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NIFTY; Demystifying the 450 point+ rally in a week

NSE:NIFTY   Nifty 50 Index

In our previous update on Nifty on 4th March we had laid out a strategy how one may look to trade the Nifty

 
where we had highlighted to wait for a sustainable trade beyond the yellow channel for 3 days and go all out there after in the same direction.

- If you observe the chart carefully you will get the answer as to why we said to wait for 3 days. There were 2 breakouts previously and both turned out to be false ones coming back within the channel in 2-3 days time. So sustaining beyond 3 days gives a stronger conviction that market may be ready to break free.

- Nifty retested the channel breakout exactly on the 3rd day and despite most of Asian markets being down 2-4% yes China was down 4% that day, our Nifty managed to hold on to it with just a 22 point dip. And thereafter the result is in front of you. A good 400 point rally in just a week's time.

- Another interesting point that should be considered is that the breakout from the channel happened after 4 months. 4 months is a long duration which gave it enough strength to overlook and overcome many other parameters like important Fibonacci retracement levels, overbought conditions, to name a few.

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-Please understand Markets do not follow any one particular system . There are times when it gives importance to Channel trade, and then there are times when it gives importance to other parameters like trend lines , or patterns or Moving Averages & their crossovers or Fibo... etc. So following one system will have it's limitations.

- Understand those limitations, accept it and embrace it.

- in Market even if you can manage a 60-65% success with proper risk management you can end up doing well.

Am I sounding logical and rational or are you looking for 100% / 90% /80%.

- When you toss a coin and call for either heads or tail, you accept that your odds of winning is 50%. In market you can have profit or loss. So the odds should be 50::50. But here the coin is much more skewed. Remember 90% of retail traders end up losing. So the odds are against you and your winning chance is much much lesser than 50%. With the help of technical Analysis you are trying to balance the odds back to normal initially and then improvise on it as you gain more and more experience.


- Look at technical Analysis as a tool which can help you to identify levels from where there will be greater reward potential than risk involved. Try to improvise on your risk::reward ratio from 1::2 to 1::3 and so on. This strategy might reduce the number of trades you take as you may have to reject some of the them which does not fulfill the Risk::reward ratio criteria but can possibly have a much more positive effect on your bank account and much lesser stress levels. You may also have to wait a little longer, so train your brain to be patient enough during the period of wait.


I have tried to keep it short and sweet... feel free to write in your views and thoughts in the comment section below...!!!

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