Corrective begins!!

Date: 11^th November 2013

We had a bearish week that made Nifty lost around 176 points on weekly basis to close at 6140.75. Interestingly, all 5 candles of last week were red! I discussed about bearish set up in Nifty candlestick chart with RoC in last week post. Applying aggressive exit of column reversal to longs helped.

There are 4 ways to take entry and exit in P&F charts. They are Double Top, Double Bottom signals and bullish, bearish column reversals. These are the trading tools that can be used as per the state of the trend and chart setup. It can also help in ascertaining price confirmation to our expectations. Take a trade when price confirms our assumption and avoid when not.

  

Charts analysis:

Figure 1 is 10 box P&F chart plotted with closing prices and Figure 2 is same chart plotted with high low prices. Price in both the charts is trading above bullish objective support line hence trend is up.

But High Pole pattern is formed in both of them. It is formed at trend line resistance in figure 1 and at relative high in figure 2. Relative high is a high box value that is formed below upper band after previous high that was above upper band.

There are few high pole patterns in the same charts before this in the current rally but those were not followed by double bottom sell signal to confirm the trade. I expect it to happen this time due to negative setup in both the charts.

Next double bottom sell signal will occur if price goes below 6070 from here. But level would differ if another column of ‘X’ occurs before double bottom sell signal. A rally from here or formation of ‘X’ will be quiet interesting because it will generate better trading opportunity. 

This is been a steep rally and serious P&F band expansion. Hence I expect price consolidation that forms some sort of consolidating columns. Breakout traders might find it difficult situation to trade. Sticking to P&F basic patterns is a strategy for me during such times. 

 

Figure 1: Nifty 10 x 3 CL Point and Figure Chart

Figure 3: Nifty 10 x 3 HL Point and Figure Chart

  -  Prashant Shah, CMT, CFTe

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