Nifty: How to identify right trading strategy!

Nifty had shown sharp fall in month of September 2018. This might have been a surprise or rather shocker for longs created near 11700 levels. We in our earlier monthly update cautioned for an impending top. Read below a glimpse of the update from the September issue.

 Nifty daily chart:(Published as on 7th of September, 2018)

?Happened:

(Below is the gist taken form our monthly report published in September,2018)

20 days and 5 days EMA: We are showing this in the above daily chart of Nifty. These are short term averages and quite useful for swing traders. The common tendency is that the 5 days average moves away from the 20 days and then again it mean revert to the 20 days average. At the same time the indicator also helps to understand the overbought zone and the extreme levels. We can see that the MA difference is reversed exactly from upper end of 200. This level was taken out only once but that too temporarily. During the entire up move since the low formed in December 2016 near 7900 levels the difference between 5 days MA and 20 days MA never exceeded 200 points. This is very vital information and so any further deviation of more than this might hint towards unsustainable mania as the undertone.

Case in point –The overall tone of the markets looks reversing on the downside. We have entered into very important phase. As we have not yet seen reversal in the trend following system but at the same time the indicators have reached the extreme reading and so one has to stay cautious. For investors this is not the ideal level to enter and it is best to wait for mean reversion back towards the long term average for fresh long term investments.

In a nutshell, the overall trend looks matured and we have started seeing the volatility. The indicators have entered into extreme levels but it has been more than 22 weeks since we saw lower high and lower low on weekly charts.This week we closed below 11595 which is negative close below prior week in nearly 22 weeks. So it is time to be cautious for sure and post this short term up move is over the downtrend should resume. This is another way of following the trend. To avoid the confusion and put it simply the trend looks matured and next few days are crucial for confirmation. Fresh longs should be created with caution. A decisive move below this week’s low of 11393 is important which will be first sign of concern that the trending move is over and the Price and / or Time correction is starting! The ongoing mania is going to culminate equally fast and one should be quick to change the stand as and when it happens.

Happened: Prices topped out in early September exactly as expected and we have seen one of the biggest declines since 2015. This clearly suggests that an important top is formed. So where is Nifty headed from here from medium term to short term perspective? Check the monthly update for the medium to long term perspective.

Now if we look at the short term charts, following are the trading strategy given in the Nifty research report.

Below are the trading strategy given over past few days and it has worked out brilliantly well on Nifty:

Trading Strategy given on 08th October morning- For today, short positions can be created below 10260 with 10320 as stop and target of 10200 or lower. Avoid creating long positions. 

Happened: Nifty has been moving precisely as expected and as per the trading strategy and moved below the mentioned level.

Trading Strategy given on 05th October morning- For today, short positions can be created on move below 10550 with 10600 as stop and target of 10500 or lower. Avoid creating long positions.

Happened: Nifty continued to move lower and 10550 was taken out with a Gap.

Trading Strategy given on 28th September morning- For today, short positions can be created below 10950 with 11000 as stop and target of 10900 levels. Long positions can be created only on move above 11030 with day's low as stop and target of 11070 levels.

Happened: Prices took out the level of 10950 during latter half of trading session and managed to achieve the target of 10900 levels.

Trading Strategy given on 27th September morning- For today, short positions can be created on move below 10990 levels with 11050 as stop and target of 10940

Happened: Nifty moved lower towards 10953 after breaking below 10990 levels.

Daily Nifty trading research report gives the trading strategy for the day and equity research report gives outlook on stocks as well. Get access to “The Financial waves short term update” and “Nifty trading update” here. Get access here

To know what will be the next move of Nifty on long term to medium term basis get access to our monthly research published under the name of “The Financial waves monthly update”. Subscribe now