Here is an important entry of a case study into my Trade Journal. The chart below is the 5-minute chart of Sunpharma stock. The stock opened near the daily pivot ‘p’ with a huge Green candle marked in the chart.
Quickly in next 10 minutes the stock found support near the current weekly pivot 'P' and started to go higher towards a confluence of pivots. Current day daily pivot 'r2', previous day daily pivot 'r1', and previous week pivot 'P' formed the confluence zone.
Along with the confluence zone, there was also a hurdle of upper band of a rising channel which fell near the zone. As we can see the price reached that spot.
Once the price reached this point, a big bearish engulfing formed. Here was my dilemma. I have read methods to enter trades when bearish engulfing forms. A big candle such as the one seen above alters the Risk-Rewards ratio. I even remember that we may keep an entry point near the midpoint of the candle and our Stop above the candle. But, I just didn't feel like entering.
Trading Bullish or Bearish Engulfing is challenging. Not all times price retraces to 50% midpoint of the candle. But we can place an entry order if there are more confirmations.
In fact here’s the chart of 3-minute time frame below, where we can see a beautiful Hanging Man candle followed by confirmation candle. Blowing up the chart is another way to confirm if there a point in case.
I have marked the conceived short trade idea in the chart. The Risk-Rewards ratio worked out to be 1:3. The Entry is @ 696.7, stop is @ 698.45, and the target is @ 691.
The trade worked out well in this case. This was also early morning trade set up. Upper band of the rising channel also mounded its blow on price.
What about Nifty 50?
Briefly, let's see what happened in the last session. Refer the chart below. On Friday, Nifty opened Gap up and continued to move higher. It breached 14120 - 14150 zone and closed higher.
Today, though Nifty opened higher, was resisted near daily pivot 'r1' and the index was range bound. Nifty has taken support near 14120 - 14150 zone. For today, Nifty closed 0.15% higher.