Nifty - Point and Figure Analysis

Sunday, 18 May 2014

Nifty P&F analysis: 7700 before 7000? Let’s follow ‘X’ to know!!

7700 before 7000? Let’s follow ‘X’ to know!!

Date: 19^th May 2014

Finally.. Ache din aa gaye! What a nice feeling to have a stable government with clear mandate.This definitely is a special Sunday. I have to deal with this sense of positivity while writing about the charts that are bullish as well J

At times it is very difficult even for an experienced trader to deal with the external stuffs especially when event is not an ordinary. Mentioned during last post that price has clarified the direction and set up is bullish. Longs have no reason to exit unless double bottom sell or high pole triggers. Still stand by that!

Price Analysis:

Figure 1 is 10 box value P&F chart plotted with closing prices. Count of 7160 discussed during last post is been achieved. Achievement of bullish count above bullish line is actually a bullish event. Current column of ‘X’ is consisting of 54 boxes now (540points) and High Pole pattern will be formed in this chart if price closes below 6930.

Do such long columns suggest that we should exit our longs and/or short because price must be ‘exhausted’ and some ‘profit booking’ or ‘correction’ may occur? An acceptance of the fact that one cannot buy right at the bottom and sell at the top can make one realize and stick to a method of following the price. Rather give lot of piece in the life.

Figure 1A: Benefits of Price following

Picture 1A is a perfect demonstration of benefits of a disciplined of price follower. A long column followed after a complex expanding formation (whipsaws) in Nifty right before election week (Price noise).

Closing prices doesn’t pay attention to intraday noise and hence plots relatively clear patterns. All sorts of backtesting suggest that patterns of charts plotted with closing prices are more profitable than any other plotting hence I obtain signals from pattern formed in these charts only. Charts plotted with high low prices give more information about intraday moves. Though it display more noise but can benefit short term traders if tactfully used.Short term traders would like to lock in some profits and take another signal in the direction of the trend.

Figure 2 is 10 box value P&F chart plotted with High Low prices. I think twice before plotting the vertical count in charts that are not plotted with closing prices. The column that has triggered 7700 is a breakout column of price consolidation pattern and appeared after a significant bottom formation that was indicating the negative break out hence a classical bear trap formation. And 7700 is a conservative count (2/3^rd) being the long column. Aggressive count signals 8230.

This chart plots high of 7560 that was formed on last Friday but some significant selling happened and price closed around 7200 in the end. A high pole pattern will be formed if price closes below 7330 on Monday. This information can be used by longs to book the profits for a while. And long again upon positive column reversal (Reappearance of ‘X’).

In brief:

I do believe that we are on for 7700. But a column of ‘O’ on closing charts is quiet possible before that which should not breach bottom of 7000. But this just the assumption and following ‘X’ is more profitable.

Remain long unless double Bottom sell or High Pole bearish pattern is formed. High low chart pattern discussed above can be used for exiting the longs. But reiterating, missing ‘X’ in such a strong chart is a sin.

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

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

- Prashant Shah, CMT, CFTe

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.

Sunday, 11 May 2014

Nifty Point and Figure analysis: Only price… Har baar!!

Only price… Har baar!!

Date: 12^th May 2014

As we enter to the very important week being results of the 2014 General elections to be declared on the coming Friday, a trader must be aware that he has to deal with internal noise as well along with external. We are also a normal citizen along with a trader. Expectations of both should not be mixed and duties of both are different. Knowledge for one is noise for another. Wish of one should not be the reason of other to trade. Exit polls to be out on Monday will assure the happening week with various news, rumors coming in that will affect the price and increase the volatility.

Price Analysis:

Figure 1 10 box value P&F chart plotted with closing prices. A very rare expanding pattern is formed in this chart. A bullish broadening pattern was followed by Bearish Broadening formation when box value of 6660 was plotted on last Wednesday. Upon backtesting I found that there are only two occurrences of this kind of bearish pattern in the uptrend (above 20 columns SMA) in Nifty chart and both of them were failed.

Past occurrences of Bearish Broadening after Bullish Broadening:

Short Entry	Date	Short Exit	Date	G/L%
5616.11	16-11-07	5735.21	12-12-07	-2.12%
5590.92	09-11-12	5761.06	06-12-12	-3.04%

I wrote on Twitter about this and that the appearance of ‘X’ would be exciting. Knowing the occurrence of non-profitable bearish pattern in the uptrend is certainly an important information. ‘X’ appeared on Friday in style. And now this has become a seriously expanding pattern with another higher leg. The setup is certainly bullish and count of 7160 is active.

Figure 2 is 10 box value P&F chart plotted with High Low prices. Price bounced from critical Fib level and 20 column Moving average line with Double top Buy pattern. It is also a bear trap pattern that suggests that traders who shorted on downside breakout is stuck and trapped. Figure 3 is 1 box chart of box value 10. Price above 6710 is a breakout from OSB pattern which is significant news.

Chart setup is certainly bullish and trading above bullish lines. But challenge this time even for experienced traders is to deal with the external noise and mood swings. Such multi-column expanding pattern right before election result reflects the confusion among the participants and difficulty of traders with whipsaws of the systems. So price has also generated some noise during last several days. Friday move in that sense is quiet satisfying because price seems to have cleared the direction. These setups in uptrend are definitely bullish.

In brief:

Not only ab ki baar... but har baar price should be the sole reason trade.And If that is the case, we are entering just another week!

I would recommend to trade and remain long unless price closes below 6650. Missing any appearance of ‘X’ in this kind of a chart setup is a sin. There are only two reasons to exit longs, Double Bottom sell or High Pole bearish pattern. And fresh shorts can only be traded below 6650 being below bullish objective line.

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 0.15%, 0.25% and 1% P&F charts

- Prashant Shah, CMT, CFTe

Sunday, 27 April 2014

Nifty P&F analysis: Nifty witnessing Broadening formation!!

Nifty witnessing Broadening formation!!

Date: 28^th April 2014

Nifty weekly chart has seen ‘Hanging man’ candlestick pattern followed by ‘Shooting star’. Should longs be worried because this indicates the possibility of reversal?

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Nifty has formed Mini Bottom at 6690 as shown in the chart. This has given us opportunity to trail our objective line and make the longs affordable. We would want to be bullish as long as price maintains 45 degree trend line now drawn from the Mini bottom, meaning it is rising more than it falls after formation of the new bottom. The formation of Mini bottom also was a perfect demonstration of Shake out pattern that suggests that the first sell signal in bull trend should always be ignored. Far from selling, it is an opportunity to look for ‘X’ to trade long.

Price has formed Bullish Broadening pattern above upper Bollinger band. Setup is bullish and trend is up. However, price will form High pole reversal pattern if it closes below 6760 hence an exit trigger for current longs. Close below 6670 will indicate possibility of 6450 – 6500.

Figure 3 shows three box reversal charts of Nifty with box values 0.15%, 0.25% and 1% to compare the current position in all of them. If you notice, current formation in 1% and 0.25% charts is a simple Double top buy signal that avoids noise of lower magnitude price reversals. 0.15% (absolute 10 box value at current levels) chart adds some ‘price noise’ to it. P&F smaller box values gives us opportunity to analyse the time-less noise and study the structure. Simple double top buy formation in higher box value chart exhibits bullish broadening formation in lower box value charts.

This formation provides us opportunity to backtest the occurrence. Figure 4 is back testing results of Bullish broadening formation with exit rule of first double bottom sell signal after the occurrence. Pattern seems profitable and remains valid in current setup as long as Nifty remains above 6670 on closing basis.

Figure 2 is 10 box value chart plotted with High Low prices. We discussed the Bullish broadening formation in this chart during last post and that the pattern will be negated below 6650. Channel lines and support lines are shown in the chart suggests that the structure is bullish as long as price remains above the same.

P&F strategy:

Exit longs below 6760 due to High Pole reversal pattern. Trade every appearance of ‘X’ till Nifty is above 6660.

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 0.15%, 0.25% and 1% P&F charts

Figure 4: Back testing results of Bullish broadening formation

- Prashant Shah, CMT, CFTe

Monday, 14 April 2014

Nifty P&F analysis: It all comes to ‘X’ when trend is up!!

It all comes to ‘X’ when trend is up!!

Date: 15^th April 2014

Intraday price saw ticks below 6670 during last week but ‘X’ assured the control over trend immediately and reappeared to stand by longs.

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Statistical results of Double top buy pattern above upper Bollinger band were discussed here. It indicated the higher probability of higher bottom to be formed above 6480. Bottom is trailed up at 6700 box value during last week. Double bottom sell signal from here will be triggered bellow 6690. This has not only assured large gains from the first buy signal but also made fresh longs affordable from here. Existing longs should remain in unless price forms Double bottom sell signal.

Figure 2 is 10 box value chart plotted with High Low prices. A Bullish broadening pattern is formed in the uptrend. The pattern is formed in this chart due to noise of high low charts. It is basically a Bearish bull trap pattern immediately followed by Bullish bear trap pattern. This is a bullish set up and current column of ‘O’ turning to ‘X’ will trigger an affordable fresh long trade. The pattern will be negated below 6650. Double bottom sell signal from here will not only negate the bullish pattern but also confirm the Relative High formation (High box value below upper band) which is a bearish event for short term traders.

I have discussed prior pre-election setups in the previous post.The current setup is bullish and we should keep finding reasons to trade long till it is trading above bullish line. A Double bottom sell signal from here would actually give an opportunity to trail the mini bottom up and generate fresh upper counts. We keep analysing the setups and various formations but everything eventually comes to ‘X’ when trend is up. Best methodology is to stick to what price is doing, stick to ‘X’.

P&F strategy for next week:

Remain long above 6690. Fresh ‘X’ is fresh buy trigger.

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

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

- Prashant Shah, CMT, CFTe

Sunday, 6 April 2014

Nifty P&F Analysis: Take a break below 6670. Let ‘X’ reappear!!

Take a break below 6670. Let ‘X’ reappear!!

Date: 7^th April 2014

Finally the column of ‘O’ appeared on Friday with 5 boxes. These are maximum boxes in negative column since the uptrend that has begun during Feb 2014.

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Column is turned to ‘O’ but chart set up is bullish. It seems that a price correction has begun and we might see some downside or column squeeze from here. A close below 6620 will trigger High Pole reversal pattern. If not short, it’s an exit trigger for longs. But the pattern doesn't make chart bearish and we keep finding High poles in uptrend just like we keep getting hammer and doji candlestick patterns in the uptrend.

Figure 2 is 10 box value chart plotted with High Low prices. A tick below 6670 will generate double bottom sell signal. The interesting thing is that the last column of ‘X’ was below the upper band hence qualified for the Relative High. The setup certainly calls for exit of longs.

Figure 3 is Three line break chart of Nifty. A first red line has appeared in the uptrend. Narrow lines in upper formation suggest that last several advances have been quiet weak. I posted one line break chart in one of the recent posts to discuss the structure. These charts sometimes confirm or deviate from the P&F patterns and provide very useful information about the setup.

There are evidences that some price correction is possible. But this doesn’t make charts bearish. A correction or double bottom sell signal from here will give opportunity to trail bottom & trend lines. The gap between bullish line and box value is been very high. A price correction will help to trail the trend line up.

We are approaching the event of general elections which is certainly not the ordinary event and things would be very volatile. It is very difficult to maintain the detached involvement during these times. We keep hearing developments and change our views accordingly. Nobody is certain about the outcome and a trader even doesn't need to. Figure 4 and 5 are pre-election P&F charts of Nifty during 2004 and 2009 respectively. The picture makes one thing very clear for sure, Price is a leading indicator. The only job of a trader in that case is to follow the price. P&F patterns can help doing that.

P&F strategy for next week:

Exit longs if price goes below 6670. Wait for ‘X’ to appear again!!

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 Three Line Break Chart

Figure 4: Nifty 0.25% x 3 cl P&F chart during 2004 (Pre-election phase)

Figure 5: Nifty P&F charts during 2009 (Pre-election phase)

- Prashant Shah, CMT, CFTe

Sunday, 30 March 2014

Nifty P&F analysis: What’s in store? Worship ‘X’ to know!!

What’s in store? Worship ‘X’ to know!!

Date: 31^st March 2014

When trend is up, everything becomes ‘X’. Price went above 6540 to trigger the buy signal as explained during last week. Exit conditions are not met since then and trade is on.

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Mentioned in last post that there is absolutely no reason to be bearish and Double Top buy signal above 6540 is a statistically profitable set up. Backtested results of the pattern (Double top buy above upper band) are shown in Figure 3. 10 box is 0.15% of current levels hence that box value is used for back testing. A lot can be discussed about numbers but in brief and simple words, there is higher probability that Nifty will not breach 6480 before making higher bottom.

Figure 2 is 10 box value chart plotted with High Low prices. Price witnessed bullish breakout from the consolidating columns developed prior to last week. The Anchor point of the uptrend is at 6500 levels now which might act as a support if price corrects.

Set up is bullish, price is going up. There was not even single ‘O’ formed during last week in either chart. There is no reason to think bearish at this moment. Rather a bearish double bottom sell from here will be an opportunity to trail the Bottom to higher levels.

Where is resistance and how far price will go from here? There is no need to know it.

I have mentioned during last posts that counts of 7000+ are open in Nifty and count direction is been up. Only ‘X’ knows what’s in store. Worship and follow it. All the macro, micro numbers of all sorts of analysis comes to it when trend is up.

I asked for trading long above 6540 and exit at column reversal because my general observation is been that the first breakout from narrow range proves misleading. There is no column reversal since breakout and trade is on.

One can exit at column reversal from here but must re-enter when ‘X’ appears. I would recommend staying long unless we get Double bottom sell or High pole. High Pole will be formed if price trades below 6610 from current levels. Levels will be changed if price trade at higher box values from here.

P&F strategy for next week:

Remain long unless exit conditions explained above are met. It’s a sin to miss ‘X’!!

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

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

Figure 3: 0.15% x 3 cl BT result of DTbuy above upper band

- Prashant Shah, CMT, CFTe

Sunday, 23 March 2014

Nifty P&F analysis: Nifty in tight range. P&F pattern would be clue!!

Nifty in tight range. P&F pattern would be clue!!

Date: 24^th March 2014

Last week is mostly been non-event for P&F charts. It was one of the weeks where only time is been spent and price hardly doing anything.

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Only one box of ‘O’ is been plotted in this chart during last week. This suggests that most of the action during last week is been a time consolidation with price not moving on the closing basis. It’s a classical bullish setup and there is absolutely no reason to think bearish at this point in this chart. Close above 6540 will generate double top buy signal and should be taken. Statistically, Double top buy signal above upper band in this chart is been a profitable signal. I will paste the result in the blog if the pattern is formed.

However, we need to analyse the intraday price behavior during the consolidation which is possible with aggressive P&F chart plotted with high low prices.

Figure 2 is 10 box value chart plotted with High Low prices. This chart gives us more information about price behavior during last week. A new box high is made during the week which was not sustained till closing of that day (Hence chart plotted with closing prices is not moved) and then price corrected. Black horizontal lines shown in the chart are Anchor Points in the uptrend started in the earlier Feb this year. It can be observed that anchor rows of current consolidating pattern (B) are equal to rows in the pattern at the lower base (A). These lines are suggesting the current price range and any breach of them will indicate the breakout. Anchor base of the pattern will shift upwards at current levels if more columns are appeared in this zone.

Double Bottom sell signal from here in this chart will form a Relative high pattern which would indicate the possibility of a short term top. It will also trigger Bull trap variation pattern (6 column pattern) that suggests the price correction. Hence price falling below 6470 will indicate bearish pattern for the shorter term.

This will also be a negative breakout from the current consolidation range in all the charts. Various systems would trigger a sell call below these levels. Range and standard deviation bands are very tight in bar and candlestick charts. My observation is been that the first breakout from very tight range often proves to be a misleading and false breakout. Hence I would suggest to book quick profit in the first range breakout that we get.

Price correction from here doesn't change the intermediate trend rather healthy for the bullish setup and form mini bottom to trail the bullish line at higher levels. I would like to chase the 'X' unless bullish line is broken.

P&F charts can be a very helpful tool when price trades in a narrow range. Basic Double Top and Double Bottom signals can guide the trades. Price range at the moment is 6540 (on closing basis) and 6470. Short term traders can sell below 6470 but exit the positions upon column reversal.

P&F strategy for next week:

Buy if close appears above 6540. Sell if price falls below 6470. Exit at column reversal.

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

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

- Prashant Shah, CMT, CFTe