It's time for "limited loss' or "unlimited profit"

The main pillar of technical trading is "Make trend your friend until it bends at the end". Most of us, students of technical analysis are aware of this, but very few act accordingly. Those who can, are successful in trading business. It sounds easy and more difficult to follow. 

When trend reversal occurs, it gives Options traders a wonderful opportunity. Returns more than 300 or 400% can be generated at that juncture. Trend reversals are not easy to spot at an early stage. Formulating trading strategy is much more difficult. One has to draw detailed road-map of the probable movement. As long as market behaves according to that road-map, trader is making money. If market moves otherwise, the trader squares off the position.

Indian stock market, as per our opinion, has a high chance of trend reversal. If that happens, what could be the target? Where should the stops be placed? We will try to figure out these points in this article.

Why this recent high of 10137 could be a potential top of Nifty? That needs a long and detailed discussion and thus beyond the scope of this article. We will discuss the technical possibilities at this point of time. 

Last leg of upmove was rapid and parabolic. Volume was lower in this run to 10150 from 9450. This is a cause of concern. After all, volume is like 'fuel'. You cannot drive your car at high speed for a considerable period of time if the fuel indicator is showing lower readings. That could be the case of Nifty, especially when the benchmark rose almost 7.5% in just 23 trading sessions . We observed same volume scenario in Bank Nifty. The sectorial index want up to 25200 from 23000 with contracting volume. A 9.5% run in same 23 trading sessions.  

Nifty fell 4.4% from the top to make a swing low at 9685. Volume was on higher side and thus it was a alarming fall in 8 reading sessions. Thereafter we saw a bounce back till 9947. Last Friday's (18th August, 2017) low was 9783 and closing was 9837. Going forward, unless Nifty crosses and stabilizes above 9950, weakness will continue.

Decisive break below 9777 may trigger another 100 points fall towards the earlier low 9685. If that level is breached, panic may set in and Nifty may come down to as low as 9450-9500. 

Fall in Bank Nifty was higher at 5.4% before bounce back came. It is now 4.7% down from all time high. Corresponding figure for Nifty is 3%. this under-performance of Bank Nifty strengths our assumption of a probable trend reversal.

Break below 23800 may lead to 23000 and thereafter panic will start. On the other hand crossover and stay above 24550 will be good news for bulls.

We believe that upside of the market is limited and risk reward ratio likely to be favourable on initiating shorts. Probably this is the time for buying PUT. A well known myth of Options trading goes like "limited loss with big profit potential" could be appropriate in this juncture. 

Interested readers may please call 91-9830199187 for trade setup and the probable movement pattern.    


Disclaimer - The views here expressed and the charts shared are strictly for educational purpose and not guideline for buy or sell. The author will not be responsible for any loss, that may occur.