Trading Range Breakdown in Nifty.

A trading range is when a stock trades within a given high and low period for a given period of time. This back and forth price movement between extremes generates a trading range. Trading ranges are formed when neither bulls nor bears are in control. There is no way to know that a stock will enter a trading range until it has already begun.

For the Nifty, a trading range developed after the Low on feb 11 was made around 5175. The range was broadly between 5400 and 5600. This range seems to have broken down on Friday when the Nifty closed below 5400, for the first time since feb 28. A move out of the trading range (up or down) is the point of maximum risk. Traders take a position on the breakout/breakdown. In case of a false move out of the range, there is no escape from a loss. That is the cost of trading.

What are the signs that the breakdown may work out? (a) The Nifty was making a series of lower highs.  (b) On the daily charts, the RSI remained below 50, suggesting that the recent up move did not have enough momentum.(c) The Primary trend is down, therefore, moves in the direction of the primary are more likely to succeed.

For short term traders, the mid point of the range should act as a stop loss. For Position traders, a close above 5600 will be the point of exit from short positions. For day traders, take one ay at a time.