Friday, February 28, 2014

Tata Steel: Trader's Dilemma

Tata Steel has three chart patterns in recent months. A double top was confirmed on a breakdown from the valley. The pattern signaled an intermediate top in the stock.

Recently, a descending triangle broke down almost reaching its pattern target in one day.

More interesting is a trading range under development: this is marked by a rectangle in the chart below.

This rectangle represents the Trader's dilemma.




As prices have come near the lower end of the Rectangle, should we become buyers   assuming that the lower line is support?

If prices touch the lower line, does this represent a new breakdown and therefore justify a short sell.

Given the fact that the stock is under-performing the Nifty, should we buy at all?

Should we short sell given the uptrend in the Nifty?

There are no easy answers, but traders must have their own rules based on their trading comfort.

For me, the rules are: If the primary trend (of the Nifty) is UP, I do not like to short sell.

I am not comfortable buying at support. I like to buy strength and sell weakness.

You have to develop your own comfort zones.

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