This post is dedicated to the sixth and final Bearish Setup - Strong Red on C1 with High above Resistance, a single candlestick reversal pattern that triggers a sell signal by opening above resistance but closing strong below it. Like the previous setup, this one is also traded in the morning. It has the highest win ratio among all the bearish setups.
(Fig 1.1 - Chart example of Strong Red on C1 with High above Resistance)
To be considered tradable within our strategy, the setup must meet specific criteria:
Setup Conditions:
Formation Timing: The setup should complete on C1 at 10 AM.
Trade Selection: The setup must meet the trade selection criteria (refer to the "Trade Selection" section for details).
Key Elements of a Strong Red on C1 with High above Resistance:
Scenarios:
Immediate Resistance Breach:
C1 opens close to or slightly above immediate resistance, which could be a pivot, a gap, or the previous day's high.
C1's high briefly breaches the resistance before closing strongly below it.
Significant Gap Up:
C1 opens with a significant gap up, breaching prior horizontal or pivot resistance.
C1 closes as a significant reversal candle, such as a big red candle or a strong reverse hammer, even if the close is above the resistance.
This setup is powerful because it traps buyers by rising above resistance (or opening gap up above resistance) and then reversing to close strongly bearish, forcing them to liquidate their short positions. The stronger the rise (or the bigger the gap up), the stronger the candle. A typical strong candle has a long upper wick resembling a reverse hammer or a big red real body that closes near the low.
The rationale behind taking this morning trade is to capitalize on a strong trap signal that can gather bearish momentum quickly. Waiting for C4 or C5 in the afternoon would be too late in such cases.
By 10AM, you should have decided whether to take the trade or step aside. If you’re unsure, it’s better to step aside. Avoid chasing momentum at unfavourable prices when the market becomes fast.
Chart Examples:
Carefully study the provided chart examples, paying attention to annotations that explain the price action behind the setup. Observe the results after the trade execution.
(Fig 1.2 - Chart example of Strong Red on C1 with High above Resistance on Nifty Futures)
(Fig 1.2- Chart example of Strong Red on C1 with High above Resistance on Nifty Futures)
Win Ratio: The Win Ratio, a critical input for Trade Selection, is simply the number of successful trades divided by the total trades. The Win Ratio of this setup is 87% based on backtesting past data for the last 2 years.
This concludes our discussion on Bearish Setups on Nifty Futures. Please click on "Next Post" to move to an Introduction to Strategies on Money, Risk and Profit Management.
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