positional)?
Thanks,