1st August – What Stocks Do After a Drop and Rise? Basing

12:28pm Today’s gap opening almost cut the point where this trend would rocket up, what was missing was a slightly higher push.
To be more clear, If nifty had opened with a hearty 50points more than where it did it was almost a sure shot rally from there.
You see gaps as you know, play a very important part of my trading strategy.

Also the fall and rise after that only confirmed our idea in the morning that there will be no one sided rally today.


How Stocks Setup Base Before Going up (In a downtrend)

It happens quite often that within a downtrend you will see the trading instrument fake an upmove, only to eventually breakout and start an uptrend. Now before we begin my language is always metaphoric, I don’t intend to sound that the market is “deterministic”. The market takes the path of least resistance. There are no plans, there is nobody accumulating, there are no “operators”; all these self-consoling ¬†conspiracy toned statements are false.

Anyway, Today’s action in Nifty is what is called basing. In such a scenario you will see
1) The stock is in downtrend
2) the stock fakes an upmove
3) Sideways action + final breakout to form a new uptrend.

I’m attaching a few charts below, I think they are self¬†explanatory, please click on the chart to see them in fullscreen.


Posted by Prateek Singh

Derivatives Strategist, over a decade's experience trading the market for a living, you can trade for a living too! I used to update many strategies for several years on popular forums by the name MusicJunkie. Now Marketscientist is my home; and yes, if you are wondering; I am a music addict, shoudn't everyone be?

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