Short Term Trend Now Up

Today was a good day. Out of the many stocks recommended yesterday, some of them opened with such a huge gap that it made no sense to buy them at such high levels. At least four stocks reached their respective targets (we had recommended small targets of 3% in most of them), and most of the remaining ended the day with a small profit without touching their targets, thus leaving our positions open. Jindal Steel recommended on Monday is already giving us a profit of about 12% from our entry price and has come within scraping distance of our target of 2450 (entry price was 2100) and accordingly, we have increased our stop loss to 2300.

Today is a good day to discuss how to change our trading approach when the market opens with a gap up or gap down. Well, investors shouldn’t bother with gap openings because when one is investing for long term, a few rupees here and there would not make too much of a difference to their returns. For day-traders and swing traders, it definitely will. So, it is these traders who have to modify their strategies. It is best not to change your approach after market opening because that leads us to panic. Rather, make it a rule so that gap openings don’t bother you. If one follows these 10 simple rules, it will save them a lot of tension and ‘high BP’. The rules are as follows:

1. Before the market opens, you should have pre-decided entry levels, stop losses and targets.
2. Never enter a trade in the first 30 minutes.
3. Enter a long position only if the price goes above the high of the previous 30 minutes. If it does not do that, just wait.
4. Similarly, enter a short position only if the price goes below the low of the previous 30 minutes. If it does not do that, just wait.
5. If you still haven’t entered the trade, again follow rule number 3 and 4.
6. If the stop loss or the target is hit before the entry, just forget about the trade. Do not enter at all.
7. If the difference between the target price and entry price is very low, and it seems that you are taking too much of a risk compared to the reward, do not take the trade.
8. ALWAYS exit at your target. DO NOT be greedy.
9. If at all you want to be greedy, at least close 50% of the position and be greedy on the remaining 50%. Modify the stop loss to your purchase price so that you don’t end up with a loss on the remaining 50%.
10. If you are already in a trade (carried forward trade) and the market opens below your stop loss for the day, immediately close the trade.

Now, lets discuss the Nifty. As seen from the daily chart of Nifty above, there was some hope. The Nifty, which had on three consecutive days closed below the 200 day moving average, today managed to cross it and with quite a margin. This move changes the short term trend to up but the intermediate trend still remains down. The intermediate trend will change to up when the Nifty crosses the brown line (previous high), which happens to be at 5545. Meanwhile, it should also not cross below the previous low of 4800 or its 200 day moving average at 4992. Meanwhile, the Nifty now lies very close to its next resistance at 5260, as shown by the blue line.

Aditya Birla Nuvo seems to have broken out of this downtrending channel on its 30 minutes chart. This may be bullish for the stock. Consider buying above 1800 with a stop loss at 1760 for a target of 1880.

Hindustan Constructions, on its 60 minutes chart has formed an unconfirmed inverted head and shoulders pattern. This pattern would only be confirmed it the price were to go above 175 with high volumes. A good test of volumes would be to compare it with the current volumes. The current volumes, on an average are about 2.5 lakh shares every hour. So, if the volumes are about 4 or 5 lakh shares in an hour’s time, and the price is above 175 then it would be a good time to buy the stock. The stop loss should be set at 150 and 250 should be a reasonable target for this pattern, once it is confirmed.

IDFC has broken through this straight trendline on its 30 minutes chart. This trendline has been tested 6 times in the past 20-25 days (marked by the blue arrows). Only on two occasions has it given a false signal when it was breached without any resistance. It would make sense to buy it above 200 with a stop loss of 193 for a target near its previous recent highs of 215.

Besides these Indiabulls, LIC Housing Finance (above 280), State Bank of India and Welspun Gujarat (above 450) also seem to be good buying opportunities. The charts for these have not been given.

Happy investing!!!

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