The Nifty has this tendency to go through a big move (range expansion) and then huddle inside a range for many days. This is the cycle of expansion and contraction. The trading range represents contraction.
Currently, we are inside a trading range after the up move from 4800 to 5000. Now, the trend is up. Then, the trader assumes that the move out of this range will be on the upside. Remember this is a probability since prices should continue with the trend after a consolidation. For this reason, I do not suggest going short while we remain inside a range, not in my letter to clients, and, not on TV.
What is the next step for the Nifty?
The range is pretty narrow, 4950 - 5020 approx.
(1) The Nifty closes above 5020, and continues its up thrust. Fine.
(2) The Nifty decides to go fo a correction, closes below 4950. Most traders should simply close long positions and wait it out. Professional traders can try to catch the downside, understanding that this is a correction. But then, you never know!
(3) The problem comes on a fakeout. If the Nifty close above 5020, then declines to finally move down, the trader is left holding a loss. Pity, but that's the way it is.
Technicals and Fundamentals
Shazia asks if we should ignore fundamentals altogether. My answer would be: yes. For trading, do not even think about what the fundamental news flow is saying. But, I use the fundamentals to filter a list of stocks to invest or trade. When we make a list of stocks for position trading, we check their earnings. If the company has not earned during the latest quarter, we discard it. Our position trades last for a couple of weeks, yet, I do require that we start with essentially profitable companies. The information is available at the NSE and BSE web sites - that is enough.