Thursday, January 28, 2010

Are we near a short term low?

One of the questions traders must be asking on Wednesday afternoon must be: Has the decline been overdone? A natural corollary to this question is: Are we near a short term low?

Let us try to answer the first question.

A 9% decline in the Nifty in as many days has been seen before. I suspect, it will be seen in the future also. Therefore, while the decline is painful (for bulls) it needs to be accepted for what it is. There is no measure of how much is acceptable and how much is overdone. If analysts say that 200 point decline is acceptable, then does this mean that the market has to fall 200 points and then suddenly stop falling. It is not so. The markets do what they will do.

What does overdone mean? Does this imply that the sharp 9% decline was overdone, and, the market should stop falling for a few days then again resume its decline? In such a case why would a trader buy because a decline is coming anyway!

My point is: a market does not work in clockwork, predictable pattern. Traders have to adjust their trding decisions to what the market is doing.

The second question: Are we near a short term low? This is best answered by the Market itself. The first signal that the market is making at least a short term low will be: The low of the previous day holds.

If you are short: use intraday charts to keep your trailing stops on full or part of your positions. For example: on 60 minute charts, use a three bar or five bar high as a stop.

If you are flat: You will be looking for trading opportunities. After a steep decline, the opportunities will be: try to catch a corective up move or wait for a relief rally and go short.

Have Fun!

3 comments:

Nitin Gupta said...

Respected sir,

Today you gave a message on moneycontrol that nifty would find some support near 4700- which is exactly where nifty can find support according to gann fan analysis of nifty on a daily basis. pls correct me if i am wrong . i think it would find support near 4572 (gann fan support) .

I am attaching the hyperlink for picture on my blog.

http://stockanalytics.blogspot.com/2010/01/nifty-gann-update.html

gulshan said...

Sir,

Can we describe the period from March 2007 to June 2008 as Head and Shoulder Reversal Pattern on Nifty Charts?

Left Shoulder formed around March 2007, Head during Dec-Jan2008 and right Shoulder formed during June 2008 (more clearly seen in weekly charts).

I am asking for confirmation of a pattern already developed, but for a learner previous patterns are also helpful to get more experience.
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Please reply, if detailed description is not possible, your Yes or No will be enough for me.

You should reply because you are the person who has shown the path of TA to me and many others. I have no other source of further education on TA except w.w.w. and some books prescribed by you. My knowledge is limited within the books suggested by you.

Thanks

Gulshan.

vnta said...

hi
in appropos to ur RIL CHART/POST i have 2 quries.
1/ if u tweak the upper resistance line of rt shoulder it becomes a bearish wedge ( means just raise its left end to upside at the point where there are multi resistance).AM I CORRECT/WRONG?
2/IN THIS SUPPOSED H&S PATTERN THE NECK LINE IS AT MORE THEN 100% FROM HEAD LEVEL SUCH H&S PATTERNS A"INT RELIABLE. MEANS LOOK LIKE THAT A H&S PATTERN IS BEING THRUSTED ON RIL WHEN THERE IS NONE . KINDLY CLARIFY IT.
REGARDS
BIGSAJAN82@YAHOO.COM