Wednesday, April 18, 2012

A breakout and a Pause

On Tuesday, April 17, the Nifty closed at 5300 approx, which was the top of the range between 5200 - 5300. The day saw a sharp rally from 5220 lows, suggesting that a breakout above 5300 was likely.

Today, the Nifty opened with a big 40 point gap, remained above 5330 and finally gave up the gains to close almost at 5300.

So, what happened?

Well, a breakout is a breakout. The Nifty has broken above 5300 today. Often, a pullback comes in after such breakouts. Today's afternoon decline may be such a pullback. 

When do we know that the breakout is failing? If the Nifty were to go below 5250, intraday, that will be a sure sign of a failure.

This is a trading range. I have written earlier that ranges are the most difficult pattern to trade. The best trades often are the ones that were not taken.


Vasant kumar said...

Sir - How can we say that breach of 5250 is a failure...Ideally 5180 (Which was tested 3-4 times in last month) or 5130 (recent low) could be considered a failure...But on what basis/levels we can say a breakout has failed? Please explain sir, This would help me/us very much.....Thank u in advance

Anshul The Maniac Finance Kid said...

Sudarshan ji,Im an active listener to your comments on television. However you always talk about nifty cash levels.Please note that cash nifty is not trade-able. What matters to the trader is the near month futures and next month futures in the expiry week. It would be nice if along with cash levels u also mention corresponding future levels.

Vasant kumar said...

Anshul, sorry to resond...But the thing is....actual movements happen in cash levels...Futures levels are decided upon cash levels as the futures are derived upon equity markets....If cash levels sustain, Futures have to listen to cash levels....But not vis-a-versa


Anshul The Maniac Finance Kid said...

Vasant Ji, with all due respect to your above statement,I would like to state that a cash based stop loss can lead to huge slippages.Many a times Nifty futures which u have to trade move in a straight line intraday.So a mental cash based stop can cause a much higher loss then desired as the nifty can move 20 to 30 points even before u place an order to sell.Hence hard trigger based stops are the way to go if u want to protect your money from unnecessary slippages. Such trigger stops are not possible in cas eu follow cash levels. Also in a futures chart you get the advantage of seeing nifty based volume. In cash based levels,overall market volume is seen which I believe in case of pure nifty trading is erroneous as its like evaluating apples to eat oranges

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