Nifty Analysis II : Harmonic Ratios and The Price Action

Jul 19, 2017

Whenever Raman, one of my best friend, sits in front of Television and hears a Technical analyst he could not stop himself saying," ho sakta hai wahan tak chala jaye..neeche bhee aa sakta hai..oopar bhee ja sakta hai..bc..inko kush bhee pata nahi aur hame bevakoof bana rahe hain".

The psychological setup of people like him is so rigid that we can never convince them that TA is all about probabilities.

At present we are in a similar situation, where index is approaching 10036 and many traders are waiting for the index to touch 10000 mark for either banking their profit or sell short.

But why 10036 is so important? yes, it is 1:1 price extension taken from Feb.2016 lows. In Harmonic patterns, 100% extension (AB=CD) is said to be of great importance. There are full fledged chapters on AB=CD. The basic structure of the pattern is that AB and CD legs should be similar in price as well as time..well !! you can say approximately if not precisely.

So that's it? No. The twist is that this pattern acts as a basic building block of many other harmonic patterns and there are many variation to it. Depending on several factors (can't discuss in this post), CD leg can extend much greater than AB -- 1.272, 1.618 or higher (read Larry Pesavento).

We will try to discuss some parameters here while applying them on NiftyWeekly chart.

Parameter 1: No. of bars
Ideally AB=CD has same no. of bars in both the legs. But if CD has more no. of bars, call it a weaker leg and has greater chances of ending up as 1:1

Parameter 2 :Range of Bars
The beginning of CD is the most important event. If it begins with a wide range bar or a gap, consider it at least 1:1 and chances of extending further are great. The more number of wide range bars in this leg, the better.

Parameter 3: Slope of the Legs
The higher the better. If CD leg is steeper than AB, there are better chances of extension rather than 1:1

Taking these parameters into consideration we can see that in NiftyIndex the CD leg has not been as enthusiastic as AB (See notes on chart).

1) No. of bars in CD are more than AB.
2) None of the bar ranges 4% (except one). The Average Range of wide range bars in CD is approx. 2.5%, whereas it is 4% or higher in AB. Notice
that the range declined after 9000 mark, whereas it should have increased at break above this level.
3) Yes, slope is one parameter where CD can compete with AB. But CD does not have better slope than AB.

On the basis of above discussion, we can say that there are greater chances of CD = AB.

Remember that there are no better indicators than time and price action. So better follow them rather than any pattern. Dun be as rigid as Raman.

Hit like / comment if you think these observation can be useful.

Trade safe, stay healthy.

Best Regards
Bravetotrade

Jul 19, 2017

Note

Jul 26, 2017

Note

Many readers might have missed this publication due to some glitch by TV..have a look.