Thursday, June 23, 2011

Update for 23rd June 2011

  Two Inside Day Candles In a Row, What Now ?

As expected, Nifty futures traded sideways for the entire trading day on Wednesday, in spite of recovery in the international markets. The sideways trading observed during the last two trading days has lead to the formation of two inside day candles in the daily chart of Nifty futures. An inside candle after a fast move is an indication of indecision by the market participants. And sometimes these inside day candles can also indicate reversals and are used as trading setups. Here is a reproduction of an old post which described the inside day candle trading set up. 

How to Trade an Inside Day Candle
  • As this author feels that he is obliged to the readers to at least add a small note on how to  trade an inside day candle, here it is !
            Inside Day Candle- Chart 1

  • The last candles complete range is covered by the immediately preceding candle. Therefore, the last candle is called an inside candle. Please also note that the range of the inside day candle is very small in comparison with the previous candles.
  • In order to trade the inside day candle, place a stop buy order above the high of the candle. 
  •                                                                                                                                                                                    Inside Day Candle- Chart 2
  • Similarly, place another stop sell order at the bottom of the candle.
  • When one of the orders gets executed, the other order becomes the real stop loss order.
  • Manage the trade by adjusting the stop loss or exit  near a known support or resistance.
  • Not every trade may lead to profits and on certain days both orders may get executed leading to losses.

    Nifty Futures - Daily Chart   

Formation of the inside day candles makes the immediate next direction of the Nifty contracts uncertain. Though the medium term trend is downwards, especially after the break of long term support line, markets can even make surprise rallies and test the upper resistances once more before resuming the down trend. However, it seems that the chances of the Nifty futures resuming the downtrend outweighs the start of significant recovery. 

Nifty Options Scene   

The June series Nifty Options Put Call ratio ( PCR June series ) hovered at a below par  0.94 times on Wednesday.

 Nifty Trailing Fundamentals  

The trailing Price Earnings Ratio  ( PE Ratio ), Price to Book Value ( PB Ratio ) and Dividend Yield ( DY Ratio ) of the Nifty Index  were at 19.4, 3.27 and  1.34 respectively as on 22nd June 2011.  ( More information and a long term analysis on Nifty historical valuation are available from the "Nifty Fundas" page ).

  Latest Ultimate Momentum Signal 

The Momentum Signal has remained in the  negative momentum territory with a maximum negative value of -100 as on Wednesday.

Projected Momentum Signal Close Values

The projected levels of Momentum Signal values applicable to various ranges of closing values of the current month Nifty Futures, Nifty Index and the BSE Sensex,  as at the close of next trading day, ie. as on  23rd June, 2011, are given in the following table. All readers are requested to take note that the table below is just a ready reckoner for the next day's Momentum Signal values and the figures are not intended to be interpreted as any targets for the Nifty futures or indices shown therein.

Click on the table above for an enlarged view.

Readers are also requested to go through The Signal, Entries and Exits, Position Limits, Risk Factors, Risk Analysis,  and FAQs pages to gain a reasonable understanding of the trading system. Please do post your  comments and suggestions on how new  posts can be made more useful.

Cheers and Prosperous Investing and Trading !!!

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