The Trend is your Friend.

The Market continues to go up. We go with the flow, which is UP.
The Nifty touched 3100, which makes this rally gain 560 points, 20% in a few weeks. Now, markets do not go up forever. (Niether they go down forever..) With 20% behind it, the Market is ripe for a period of consolidation / correction. But, such corrections do not take place on our demand. We may feel that the Market is overextended, but the Market may continue to move up, making it even more extended. Finally, when we give up, begin to buy, the market crashes. Sounds familiar ?
While day traders or even swing traders should take long positions, position traders who plan to keep positions for more than 2 days, should wait for a correction. The risk reward ratio is now skewed against buyers. Reward is unlnown, but risk is known and high.

Tushar writes:
“This is the first time since November 2008, that oscillator signals are not working properly.I mean various oscillators are overbought now since 2830 levels, but still nifty is rising. Why? ”

When the market begins a trend, the oscillaltors fail to keep up with the new momentum. Therefore, they become ‘overbought’ while the strong trend continues to push up the market. That’s why, always follow the market first and keep the oscillaltors as a secondary signal. If the market is going up, then ignore the oscillators. There is likely to be two or even three divergences before price and oscillator begin to move in the same direction.

Tushar continues :
“Sudershanji you might have seen such moves in past. Tell me what happens next?”

My Notes:
Markets go thorugh periods of irrational exuberance. Such periods can last longer than we initially imagine. Inevitably, there is a day of reckoning and markets will eventually go through a process of massive correction. But we do not know when that will happen so we stay with the flow.

Finally, Tushar says:
” I think today we will get a strong SELL signal provided Nifty doesn’t breach 3100.But is it worth to play on the short side against the tren”

My Notes: NO. Never go against the trend. A sell signal needs to be convincing. There must be a black candle, lower close, breakdown of intra day support. Only then can a short position be considered.

Have Fun!