- : July 10, 2021
- : B. Krishnakumar
Simple Trend Analysis
This post will be short, crisp, and probably not majorly earth shattering for a majority of you. But sometimes, it makes a lot of sense to revisit basics. This provides insights about what to focus on and what to ignore. Have a look at the Point & Figure chart of Nifty Futures, July contract plotted in 1-minute time frame and 0.16% box size. There is nothing magical about the box size here. I decided that 0.5% move in Nifty would be a significant event to capture. Hence, I used 0.5% / 3 = 0.16% box size.
I have marked the swing highs and swing lows in the chart. In the beginning of the chart, there was a clear trending move and notice how the traditional definition of higher highs and higher lows played out in picture perfect format.
As the trend matured, you got the first warning sign when the prior swing low was broken. Price did make a new high but there was clear lack of trend and momentum. More recently, most of us would have witnessed tough times if you were looking for trend trading or breakout opportunities in the Nifty, especially on a positional basis.
But, if you pay attention, the price has been confined to the prior swing extremes. The “Khichdi Zone” marked in the chart captures the extremes of the swing high and swing low. Do not expect any trending move until either of these extremes are broken.
The purpose of this post is to emphasise the basic concept if higher highs and higher lows which is classic definition of uptrend. When price is trend, it is a breeze to participate in such moves as the price keeps making those smooth sequence of highs and lows. Once you witness the price unable to clear prior swing extremes, then step aside if you are a trend follower. Else, adopt directional neutral strategy via options.
For now, I am just waiting for either of these extremes to be taken out before considering fresh trades.