How to trade after today's big drop in nifty

Given the big drop today, it seems that the downward momentum will not be immediately reversed. Therefore, it might make sense to trade with a negative bias.

What does trading with a negative bias mean? It certainly does not mean to short the market first thing tomorrow morning. For one thing, the stochastic on 15 min, 30 min and 60 minute charts are all quite oversold suggesting that there might be a pull back rally tomorrow morning.

Trading with a negative bias means 1) realizing that odds for profitable tread are more with short trades than long trades AND 2) waiting for a set up for placing a short trade.

One approach for waiting for the short set up could be to look at the slow stochastic on 4 minutes yahoo chart. Today at the end of the days trading the stochastic is in oversold region. Wait for it to move up and approach or get into the overbought area. And then as it comes out of the over bought area place a short trade, Notice that the set up makes several assumptions. If these assumptions do not materialize then the set up will not be complete and naturally the trade will not be taken. At this point the stop loss for such a trade would seem to be above 4540.

You can look up at the slow stochastic on 4 minute charts by clicking here or here.