Nifty This Week: Technical Charts And More – How To Filter Out The Noise
Employees work at a trading room, in Mumbai, on April 24, 2018. (Photographer: Dhiraj Singh/Bloomberg)

Nifty This Week: Technical Charts And More – How To Filter Out The Noise

BloombergQuintOpinion

One more week with pretty much nothing to show for itself. The Nifty continued to remain in the same zone as earlier and the only redeeming feature, if one can call it that, is the long lower shadow candle for the week. That shows continued demand at lower levels. One can remain composed owing to that. But easier to say than do.

Why? Because our mind is a monkey. It goes into all the areas where it should not. Take a look at this chart.

Nifty This Week: Technical Charts And More – How To Filter Out The Noise

The matter should be extremely clear! Prices are on the ascent from March 2020 low and continue to remain so. No prior swing low is broken. This is one of the simplest of technical rules to follow and even a blind man ought to be able to see that if prior swing lows are not lost then there is no bite in the selling. That’s all that matters if one is playing the uptrend. The higher degree of that same logic is that even previous swing highs are not being compromised, thus maintaining a ‘window’ between different legs of the move.

But what do people do? Overanalyse every squiggle to death!

Technical analysts who are in the public domain are asked about five times a day to opine on index movements. What can they do? They need to oblige with some ultra-short-term analysis. The analyst is right in his place. But what about those that are listening to this? They are in their own la-la land and take in that information based on what they believe the market to be. How can confusion not get caused? The market will then do something else and the analyst gets the flak.

It is best to realise that active ultra-short-term analysis of index moves is relevant to only ultra-short-term players.

The rest should stay away from listening to this. All they have to do is to learn simple logical precepts of technical analysis that I mentioned above and not bother about anything else. But what can they do with the incessant din of channels and websites and social media? Those have taken over our minds, verily. Long ago, reading the bible of technical analysis by Edwards and Magee, I recall what they had written about the ideal trader and analyst. They wrote that an ideal analyst is one who is seated in a room that has no doors and windows except for a skylight to let in air and sunshine while doing his analysis. Meaning, there has to be absolutely no contamination of his mind whatsoever with external inputs! I would wager that the trader needs to be something like that too.

Perhaps, this calls for a new business – a trader’s retreat in the mountains with a powerful internet connection and no social media apps or television. Does anyone want to try?

Anyway, getting back to market analysis, here is another chart, telling us more or less what I have been repeating over time.

Nifty This Week: Technical Charts And More – How To Filter Out The Noise

This is the Nifty daily (left) and weekly (right) chart shown together. I want you to pay particular attention to the Indicator panel. This is a multi-cycle indicator (I have shown only two cycles here for clarity). Note on the weekly chart how the cycle line oscillator is placed firmly in the strong bull region. Now, look at the same oscillator in the daily time frame. It has dipped into the oversold area and is just starting to reverse back to up.

Another simple precept of technical analysis is to buy dips during strong uptrends. The price plot and oscillator positioning in the weekly chart have confirmed to us that the trend is up. The current price dip into support (see previous week's analysis on this) is the buy alert. The oscillator coming out of the oversold area is another buy alert confirmation. Now, all it needs is a final confirmation from price action. That, I believe, shall happen once Nifty is able to recapture territory above 15,000 and hold on to it.

What is required of traders and investors is to maintain the distance from the external noise so that they can spot the signals when they emerge.

The need for activity should not consume the trader.

There are times when even the most active amongst us need to take a step back. Now is perhaps one of them.

We are all being told to maintain social distancing to save ourselves from Covid-19. In the market as well, we need to maintain a trend-distancing to save ourselves from the losing virus!

CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise and NeoTrader; and chief investment officer of Plus Delta Portfolios.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.

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