Right click on chart and click on view image for magnification
Nifty daily chart showing the role reversal of a trendline
I have always seen beauty in Technical analysis.
The above chart shows the phenomena of a trendline reversing its role from support to resistance.
The trendline is drawn by selecting two consecutive bottoms as shown by the two blue arrows and is extended.
It beautifully acts as a support for two times as shown by the green arrows.
However after the price breaks through the trendline, the trendline starts acting as resistance. The price takes resistance as shown by the red arrow.
It is as if the candles know that they have to just touch the trendline and reverse.
Dr Shrirang - I was planning to ask if the Nifty was showing a H&S pattern about a week ago. But it was not certain at that point in time. The left shoulder was at around 5848. With Nifty now below 5850 can one assume that the pattern is confirmed?
ReplyDeleteYou are right.It is a head and shoulder pattern at around 5850. Price has not closed below 5850.We will consider a breach only when price closes conclusively below 5850 which may happen in a day or two.
DeleteDr Shrirang,
ReplyDeleteWhen predicting market trends, should FA and TA be used independently of each other? or Can one use fundamental data to complement TA when there is uncertainty?
For example, now a H&S will be confirmed once Nifty closes below 5850. But if it doesn't then there is a possibility of continuing of the previous trend. A look at the fundamentals, macro-economic indicators could probably indicate the direction in which the economy is headed.
What is your own methodology?
Personally I don't use a combination of TA and FA. I use only technical analysis as I understand it better.I don't allow FA to cloud my judgement.
DeleteOne can combine both if one understands the strengths and limitations of both.
I feel FA should be used to decide on which stocks are good for investment and then use TA to decide on entries and exits.
It is always safer to trade on confirmation and not on anticipation.
Another Example to Beauty of Technical analysis
ReplyDeleteSee how Nifty has broken the neckline at 5850 of the Head & Shoulder Pattern and has given a retracement just to touch 5850 on the Budget day only to fall further. How the candles know that they have to touch the neckline and drop again.