Nifty 50 Trading Range

Market Overview: Nifty 50 Futures

Nifty 50 Trading Range on the weekly chart. The weekly chart shows a bullish close this week, confirming the failure of the head and shoulders top pattern. This increases the likelihood of a trading range instead of a reversal. Additionally, the market has broken out of the bear channel with a bullish move. On the daily chart, Nifty 50 has broken out of the head and shoulders bottom pattern. Following a brief bear trend, the market is now forming consecutive bullish bars.

Nifty 50 futures

The Weekly Nifty 50 chart

• General Discussion
  • Though the bears made a strong reversal attempt, traders should avoid selling the market. Even after this significant reversal attempt, the bulls managed to achieve a strong bull close this week.
  • Traders who shorted during the bear breakout of the head and shoulders pattern should have exited their positions at the right shoulder.
  • Since the market is transitioning into a trading range, traders should wait for the formation of a trading range top. This is when they can consider entering a scalp short position.
• Deeper into Price Action
  • After the initiation of the reversal attempt, this is the first time the bulls have managed to secure a strong bull close.
  • Typically, after a bull breakout from a bear channel, the market transitions into a trading range. The size of this trading range is often equivalent to that of the bear channel.
  • The bear breakout of the head and shoulders pattern turned out to be a bear trap. Traders can anticipate the market to reverse after completing the second leg up.
• Patterns
  • Shorting during the bear breakout of the head and shoulders pattern is a low-probability trade, as it involves trading a reversal.
  • It is generally safe to assume that at least 40% of reversal attempts will fail. Therefore, when trading a breakout for a reversal, it is crucial to maintain a minimum risk-to-reward ratio of 1:3.

The Daily Nifty 50 chart

• General Discussion
  • The market has shown a bull breakout of the head and shoulders bottom. Since the market is currently in a bear trend, if the bears are able to produce strong consecutive bear bars again, traders might consider entering a short position, as this could be a bull trap.
  • Bulls who missed the initial bull breakout can enter after a strong bull close or by using a high-1 entry. However, note that going long in this case would go against the prevailing trend, so it’s essential to structure the trade to ensure a favorable risk-to-reward ratio.
• Deeper into Price Action
  • While the market has produced a bull breakout, the bulls have not been able to generate strong consecutive bull bars. Instead, the market is forming an inside-outside-inside bar pattern, which typically signals the formation of a trading range.
  • Both the bulls and the bears are struggling to achieve consecutive strong bars, indicating that a trading range may develop soon.
• Patterns
  • If the market gives a bull breakout from the inside-outside-inside bar pattern, traders can anticipate a measured move upward, based on the height of the outside bar.

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