Daily Nifty Analysis
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Daily Nifty Analysis for 18 Sep 06
These are my personal musings. These are not in any way meant to be trading advise. To view the chart, check the links below.
The loose inverted head and shoulder pattern seems to have been completed. The Nifty today did make a higher top also. The conventional indicators are now showing some negative divergence. Therefore, there is a strong possibility that the Nifty could correct downward from here. The Nifty futures volumes seem to be drying up, primarily because of the lack of volatility. There has not been enough upward or downward movement to allow stops to be triggered, either of the bulls or the bears.
A breakout of the H&S gives us a logical target, somewhere in the region of 3610, but on the other hand, there is a Fibonacci Level which falls around the 3570 level. Let us see how much strength is exhibited by the Nifty and when it is achieved.
Dusant
These are my personal musings. These are not in any way meant to be trading advise. To view the chart, check the links below.
The loose inverted head and shoulder pattern seems to have been completed. The Nifty today did make a higher top also. The conventional indicators are now showing some negative divergence. Therefore, there is a strong possibility that the Nifty could correct downward from here. The Nifty futures volumes seem to be drying up, primarily because of the lack of volatility. There has not been enough upward or downward movement to allow stops to be triggered, either of the bulls or the bears.
A breakout of the H&S gives us a logical target, somewhere in the region of 3610, but on the other hand, there is a Fibonacci Level which falls around the 3570 level. Let us see how much strength is exhibited by the Nifty and when it is achieved.
Dusant
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Re: Daily Nifty Analysis for 18 Sep 06
Hello Ashish
I 100% agree with you that a H&S formation is "normally" considered to be a reversal pattern. However, as the "rules" of TA keep propogating, so do the "rules". About 6 weeks back, a similar pattern was observed on the Nifty, and it fulfilled the target objectives. When we talk about patterns, we tend to "label" them with the pychology of the traders, because patterns on charts are what they exactly represent - the psychology of the multitude of traders. With so many people watching charts every second, we just cannot assume that we are the most intelligent people on this planet, and react only on what we see.
During the weekend, we saw an inverted H&S pattern, and we take a position according to its implication.
And we also tend to keep a strict stop, which would avoid catastrophic losses. I would request you to please read my analysis of yesterday, where I have suggested a totally hedged strategy.
Best wishes and trade happy.
Dusant
Hello Ashish
I 100% agree with you that a H&S formation is "normally" considered to be a reversal pattern. However, as the "rules" of TA keep propogating, so do the "rules". About 6 weeks back, a similar pattern was observed on the Nifty, and it fulfilled the target objectives. When we talk about patterns, we tend to "label" them with the pychology of the traders, because patterns on charts are what they exactly represent - the psychology of the multitude of traders. With so many people watching charts every second, we just cannot assume that we are the most intelligent people on this planet, and react only on what we see.
During the weekend, we saw an inverted H&S pattern, and we take a position according to its implication.
And we also tend to keep a strict stop, which would avoid catastrophic losses. I would request you to please read my analysis of yesterday, where I have suggested a totally hedged strategy.
Best wishes and trade happy.
Dusant
Re: Daily Nifty Analysis for 18 Sep 06
Hi!
You have very rightly pointed out that when we see patterns on the charts, we are trying to see the psychology of traders. Its the action of traders which give birth to patterns and understanding that action/behaviour and psychology behind it helps us in visualizing the things which may happen.
Coming to the psychology behind the Inverted H&S Pattern, lets see how its formed.
The market goes down and after a certain degree of fall, the traders feel that their targets are achieved and some of them go into profit booking mode. Even the professionals running heavy volume of shorts start covering their position silently. However, this position covering causes stock to move up. However, to effectively distribute the position and to make decent profit on it, the smart money cant allow the prices to move very high.
Hence, they will stop covering the short and this will cause a lack of buying interest in the stock. They may even start short selling again in limited measure to pull the prices down. Further, some of the traders who failed to sell earlier would start selling their holding as soon as price move up. This will cause a selling pressure and due to lack of buying/covering, the stock will fall further. At this moment, the professionals will sell to retailers and move out of their position. As the retailers wont be able to sustain momentum on their own, the price will start rising up with the help of bottom fishers which again represent smart money and who will bring volume to the counter.
The right shoulder will usually be formed due to some short selling attempt by retailers when prices touches the neckline which will cause only a temporary set-back to it and will resume the journey with new buyers joining in and pushing the stock far and further up.
Thus, we can see that in Inverted H&S, distribution of position takes place which causes reversal of trend with increase in volume.
Now, to act as a continuation pattern as will be the case in Up-trend, accumulation must have taken place when the pattern is formed. As we are aware, accumulation entails low volume and low volatility. However, the basic ingredient of an inverted H&S pattern is that the rising leg should be accompanied by an increase in volume. So how these two opposite conditions be satisfied by a single pattern? Thats why I put the question if an Inverted H&S can form in uptrend?
Please note that I am not saying that price will not move up or will not move up by the target given. I am only saying if this pattern can be accepted as a valid pattern?
Further, all chartists know that TA is based upon empirical evidence, so can we have some more examples of success/failure of this kind of pattern over a period of time and market? This will help us in determining more precisely if Inverted H&S can be accepted as a valid pattern even in uptrend. A one-off trade may perhaps not be suitable to guide if such a phenomenon is taking place.
Well, certainly we can't assume ourselves or anybody else as the most intelligent people on the planet and have to react only on the basis of what we see on charts. The important thing here is whether what we are seeing is evident on chart or we are seeing what we want to see ourselves?
A "strict stop loss" has no meaning in world of trading based upon charts. This phrase is an oxymoron so far as technical analysis is concerned. A stop loss has to be based upon charts. This point has to take into account the noise and has to be away from the noise zone. Now, this noise filtering can be done in various ways like pivots, volatility,etc.
Hence, it's the position size which will be strict or loose depending upon the chart based stop loss rather the stop loss itself.
Further, it's not a comment on your analysis or the strategy being adoped. My only point of contention is whether we should read an Inverted H&S pattern in an uptrend.
Looking forward to further discussion on the matter.
Best Regards,
--Ashish
Hi!
You have very rightly pointed out that when we see patterns on the charts, we are trying to see the psychology of traders. Its the action of traders which give birth to patterns and understanding that action/behaviour and psychology behind it helps us in visualizing the things which may happen.
Coming to the psychology behind the Inverted H&S Pattern, lets see how its formed.
The market goes down and after a certain degree of fall, the traders feel that their targets are achieved and some of them go into profit booking mode. Even the professionals running heavy volume of shorts start covering their position silently. However, this position covering causes stock to move up. However, to effectively distribute the position and to make decent profit on it, the smart money cant allow the prices to move very high.
Hence, they will stop covering the short and this will cause a lack of buying interest in the stock. They may even start short selling again in limited measure to pull the prices down. Further, some of the traders who failed to sell earlier would start selling their holding as soon as price move up. This will cause a selling pressure and due to lack of buying/covering, the stock will fall further. At this moment, the professionals will sell to retailers and move out of their position. As the retailers wont be able to sustain momentum on their own, the price will start rising up with the help of bottom fishers which again represent smart money and who will bring volume to the counter.
The right shoulder will usually be formed due to some short selling attempt by retailers when prices touches the neckline which will cause only a temporary set-back to it and will resume the journey with new buyers joining in and pushing the stock far and further up.
Thus, we can see that in Inverted H&S, distribution of position takes place which causes reversal of trend with increase in volume.
Now, to act as a continuation pattern as will be the case in Up-trend, accumulation must have taken place when the pattern is formed. As we are aware, accumulation entails low volume and low volatility. However, the basic ingredient of an inverted H&S pattern is that the rising leg should be accompanied by an increase in volume. So how these two opposite conditions be satisfied by a single pattern? Thats why I put the question if an Inverted H&S can form in uptrend?
Please note that I am not saying that price will not move up or will not move up by the target given. I am only saying if this pattern can be accepted as a valid pattern?
Further, all chartists know that TA is based upon empirical evidence, so can we have some more examples of success/failure of this kind of pattern over a period of time and market? This will help us in determining more precisely if Inverted H&S can be accepted as a valid pattern even in uptrend. A one-off trade may perhaps not be suitable to guide if such a phenomenon is taking place.
Well, certainly we can't assume ourselves or anybody else as the most intelligent people on the planet and have to react only on the basis of what we see on charts. The important thing here is whether what we are seeing is evident on chart or we are seeing what we want to see ourselves?
A "strict stop loss" has no meaning in world of trading based upon charts. This phrase is an oxymoron so far as technical analysis is concerned. A stop loss has to be based upon charts. This point has to take into account the noise and has to be away from the noise zone. Now, this noise filtering can be done in various ways like pivots, volatility,etc.
Hence, it's the position size which will be strict or loose depending upon the chart based stop loss rather the stop loss itself.
Further, it's not a comment on your analysis or the strategy being adoped. My only point of contention is whether we should read an Inverted H&S pattern in an uptrend.
Looking forward to further discussion on the matter.
Best Regards,
--Ashish
Last edited:
Daily Nifty Analysis for 19 Sep 06
These are my personal musings. These are not in any way meant to be trading advise. To view the chart, check the link below.
Yesterday, it was suggested that the conventional indicators were showing negative divergence and there was a strong possibility that the Nifty could correct downward. The trigger seems to be the news of a hedge fund collapsing. These sorts of panic triggers are unavoidable in the market, and therefore, it was suggested that tight stops should be adhered to and a hedge be created at higher levels. This could also be termed as a failure of the pattern.
http://www.traderji.com/58968-post49.html
http://dusant.blogspot.com/2006/09/nifty-analysis-for-15-sep-06.html
In fact, those among us who have guts of steel could use this opportunity to create fresh longs. The only conditions being that the temptation of bottom fishing should be avoided at all costs, and to allow the Nifty to make a convincing higher top/higher bottom pivot on the hourly charts.
At this point, the bottom of the inverted head also assumes huge importance, as that should act as a support in case this bull run should continue.
Trade Happy
Dusant
These are my personal musings. These are not in any way meant to be trading advise. To view the chart, check the link below.
Yesterday, it was suggested that the conventional indicators were showing negative divergence and there was a strong possibility that the Nifty could correct downward. The trigger seems to be the news of a hedge fund collapsing. These sorts of panic triggers are unavoidable in the market, and therefore, it was suggested that tight stops should be adhered to and a hedge be created at higher levels. This could also be termed as a failure of the pattern.
http://www.traderji.com/58968-post49.html
http://dusant.blogspot.com/2006/09/nifty-analysis-for-15-sep-06.html
In fact, those among us who have guts of steel could use this opportunity to create fresh longs. The only conditions being that the temptation of bottom fishing should be avoided at all costs, and to allow the Nifty to make a convincing higher top/higher bottom pivot on the hourly charts.
At this point, the bottom of the inverted head also assumes huge importance, as that should act as a support in case this bull run should continue.
Trade Happy
Dusant
Attachments
Daily Nifty Analysis for 20 Sep 06
These are my personal musings. These are not in any way meant to be trading advise. To view the chart, check the link below.
There is one thing which I abhor saying is I told you so. Trading is only a matter of planning a trade and then trading that plan. Yesterday, a trading plan was presented, suggesting that long positions could be initiated, if the hourly Nifty chart showed a higher top and higher bottom formation.
Today, the Nifty gave enough opportunity for going long. The first hourly candle engulfed yesterdays black candle body. The second was enclosed between the high and the low of the first, with a long lower shadow. The third again made a higher top and bottom.
What more does a trader need to go long?
We have seen some short term bears being trapped at the breakout of the H&S trendline. Some longer term bears would still be waiting for higher stop.
On an extreme short term basis, the Nifty has made a lower swing bottom yesterday, and has not as yet made a higher swing top today. Technically, this should still be termed as a downside correction. However, a break above yesterdays high could allow the Nifty make another consolidation pattern, like an expanding triangle.
Whatever the direction the market takes, one thing is sure. In volatile times likes this, the premiums of options tend to inflate. Therefore, selling options could turn out quite profitable, whatever direction we want to adopt.
Dusant
These are my personal musings. These are not in any way meant to be trading advise. To view the chart, check the link below.
There is one thing which I abhor saying is I told you so. Trading is only a matter of planning a trade and then trading that plan. Yesterday, a trading plan was presented, suggesting that long positions could be initiated, if the hourly Nifty chart showed a higher top and higher bottom formation.
Today, the Nifty gave enough opportunity for going long. The first hourly candle engulfed yesterdays black candle body. The second was enclosed between the high and the low of the first, with a long lower shadow. The third again made a higher top and bottom.
What more does a trader need to go long?
We have seen some short term bears being trapped at the breakout of the H&S trendline. Some longer term bears would still be waiting for higher stop.
On an extreme short term basis, the Nifty has made a lower swing bottom yesterday, and has not as yet made a higher swing top today. Technically, this should still be termed as a downside correction. However, a break above yesterdays high could allow the Nifty make another consolidation pattern, like an expanding triangle.
Whatever the direction the market takes, one thing is sure. In volatile times likes this, the premiums of options tend to inflate. Therefore, selling options could turn out quite profitable, whatever direction we want to adopt.
Dusant
Attachments
Daily Nifty Analysis for 21 Sep 06
These are my personal musings. These are not in any way meant to be trading advise. To view the full chart, check the link below.
From some of the comments which I read on my blog, it does seem that folks have indeed made the right decisions, at the right time. The Nifty is fast approaching our objective mentioned in my analysis of 18 Sep 06.
http://www.traderji.com/59281-post52.html
Also as mentioned yesterday, the bears were waiting for a decisive breakout with their stops. As soon as those stops were triggered, the market cooled off and returned to consolidation mode.
Now another game is going to be set up. The market will now probably try and chase the stops of the bulls. Those stops are going to be around the 3500 levels. Therefore, bulls will need to adopt some more guts and withstand that onslaught.
Although I do not pay much attention to fundamental information, from what news is filtering in, it does seem that Diwali is going to be bright.
These are my personal musings. These are not in any way meant to be trading advise. To view the full chart, check the link below.
From some of the comments which I read on my blog, it does seem that folks have indeed made the right decisions, at the right time. The Nifty is fast approaching our objective mentioned in my analysis of 18 Sep 06.
http://www.traderji.com/59281-post52.html
Also as mentioned yesterday, the bears were waiting for a decisive breakout with their stops. As soon as those stops were triggered, the market cooled off and returned to consolidation mode.
Now another game is going to be set up. The market will now probably try and chase the stops of the bulls. Those stops are going to be around the 3500 levels. Therefore, bulls will need to adopt some more guts and withstand that onslaught.
Although I do not pay much attention to fundamental information, from what news is filtering in, it does seem that Diwali is going to be bright.
Attachments
Dusant
Yr posts make interesting reading ... both the style and the content
Just wondering though ... how u fared in the upheaval May - July this yr
U seem to have starting posting on this site only in July, after the storm. I presume if you were active during May/June, your trading experiences of that period would be v useful in yr current methodology. Anything to share ?
Curiious to know
AGILENT
Yr posts make interesting reading ... both the style and the content
Just wondering though ... how u fared in the upheaval May - July this yr
U seem to have starting posting on this site only in July, after the storm. I presume if you were active during May/June, your trading experiences of that period would be v useful in yr current methodology. Anything to share ?
Curiious to know
AGILENT
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