Whenever we are traveling we find too many signals on our way. So if we ignore those signals and drive ignorantly then we might succumb to an accident. Similarly, if we are trading in the share market; it is important to follow the chart signals because if we don’t follow the chart signals, we may end up losing it all.
Now, be it honeycomb or flower petals or our own body structure; there is a ratio attached to it. This ratio is known as the Fibonacci ratio. If we analyze the chart in the share market with the help of this ratio then we get a signal. According to this signal, what is the market up to? If you wish to know, stay tuned to this blog.
How do we analyze the chart easily in the share market? While analyzing a chart in the share market there are two important factors price & time. Initially, first, we will select the chart type as Candle-stick chart. Here, in the share market be it the graph of shares or index i.e. Sensex or Nifty, the chart is plotted using 4 important points. These 4 points are Open, High, Low, and Close. With each day the rate/ price at which the share opens is known as Open. Then, the highest point the share reaches in a day is referred to as High. Similarly, the lowest rate at which the share might fall within a day is known as its Low. And finally, the rate at which it closes during the time of market closing is known as Close.
Now, if the share closes at a rate higher than the rate at which it had opened then the color of the candle becomes Green. So the opening and closing price of the candle constitutes its body. Similarly, if the share closes at a rate lower than the rate at which it had opened, then the color of the candle becomes Red. The upper side of the candle wick denotes the High price of the share whereas the downside of the candle wick denotes the Low price of the share. Thus, now you can easily do this analysis on the candlestick chart. There can be a daily, weekly, and monthly candle of the share. You can view it for as many days as you want and the way you want.
Whenever there is an uptrend in the share market; the market remains up for a bit then again goes down, then up again down. So this uptrend looks like the upward going stairs. While the market is in an uptrend, the few times when the market goes down are called ‘corrections’.
If we analyze Sensex & Nifty data before January 2020 then it seems that the market was in an uptrend. In 2020, the downfall that took place isn’t any correction but the market has gone bearish. The chart structure of DHFL showed a similar pattern in September 2018. At first, the share saw a huge downfall then by showing some relief there came a bit of bounce back and later the share displayed a bearish nature and again a huge fall was experienced in the share. A similar thing took place with the share of Yes Bank too. Moreover, in the year 2008, even Nifty and Sensex had followed a similar chart structure. As it is rightly said, “History repeats itself.”
Whenever there is a downtrend in the share market, there are few times when the market goes up that is known as nothing but ‘bounce back’. Just like the current chart structure of Nifty is displaying. Now after this downfall, how much of bounce back can we expect, so that we can be prepared that if we find a bearish signal, we’ll know that a huge downfall is on its way ahead. To understand this we will have to know more about the Fibonacci Ratio. We’ll talk more about the Fibonacci Ratio in our upcoming blog soon.
Now, be it honeycomb or flower petals or our own body structure; there is a nature’s symmetric ratio that attached to it. In simple language, the amount of downfall that is recorded in the market currently, if 50% - 60% of bounce back takes place around which the Fibonacci’s golden ratio is recorded and then there is a signal of a downtrend in the market then that is the time we need to be alert of.
If we analyze the current data, the total downfall that took place, its 40% - 60% bounce back has already taken place. Now in the near future if Nifty breaks the support of 9,000 then by the time June ends until 12th July; Nifty might fall up to 7,500 or even below. This seems as if we are predicting some kind of horoscope! This is nothing but just our prediction; we may even go wrong here.
If you are a trader who has already earned good money from the share market before and you can afford to take a risk only then you can buy Put here and trade bearish in the market. So in the case in the future a huge downfall takes place, you will earn excellent returns here and if the downfall does not take place then you will lose only the amount you had invested as you’ll be buying a put.
Now by analyzing the similarities of a chart structure and predicting the bearish signals in the market has anybody previously made returns? Yes, we have already talked about this in our previous blog. That person is Paul Tudor Jones.
In our previous videos we have already mentioned that in trading, not every trade will work out. What is more important here is that if our trades go right how much money we make and if our trades go wrong how much money we lose. If we make good money when we go right then we can cover up our other losses where we had gone wrong.
Now how to analyze the chart in the share market in this manner, how to analyze risk and then buy the Put option, how to trade in the market by analyzing the chart? What is a Put option? If you wish to learn all this and more, then you can download the Aryaamoney app today. (Link is given below) There are 2 powerful programs in the app Gateway to Wealth and Smart Investor program. You can subscribe and view them both. So if you learn it all by yourself, you won’t have to depend on any sort of tips from anybody. It is very important to be Self-dependent.
If the market falls again after the bounce-back that came due to the downtrend, then you can buy the Put option here and earn good returns. You can also go wrong here. You need to analyze the risk and then trade.
What to do if you are an Investor? It is important to note that due to the downfall in the market; the Nifty PE ratio has come down to 20. The market has reached a moderate valuation. Now, what is Nifty PE? What is market valuation? What does market moderate or expensive valuation mean? We have covered it all in our previous blogs. Do check it out.
If you are an Investor you can invest around 40% to 50% in the market as the Nifty PE is at 20. That to you need to invest only in such companies that have a sustainable competitive advantage in the market. Now, if the market goes in an uptrend from here, you’ll earn well as you are already invested in case the market falls down further, you can invest more because you are investing keeping in mind long-term prospects. But if you think that I will invest when the market will fall further, then you may miss out on the current opportunity that is available now.
According to the chart structure, Nifty is in the accident zone, though it is not necessary accident may take place. An accident might take place; there might be a huge fall that would take place in the market. If we see a sign-board while driving saying, ‘accident prone-zone, be cautious.’ That means we need to remain cautious. If you are an investor you can invest 40% - 50% here whereas if you are a trader you can trade bearish by buying the put option if you get a bearish signal in the market. Thus, if we think and invest properly, we can earn good returns in the market.
Until our next blog…
Happy Trading, Happy Investing!!!
To open your Free Demat & Trading Account with Upstox, click here -
To subscribe to our YouTube channel, click on this link - https://www.youtube.com/channel/UCiIpSgZ5N_PhTCyb1uQYfnQ/videos
To watch our video on Next Stock Market Crash Prediction, click on this link –
Follow our Official Social Media pages-
Facebook - https://www.facebook.com/aryaamoney/
Twitter - https://twitter.com/aryaamoney?lang=en
Linked In - https://www.linkedin.com/company/aryaamoney/?originalSubdomain=in
To Download Aryaamoney Mobile App (Android Version), Click on This Link - https://play.google.com/store/apps/de...
You can either directly deposit cheque/cash or transfer fund through net banking
in favour of 'BHUUSHAN VISHWANATH GODBOLE' in either of these bank account
Aryaa Money is Investment consultancy and Training Institute engaged in Stock, Commodity,
Forex market trading, training and consultancy services. Aryaa Money : Trading &
Training Institue Is ISO 9001:2015 Certified ISO 9001:2015 is a globally perceived
standard for Quality Management Systems (QMS)
Disclaimer and Disclosure: Share Commodity Currency Mutual funds Investments are subject to Market Risk.