At Red arrows
One can clearly see when moving averages 20 SMA & 200 EMA go far away from each other and also the price goes much away then, basically expansion phase, the there is pause in momentum and There is sideways to downward movement. This is Contraction phase. Basically mean reversion of price.
At Green arrows
For a healthy up-move price & moving averages should come close to each other, basically contraction phase, then only rally in IT stocks start that is again the price go in expansion mode. Mean reversion is complete here. Price again starts to move away form averages & averages start to go away from each other, this is the beginning of expansion phase
Now we are already moved up much higher and away from moving averages and moving averages have also moved away form each other. Current move is much stretched. Now if the above observation holds true in current case we may see a sideways to downward move in coming days.
Now no one can predict how much up-move is still pending but yes the fresh buying at such high levels must be avoided. Booking profit in existing positions must be done. Nifty IT can even rally more but the upside will be capped and breakout trades will fail here in individual stocks. Fresh Longs should be avoided and short trades should be looked upon.
At such stretched moves Risk for short trades is much lower and Long trades is much higher. Partial booking of profit in long positions and holding rest with CTC is advisable as of now. One can take it as a warning sign to long positions!
Everyone knows how to enter trade, but many still lack the exit plan. After trend reversal everyone will sell or buy but to take out maximum juice out of the rally you need to have such reversal points based on previous moves. If you go by bookish knowledge you'll buy at such higher levels based on breakouts and when such breakouts fail will be stuck at higher levels. For example everyone knows buy after a morning star & sell after evening star, but which Morning start to sell and which evening star to buy is the real key to make super gains. Pro- Active approach is rewarded higher than the Reactive approach
One can clearly see when moving averages 20 SMA & 200 EMA go far away from each other and also the price goes much away then, basically expansion phase, the there is pause in momentum and There is sideways to downward movement. This is Contraction phase. Basically mean reversion of price.
At Green arrows
For a healthy up-move price & moving averages should come close to each other, basically contraction phase, then only rally in IT stocks start that is again the price go in expansion mode. Mean reversion is complete here. Price again starts to move away form averages & averages start to go away from each other, this is the beginning of expansion phase
Now we are already moved up much higher and away from moving averages and moving averages have also moved away form each other. Current move is much stretched. Now if the above observation holds true in current case we may see a sideways to downward move in coming days.
Now no one can predict how much up-move is still pending but yes the fresh buying at such high levels must be avoided. Booking profit in existing positions must be done. Nifty IT can even rally more but the upside will be capped and breakout trades will fail here in individual stocks. Fresh Longs should be avoided and short trades should be looked upon.
At such stretched moves Risk for short trades is much lower and Long trades is much higher. Partial booking of profit in long positions and holding rest with CTC is advisable as of now. One can take it as a warning sign to long positions!
Everyone knows how to enter trade, but many still lack the exit plan. After trend reversal everyone will sell or buy but to take out maximum juice out of the rally you need to have such reversal points based on previous moves. If you go by bookish knowledge you'll buy at such higher levels based on breakouts and when such breakouts fail will be stuck at higher levels. For example everyone knows buy after a morning star & sell after evening star, but which Morning start to sell and which evening star to buy is the real key to make super gains. Pro- Active approach is rewarded higher than the Reactive approach
