Wednesday, 27 January 2016

Quiz 1

I am starting to post a sort of quiz from today.  Below is the Nifty Future chart.  I have marked two rectangles in it.  Closely look at the price action which happened before the formation of these rectangles.  The quiz question is, what kind of price action led to formation of these rectangles? In other words, why this range-bound move happened and took the form of rectangles?

Post your answers into the comments.  You don't need to hesitate.  Write down whatever comes to your mind.



16 comments:

  1. I think smart money has sold 7450 call and put option and they want to close the nifty around 7450 for expiry to eat premium.
    So the rectangle pattern.
    market will breakout or breakdown after expiry.

    Salil

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  2. Generally sharp movements (highly volatile) periods are followed by low movement/sideways movement (low volatility). If you observe both the rectangle ie range movement is proceeded by sharp falls.

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  3. hi,
    price tend to range (consolidate) some time after an impulse move , before moving further, which can be continuation or reversal.

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  4. Good one Uday:
    This is my observation: Yesterdays closing wave(1st rectangle) was a Barb wire. Lot of struggle happened there(Big bars on both sides). Generally such areas act as Magnet. Price will find hard to move away from such areas.
    On Breakout (buffer zone was formed). If this was respected would have taken long trade. This was broken on way back and price came back into BW range. Avoided all possible trades.

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  5. Forgot to mention: Let the answer be not spike and channel :)..

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  6. URD,

    Commenting about 2nd rectangle..

    1. IR formed with in yesterday closing range

    2. BO of IR resulted sharp 30 points rally..followed by immediate rejection breaking day low

    3. BOF of DL..follwed by range formation as IR

    I wouldnt have taken long, as bof happen after steep fall.. If rectange broke downside..another bof of DL or Tst..i am IN for LONG trade

    Correct if my reading not proper..its been i traded :(

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  7. Price consolidating after a Trend move(Type1) intra day.

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  8. Dear Daveji,

    On 25/01/16 the marked rectangle formed with Higher Highs and Lower lows. On 27/01/16 the marked rectangle formed with Lower Highs and Higher Lows. This shows a Head & Shoulder pattern as well.Moreover - structure wise the first rectangle rested on the support of the range of 22/01/16 and the second rectangle rested on the support of the range of 25/01/16. As Ilangoji used to say on the expiry more pain will be on the side who suffered more. Shorts are already on the upper hand. So to-day(29/018/2016) expiry day shorts will win over the others.

    Regards,

    Veer

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  9. In my opinion, after vertical moves we cannot expect 'V' shaped reversals.They do happen but rarely. Price has to consolidate and spend some time in a range before embarking on its journey whether with trend, reversal or even sideways for longer time. But it needs to spend some time after vertical, quick 50- 60 point moves. Hence, rectangle shaped ranges.
    Thanks

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  10. Hi URD,
    Positional shorts are already in the move. The box marked are short term traders participated only with low volume. Kindly correct me if i am wrong.

    Thanks
    Arun

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  11. Market has made a long move and started consolidating...Sideways after a big trend move.

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  12. After any big up or down move, market try to consolidate. that is the reason for the range bound action.

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  13. I think, after a steep fall , the rectangle marked area is a consolidation OR a pull back. Based on where the fall has occured in the big picture, this rectangle area can be used for re-entry or new entry. However since it is a intrday chart of 5 min, We can use this rectangle area for next 30~35 min (means 5~7candles). This is thought going through my mind.. . ..


    Thats a new way of sharing thoughts... it s great... keep going . . .
    ~zen

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  14. First one,
    It consolidates between 7450-60 then BO but it fail to touch next DP i.e BRN, so no BOF at lower range then it moved in range bound.

    Second one,
    Same it fail to test IRL, so no BOF then moved in range.

    My view if BOF happens in both cases it may break upside and test range high.

    Correct me if i m wrong.

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  15. Thank you all for participating in it with good spirits. Prices will just pause/consolidate/move range bound after some kind of move in one direction. We can't expect another good move immediately. It is a normal price behavior. That is the only reason, I know, why it took a shape of rangebound move after a good move. There may be other reasons, but I do not know about them, so cannot comment.

    Hope it was a good learning experience for all of you.

    URD

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