Sunday, October 30, 2011

Nifty Pattern Targets Reached

A bullish head and shoulder pattern in the Nifty touched its target of 5350, in fact, exceeded it since it opened higher than 5350 on Friday last. The pattern created some turbulence before it turned successful. Here is how I traded it.

I went long in Nifty Futures at 5150 approx when the initial breakout from the neckline occured. My initial stop was 5000 (right shoulder). The Nifty then moved in a narrow range, remaining below the neckline. I moved my stop to 5050 which was a pivot low. I was stopped out as the Nifty fell to 5008, while the pattern was intact. On Tuesday, F&O settlement, Nifty again moved up, I went long at 5180 (Nov Futures equivalent to 5150 October). As luck would have it, I closed the position at 5380 approx on Friday. The trade gave a 100 point gain, although it should have been 200 points if I had kept my original stop.

My review of the trade suggests that I was correct in moving the stop to 5050. Please remember that different traders would work on the trade in different ways.

What helped me was Position Sizing. In my first entry at 5150, my position was 20% of normal. I was buying at the open, and planned to add if prices went up. They never did go up. My second entry was 50% of normal because the thrust was visible but it was F&O expiry, so I remained conservative.

Reader comments and questions are welcome.


amarjeet said...

resected sir,
what now doing nifty break double bottom pattern for tgt of 5600..going long or see support levels.

gulshan said...

Sir can u post a chart of the HEAD AND SHOULDERS u r talking about bcoz when i looked into the nifty eod daily chart the breakout gives a target of 5540. Are there times when the length of the right shoulder is also considerd to derive the target instead of the head bcoz one advisory firm report said so when nifty broke from 5270.

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