This post delves into the fourth and the last short term variable, the Bullish or Bearish setups on the sister indices. The basic premise of this variable is that we should not go against the general trend of the broader Indian market as represented by the other important sectoral indices, when evaluating a trade in Nifty. For example, a bullish trade in Nifty is likely to fail when a majority of the other major indices like the Banknifty, Nifty IT and the Nifty Midcap 100 are bearish. The rules are based on common sense.
Please look at the table below to understand the rules on how to evaluate this variable for a Bullish Setup on Nifty with all possible permutations and combination for setups on sister indices, Banknifty, Nifty IT and the Nifty Midcap 100.
Setup on Nifty | Setup on three Sister Indices | Value of Variable |
Bullish | All 3 Bullish | Very Strong |
2 Bullish and 1 Neutral | Strong | |
2 Bullish and 1 Bearish | Discretionary | |
1 Bullish and 2 Bearish | Weak | |
1 Bullish, 1 Bearish and 1 Neutral | Discretionary | |
1 Bullish and 2 Neutral | Mildly Strong | |
All 3 Neutral | Discretionary | |
1 Bearish and 2 Neutral | Weak | |
2 Bearish and 1 Neutral | Weak | |
All 3 Bearish | Very weak |
So for a Bullish setup that has formed/ forming on Nifty, we should be looking for the setups on
all three sister indices to be Bullish or
two of them to be Bullish and the third Neutral
for a strong confirmation of the trade. Mildly strong and discretionary trades are avoidable, particularly if other variables are not supportive. The reverse logic applies when the trade setup is Bearish. Hope this example makes it clear.
With this, we have concluded our discussion on all the variables of trade selection, long term as well as short term. Click on "Next Post" to see how all these variables come together in the form of a Tabular Trade Selection Tool to select a trade objectively.
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