Thursday, October 7, 2010

Small Dip, what lies ahead?

I will be on Bloomberg-Utv on Friday, Oct 8, at 3 PM. Do check in if you can.

The Nifty took a dip today, breaking down from a minor support level that came at 6150. While an intraday trade taken after the break was profitable, the question is: was this just a one day wonder or is there a trend behind this break?

Markets do not give direct answers to our questions. We have to make our trading plans, then stick to it. If the market wishes, we make money, otherwise we go through minor discomforts (minor, because we have our money management routines).

If a swing trader is short or wishes to take a short position, the stop is somewhere around 6185 - the mid point of the trading range. So with limited risk, the trader can go with market flow. A more conservative trader can wait for break of the second level of support which is at 6100.
Was it possible to go long at the close today, assuming that today's dip ws just a one day dip? Yes, it was with a stop below 6100.

Here we have seen different ways of taking the trade on the same day. All of the traders could make money if they have discipline.

4 comments:

rocky said...

The theme today for me was Limited upside and unknown downside or a flat ending atmost, so started shorting at every small rise but lack of patience made me square off positions mid-day itself, thus booked only minimum profits.
But then Experiance gained is much more valuable.

The discipline that missed was booking half profits and riding the other half.

LIC Agent Noida said...

Dear Sir: Adding an important Synario.

There may also two posibalities if Nifty bounse back till 6180 take a short there with a small SL of 6200 else take a position of short below 6100 whats the need to short in range.

bkm said...

Sudarshanji,
"Was it possible to go long at the close today, assuming that today's dip ws just a one day dip? Yes, it was with a stop below 6100."
If one goes as above with stoploss of 6100 and market opens next day with gap down and continue drifting down .... does this mean one takes a blind anticipation for next day???

bkm

Pi said...

i remembered that you have often written that the first dip after a breakout is a great trade to take, low risk, high returns.

I have been trying to place this breakout move in the context of that statement. There has been no dip since this breakout. There were sideways consolidation and in hindsight now they look like easy trades to take. There were two 2 day consolidation whereto the move from high of one day to low of next was not more than 80-100 points.

So, now i am thinking maybe if we'll get a dip it will actually be the first dip after a big breakout. Now obviously that should be bought. Only thing is how do i define this. I would have looked for a 2 day fall normally, but at this stage should one look at a 1 week correction or a one of a intermediate timeframe(those which last 4-6 weeks) before buying for a move to new highs ?

Typically also i have noticed that first dips below 10 day moving averages in uptrends are almost always fake breakdowns and mkt goes on to make higher high.