Nifty Analysis - The No-Nonsense "0" Indicator Strategy!!!While trading on Indices, most of us adopt 3 major strategies
Intraday / BTST Trades: Referring the Open Interest (OI) positions
Positional Short Term Expiry: Mostly using Chart patterns at 1 hr or 1 day coupled with Indicators like EMA 9, EMA 21, Bollinger Bands, MACD, RSI, RSI divergence etc...
Positional Long Term Expiry: Using Chart patterns at different timeframes 1 hr, 1 day, 1 week etc.. in the Nifty Index
Sometimes, a combination of the above 2 strategies are being used.
When we fail, we talk about mentality and most often accept the failures and look for next trade. Seldom, anyone does back-testing to identify the real problem
Let's review the cases above
1. Open Interest (OI) based trades = Blind Betting on a Horse which has Max bets
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Without understanding the Strength, Stamina, Agility, Medical condition of a Horse, if we take bets on a horse where there is already maximum betting - the odds of winning may be higher for a Horse Race.
But such blind betting ends up in confirmed failures in stock market - if we base our positions referring to OI positions because AlgoTraders & Big players usually create a Bait showing an extremely high position on one side and the moment innocent retailers are lured in that direction, using power of money & power of Algo Speed, the OI positions are cancelled and changed to opposite direction
The movement is so fast that it neither hits our SL nor our preset Targets (even if it is in our favor by coincidence) - ending up in Steep losses
2. Reliance of Various Indicators = Getting attacked by Octopus
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An index like Nifty 50 is NOT just a combination of 50 stocks, but these 50 stocks are handpicked from different Sectors and each Stock has different Weightage. A sudden News on Any particular Sector (or) A news about a particular Stock (or) Quarterly Results combined with the weightage of the Sector & Stock have a very Dynamic impact on the Nifty Index.
Unlike a linear price movement on a particular stock, Index movement cannot be accurately predicted by ANY of the indicators. Especially during special situations like Quarterly Results (or) during Election (or) during Budget - there would be sudden variations across different sectors each with their weightage will have varied impact on Nifty. Like an Octopus - which can attack us using all its 8 Tentacles with varied force and independent movement - any human based algorithm considering the price values only of the Index becomes useless
3. Using Chart patterns of Index = Judging the Book by Its Cover
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Almost all Traders are so engulfed within the Index's spot prices and premiums that we almost forget that the Index movement is NOT based on its Cover but rather based on the underlying 50 stocks. What we are doing is nothing but Gambling against the cover - which does not handle sudden turns in any of the underlying stocks which coupled with their weightage has very varied impact and becomes unpredictable
Let's ignore ALL the Non-Sense above and try to read the Book (the underlying stocks) and derive trends basis Support and resistances of Index & stocks instead of using indicators
Comparison of Nifty Daily, Weekly, Monthly, Quarterly:
1. The June Quarter Candle ended with strong bullish indicating that Nifty would be Green in subsequent quarter (July-September)
2. But June Monthly candle ended in a Bearish Hammer pattern (Long wick and short candle) which is an indication of Temporary Bearish Reversal for July month
3. Last week's candle ended in a Shooting Star pattern indicating a Fall this week
4. July 22 (Monday - Today's) daily candle ended negatively below Friday close. Despite a strong rise in the 1st hour propelled solely by HDFC, both Nifty and HDFC could not sustain the bounce, and both got rejected by their respective resistances and fell down indicating further downside
The Above Index Analysis is perfectly in-line with our earlier analysis of RED July and GREEN September
Now for a more sharp analysis, let's analyze the Top 10 Nifty stocks by weightage
Top constituents by weightage
HDFC Bank Ltd. 11.95
Reliance Industries Ltd. 9.98
ICICI Bank Ltd. 7.95
Infosys Ltd. 5.33
Larsen & Toubro Ltd. 3.91
Tata Consultancy Services Ltd. 3.73
ITC Ltd. 3.70
Bharti Airtel Ltd. 3.64
Axis Bank Ltd. 3.39
State Bank of India 3.07
1. HDFC
Despite a 3% rise in HDFC - which single-handedly lifted Nifty higher in the 1st couple of hours, HDFC Bank faced its resistance at 1645 and fell - pulling Nifty down. Given HDFC has highest weightage and with no major news expected for HDFC or Private Banks as part of the Budget, the movement is expected to go sideways between Resistance and immediate support thus Dragging / Denying a major upside for Nifty
2. Reliance
Reliance industries on daily, had formed a Double Top Breakdown - resulting a Crash of -3.5% in a single day. The price took support from previous Rounding Bottom Break out zone at 3001. this is attributed to a lack-lusture quarterly performance. The price will take some breathing and consolidate around CMP for some more days which will again arrest Nifty on downside given its weightage
3. ICICI Bank
Monthly chart on ICICI clearly shows price testing a Long Term Parallel Channel top as resistance. This is about to fall further in the absence of any boost to Private Banking Sector. This is the 3rd heavy weight component of Nifty - all trying to hold Nifty on downside
4. Infy
Despite posting strong Q1 results, Infy could not blast due to multiple resistances along the way (Parallel Channel + Rounding Bottom Resistance) etc...Unless 1850 is broken out decisively, Infy will not aid in lifting Nifty higher
5. L&T
After a sharp rally of nearly 6x from 650 to 3860, L&T is up against a Multi-year Trendline (Parallel Channel) resistance and on weekly, the price has formed a Double Top pattern which is neither activated nor negated. Until the price decisively blasts above 3860 and also break the smaller channel on upside, there is no hope for now for Nifty to go up
6. TCS
TCS by itself is struggling for nearly 4 years to break its previous ATH. Price is now on the verge of Cup and Handle Breakout on weekly, but 4290 has poised as a formidable resistance so far
7. ITC
ITC on weekly has completed a Double Bottom breakout and achieved the target as well. After reaching the target, price is now starting to face resistance as this has evolved into a larger Inverted Head and Shoulder pattern. It is still Bullish in longer term, but now the price fall has triggered the beginning of Right Shoulder which is expected to reverse between 425 and 418. The trajectory of the fall to 425 where there is a multiple combination of support + trendline + right shoulder level - though bullish, will consume time atleast until Sep denying an upside for Nifty in the short term
Similarly the charts of SBI - , Axis bank - and Airtel - all indicate formidable resistances ahead - putting blockers for the Nifty March....
The above strategy appears more accurate as it directly handles each of the different sector charts along with their weightage and there doesn't seem to be any confusion among any of the top 10 constituents of Nifty - all indicating downside in near term
This strategy does not Rely on 3rd Party Indicators which are inaccurate. Please share your views on this detailed Research and Analysis
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