On 15th February 2021, the Nifty50 was trading at 15,200 levels. That morning I made a video and said that Nifty50 is not ready to correct before hitting 15,450. The next day, the index made a high of 15,431.75, and from there it started correcting. From the past three months, Nifty is moving within a range of 1,000 points.
I know how it feels after seeing action-packed ’20 and the first two months of 2021. These 14 months were completely filled with action. If I set aside astrology, nobody could have thought of 15,431 in February 2021, when the index was making a bottom of 7,511 in March ’20. In January ’20, Nifty made a high of 12,430 and then the CRASH!!! The Nifty50 was corrected by nearly 5,000 points. Then we saw the ‘mother of all bull runs’. The index doubled in less than 11 months!
For the past three months, the index is moving is within a range of 1,000 points. When the prices start to move within a range, then it is said to be in a consolidation phase. In such cases, if prices start to fall, traders start selling their stocks and wait for them to reach the support level. Once the prices reach support levels, prices generally rebound, as support (traders buy) comes into the stock.
As the price of the stock starts rising, it will reach a peak where traders will try to book profit by selling it. In this case, the stock price faces resistance at the upper levels. From resistance levels, prices generally rebound, as the stock faces resistance (traders sell).
So, when you try to connect the support and the resistance, you will find that the stock prices are moving in a pattern or a channel. Here traders need to identify the bottom of the channel and buy closer to the bottom of the channel and sell as prices reach the top of the channel.
When the stock prices start to trade in a range, traders need to book smaller profits and get ready for the next move. Only expert traders can earn in this phase. Newbie traders may not be able to identify the top and bottom of the trend. They may not be able to exit on time and find themselves trapped.
Disclaimer: Views expressed in this article are of the author’s own. They should not be treated as an alternative to advice. We request you to consult your financial advisor and carefully read all the relevant documents before investing.