Nifty: Sloped Retracement Explained

In the latest Free Weekly Webinar that we host every Friday, we mentioned that there is a case for a recovery in the Nifty. What was the basis for saying so? The basic logic is that of Sloped Retracement, a concept that has been discussed a lot in prior posts. Kindly direct your attention to the daily chart of the Nifty featured below.

We voiced a cautious view on the Nifty when the index failed at the upper blue line. Note how the middle line, which is nothing but a 50% dynamic retracement, has acted as a support for the index. There is also an unfilled gap, highlighted in the chart, which lends credence to the positive view.

Does this mean that the Nifty is headed to new highs from hereon? Not for a moment are we suggesting that. The objective of this post is to illustrate how a few basic technical analysis concepts can be stringed together to identify a low risk counter-trend trade.  The other interesting aspect with this trade was that there was a logical and affordable stop loss level in the form of a major swing low at 5,548.

Any recovery in the Nifty could run into resistance at 5,820-5,850 range. Trailing stops may be snugged closer to the price action once the index moves closer to this resistance zone.

A fall below the major swing low of 5,548 would indicate resumption of the downtrend and we would then expect the slide to extend up to 5,250-5,300 range.

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