Gap followed by sharp bounce/retrace almost always testes the extreme

Nifty opened a large gap down today. Immediately there was a sharp bounce which moved up nearly 32 points. However later this complete bounce was retraced (even exceeded by few points). Not sure whether this turns out as BOF or BPB. I will observe this and update later.  But the point that I want to highlight or note here is that generally such bounces gets retraced completely. So instead of preparing for the counter trend move for the BO of the bounce, one is better off preparing for the re-test of the extreme at least once.

Nifty Price acction 01-03-2017

There are basically 3 possibilities from here for Thursday's move:
1. Move down till yesterday's price congestion zone bottom and them move up
2. Move up till PDH and then a weak PB and then BO
3. BO and a weak PB => BPB

The up move from the low of Tuseday was very strong yesterday morning. The subsequent sideways move till the afternoon was very weak. Again the subsequent up move was very strong and the end of the day down move or the last two candles were still weak. Hence option 2 and 3 are the most preferred options.

Will observe the price candle by candle in TTF and see which of the path market takes. Or will it take a completely different path?

OnMobile Price Action analysis -27-02-2017

OnMobile MD and CEO Pancholy resigns Following this news Onmobile lost 10% on Monday, 27-02-2017. It crashed to 76.25 at one point. So to analyse the situation I opened the daily chart of OnMobile.

79-80 is a strong support zone for OnMobile. This was tested three times earlier. Fourth time it broke the level but quickly bounced back rejecting the lower level. Now we need to observe how the next bounce and subsequent re-trace. If the bounce was strong and retrace is weak then it will be a very good sign to enter long position.

Nifty Price action 28-02-2017

Nifty expectation for 01-03-2017

30 min chart:

Nifty - 14-02-2017 Price Action

Identifying Strength and weakness for price action trading:

Why is this important for price action trader? It is simply because price action trader is trying to trade in the direction of strength or trading in the direction of fading the weakness.

A simple trick that we will use for identifying strength and weakness is to draw a line from the starting of the swing to the end of the swing. Do the same for the move in the opposite direction as well. Now observe the slope of the line in both directions. The steeper the line stronger the trend. Low gradient of the line indicates the weakness in price in that direction.

One may be wondering how to find out the slope or gradient. It is done with the naked eye and using best judgement. No specific tools are required for this activity.

Let us consider the price action of Nifty 50 index for 14-02-2017 in HTF (30 min chart) & LTF (3 min chart) respectively:

30 min chart:

3 min chart:

 

I have color coded the strength using green line and weakness using red line.

We will use the HTF for reference and TTF for trading decisions. Based on this we will identify the trading opportunities.

How can we use this information for preparing for tomorrow?

Well we will use the currently available information to anticipate future moves and prepare for an eventuality where

1.        Market moves as anticipated
2.        Market moves in opposite direction

In both the case we will be ready with our S/R levels. Further during the live market we will again observe the developing strength and weakness. Also using the S/R and swing high/low we will be ready to take the trade.

Nifty 13-02-2017 price action

Nifty in the early morning move was a strong down move. Followed by weak up move which had multiple bounces.

Goal of the trade is to trade in the direction of the strength or fade the weakness.

So in this case  the ideal thing to do was to sell near 8813 NS around 10:18 am.