Nifty Trading - The Day After ....the breakout ....

We live and learn. The market is supreme. When the market shows her hand, you gracefully accept that hand and prepare to follow her.

Ok, looks like the market has broken through 5150 with a lot of force. True that it is now in a congestion zone and therefore trading still needs caution. But what about the breakout? How to trade that?

First thing first. This is not a market to short unless you are a genius - very few of are by the definition of genius. So, no shorting for me not even intraday.

You can take a call to go long- As SS has pointed out many times including the last posting here, the moment of break out is also the moment of maximum risk.

One way to reduce the risk ( and of course the reward too!) is to go long on a pull back which will come in 80-90% of the cases, if not today, sometime tomorrow or later this week or next week.

Question is how do you identify a dip? Here are a couple of suggestions:

1. The indicator that you have been using to detect breakout must have a support line - it could be a trend line or a 200 minute moving average or a 100 minute EMA whichever. Now, usually, the pull back to this level even breaking this support is usually a good indication that this the correction you have been waiting for. The logic is simple and works for a forceful breakout like this. The indicator that is in use and signals trend reversal is likely to have a false indication this time around. The bet you are taking is that the trend is intact.

2. Or, you can simply look at the slow stochastic on the 5day yahoo chart. and wait for the time when the signal screams oversold and then buy there. Here is a chart on the left that illustrates this point.

Now what about SL? Any sensible SL will have to be around 5140-5120. And it might be more profitable to let the trend run and not necessarily close the position before the end of the day.

That is all for now ..... Cheers

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading