Monday Morning Strategy

Solo asks about a Monday morning strategy.

If a trader has no positions, what should he do ? How should one day trade ?
For day traders, there are two strategies: First, buy on dips. The Nifty is a buy only on intra day dips. You need to watch five minute charts to determine when a dip may have come. A pullback in a momentum indicator should qualify as a dip for tomorrow. It should be possible to identify such dips in a few stocks also. Second, if the Nifty opens with a very large upside gap (60 points or more ….) then dips, then rallies again but fails to cross the morning high (making some kind of a double top or lower highs), a short selling opportunity (only for day traders) may also arise. So, for tomorrow, have an open mind.

If you are a position trader and do not have positions in the Market, you should not run after a big gap up. You need to wait for a dip (on the charts, it could be two days of lower close on the daily, or a pullback in the 60 minute indicators), then consider buying.

The DOJI. – Shaq asks:

“how do we define the range of trend then…if this trend can continue to 3800 then we might be in middle of range and then doji does not have significance?..whereas if market was to fall next week then trend was indeed in final stages…”

We can only identify the current trend. We know that we are in an uptrend. Therefore, the DOJI will have some reversal characteristics if the market starts to reverse. The Nifty should close below the lows made by the DOJI. If this does not happen, then the DOJI is just a pattern in an ongoing uptrend, of no importance. It also means that we will get a sense of reversal only when the Nifty breaks down below the DOJI lows. We will not be able to sell at the top. Do not think that candlestick patterns allow you to sell at the top and buy at the lows. They give earlier signals as compared to, say, moving averages, but never at the top or bottom.