Nifty showed volatility at its best but might not be helpful to traders…

Nifty Daily chart: Scenario 1

Scenario 2:

 Nifty 30 mins:

Waves Analysis:

Nifty had a very volatile session yesterday. Markets opened with a gap down and made a low of 5225 very quickly in first 15 minutes. This was actually a confirmation of a break down and shorts would have been initiated at this level. However there was a strong pull back and Nifty rallied to as high as 5375 in less than 2 hours. This up move would have been sufficient to trigger bullish impulses among traders and many longs would have been initiated exactly near the highs of the day. The hopes of bulls were also short lived and the selloff after that was again significant to trigger stop losses of long positions. In short, it was one of the most difficult days for many traders both emotionally and monetarily since swings on either side were sufficient enough to trigger long and short positions as well as stop losses.

It is therefore imperative to have a strict money management strategy in place along with risk management. Such emotionally challenging days will come back again when we have big events lined up – Budget, Monetary policy, etc. It is only after market close, analysis of the day starts and traders start thinking what could have been done differently. Our view is staying away from markets during such eventful days is better but it is difficult to put that into practice. However if staying away is difficult, we do not think it is wrong to get whipsawed on either directions but Risk and Money management is prudent. Also a strategy of close can be adopted and directional bet shall be made during last half an hour of trading to understand the market bias.

As shown on daily chart, we have 2 plausible scenarios. First scenario suggests that wave b of minor degree is ongoing and we can start rallying anytime in form of wave c towards 5450 levels. Scenario 2 suggests that wave c has started and we are headed towards 5000 – 5050 levels from here on. Both scenarios as of now is equally probable to us and we require more technical evidence to suggests which one shall play out.

Scenario 1 looks plausible from bias perspective and the day closed near the low which supports this scenario. Also the bar is big bearish engulfing and so is negative.

Scenario 2 looks plausible as we can see on 30 mins chart, the fall is overlapping and well defined within the red corrective channel. So structurally this looks like b wave of minor degree and c up shall start.

In short, to make things clearer, any move above 5300 will increase the odds of Scenario 2 (positive) is under play and any decisive move below 5180 increases odds in favor of Scenario 1 (negative).