Derivatives - Trend Reversal in Nifty - How to Spot / Identify Market Peaks & Bottoms in MARKETS - The ability to spot trend reversals can be of huge benefit to traders in Nifty Options and Futures Traders (More ...
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Trend Reversal in Nifty - How to Spot / Identify Market Peaks & Bottoms

  1. 03-11-2013 08:03 PM
    rmani84
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    Trend Reversal in Nifty - How to Spot / Identify Market Peaks & Bottoms

    The ability to spot trend reversals can be of huge benefit to traders in Nifty Options and Futures Traders (More so for Options Traders).

    It also helps for long term investors as good accumulation points.

    In this thread, i am going to share some of the metrics that one can follow to identify Trend Reversal in Nifty.

    Now, there's no single indicator which will exactly tell you when a Trend Reversal will happen. Beyond the below metrics, one's own instinct plays a major factor as well.

    Below are the key factors that can help decide a market reversal
    • RSI (Relative Strength Index)
    • 200 day EMA
    • Parabolic SAR

    Nifty RSI (Relative Strength Index)
    Below's the Nifty 1 year chart with RSI Indicator below it. In a bull market, Nifty recovers from RSI of around 20 on strong buying and faces profit booking at RSI of 80. This can be seen from the Chart below. In a bear market, Nifty will face strong selling pressure at RSI of 80 and some relief pull back rally at RSI of 20. This comes in very handy to predict trend reversal



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  2. 03-11-2013 08:18 PM
    rmani84
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    200 day EMA of Nifty
    200 day EMA of Nifty can be used as a secondary parameter to judge huge reversal points. In a bull market, 200 day EMA is considered as a nice support level and Nifty can recover in a big way from around 200 day EMA levels.

    The same 200 day EMA will act as a huge resistance in a bear market and may see fresh sell off.

    Parabolic SAR
    Below's the 1 year chart for Nifty with parabolic SAR technical indicator. This again needs to be used as a secondary indicator to RSI. The Green dots act as support points and the Red dots indicates resistance points.

    When the Red dots are breached by Spot Nifty, it may indicate the start of a upward Rally.
    When the Green dots are breached by Spot Nifty, it may indicate start of a correction phase.

    Like i said before, its a secondary factor and considering this alone may give false positives. 1st priority to RSI and second priority to SAR will give you better insights into identifying trend reversals.

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