Nifty - Point and Figure Analysis

Sunday, 15 September 2013

Sideways expected, P&F offers clear rules to trade!

Sideways expected, P&F offers clear rules to trade!

Date: 16^th September 2013

Nifty has seen massive recovery from the recent swing low and trending up at the moment. Notice in Figure 1 and 2 that 45 degree bearish trend lines and anchor point supply zone are forming the resistance for the prices from here. The gap between moving averages and momentum indicators in daily bar chart signals the trend extension that shall be followed by change in trend.

Figure 3 is 10 box chart plotted with 5% MA envelopes to 5 column SMA. Trading well above upper band shows the strength in the trend but this might also act as a significant resistance unless bearish objective lines (A) are beaten.

So should I sell at resistance zone when medium to long term trend of Nifty is down? It will also generate an affordable trading opportunity with small stoploss, isn't it? It can never be the affordable trading setup to sell the price that is going up. Questioning the price is a dangerous business.

I felt that Nifty is trading near resistance during last week also but no sell signal is generated in P&F till date! I expect some sideways trend but P&F is making life very simple here. Need tight exit in long (column reversal) due to trend extension. No column reversal because one (up) trend is dominating at the moment. And double bottom sell signal to be taken because price is trading near resistance.

In brief, No column reversal to be traded for entries. Trade Double Top Buy signal if that occurs but with stoploss placed at column reversal, that will ensure early exit if trend reverses. Don’t miss the Double Bottom sell signal if that occurs. No trade unless any of these conditions are met.

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

Figure 2: Nifty 10 x 3 HL Point and Figure Chart

Figure 3: Nifty 10 x 3 cl P&F chart with 5,5 MA envelopes

- Prashant Shah

Disclaimer:
All information provided above is for general information purposes only and does not constitute any investment advice. Company or Author shall not be liable for loss or damage that may arise from use of information provided above. The report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The readers of this material should take their own professional advice before acting on this information.

Monday, 9 September 2013

Nifty approaching Resistance! Enjoy the truncated week.

Nifty approaching Resistance! Enjoy the truncated week.
Date: 10^th September 2013

Nifty closed at 5680 on last Friday. As mentioned, 5680 – 5700 was possible if price manages closed above 5480. But agreed that fall of 200+ points in Nifty on Tuesday must have shaken longs and triggered them out. Shifting to P&F column change strategy worked in this case. Figure 3 explains P&F basic and column reversal patterns.

Larger term trend is down and I believe that we are witnessing a corrective rally. Several upside counts are developed during recent bottom formation. Two counts are shown in Figure 1. Count of 6070 is valid and active. But my experience suggests that count from previous column in case of vertical reversal is more effective and that comes at 5790 at present. Bounce from anchor point with bear trap formation has made the setup affordable for bulls.

Upside count direction and important resistance setup is pointing towards 5800. But resistance is a resistance when it is taken. Anticipating them is a dangerous business. Hence, wait for double bottom sell signal even when price approaches near resistance. Strategy from column change should be shifted to basic signals now. There is some possibility of price consolidation (Noise in price time charts). Better to enjoy the truncated week and look for good reasons to trade. Wait for the double top or double bottom signal to occur.

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

Figure 2: Nifty 10 x 3 HL Point and Figure Chart

Figure 3 A: P&F Basic Double Top Buy and Double Bottom Sell signals

Figure 3B : P&F Column Reversal Signals

- Prashant Shah

Sunday, 1 September 2013

More to come if closed above 5480. Trade P&F column change!

More to come if closed above 5480. Trade P&F column change!
Date: 2^nd September 2013

Nifty ended flat in last week if compared to previous week closing price! Price has not moved in the weekly chart, only time has passed! But price range of last week (High – Low) is widest in last 108 weeks. This is to say it’s a serious range expansion.

Notice the consolidating columns in Figure 1 of 10 box P&F chart of closing prices. Price set up is negative and down side counts are dominating. Close above 5480 will activate the upside count and generate possibilities of price rally till 5680 – 5700. It will also trigger bear trap if another ‘X’ is formed in the current column. But bear traps in down trends are often not long lived. Rather their failures generate nice set up to trade.

Figure 3 shows Nifty Weekly and daily candle stick chart along with 10 box P&F chart to observe the patterns. Two consecutive hammers in weekly chart and now low pole in P&F chart. Double top breakout from here should be taken. 5530 will confirm the breakout from candlestick patterns and consolidation pattern in daily chart. It will also ensure breakout in P&F high low chart. Close above 5480 will trigger buy in P&F charts of various box sizes.

Having said this, I am bearish on price and would follow aggressive exits (column change) for any longs. Trend is down and possibilities of lower targets being achieved are more. Failure of a bullish pattern in this environment would be a mouth watering opportunity.

In brief, Buy If Nifty closes above 5480. Resistance area is around 5680 – 5700. No longs below 5440. Go short below 5390. I would recommend column change strategy for entry and exits to trade this set up.

Column change occurs when bullish column of ‘X’ turns to bearish column of ‘O’ or vice versa. Exit longs and Go short when column of ‘O’ is been formed. Cover shorts and Go long when column of ‘X’ is been formed. This ensures stop of 3 box and advisable strategy in corrective moves.

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

Figure 2: Nifty 10 x 3 HL Point and Figure Chart

Figure 3: Nifty set up

- - Prashant Shah

Sunday, 25 August 2013

Let Price breathe. Some consolidation likely!!

Let Price breathe. Some consolidation likely!!
Date: 26^th August 2013

Trend of Nifty is down and following ‘O’s in such cases make one enjoy the screen. As mentioned earlier, 5250 – 5300 is a significant support zone which is respected by the prices. I noticed something interesting and tweeted during the week that all the stocks of Nifty index were bearish on 0.25% box value of 3 box reversal chart. This indicates that medium term downtrend is extended and need reason to breathe. Breadth numbers help at extreme zones of oscillators or when price is indicating a halt. P&F chart can be either bullish or bearish. Bearish chart is one where last generated signal is double bottom sell signal.

Anchor Point cluster shown in chart 1 and 2 also confirmed the support levels. Price has reversed from that and we all know about formation of hammer candle stick pattern in weekly charts that indicates change in trend. I know only one way to trade hammer in down trending chart, Follow next Double top buy signal!

So, is downtrend over and price has finally reversed? And should we buy all correctives now? Nobody knows this and no need to know in order to trade it. Trading is different than analysis. I do all sorts of analysis only to decide if next P&F signal or column change should be traded.

It’s a downtrend and picture looks bearish. Price is trading below 45 degree internals and several downside counts are open. There are evidences that the bottom that is formed recently will be breached eventually and some lower levels will be seen. But some price consolidation is likely for a while. Bullish Low pole pattern helps in trading vertical reversals. It will be formed if Nifty will trade above 5540 without reversal. We normally ignore Double Top signal in downtrend unless there is a reason to trade and low pole is one of them.

In brief, I think some price consolidation is likely and no trade should be taken unless P&F basic pattern is formed. Buy Double Top signal from here but apply aggressive exits. Trend at the helm should be respected hence Double Bottom sell signals should not be missed with stoploss placed at subsequent Double Top buy signal. 5650 – 5700 seems resistance zone.

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

Figure 2: Nifty 10 x 3 HL Point and Figure Chart

Figure 3: Nifty weekly candlestick chart and 1% x 3 cl P&F chart

- - Prashant Shah

Sunday, 18 August 2013

Trend is down. Love ‘O’s, Enjoy the screen!!

Trend is down. Love ‘O’s, Enjoy the screen!!
Date: 19^th August 2013

People calling it a Black Friday!! It’s a trend day in terms of Market Profile. I believe no day can be brighter than such for trend followers.

Negative setup is been already discussed and also mentioned reasons for probable support area in the last week write up. Support was taken and downtrend is resumed. Control is regained by the established trend. As said earlier, buying at supports in downtrend can never be affordable and need more confirmations. Shorts that were covered above 5600 have got Fresh Double Bottom signal. Missing Double Bottom in downtrend is a sin.

Trend is down and more downside counts are being active. Figure 1 shows 45 degree trendline from significant bottoms along with anchor points. Price is trading near 45 degree support cluster. Figure 2 also suggests that price is trading near lower Bollinger band and anchor point. Nifty is trading near long term trend line in daily bar chart. But there are some evidences that any recovery will be short lived and some significant support zone lies near 5250 – 5300 levels. Fresh Double Bottom signal will confirm the long term trend line break hence should be taken. People must be looking at H&S pattern in bar charts or Three Buddha top in weekly candlestick charts.

But all this is about analysis which helps little in trading. Important information is that Trend is down and there are some signs of support which keeps forming. We traders keep crying for narrow ranges when price is consolidating and keep looking for supports and resistances for reversal when trend is established! As said earlier also, P&F basic patterns can help in such situations. It’s a tool to react to the price behavior.

Multiple Vertical Counts that signals price direction below 5000 are active. 5680 – 5700 is an important resistance zone. Column of ‘O’ is active. Trade all formations of ‘O’ and all Double Bottom Sell signals with stoploss at subsequent Double Top Buy signals.

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

Figure 2: Nifty 10 x 3 HL Point and Figure Chart

- - Prashant Shah

Sunday, 11 August 2013

Trend down & talks of supports? Answer lies in basic P&F patterns!!

Trend down & talks of supports? Answer lies in basic P&F patterns!!
Date: 12^th August 2013

Formation of column of ‘X’ during last trading session has ensured long 55 box column of ‘O’ in 10 box closing price Point & Figure chart of Nifty. This is longest column of O since Oct 2011. We have already discussed about negative setup and down side targets of Nifty. Current vertical fall has made price box touch 20 columns lower Bollinger Band in both the charts plotted with closing prices in Figure 1 and High low prices in Figure 2.

There are some evidences of support around current levels when we look at left. Along with trading near lower bands price is also trading near Anchor Points in both the charts and near previous highs which might act as support when price is falling. It is also trading near monthly trend line in Bar chart and several indicators are forming positive divergence in oversold zone in hourly charts!!

Hence trend is down but price is trading near support and there are chances of some relief rally. Another important point is a possibility of formation of Bullish Low Pole in High low charts if price trades above 5600. Resistance area is around 5700 - 5720.

So should we go and Buy on Monday due to such indications and low risk reward?!! Risk reward of a trade against the established trend cannot ever be favorable and affordable! As said earlier also, one should avoid buying at first column of X in downtrend. And Double tops in downtrend need more confirmations.

In brief, cover existing shorts if price trades above 5600 due to Low pole formation. No fresh longs because setup is negative in closing price chart. Long Double Top signal if it occurs above 5600 but apply aggressive exits. Missing Double Bottom sell signal is a sin in such trends. Rather enjoy them with stop loss placed at subsequent Double Top Buy signal.

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

Figure 2: Nifty 10 x 3 HL Point and Figure Chart

- - Prashant Shah

Sunday, 4 August 2013

Vertical count cluster suggests Nifty to trade below 5000!!

Vertical count cluster suggests Nifty to trade below 5000!!
Date: 5^th August 2013

We know that prices are falling and trend is down. Mentioned in last week write up that Double top buy signal is to be taken only above 5860. Coincidentally, High of corrective rally during last week was 5861. This can be seen in price-time charts only (bar, candles etc). Nifty continues to plot more Os with a fall of about 200 points during the week.

We have discussed about bearish set up in prices with Bear Trap and Relative high pattern formed near bearish objective trendline. Vertical count of 4860 is been activated in High Low chart during last week (Figure 3). I generally avoid taking count from such long column of Os but this column is significant and fulfilling all the conditions of taking a vertical count. I prefer going to 2 box chart when such long column vertical counts arise (Figure 4). Vertical counts from 2 box charts are short term counts but they often prove effective. Figure 5 shows 0.25% and 0.50% 3 box reversal charts to observe the activated counts and their levels. Figure 6 show charts with same box values plotted with 2 box reversals.. 3 box charts suggests counts direction below 5000 and 2 box charts are showing them near 5300.Count is established in chart with closing prices but not activated as yet due to consistent fall in prices without any reversal on closing basis.

Knowing about count direction can help us in designing the trading strategy. Figure 1 shows 10 box chart plotted with closing prices that has touched 20 column lower Bollinger band after formation of Relative High. Set up is bearish but near Anchor point support level and Internal objective line. Figure 2 is showing the larger degree pattern plotted with High Low prices to observe the important support levels. Anchor Point levels of different patterns are shown in the chart.

Fresh short doesn’t seem affordable unless column of reversal is formed. Trade formation of Os and all Double bottoms unless price goes above 5900. Trend can be trailed with 45 degree internals. We need low pole or Relative low to buy double tops and will write about if something like that is formed. I would never ask to buy first column of reversal unless low pole is formed.

For those who don’t understand much of P&F,Levels below 5000 are possible in future hence look for bearish set ups when price witness corrective rallies that doesn’t close above 5900.

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

Figure 2: Nifty 10 x 3 HL Point and Figure Chart

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

Figure 4: Nifty 10 x 2 HL Point and Figure Chart

Figure 5: Nifty 3 HL 3 Box Reversal Point and Figure Charts

Figure 6: Nifty 3 HL 2 Box Reversal Point and Figure Charts

- - Prashant Shah