VanijyamShala
Short

Price & Time Convergence - NIFTY

NSE:NIFTY   Nifty 50 Index
Nifty recorded an all-time high at 12431 in the month of January 2020. From the all-time high price declined in a three leg down move to record a low of 7511. The time taken for the completion of the down move is 45 trading days. From the low of 7511 price retraced in three leg up move and currently trading around 10778. The current up move has consumed a time period of 70 trading days.
Currently nifty is trading around the confluence zone of retracement and projection. The retracement zone of 66.6 percent of the prior down move from 12431 to 7511 is at 10738. The projection zone of 78.6 percent of the ongoing up move from 7511, 9890 and 8806 is at 10675.
A rising wedge pattern be seen on daily time frame. The two touch points at 9544 and 10223 form a lower support zone . The two touch points at 10328 and 10554 form an upper resistance zone . The upper resistance line and the lower support line is converging with the maturity of the pattern. The advances from the lower support line is becoming shorter and shorter, which makes the present rally unconvincing. The decreased momentum in price creates an upper resistance zone that fails to keep pace with the slope of the lower support line which indicates a supply overhang as prices increase. The key level of the ongoing trend is at 10194 and the critical level at 9544. The bearish confirmation of the pattern does not come until we see a VTB of support line. A valid break of the support line should be accompanied with a faster move in terms of price and time.
Price formed an outside bar with a higher high and a lower low. Outside bar normally indicates range expansion. In the present scenario the outside bar is bearish in nature with the close in the lower one third of the range indicating sellers in control. With a bearish outside bar we form a bearish expectation. But only on price breaking below the low of bearish outside at 10675, the bearish expectation is confirmed.

Trade Plan
One can initiate a short position below the low of outside bar at 10675 with an Initial Stop-Loss of 10850.

Disclaimer
All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs.

Comment: On Monday Price saw a Gap Up opening and the high of the Outside Bar at 10848 was surpassed. Price crossing the high of the OB invalidated the earlier Trade Plan.
At the End of the of the day Price formed an Reversal Bar. The reversal bar is a bearish bar but with a small body indicating reduced commitment.
Even though price made new high at 10894, price did not cross the resistance zone of 10900 due to which the present analysis is still valid. Price breaking the low of the Reversal Bar at 10756 will form an Swing High which will be the first sign of reversal.

Comments

It's possible true' pattern naam sir right I know sure tgt down big
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VanijyamShala sanju1143
@sanju1143, Hi,actually not able to understand your question but I will be updating regularly. Stay tuned... If you agree with the analysis please do like and follow.
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Didn’t understand several points:
1. How is 10675, 10738 and the current price of 10813 a confluence? If one starts taking confluence in such broad range, one can find confluence at lot of different price points.
2. 66.6% retracement is a very unusual point. Again if one starts taking all fib levels you can find confluence all over the place.

The basic channel thing is ok and it’s clear once it breaks lower end of it, it goes weak. Rest seems force fitting
Reply
VanijyamShala Learner_Nick
@Learner_Nick,

Hi,
Let’s start with the easy one. 66.6 percent is neither a FIBONACCI nor a GANN ratio. In simple words it is the natural occurring mathematical ratio known as the two-third of a part.
1. 2 divided by 3 equals 0.6666 and
2. 1 dived by 3 is 0.33333

According to DOW THEORY, two thumb rules define any swing high or a swing low as a Legitimate Peak and Trough.
Rule of Retracement: A reaction to the prevailing trend should retrace approximately one-third to two-thirds of the previous move.
Rule of consolidation: The correction has to last one-third or two-thirds of the time taken to achieve the previous peak advance or decline.

Mathematical explanation of confluence.

Step 1: 12431-7511=4920
Step 2: 4920*66.6%=3277
Step 3: 7511+3277=10788 (This a typo error mentioned as 10738 in the explanation)
Step 4: 9890-7511= 2379
Step 5: 27379*78.6%=1869
Step 6: 8806+1870=10676

Now, let us discuss basics of support and resistance. Think of resistance as a temporary ceiling and support as a temporary floor. In order to become a floor, a support area must represent a concentration of demand and resistance must represent concentration of supply.

Point 1: When plotting support and resistances, one thing to remember is that support and resistance levels are not exact numbers. With regards to pencil and crayons of support and resistance lines, keep in mind that the lines are not made of glass and are more like a wire mesh fence which can be pushed at and slightly bent or poked through.

Point 2: Support and Resistance should be considered as zones.

Now keep the 66.6 percent retracement level as the median of this resistance zone which is 10788.
Step 1: 10788-10676=112
Step 2: 10788+112=10900
Now with a midpoint at 10788 the upper line lies at 10900 and the lower line at 10676. And the resistance zone is at 10900 to 10676. The current market price of nifty is at 10798 and the high of the outside bar at 10847 and low at 10676, which means that the outside bar is within the resistance zone. On break of the 10676 price will be moving out of the resistance zone.
I hope I have cleared your doubts mathematically. If you agree with the analysis please do like and follow. Normally technical analysis is not force fitting. Actually the mind sees what it chooses to see better known as SCOTOMISATION. According Rene Laforgue, “Scotomisation" is the psychological tendency in people to see what they want to see and not see what they don't want to see - in situations, in themselves, in anything, even in a painting - due to the psychological impact that seeing (or not seeing) would inflict.
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ravikumbar6666 VanijyamShala
@VanijyamShala, 🙏🙏🙏
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SIBRAM ravikumbar6666
@snisonko75
I am convinced.It is a great work.
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@SIBRAM, Thank you
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jitmanyuone VanijyamShala
@VanijyamShala, Great educative analysis. Only one question, what are the probabilities of breaking of resistance on upside? and downside? Thank you
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VanijyamShala jitmanyuone
@jitmanyuone,

Most of the people don't make money in stock markets because they want to be ahead of the markets. It's always best to follow the foot prints of price, and when you do this markets will respect you and leave clues of the foot print.

So don't ANTICIPATE just FOLLOW.

Refer the section TRADE PLAN. By following the trade plan you will always follow the markets and if at all price changes it's mind, you have the stop-loss where you exit with a small loss.
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Dorisetty VanijyamShala
@VanijyamShala, thanks for detailed explanation.
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