Monday, August 31, 2009

In the Trading Range

Prices inside a trading range result in a frustrating exercise in getting our trades on the right side. Actually, inside the range, there is no right side, so we search for a trade that does not quite exist.
The Nifty remains inside a very narrow range between 4650 and 4740. Please see my earlier post where I had given an hourly chart for this pattern in the Nifty. Inspite of a fair amount of volatility, the Nifty did not close below 4650. So, how do we trade this pattern?

In comments, there are a number of suggestions, all of them valid. But, here I will explain what I plan to do.
An existing long position was stopped out when the hourly bar closed below 4680. Now, the next trade is a move out of the range. A move out of the range will be confirmed by a close beyond 4740 or below 4650. An early warning trade can be taken if the Nifty closes above 4710 - the previous resistance level which was taken out on Friday.

Sun Pharma triangle.
Viral writes - "With reference to the follow-up of Sun Pharma Triangular pattern breakout... from what I have read online, they say that the breakout should ideally occur between 2/3rd (66%) to 3/4th (75%) of the width of the triangluar pattern. If the breakout occurs near the apex, the breakout could be said to be "No so Effective" or may as well prove out to be a "False Breakout"In the case of Sun Pharma, the price movement seems to be stretching more towards the apex (85-95%). Do you feel such minor aspects are significant?"

My Notes: A breakout before the 2/3rd width is considered reliable since momentum is strong enough to push prices out of the pattern. If prices drift all the way to the apex (as in Sun Pharma) , then markets do not have conviction on any direction. A move out of the triangle may well be a failure, or become irrelevant. Viral has correctly pointed out this behavior of the triangle pattern. Thanks!
Now, I add some more ideas. If the breakout, even from the apex, comes with a large trend bar, heavy volume, then the breakout may well carry conviction.

4 comments:

Viral Rajnikant Dholakia said...

Dear Sir, Thanks for addressing my query in detail.

Tushar said...

Hello Sudershanji,
Didn't understand today's sudden intraday correction.

Can you give some idea to identify weakness if one can before such correction on 15 min chart.

-tushar

Shazia said...

hello sir,
An intraday correction like this usually signals reversal of trend if accompanied by shedding of interest. Do you think today's U turn a breakout of the trading range of 4650 to 4740?

thanks
Shazia

G.S.Dhillon said...

Sir can u answer a question honestly, do u think technicals really work properly in indian mkts? In my view nifty is bitch of american mkts wen it comes to short term trading i.e 5-7 days holding or even in intraday. When we get a buy signal on nifty, suddenly dow jones futures crash frm +40 to -63 hence our market. Same with positional trades, if sum1 takes a short position seeing short term sell signal, dow close 150 up, n we see big gap up next day in nifty. So whats use of these breakouts, breakdowns or buy sell signals on 15-60 mint daily charts or EOD charts. I Think its the only americans mkts or chinese mkt which trades on technicals n can b traded on technicals without fear of any external impact