Nifty Ichimoku Cloud, Fibonacci, Island reversal Trade SetupMay 05, 2020
Nifty is showing wild swings in either direction and majority of the traders are simply guessing the direction of the trend. During such times it is best to rely on important technical indicators like Ichimoku Cloud, Fibonacci and Candlestick patterns.
Look at the below chart of Nifty exhibiting simple tools that can help one stay objective amidst all the news and events.
One important observation is also that in the ongoing eventful month of pandemic the earlier announcement of lockdowns were associated with rise in Nifty and now with relaxations we are witnessing the fall. It is not coincidence but markets are discounting the future.
Nifty daily chart – Ichimoku Cloud, Fibonacci retracement and Island reversal pattern
On 4th May 2020, morning research report – The Financial Waves short term update we mentioned the following – it will be important to see if after the big gap down Nifty can manage to sustain above 9250 levels or not. Decisive break below ………. will resume the bigger downtrend. Unless that happens we can expect prices to move as per path shown on the daily Nifty Neo wave plot. Trade cautiously for now and evaluate the risk before taking any directional bet. Movement in bear market can be sharp and fast and before you can react prices will move. Time to be alert as we mentioned last time as well and now majority will appreciate why we have maintained our cautious stand during the ongoing up move. Let see if we start seeing final wave g minor push after the down leg today itself from here on or prices breach the important channel support near 9150 to resume the bigger degree down move.” BANG ON! Nifty formed a low near 9267 levels so far.
Ichimoku cloud with Island reversal – Look at the above daily chart and see the red highlighted zone which is called the cloud. The cloud area acts as resistance and prices found resistance exactly at the lower end of the cloud before reversing from there. The classic candlestick pattern is known as Island reversal as there was gap on either side of the candle. This is again a reversal pattern. This was also accompanied with 50% Fibonacci retracement of the fall.
As we always say that when there are cluster of evidences all pointing in the same direction it is time to pay heed and not to trade emotionally but objectively. Many traders turned bullish when Nifty crossed above 9800 levels but we maintained our cautious stand and the reasons are well seen here.
Even during this scenario making money by trading derivatives might not be an easy thing. Given the fact that there are Big gaps in either direction it makes converting research into a trade a tough thing. But if only one can keep risk minimal and keep managing it effectively chances of being on right side of the trend remains high.
Simple methods like above can help one stay objective during this downtrend and not get carried away on hopes or other emotional flux. We agree Gaps can distort the trade setup and even the correct strategy might not give desired outcome but one has to keep following such systematic methods over weeks and months and the trust me it only requires a few correct trades to make a killing in this market.
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Testimonial from existing Mentees
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Nikhil Kohli – Great to have you as a mentor Ashish. It has given me immense confidence to combine all the techniques and build a method, a system for an objective approach to trading. I was always looking for a mentor and I found one in you Ashish. Many thanks