Nifty Levels - Watch out for Triangles ... Watch out for Rectangles ...

Nifty made a spectacular down and up trip last Friday. It opened gap DOWN but then arrested the down move and began a steady climb UP that decisively broke the 4500 barriier.

Only trouble is that there are resistance levels sitting at 4600 and 4700.

In fact the daily charts - not shown here - suggests that the last swing high was at 4600 - therefore, there is a possibility that Nifty may turn back and reenter the trading range.

At range bound times like this a weekly picture is helpful. The we months weekly chart is shown here ( click on it to get a bigger view).


Several things marked on the chart are clear:

1 There are two rectangle box formations - the one at the bottom lasted 6 months. The one at the top is still forming and is about 4 months old - and may have another month or so to go. Notice the phrase MAY HAVE - this implies it can break out this week also.

However, if Nifty does reverse from 4600, then clearly the box may stretch out. The bottom line is that the rectangle box formation at the top is not complete yet and is worth watching out.

2. Equally important - the rectangular box at the top is actually not yet a rectangle in price formation but is an ascending TRIANGLE. If it breaks out above its range, it will be explosive, but that is a BIG IF. I also think that reversing from 4600 might negate the triangle - so this and the next week may be a decider on the triangle.

3. What if the market reverses from 4600 / 4700 renteres the rectangle? What if after another two months, price actions falls below the bottom of the rectangle? Two months is a long way - but if it does happens, it will probably mean that the up move is over for the next six months!!!! It might mean moving into cash at that time. Mind you, this is just a scenario planning and no action needed now except to keep this possibility in mind and keep observing.

All this confusion seems to be affecting swing and positional traders. Overall for day traders, despite a bit of volatility, reasonable amount of daytrading set ups have been available so far. and even in the days price actions, watch out for the resistatance and support. Stay away from initiating position if you are unsure - and in fact assume that you are wrong and enter into the trader only if you can tolerate the loss in case your are wrong.

Happy trading and watch out for these traingles and rectangles .....


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

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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

Nifty Day Trading vs. Investing - What vs. Why

At the outset let me state that I do both - I have a portfolio of investment which I do not touch for day trading. I also day trade Nifty futures. AND I keep these two activities separate.

However, since I am involved in both, I become aware of differences in the approaches and in the types of questions that are asked in each endeavor.

In this post, I will focus on the types of questions that a day trader - hopefully a successful day trader - focuses on.

Short term trading is all about focusing on and analysing the prevailing price action - the shorter the term, the sharper is the focus - and day trading is nothing but price action of the minute, hour or the day.

An investor asks the question: why is the price falling?

A day trader does not ask that question. To her, that the price is falling is a reality.
At the most she might ask:

What has the price fallen to? Or, more importantly,

What was the last swing high? Or,

What are the support or resistance levels, as seen in the price action?


Whereas an investor will ask why is the p/e so high? and might decide to buy or sell based on answers to such questions, a day trader will never ask ( or must never ask ) why the last support broken or why did the last resistance did not hold? Instead, the trader accepts the reality, absorbs a loss if found wrong, and sets up the next trade.

The focus of a trader is what is happening rather that why it is happening.

I would love to hear your thoughts on this topic. 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.

Nifty Trading - To Trade or Not to Trade - That is the question

One of the most important things to learn in trading - particularly in day trading - is when not to trade.

I feel that for quite an extended period of time yesterday - roughly from 11.30 am to 1.30 pm - it was important to stay away, unless you are extremely good in scratch trades -- meaning you are good in getting in and out of trades - which is not my style.


Lets analyse the situation in a little more detail.

The day started on a positive note, all the 3 min, 13 min, 34 min EMAs were nicely arranged and moving up.

The first danger signal came around 11 - 11.15 am. Nifty failed to move up and cross beyond 4320, below the day's high of 4338. What this meant was that a potential resistance level was established at 4320 by 11.15 am.

And the late/mid morning session continued like that. Just when it appeared Nifty was heading south, it turned back having found support at 4285.

Now, why are we spending so much time on this? Because the chance of over trading is much higher in these situations and over trading typically accumulates many small losses, resulting in a net big loss.

Coming back to the price action, depending on which Moving Average Crossover system you use, chances are that several of them may have given false signals either long or short between 11.15 am and 1.30 pm.

The best way I know of avoiding this is to pay attention to the price action realities and not project which way it was going to go. In other words, accept 4285 and 4320 as support and resistance and wait for them to be broken rather than anticipating a breakdown or a breakout.

And equally important - do not trade between the support and resistance when the range is so short.

The market is cruel to impatient traders and rewards the patient traders. In this regard at least, investors and traders have something in common - they both need to be patient in the context of their respective trading time scales.

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.

Breakdown in Dow Jones - 22 June 2009

Yesterday was a big down day in Nifty - Even though Nifty held above 4200, it did close decisively below 4250. And it seems now it is only a matter of time before 4200 breaks and if it does we will enter a deep correction - this was discussed in previous posts in terms of opportunities for positional trading in nifty and you can read about it here.

Now increasing the probability of 4200 being broken is the price action in the US market and I want to analyse that in this post.

On June 22, Dow Jones Industrial Average (DJIA) had a serious break down. The magnitude of the breakdown can be seen in the 5 days chart.



First it broke through 8500-8475 support and then it went into a tailspin breaking 8400 with elan and then resting a while at 8360 before ending the day at 8339 - a solid 2.35% lower ( equivalent to almost a 100 nifty point drop at today's Nifty).




Fine. But where is it - the DJIA - likely to go in the next couple of weeks?


Lets now look at the 3 months daily chart of DJIA. The picture is not pretty. Looks like 8200 is waiting to be broken, if ( and perhaps when) that goes, next two targets at 8000-7800 and 7400-7200. Not a pretty picture at all. It is therefore safe to sell now and safer to sale after 8200 is broken.

Now, what if there is support at 8200? It is important not to be fooled by that and buy around that. It may just be a resting place. Looking at the chart it seems that only if DJIA closes above 8900-9000, do we have a chance to arrest this downturn. The probability of that happening - I am sticking my neck out here - is quite a bit less than 50-50.

All this increases the chance that Nifty will go down now and stay there for sometime ( a few weeks, if not months and not a few days) - in other words this is likely to be a deep correction in Nifty.

For myself, I had a bad day yesterday; made some mistakes for which I paid yesterday and may pay dearly today also. More of that later. Stay Tuned.

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.