My mentor always says that price movement of actively traded stocks or commodities are seldom random and there is always an agenda behind how price moves. The guys with deep pockets (read as the operators in desi parlance) can and will influence price in order to achieve their ulterior objective.
Does this sound esoteric or confusing? Let me explain this with NTPC as a case study. Kindly direct your attention to the daily chart of the stock featured below. This case study covers how or why the price behaves the way it does at certain places and also about Action-Reaction methodology that has been discussed in prior posts.
From the chart above, it apparent that the price was pushed below the minor set of swing lows at Rs.167. These swing lows were meant to be popped in order to wipe out the weaker traders and the ones having trailing stop-loss below those lows.
Pay attention to the price action on the third price bar from the right. Notice how the low of this bar wiped out all the weaker guys and the close was right at the day’s high. This was a clear signal that the price is headed higher. (Note: We had given a buy call to our clients at Rs.168, for a target of Rs.181).
If someone can understand and decipher what happened in the last three price bars, it would make trading a lot simpler and easy. The sharp rally today is not surprising as the weaker players have already been washed out of the system.
The middle green line highlighted in the chart is the centreline and the action and the corresponding reaction gives us a target of Rs.181.
Trade Safe and don’t get hurt.