Corrections are always painful affairs.We lose all the hard earned money procured, bit by bit during the up days in just 2-3 days of market corrections.Is there some way to know when market is going to correct?
There are no sure ways of predicting the market cycle, but you can watch for these signals.
1.Continuous up days
Sometimes market can go up for many days in a row.You will be happy watching your profits increase day by day.Remember, it won’t continue for ever.Markets will correct after a strong run, so lighten your position as you go up and make it very light when a bearish candlestick occurs.
2.RSI overbought with bearish candlestick
If RSI is above 70 for many days, followed by a bearish candlestick( bearish engulfing is the most common one seen at tops) fasten your seat belts for a steep fall.
So once you have reached the top and started falling, will it continue endless? Most probably, NO.
When can you re enter?
If you watch the news, you can see that, when the market starts falling, all the news articles will be biased towards bearishness. They will be proclaiming the end of bull market every now and then.But one fine morning, you see that the market is rising again, you missed the bus, by the time you start climbing in again, the sky would start falling again. Be smart during these down days and watch for a reversal to enter back at a better price.
Look for Moving average and trendline supports
After a market fall, the stocks start rising again after hitting a support. It can be a trendline, moving average or anything of that sort which make masses buy in.
In the below picture, you can see MA support
RSI OVERSOLD with Bullish candlestick
RSI 30 or below with a bullish candlestick can signal a reversal. Bullish candlesticks can be, (Bullish engulfing, hammer pattern etc.)
So every correction should be used as an opportunity to introspect and make necessary changes in our trading patterns. These corrections do make us stronger. A should become richer as time passes , both by procuring knowledge and by procuring money.Remember corrections are opportunities, use them and become rich.
As a result of this correction, I have decided to incorporate, Nifty direction also with my daily picks. Hope it also improves with time, as all these exercises are educational ones, which one day will benefit all.The charts are taken from, nseguide.com, which is good website for technical analysis, with a lot of tools available free of cost.