Nifty Price Action 11 - Sep - 2012

Nifty Future opened weak with gap down on poor global cues but moved above the days open. The first attempt to move above the Previous day low failed but after testing the days low Nifty Future successfully moved above the Previous Day’s low. I have given below the 5-min candle stick chart with my observations about the crucial candle stick bars that would give an insight into today’s price action and trade opportunities.

I have described the significance of the candle stick bars below.

Bar 1: Breakout from the Previous Day low is a weak doji bar with small body. It signifies weak breakout
Bar 2: Strong Reversal Bear trend Bar of the Previous Day Low. But this has prior overlapping bars signals a weak breakout failure. Also there is no overshoot of the Trend Channel line signifying that the up move is not overdone.
Bars between 2 and 3: Barb wire signals the lack of importance of the Previous day low in the current context. Price is getting accepted here. Even though the first pullback to the 21EMA was a short trade did not initiate a short trade due to poor signal bars.
Bar 3: Strong Bull trend reversal bar at the test of the initial range low. A long trade entry with exit at the Previous day low as reversal from here would mean a higher low.
Bar 4: Strong Bull trend entry bar which signals to hold the long trade for bigger target and bring the stop loss closer from the days low to entry price
Bar 5: Strong Bull trend breakout bar above the Previous Day low which signals a addition of long trade at the pullback to Previous Day Low
Bar 6: Weak Bear Reversal Doji bar signals failure to move price below the Previous day low. This signifies maintaining the long position.
Bar 7: Entry Bar for adding to long trade with stop loss two ticks below the Previous Day Low and target as the major swing point and Previous Day Close.
Bar 8: Exit all long here as there is a confluence of resistance from the downward trend line and the Previous Day Close and Major Swing Point
Bar 9: Strong Bear Reversal Bar but has overlapping prior bar and also did not reverse from above the Previous Day Close. Not a valid Breakout failure signal. Here also no overshoot of the Trend channel line signifying that the up move is not overdone.
Bar 10: The first pullback to the 21EMA after the up move. Again initiate long trade here with target break of the Previous Day Close or Previous Day High
Bar 11: Huge Bull trend Bar exit all long position as it is a trend channel line overshoot and likely to transition to a spike and channel trend or a Bull Flag with deep pullback.
Bars between Bar 11 to Bar 12: Event based volatile movement with bars having long tails. Low predictability of bars
Bar 12: 2-leg pullback from the high which touches the 21EMA and produces the strong Bull trend reversal bar above the previous day high. This is a long trade entry. But the entry bar is a weak doji signaling exit at the downward trend line. A scalp trade at the best
Bar 13: A break out failure of the downward trend line with strong bear reversal bar and strong entry bar as a doji. This is a valid short trade entry but after a strong up move the break of trend line would confirm the short trade entry.
Bar 14: A overshoot of the Bull Flag trend channel line and a test of the upward trend line. An excellent long trade with a stop loss at the Previous Day Close. A bigger stop is required and justified here as the risk reward ratio is favorable.
Bar 15: Very strong Bull trend Bar that closes at the Previous Day High. The next bar appeared as a strong Bear reversal bar but at the last minute transformed into a strong Bull trend bar. A failed breakout failure is a strong continuation signal. Add another long trade at the downward trend line break.
Bar 16: Exit of all long position as the Big Round Number 5400 level kicks in. The strong Bear reversal bar is not a good short entry as first attempt to reverse from a new high always fails in a strong trending move.
Bar 17: Strong Bear reversal bar with break of the prior high of 5392. If the next bar is equally strong bar and breaks the upward trend line then reversal will start.
Bar 18: Weak Bull reversal bar with support at the 21EMA. After decisively crossing the 21EMA the first pullback is a with-trend trade.  In a strong trending move even weak signals are good with trend entries. Exit at close and stop loss at Previous Day High.

Summary: A very strong trending day based on positive news flow of the Petroleum Product Price hike. Nifty Future moved in four steps and took out the four levels of Previous Day low, Previous Day Close, Previous Day high and Big Round Number. The up move had started before the news flow and had given lot of signals but till the news event the volumes traded were low. Overall a good day with strong moves.