Tuesday, January 1, 2013

Possible Breakout in the Nifty

After five weeks of a narrow trading range, the Nifty broke out, crossing the resistance at 5920, to close decisively above the 5920-5930 resistance zone.

The point of breakout is always the point of maximum risk. Stops are wide, below the support zone of the previous trading area. A majority of breakouts fail, therefore the probability of success are low. And yet, breakouts that succeed make lot of many, making range breakouts one of the more successful trading strategies.

This post will not tell you if this breakout will succeed. I do not know. I do know that my trading plan calls for taking positions in the direction of the breakout. Since the move has come after a particularly tight range, my assumption is that the probability of a successful breakout are enhanced. If the trend continues to move up, I will add to my long positions. I have no concerns on the trade losing money. If that happens, well, it happens. My concern is to trade the breakout properly and let the results be left to the market.

 

3 comments:

Sumit Singh said...

Bank Nifty and many other blue chip stocks were on the verge of breakout, most with Ascending Triangle and H&S pattern. It's thus safe to keep the bias on the long side for Nifty as well.

Dinesh said...

Dear Sir,
Very useful post.
I would like to add that you are so humble that you have the courage to say 'I do not know' and that too fully knowingly that a huge population is following you.
I also admire your style of explaining the market in a very simple manner. Please keep guiding people in the similar way.
Regards,
Dinesh

Tanmay Karkhanis said...

I disagree with the comment "point of breakout is always the point of max risk".
I too trade breakouts and my stop is close below the breakout level.because if it dosn't close above the breakout level then the the breakout has failed. why wait for the support of previous trading range to break.
Thank you.