Market Overview: Nifty 50 Futures
Nifty 50 cup & handle on the weekly chart, bulls failed to follow through after attempting a double bottom. Now that bears have closed a strong bear bar, some bears may decide to short the cup & handle pattern on the weekly chart.
On the daily chart, price action is contracting and the market is attempting to form a falling wedge. As the market is in a trading range price action phase, traders should not swing their positions; instead, they should look for quick exits.
Nifty 50 futures
The Weekly Nifty 50 chart
- General Discussion
- The majority of bulls would not be buying at the current levels because bar 1 was a poor follow-through bar after the double bottom attempt, which has diminished their interest.
- For a double bottom fail and cup & handle top, bears would be selling at or below the low of bar 1.
- The majority of bears would maintain their stop at the high of bar 1, as this implies a trading range rather than a second leg down if the market trades above bar 1’s high.
- Deeper into the price action
- The Cup and Handle pattern is a breakout mode pattern, which means that the chances of a successful breakout are approximately 50%. In the example shown above, the bars on the left indicate trading range price action, so the chances of a successful breakout are even closer to 50%.
- Patterns
- A bear breakout from a bear channel has a 75% chance of failing after a few bars with the market returning to the bear channel.
- A risk-to-reward ratio that is strictly greater than 1:1 is required for bears to short at the low of bar 1. (1:2 is preferred).
- This is due to the fact that a higher risk-to-reward ratio is required when trading patterns like cup and handle, where the probability of success is around 50%.
The Daily Nifty 50 chart
- General Discussion
- Bears should avoid shorting close to bar 1, as there is little room for profit because the market is trading close to the wedge’s low.
- Some bulls might consider buying above bar 1 or watch for a bull bar in order to gain a small scalp.
- Because the market is currently in a trading range, traders should look to lock in profits rather than trying to swing their positions.
- Deeper into price action
- Pay attention to leg 1, which has nine straight bear bars and is a very strong bear leg. But the market then created leg 2 (strong bull leg).
- Leg 1 convinced many bears to short on Low 1 for the second leg down, but leg 2 let the bears down. Many bulls were convinced by leg 2 to purchase on High 1 in anticipation of a second leg up, but even the bulls were let down by the poor follow-through.
- When both bulls and bears are disappointed then this generally suggests that market is now trading inside a trading range or a breakout mode pattern.
- Patterns
- The market has been showing a lot of trading range price action since the big surprise bar.
- Avoid taking positions as the market approaches the apex; instead, look for the next breakout.
- This is due to the fact that as the market approaches the apex, the potential for profit declines and uncertainty rises, which frequently causes a negative traders equation for the majority of traders.
- In order to avoid being forced out of a trade, traders who want to buy at the high of bar 1 should NOT place their stop at bar 1’s low but rather at the low of the closest swing low.
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