Volatility is increasing and making it heaven for short-term traders. However, for positional traders it is one of the toughest market and this happens, whenever the market trades in a corrective upward.
Most of the time, markets move to expected (predefined) positional targets, but that is after a greater amount of volatility. Sharp turns are basic characteristics of such corrective moves and hence timely execution of predefined strategy only works.
We expect volatility to be higher in 2019 than what we witnessed in 2018. Apart from global connectivity and faster transmission of communication, even protective measures from regulatory bodies have also played a major role in the increasing volatility. Moves that were first witnessed on a quarterly basis are now being witnessed on weekly basis because of increasing volatility.
If we look into the recent past, there were several examples when markets took sharp turns. Sharp down move from 10,710 and sudden up move from 10,105 in the month of October 2018. In the month of December 2018, up move from 10,333 and a sharp decline from 10,961.
The ideal strategy will be to trade in the direction of predefined targets without keeping an egoistic view. Such markets are best for short-term traders, as they get large trending moves in very short time frames, that too without keeping a specific view on the market.
In the previous week, the market conquered 10,950 levels comfortably, within the given period this has given an indication that Nifty is heading for 11,200/11,300 in next few weeks or months.
Due to retracement and weak breadth, the market corrected to extreme levels like 10,750/10,740, which is 40% retracement of the previous up move between 10,333 and 10,985.
We are of the view that Nifty should halt and reverse from 10,750. In case if it fails due to steep global weakness in the short term then 10,650/10,670 should be the area of taking a contra view of the long view in the market. For trend followers, our suggestion is to wait till markets form a reversal pattern form any of the given levels.
The author is a senior VP (technical research), Kotak Securities.
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