Update on The Ultimate Momentum Signal - 12th Nov. 2010

A Day of Losses and What to Expect Now ???

Even though it was mentioned in the last post that the chance of a breakout above or below the inside day candle remains more or less equal, it was specifically said that (a) the subtle gap might act as a precursor to some weakness ahead, (b) inside day candles can be traded by entering trades at the break of both the high and the low of the candles, (c) traders may exercise caution about a break below the low of the inside day candle, as it may trap those who were expecting a breakout above 5350 level and (d) long positions need be protected  by an intraday system stop at 6216. ( High 6349 minus 2.1 % of 6349 = 6216 ).

Now, let's check out what happened in Thursday's  trade. Nifty futures opened flat on Thursday and the initial range  was of  just 20 points. The high of the day was at 6321 and the initial low was at 6300. Trading remained directionless till around 12.00 noon. However, unable to make any progress upwards, the futures broke through the low of the inside day candle to record lows between 6275 and 6280. All recoveries from these lows were unable to progress beyond 6298 level, just three points inside the previous day's candle. The failure to progress upwards attracted further selling and later on selling accelerated. Nifty futures even broke through the intraday  protective stop placed at 6216. (  High 6349 minus 2.1 % of 6349 = 6216 ).  The day's low was at 6209. Nifty futures recovered later on to close at 6237.

Update on The Ultimate Momentum Signal - 11th Nov. 2010

  A Low Volume Inside Day and What to Expect Now ???

Even though it was expected that the Nifty future is poised for a breakout above the 6350 level, nothing of any significance happened in Wednesday's trading. Nifty future opened lower at 6320 on Wednesday,  in tandem with the international cues and traded listlessly for the entire trading session. The trading  was also limited to a very narrow range of 37 points. The day's high of 6332 coincided with the previous day's morning session high. ( Please read the previous post for more details ). It also coincided with the previous day's adjusted close price of 6333. However, the Nifty futures failed to reach the previous day's last traded price in Wednesdays trading thereby leaving a subtle gap between these two. These kind of subtle gaps may indicate weakness ahead and have indicated reversals earlier. However, it seems that these kinds of subtle gaps have limited value for securities which trade in a trading range. The last trade of the day was at 6310. Since the day's candle ( ie. trading range ) was restricted to the previous day's range, it is called an inside day candle. Such candles indicate indecision by the market  and sometimes, traders trade them by initiating trades on both the ends of such candles.