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After a sharp decline from the all-time high of 20,222.45, the benchmark index is finally showing a sign of stability. In yesterday’s session, the index formed a Doji Candlestick pattern on the daily time frame which is considered to be a sign of indecisiveness among market participants.
This indecision is good when the market falls or rises steeply in a very short span of time and generally depicts a probable reversal. Hence this pattern should not be ignored at the top or bottom.
Image Description: Daily chart of Nifty 50
Image Source: Investing.com
After 4 straight sessions of fall, Nifty 50 finally got stable on Monday and closed flat forming a Doji pattern. The ideal way to trade this reversal cue is to wait for the market to break the high of the Doji pattern, which in this case is 19,734. As soon as the market crosses above this level, a long position can probably become more apt than a short one.
As there had been a sharp decline from the top, the upside potential of this reversal move is also high. There is a gap being left on the daily chart after a gap-down opening on 20 September 2023. If the market were to close this gap, that would translate into a rally till 20,115 which seems too aggressive for now.
There is another small gap of 30 points which will be filled once the index rallies to 19,878 which looks more realistic target for long positions. The downside risk is limited to 70-odd points as a slide below the Doji’s low of 19,601 will likely extend the downtrend.
In case you want to connect with me, reach out on X (formerly, Twitter). My handle is – aayushxkhanna
Disclosure: I have multiple positions in Nifty 50.
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