The above chart of DLF (listed just an year ago) I have chosen for my pattern study. It has a nice bearish Head & Shoulders Pattern (HSP) in both the weekly and daily chart. TA axiom “ Trade what you see and not what you think,” tells us it’s a clear case of short, if 580 (neckline) is broken with increased volume, and the stop loss should be placed a wee above the right shoulder for a target of 520/530. Simple..isn’t it?
Why I have chosen this as a study subject is because I want to see how will this set up play itself. As a student of TA I have learnt that HSP are reversal patterns. There are two kind of HSP the top and the bottom. And both when completed to their logical end, signal a reversal in the prevailing trend.
In the case of DLF (daily chart) this bearish HSP has formed at the bottom of the fall so logically we cant classify it as a reversal pattern. It can be termed as a continuation pattern and the fall from here would continue in the original direction.
Now taking the contrarian view at the setup. This HSP on the daily is forming as a base in relation to the previous down move, and most importantly at the very strong demand area (support). Right now all the oscillators are looking oversold. Before someone argues that oscillators can stay oversold for months together I just wish to add that I agree with them! But I feel though this is not an argument to say that oversold oscillators will negate this pattern but they surely will take the sting out of the move.
I am not trading it just tryin2figure it out. What to do, this probing mind…it just refuses to sit quiet. I would welcome all suggestions regarding this post or any observations, which I might have missed.
"In the middle of difficulty, lies opportunity."