Thursday, June 21, 2012

Cycles of contraction and expansion

If there is one living truth in the market, it is that markets go through cycles of contraction and expansion. The cycles are not perfect, in the sense that we cannot always say when contraction ends and expansion begins. But, however imperfect, these cycles exist.

This is useful knowledge. When we encounter contraction, we can be as certain as anyone can be, that expansion is coming soon. This is what happened with the Nifty. The Index was in a tight range throughout the day, finally moving up 55 points in just 90 minutes. The Index was also in a tight range for 10 days, which broke out on the upside today.

Traders should keep the contraction-expansion setup as part of their trading tools.

Gourav writes ".Even some one like you just before the break out in CNBC told "Now I am looking for the breakdown below 5050"."

My Notes: This is slightly incorrect. I had a 1.20 PM interview with Mitali. This is not my normal time slot, it was a special appearance. I said that the Nifty is in a very narrow range and now we are open to taking short positions if the Index breaks 5040 support. So far, the view was that we will take only long positions since the trend is up, but today mid-day, looking at the narrow range persisting, we thought that we will let the market tell us what to do. Therefore, any breakdown would tell us to take short positions.

 

5 comments:

shabsaif said...

TV Anchor questions are confusing, they try to know from you what they think or hope or there assuming direction. So please tell him just always ask one question "What is technical view on market ?"

ANKIT BIGUL said...

Sir u said to initiate fresh long poshtions if nifty breaks 5140 level. It did today, so can we take a july call now and what suggestions for all positional traders now.
Do reply, ur suggestion is like a blessing for every trader, irrespective if ur making or nt making profit,we get a lot of knowledge
thanks..waitin for ur reply eagerly

Shahii said...

Hello Sir,

You kept on saying that we are in uptrend, infact many analysts says that we are in uptrend, But by the definition of an uptrend, there should be higher highs and higher lows. On the RBI policy day didnt we made a lower low by breaking 5048. By that rule until RBI day High is taken out nifty trend is down. Please correct me if I am wrong.

Jitender Yadav said...

Respected Sir

In your blog posting on Oct 25, 2009, you have talked about the "Aha" moment as
"There comes a moment, when you suddenly say to yourself "I know what to do". That is the moment of self realization."
Sir I had my Aha moment When I attended your presentation "Trading breakouts" in which you gave detailed knowledge of the cycles of expansion and contraction. You are absolutely right in saying that If there is one living truth in the market, it is that markets go through cycles of contraction and expansion.
Trading in contraction periods can be very frustrating therefor in contraction period trading should be done with low volume or may also be avoided altogether to save our physical and mental capital.

Your Fan
Jitender Yadav

Technotrader said...

Sir Contraction - BF Utilities contracted for 3 to 4 months and today broke out of it. The stock is showing two patterns one is a triangle breakout and other is inv H&S breakout.