Wednesday, August 27, 2008

Nifty Trend at the Slowest This Year

The Nifty opened weak today and remained flat for the next couple of hours today. It was only at noon that the upmove started and except for a small three quarters of an hour long correction at about 1pm, it remained a unidirectional move for the Nifty from 12 noon. This move was so good that the Nifty, which was about 50 points in the red, managed to close 2 points in the green before the day ended. In the process, it formed another doji and this time it was a dragonfly doji, generally a bullish sign. This is what Street Authority says about a dragonfly doji.

Dragonfly Doji
Nifty Daily Chart - ADX at the Lowest This Year

Seen above is the daily chart of the Nifty along with the Directional Movement ADX Indicator. As mentioned in earlier posts, the Nifty is locked inside a trading range inside 4200-4650, as is shown in the green rectangle. The directional movement ADX indicator is the speedometer of a trend. Like the speedometer of a car measures the speed of the car, the ADX indicator measures the speed of the trend. We get a rising line when a trend is in place, irrespective of whether it is a downtrend or an uptrend, and a falling one when the market slows down and is going through less volatile patches. Values below 20 means that the markets are currently inside a trading range and a move outside the trading range should be profitable. Values above 25 should be traded depending on the direction of the trend. Values between 10 and 15 are considered to be extreme values and rarely does the ADX indicator fall below this range. A rising line from these levels seen in conjunction with a breakout may be a good time to enter the trend.

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