Monday, July 14, 2008

4000 Stop Loss for Open Long Positions in Nifty

Today was one day when the Nifty kept going up throughout the day, except for a sell-off that was encountered in the last hour and a half. At one point the Nifty went high enough to cross the figure of 50 points in the green but after the sell-off, in the last 30 minutes went as low as 40 points in the negative but then managed to close only 9 points below yesterday.

Nifty 30 Minutes Chart - Trend Channel

The Nifty, as seen from this 30 minutes chart shows that the index has been moving within this trend channel since the beginning of the month. It is constantly finding resistance near the top end of the channel and support near the bottom end. As seen from the trend channel, support comes in close to 4000 levels while the resistance level lies between 4230 and 4250. A move outside this trend channel should give us a reasonable big move. The two dojis seen at the end of the day and the Relative Strength Index (RSI) within the black circle, which shows that it is finding it difficult to go below 40, suggests that this downmove maybe over for the time being. But like always, every positive is accompanied by a negative, and in this case it is the fact that the last rally that was seen today, failed to reach the top end of the line. Now, which side of the channel will the prices break is for the market to decide. We shall just follow the trend as and when that happens. As of now, we keep the stop loss for short term long positions below 4000.

The fact that every positive is accompanied with a negative is what makes the markets so fascinating and thrilling. This is why the uncertainty comes in and why one person wins while the other loses money. If there is no uncertainty in the markets, the thrill will be lost. And this is why the markets, time and again, continues to remind us that our analysis is no good and is thoroughly wrong. This is why it is improper to predict the markets and wise to follow the trend. This is why we analyse the markets just to get an idea of what may happen and be prepared with a strategy if that does happen. And whether or not, that will happen is totally the market’s prerogative.

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