Trading Nifty on 06-08-2012

I had started Friday morning with following pattern:

And my words were:

Q

An Intraday pull back of 60-odd points can again bring us up in 5240 zone--- to complete B(c) and in view of the negative sentiments developed overnight,I would not be surpised if the last subwave(v) of B(c) remains truncated i.e. doesnot go above the high of subwave(iii) i.e. 5246.
So the B wave from 5033 upwards gets labelled as:
B(a)=5033-5150=117
B(b)=5150-5078=72
B(c) in play from 5078 upwards and cannot do more than 1.618xB(a)=5267 and so the likelihood of its playing out as a diagonal is very high:
(i)=5078-5218=140
(ii)=5218-5154=64
(iii)=5154-5246=92
(iv)=5246-5210* in play
 and (v) yet to play out.

So a gap-down to 5180 and then a rise to 5250 and then beginning of larger downmove as C to sub 5000 --this is how I am seeing the August series fanning out. 150DMA at 5164 may very well be today's downpoint. And please donot forget that 5267 is the upperboundary for these labels.

UnQ

And Nifty did exactly that---- found support at 5164.8 and then moved up----

Then why my blog visitors like Kunal Seth are angry with me?

May be because these labels donot foresee Nifty going above 5257 and in view of good upmoves in American and European Markets, some people feel that I have cheated them and blame me for being wrong 8 out of 10 times.

I just wish to state that my endeavour is to share in detail my thought process as an Elliot Wave follower and trader. And I never claim to be s super-man. I am as fallible as anyone else in this market.

And as far as making or losing money is concerned, my new blog at Jackpot Trades and the REALITY SHOW therein is meant to bring forth that aspect only.

So keep watching---"Haath kangan ko aarsi kya---will shall very soon have the evidence.

Now let me get back to business:

This pattern was guided by EW principle that a 5 wave Impulse is followed by a 3 wave Corrective(or a combination of correctives) which normally retrace 38.2% to 80% of the Impulse,though theoretically a retracement upto 99.9% of Impulse is possible.

As the above principle makes it very clear--- a good band of length(38-99.9%) and several corrective forms are probable for this upmove. And that makes the work of any EW follower quite tough--- as we have noticed while moving up.

One probability was --- this up move could have ended at 5218 as a simple zig-zag B corrective in following way.

And though we did go down from 5218 but turned up from 5155 to continue upwards.

So the current probability of B(c) fanning out as a Diagonal instead of simple Impulse was considered.

As a diagonal also B(c) is not allowed a move beyond 5257 because:

c1=5078-5218=140

c2=5218-5155=63

c3=5154-5246=92

c4=5246-5165=81

c5= can not do more than c3 so max length possible is 5165+92=5257.

Thus above 5257 this Probability will also become invalid.

But will that make EW invalid or will that make my illustrations laughable?

May be to some. 

But not to me. My endeavour is to follow the market on daily basis and initiate trades wherever a Probability appears. If that probability becomes a reality,I earn money.If it becomes invalid,then my stop losses get triggered.And that's how it will remain for all times to come.

Now lets concentrate on next Probability (if tomorrow we get a gap-up above 5257).

It will not be a rush up to 5350 and beyond----

Because it is the B wave in play and its move above 5257 would tell us that instead of a simple zig-zag form,it is fanning out as a combination of correctives--WXY- wherein

W=5033-5218=185

a=5033=5150=117

b=5150-5078=72

c=5078-5218=140

X=5218-5154=64

a=5218-5174=44

b=5174-5206=32

c=5206-5154=52

Y=5154-5220*and likely to go above 5257

a=5154-5246=92

b=5246-5165=81

c= 5165---upwards and how much above 5257?

If c=a=92 then it points to 5165+92=5257

but c can go as much as 1.618*a=149=5313.

And the pattern in that case would look something like this:

As this range of 5258-5313 looks quite large, let me put in some extra effort to further fine tune it.

There exists a gap--5267-5300.

So if 5267 is breached,5300 would be the perfect point to short with Stop-loss at 5314.

Thus it combines two factors:
1. EW
2.Trendline

My third factor, divergence on momentum charts, should be noticed first in 5 min charts and then in Hour charts to pick up the best shorting point near 5300.

Lets see which Probability becomes a reality--- B doing an abc till 5257 or B doing a WXY above 5257.
Whichever Probability occurs, I am looking forward to C downwards giving me good gains. 


And yes,please do see my post on Hindalco in Jackpot Trades.
2.39 PM
Pl notice the negative divergence that has appeared in the 5 min charts. While Nifty scaled new heights at 5292+ but momentum indicaters failed to cross previous highs.
This completes the third factor that I follow before initiating trades.
 Nifty is likely to test 5300 and if this negative divergence persists,that would be the best time to short with a SL at 5314.

EOD

Finally decided to bifurcate the new blog.
Reality Show would be "open"--- pl find the link on the top right hand side corner.
Jackpot Trades would be for invitees only.

Let us keep the journey smooth.

Raghu