The Nifty moved up, above the resistance of 5340, with a lot of style. Today's trading has lessons for short term traders.
1. Anticipation. Friday was a holiday in most international markets including India. On Thursday, the Nifty rallied throughout the day to close at its highs. The Market was closing in strength. On Friday, while the U.S. markets were closed, a job report was released which was considered bullish.Sunday saw the Dubai stock exchange notch up gains. (This was a bloomberg news item so it caught my attention). Monday morning saw Asian markets up. The anticipation was then for an up day.
2. Waiting after a gap. Nifty Futures opened with a gap up to 5332 (previous day close: 5305) . After the initial euphoria, prices moved lower below the first 15 minute low, and, then below the low of the first 30 minutes. Therefore, the trader should wait after a gap for some cooling off. The dip was NOT a sell signal. It ws a normal correction after a gap.
3. Strong Close. A trend day ends with a strong close. Today was likely to be a trend day - this indication came from (1) above, confirmed by higher prices throughout the day. Further confirmation came when the gap was not abnormally large. A trend day usually ends up closing at the top of the range (if it is an up day). The trader should have the patience to sit through the day, wherever he went long. At 2:25 PM, the Nifty was at 5341, then a sudden burst saw futures rally to close at 5365.
4. Buy the dull periods. When signs point to a strong trend, dull periods should be bought as they are usually part of the contraction cycle which will eventually lead to expansion.
5. Buy Strength. In the morning, after the first five minutes, I fired up LiveGrid [a software tool available in Trend Analyzer from http://www.technicaltrends.com/ ] to identify stocks that were the strongest after the first five minutes of trading. Sun Pharma was in the top five list. I went long in April futures at 1822, waited whole day while it did nothing, then, in the last hour saw it rally to 1850. I was comfortable since the instrument was strong in early morning tradng, supported by strength on daily charts.