Thursday, August 18, 2011

Again in a trading range

The Nifty appears to be drifting into a range with quite narrow boundaries. We have visible support at 5000 while the top of the range could be either 5100 or 5150. In any case, the Index is in some kind of a sideways movement.

What happens from here? The advantage of a range is the visibility of clear cut breakout levels. Sell below 5000 and buy above 5100 / 5150. Inside the range itself, there are unlikely to be any trading opportunities, although individual stocks may have tradeable movements. If you already have a position, then hold on to it.

When prices move inside a range, eventually small movements get magnified on the charts. Suppose the Nifty is moving in a 20 point range for past 4 hours. Your 5 minute charts will still appear on the full screen. Now a 5 point move will fill up 25% of your screen, giving the impression of a major move starting. But, it is just 5 points inside a range. Therefore, the wise action is to compress your charts so that you get a larger picture.

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