Sunday, March 20, 2011

Trading Range Breakdown in Nifty

A trading range is when a stock trades within a given high and low period for a given period of time. This back and forth price movement between extremes generates a trading range. Trading ranges are formed when neither bulls nor bears are in control. There is no way to know that a stock will enter a trading range until it has already begun.

For the Nifty, a trading range developed after the Low on feb 11 was made around 5175. The range was broadly between 5400 and 5600. This range seems to have broken down on Friday when the Nifty closed below 5400, for the first time since feb 28. A move out of the trading range (up or down) is the point of maximum risk. Traders take a position on the breakout/breakdown. In case of a false move out of the range, there is no escape from a loss. That is the cost of trading.

What are the signs that the breakdown may work out? (a) The Nifty was making a series of lower highs.  (b) On the daily charts, the RSI remained below 50, suggesting that the recent up move did not have enough momentum.(c) The Primary trend is down, therefore, moves in the direction of the primary are more likely to succeed.

For short term traders, the mid point of the range should act as a stop loss. For Position traders, a close above 5600 will be the point of exit from short positions. For day traders, take one ay at a time.


Krishna said...

Technically first sign of sluggishness was shown by the mkt by not even attempting to cross old life time time high to make a new high.

6357.10 spot made in January 2008 remained unchallenged !!

Let us now veiw things more broadly.

Expect a new high not on the grounds growth in mere GDP.

India now wants a significant growth in per capita income.

This will bring many new fundamental highs in Indian economy & also new technical highs in stk mkt.

Enough talks on the basis of GDP have been done.

Raising the living standard of a common Indian should now be focused to give India Story a better bottom line growth & backward integration.

Technically mkt is no doubt in down trend on broad basis.

5325-5350 crucial to watch for short term.


Tejash said...

Good Morning Sir.

Looking at the trend line of Nifty it seems it is on downtrend as its 10 day SMA is below 30 day EMA.

The William %R is also in downtrend and heading towards zone of -80 to -100 which is considered as oversold positions.

The MACD indicator is also crossing the middle line on downward side.

Caution is advised as of now.

Thank You Sir.

pooja said...

Hi, Sir I Want To No What IS RSI..Close Move Avg Rate ??? Answer Sir

Nirav said...

Dear Sir,

If I find some pattern or system which gives buy, sell and stop loss signals in the stock/Index and if it has given a good amount of return in the past (Back Testing)then what is the guarantee that it will continue to give the positive returns in the future? And if it stats to give -ve returns then at what time I should stop trading that pattern or system? Or What should be a max. loss allowed for that system?

Ghatak'S said...

Nifty Weekly Chart Looks Good.

rajiv malik said...

sudarshan ji,

you think the trading range is still broken down or there is a change in your view now when the nifty spot is again at 5480.


kumar said...

Dear Sir
Since moving averages are electrons of technical analysis and long term averages crossed short term averges on the dnside on various timefrmes(dly,weekly,)still the mkt didnot fall as it did in 2008.What does this imply???DOes it imply mkt is above terchnicl analysis?? If yes then what is the use of tech analysis
P.s Mkt also did not make weekly highs for 3 weeks in a row

men said...

Dear Mr. Sudarshan,
I would be happy if you could please clarify the following, when Hdfc was around 620 you gave a sell call at that point the rsi(14) was 40, today at the high was 680 and rsi is 56 and you have given a buy call, accepted it is above all the moving averages, but historically 680 has been a resistance, if one were to go by rsi then it was a buy around 620 though ma's were giving a sell, now which should one use?
Also your ITC short call has been off the mark at least till date, so my question is does TA work in stocks like ITC? my personal view is a mechanical system would be the best way out for this stock, though you have been correct on an equal number of stocks but these 2 views have not gone in your favour, through this channel could you please clarify the rational of your decision( You have covered ITC), this discussion is purely for educative purposes only. As a disclosure I had done the exact opposite in these two stocks, and would sell HDFC if it went to 693-709, I have exited ITC as on date.

Krishna said...

Let us see if Nifty Spot can clear 5875 or not !!

It is possible that it starts its downward journey from here as major trend "as per my references" is still down.

Trend & SLs are so subjective concepts that I never know how one can tell others "how to trade & with what SL & for which target".

Truly speaking it is something like imposing our mindset upon someone else & that is why most of the subscribed services at last fail !!!!

Every one has to stand on one's own feet.

Anyways let us see what is in store in medium term !!

As per my mindset, if nifty spot does not clear 5875 and starts settling below it then it can be assumed moving downwards.

Appropriate & affordable stop losses perhaps help a lot to those who come under the category of technical traders.