Those who found my earlier posts on Action-Reaction lines interesting would find this one interesting too. This tool is simple but has to be used in conjunction with the underlying trend and with a proper understanding of risk-reward and trade management.
Kindly direct your attention to the daily chart of Tata Steel posted below. I started off with a simple trendline and used the recent swing low as the Action point for measuring the reaction distance.
Notice how price registered a breakout past the centreline on Monday, July 2 and this line was tested yesterday and price has bounced off that line. I would now expect a rally to the reaction line. A target of Rs.500 appears reasonable.
This is meant to be an educational post and how you want to frame a trade out of this is a question of personal preference.
Trade safe and don’t get hurt.
Cheers
B.Krishnakumar
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