| Market falls from top end of bullish channel |
 |
 |
 |
| Written by George Albert |
|
(Written by our editor and published in Smart Investor) A look at the Sensex chart nearby clearly shows the uptrend channel. A similar chart pattern can be seen on the Nifty too. The upper and lower end of the channel has been touched three times, which is treated as a confirmation of the channel by market technicians. On the downside the Sensex has several support areas that can be used as profit targets by short sellers. They are 17920, 17620, 17399, 17108 and 16670. Similar targets on the Nifty are 5348, 5266, 5155 and 5033. Markets moving in uptrend channels can often frustrate traders. There are basically two kinds of professional traders ---ones that trade break outs and the others that trade pull backs. The third kind are the ones that buy in the middle of a trend and often lose money. The break out traders get frustrated by the uptrend channel as they buy when price makes a new high only to see the markets fall after moving a little higher. The only opportunities these traders have is to buy when the market is near the top hoping for prices to go higher. The are not able to short because prices don't make a new low in an uptrend channel. The pull back trader can also get frustrated but not to the extend of a break out. A pull back trader would short when the market is at a previous high, but could get stopped out as the market moved higher. However, if the trader has a wider stop the profits made are huge if the position is held all the way to the bottom of the channel. The pullback trader would always make money buying at the lower end of the channel as the position is never stopped out. If trading stocks and not the index, the strategy to adopt is shorting stocks relatively weaker than the index when the broad market touches the upper end of the channel and buying stock relatively stronger than the index when the broad market touched the lower end of the channel. Chart Analysis
|
