Sunday, March 17, 2013

Selling at the Highs of a Reaction

It is much easier in a bear market to recognize the top of a rally than the lows of a decline. When a rally hits the top of an advance, Dow theory traders will expect resistance to step in.  'Top' is usually previous support that is likely to become resistance. A decline is likely to begin.

What happens after the decline is crucial.   If, on the next rally, prices remain below the top of the previous advance, then the down trend is confirmed. 

For the Nifty, the high(5945) made on Friday, March 15 was below the previous swing high(5971) made on March 11. If the March 11 high is not breached in the next few days, then a confirmed down trending pattern will be established.

While the Markets will do what they want, traders will look to sell on any rally that comes about.

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