Trading Call: Sell at the level of 5590
Stop Loss of 5750 Target of 5350 – 5100 - 4840 levels.
A symmetrical triangle pattern is relatively easy to
identify. In addition, triangle patterns can be quite reliable to trade with
very low failure rates. There is a caution concerning trading these patterns,
however. As mentioned previously, a triangle pattern can be either continuation
or reversal patterns. Typically, they are continuation patterns. To achieve the
reliability for which the triangle is well known, technical analysts advise
waiting for a clear breakout of one of the trendlines defining the triangle.
1. Occurrence of a Breakout - Technical analysts pay
close attention to how long the triangle takes to develop to its apex. The
general rule, as explained by Murphy, is that prices should break out - clearly
penetrate one of the trendlines - somewhere between three-quarters and
two-thirds of the horizontal width of the formation.6 The break out, in other
words, should occur well before the pattern reaches the apex of the triangle. .
Adherence to this rule is strongly advised by Yager, She adds that the closer
the breakout occurs to the apex the higher the risk of a false breakout.
2. Price Action - Unlike ascending and descending
triangles which give advance notice of their intentions, the symmetrical
triangle tends to be a neutral pattern. Murphy advises that the symmetrical
triangle is generally a consolidation pattern. This means an investor can look
to see the direction of the previous trend and make the basic assumption that
the trend will continue. However, many experts advise investors that because
the breakout direction could go either way that they wait until the breakout
occurs before investing in or selling the stock. Schabacker refers to a
symmetrical triangle as a "picture of hesitation.
3. Measuring the Triangle - To project the minimum
short-term price objective of a triangle, an investor must wait until the price
has broken through the trendline. When the price breaks through the trendline,
the investor then knows whether the pattern is a consolidation or a reversal
formation. To calculate the minimum price objective, calculate the
"height" of the formation at its widest part - the "base"
of the triangle. The height is equal determined by projecting a vertical line
from the first point of contact with the trendline on the left of the chart to
the next point of contact with the opposite trendline. In other words, measure
from the highest high point on one trendline to the lowest low point on the
opposite trendline.
Both these points will be located on the far left of the
formation. Next, locate the "apex" of the triangle (the point where
the trendlines converge). Take the result of the measurement of the height of
the triangle and add it to the price marked by the apex of the triangle if an
upside breakout occurs and subtract it from the apex price if the triangle
experiences a downside breakout.
For example, working with a symmetrical triangle, assume
the highest high of the pattern occurs at 100 and the lowest low at 80. The
height of the pattern is 20 (100 - 80 = 20). The apex of the triangle occurs at
90. The pattern has an upside breakout. Using the measuring rule, the target
price is 110 (90 + 20 = 110).
4. Duration of the Triangle - As mentioned before, the
triangle is a relatively short-term pattern. It may take up to one month to
form and it usually forms in less than three months.
5. Forecasting Implications - Once breakout occurs, the
symmetrical triangle tends to be a reliable pattern. Bulkowski calculates
failure rates ranging between 2% and 6% for symmetrical triangles after a valid
breakout.
To avoid mistaking a false move for a valid breakout,
experts advise waiting a few days to see if the breakout is dependable.
According to Murphy, minimum penetration criteria would be a closing price
outside the trendline and not just an intraday penetration. Investors do have
time once a breakout has occurred.18 According to Bulkowski, when considering
symmetrical triangles, an investor will have over five months to reach the
ultimate high after an upside breakout and less than half that time after a
downside breakout
Because premature breakouts (where prices close outside
of the trendline) are so common, don't dismiss the pattern if it has
experienced such a breakout. According to Bulkowski, however, "premature
breakouts do not predict the final breakout direction or success or failure of
the formation."
NIFTY, working with a symmetrical triangle, the highest
high of the pattern occurs at 6240 and the lowest low at 5480. The height of
the pattern is 760 points (6240 – 5480 = 760). The apex of the triangle occurs
at 5600. The pattern has an down side breakout. Using the measuring rule, the
target price is 4840 (5600 – 760 = 4840).
With the above move it is also showing A-B-C Pattern
Formation where it is expected to test 161% expansion of A-B from point C which
comes to 5002 levels. Point a is at 6240 & Point b is at 5560, point c at 6110
has given retracement of 76.4% of the rise and confirming the Down side target.
Taking 161.8 % Fibonacci Expansion of the A to B from the point C, comes to lower
level of 5002 which can be seen in near term.
I maintain Sell call from the previous report generated
at 6050 for target of 5600 and now I am still looking at 5000 to 4840 which is
expected and still expect it to move lower. On lower side support of 4800 and
if the same support is also broken then might look at 4200 - 3800 in long term,
where further panic selling might take it to 2600 which is 2008 lower level.
