Wednesday, January 28, 2009

Trading is Fun!

Nifty Futures remained locked in a narrow 28 point range for the first 3:20 hours of trading. This was an indication of a narrow range that was probably ready for a breakout / breakdown. As it happened, at 13:15 PM, futures moved above the trading range, signalling an upside breakout.

That's the market for you. The market rewards traders who have the patience to wait or their trades.

For Traders:
The Index remains inside a trading range with 2875 as resistance and 2700 as support. We saw the Nifty breakdown below 2700 support. But, there was no follow through as the market rallied back all the way near 2875 resistance.
A close above 2875 will change the scenario from bearish to bullish. While it is still possible that the breakout could be a whipsaw (just like the downside breakdown), we still follow the market, accepting the whipsaws, if any.

Question: Why is program trading potentially harmful ?

Answer:

Large trading houses run computer programs which trade large volumes of futures & options. Movement of large volumes creates sudden volatility in the market. Retail traders & investors cannot handle such sudden changes in volatility. These people then lose money, or simply move away from the market.

Trading provides liquidity to markets. But, markets were liquid without program trading. So, program trading serves no useful social purpose. It scares away retail traders / investors.

The key question is: Is the world designed for the rich, powerful and greedy ? Are they entitled to all the benefits of mankind without a thought to the other 99.99% of inhabitants ?

4 comments:

Mind Without Fear said...

For once Sir, I was patient enough to wait for the break out with a stop loss buy order above 2805.

Unfortunately, I did not exhibit similar patience in my exit strategy. After waiting for a little while for it to break above 2825, I moved my trailing stop loss to 2820 which got promptly filled. And I watched with a tinge of disappointment as it made its journey towards 2850.

Nonetheless, feel happy on the whole. And yes, it was kind of fun when the break out happened above 2802.

sixface said...

hello sir ur ariticles r choosy any helpful ..sir u r giving many tips to find the trend in that i have started using 2 rsi ...and i need ur sugesstions to find out wats the trend ...nifty is trading 40 points minimum evry day i just want 10 points conformed in that if i take a wrong step then i hang inbetween iam not able to go either way ..can u plse help me to find the trend ..u r a great expert...iam glad to be a part of ur follower ...may god bless u and make u develop new statergies that helps many peopl...

ART OF TRADE said...

Gud Evening Sir,

I have been following and trading practically with Doji Pattern.It is giving me excellent result. Today i went long in Balram chini above 56.5(doji above yest high) and keeping stop at 54.5and booked profit at 59.5 and went short in ultratech below 401( doji with yest low) and booked profit at 397. I enjoying my trade with this kind of pattern.

Thanks,

Madhu hegde.

Basudev said...

Dear Sukhaniji, On program trading I would tend to believe this is not true. First let us accept that computers enhance our decision making ability to the extent unthinkable earlier. With the help of computers therefore it is possible to analyse enormous amounts of price data, plot chats and generate buy sell orders on the basis of technical signals so sensed . It’s a different thing though that these trades will work out right and generate cash. That depends on how accurate the trading tools turns out to be.
The bottomline is far greater trading activity.
Well this is to be accepted because afterall it is a marketplace. As long as there is a seller people will buy and vice versa. It is well known that stock trading is fraught with risks. Anyone intending to profit from the stock market must accept the risks also. For those who cannot stomach the risks there is always the avenue of Mutual Funds .
People loose money when they don’t see a buble. This happened even before computers arrived . Retail traders has always been loosing at the behest of smart money. The other culprit is volatility which is capable of bringing about enormous wealth destruction .That volatility is high means there is turmoil in the markets and people should stay out.
So one has to upgrade the skills through constant learning from the markets in order to profit

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