Friday, October 30, 2009
Trading is not easy, but it sure is fun
Analysis and trading are different. recently i had bought balrampur chini as it had broken out of 128-130 zone i bought at 131.20 with a stop of 122 it went up to 143 and as per my rules i shifted the stop to breakeven 131.5 the stock came down to 130.6 stop was trigerred and the stock then agian went up.my analysis here was correct but trade did not work in my favour
Yes, they are. That is why trading is the only way to become a trader, armchair analysis fails when you enter the market. What you have described with Balrampur is a common occurence. There is nothing wrong with the analysis. It is also possible that Balrampur may have lifted off to highs without coming back to 131.5. My suggestion is: do not try to devise a strategy in which such events will not happen. That is a futile exercise. Believe me! Understand that sometimes the markets reward us, sometimes they do not. If you are consistent in your approach, you make money. However, you must revisit and upgrade your analysis continuously. But do not blame yourself for what the market does.
"i am reading a H&S figure on charts of maruti which is giving some bearish signals "
My Notes: Maruti has made a classic head and shoulder pattern, suggesting lower levels. What does that mean for the Nifty??
Anant has different views on trading hours. What's wrong, he asks. I am just wondering on the value addition that will emerge from speculating from 9 to 5. Frankly, I can find no gains. Now, if we start trading Asian and Eurpoean indices, then having extended hours for those indices is essential, bu trading Indian stocks for 8 hours a day??
Thursday, October 29, 2009
"yesterday you said we could see 4550 and today you said buy nifty @ 4800 for a PROBABLE target of 4925, how come change in view in one day, could you please clarify."
It is nice to know that I am closely watched on TV. I am giving a chart for the Nifty (at the end) which highlights the significance of the 4550 zone. This zone has acted as support / resistance many times earlier. I referred to this support when talking with Mitali on Tuesday afternoon as the Nifty was falling.
On Wednesay morning, I provided a day trading call on the Nifty. It seemed that a small relief rally was possible hence the buy call with probable targets and stoploss.
Ravi asks: "I have a question that I'd like to ask. I've been trading in individual stock options recently particularly TATASteel and ICICIBank, making a premium from my prices. But I've noticed that the option prices after a point are not appreciating even though the stock price is falling and there are no trades happening on the options. How do I go about squaring off such an option (second month option)?"
My Notes: Options traders must have a clear understanding of implie volatility. Sometimes when you buy options with low IV, and the price registers a violent move against you, you will find that the option price does not go much against you since implied volatility has gone up. Reverse may happen when you buy options with High IV. As a seller, you gain when IV comes down, and lose when IV goes up after you sell.
The other question is about liquidity in options. This is a problem in India where we do not have any market makers.You have to wait patiently till a buyer/seller comes for your trade. Often, putting in a fair bid attracts an opposite party, soon enough.
I have to go for my Awaaz interview at 9:30 AM. More later.
Tuesday, October 27, 2009
1.Stoplosses for buying on dips
My Notes: The actual numbers will depend on the charts you use - end of day, intra day, time period. The broad rules could be (for long positions, reverse for short):
a. Initial catastrophe stop: Below the nearest swing Low OR Below the 3 day Low OR below the one day Low. You should choose the stop where (a) risk is acceptable AND (b) Breaking he stop means that your trade becomes invalid, uncertain
b.Breakeven stop: Once the trade moves in your favor, move your stop as close as possible to breakeven. OR If you have more than 1 contract or share, then sell part of the position Look for bigger moves for the remaining.
c. Profitable Exits: On a trailing stop, target, or a reversal pattern which changes the underlying trend. This may be a 20 day moving average, OR (a) above OR many other methods.
2. well i heard u today speaking about cairn being a great investment and can be a multibagger in next few years i had looked at its charts but didnt quite understand the reason behind u r hypothesis
For investing, I look at themes. CAIRN is a crude producer. Crude is a finite resource. So is Lignite. Therefore I like the idea of investing in CAIRN.
On the charts, the stock is near its life time hgihs. Above 300, it moves into unchartered area. Who knows where it may go. Big moves are possible in stocks which make life time highs. Remember, th Markets can do anything.
3.when we are talking about investments or 2-3yrs do we look at weekly charts
My Notes: Yes, you should.
Men's question asked last week remains relevant:
Is it right to buy on dips now or is it different this time. A 38% retracement of the recent low to high is around 4870.
My Notes: I do not know if it is ever different. Same market, same process of greed and fear. But, the retracement is relevant only when prices stop and begin to consolidate near a retracement number.
We say: Prices are consolidating, maybe ready to move up, AND it also happens to be a Fib retacement area, so there is a high probability opportunity.
We Do NOT say: price has touched 4870 so let me buy. Never.
On my Guppy MMA chart, Sunnay has this suggestion:
why so confusing set up, If price is above 50sma, long term trend up, if adx green line is up, red down, and price abv 20 sma short term trend up.
My Notes: All roads lead to the same destination - go with the flow. So it is fine to use 50 an 20 MA and +DI nd -DI. The key is consistency.
AnshulTPT asks if it is possible to set in two stops - one is atomatically cancelled if the other one is triggered.
My Notes: On the trading software, I do not think this facility exists.
could you please advice me on shares to buy.just give me advice on few shares which you think is a good long term bet.
This is not a stock picking blog. But, I like the idea of holding CAIRN. You must wait for a correction before entering the market, even if it is for the long term.
Sunday, October 25, 2009
Our friend, Chandu has just got his 'Aha' moment. He writes:
"What i understand is go with the trend until u stopped out or trend gives reversal."
My Notes: Absolutely. You have understood the essence of successful trading. Remember that the implementation is not easy because the market does not provide a straight line to success. There are many hindrances which we should call 'whipsaws'.
More on this topic, later.
Saturday, October 24, 2009
I met a number of people who read and comment on this blog: It was a pleasure meeting you.
There are comments which need to be replied to. I will try today, otherwise tomorrow.
Much more important to think about are the changes planned for market trading hours in the NSE. SEBI has given approval for market timings to be between 9 AM and 5 PM. If NSE were to actual implement these timings, traders will have a 12 hour workday. No purpose will be served by extended working hours. Traders will get burned out. The work day will have to start at 8 AM, and end at 6 PM. Where is the time for analysis and contemplation?
Wednesday, October 21, 2009
Briefly, there are two sets of averages, blue and red. When both the sets are moving up, the trend is up. At periodic intervals, the blue (short term) will dip into the red where it finds support. So far as the support holds, the trend is UP.
I am giving the daily chart for the Nifty with both the averages. What I understand is this:
1. The red lines are pointing up, trend is up.
2. A dip into the red set is due. The blue lines are contracting.
3. When the red lines are widespread , there is a strong trend. This is the case now.
Comments are welcome.
Tuesday, October 20, 2009
It is possible that this trend may continue over the next few days.
Earlier, a month ago, traders were sceptical of the rally and suggested that a correcion was coming. But, the market does not oblige so easily. It went up while people waited for the inevitable dip. The dip never came about.
Now, slowly most people have come down to the view that 'this time it is different', and there will be no correction, just a steady advance.So what can happen? Well, the markets can correct suddenly. While we cannot be sure, it is possible that the process of the correction may well have started today.
Brett Steenbarger says:
In a range market, and, especially in slow market conditions, it is neccessary to temper one's expectations. The amount that intraday traders can take out of any given market move, will be limited.
Traders will have to determine their own triggers at which the existing trend will change from up to sideways or down. Of course, this need not happen at all, but you must know your personal trigger at which you will say "the trend has changed".
Sunday, October 18, 2009
Anshultpt asks if Saturday's truncated trading session should be considered in analysis, and, if so, in what way.
My Notes: I use these sessions in my analysis for two reasons:
First, the data goes into the database, so all scans, programs will consider the data. Trying to avoid these dates will result in complicated programming and not worth the effort,
Second, The markets did throw up a price, so it should be considered.
I use the Diwali day as a normal bar. Some analysis is ignored, for example, the day is normally a narrow range day, but that is not relevant due to the truncated trading times.
I think, there are no rules as such. You decide on a procedure, then follow it consistently. Consistency is more important.
Krishna asks: "I had heard you saying that sugar stocks are ready to go much higher from current levels whereas previously you advised to be cautious as it seemed to be a bubble..any reason for change in outlook.."
My Notes: Sugar stocks had seen a parabolic rally, moving up 4 times in 10 months, outperforming the broad market. Then. resistance at previous highs suggested that the rally may be ending. But, the stocks broke through resistance, and the trend should be assumed to be up.
Notes on the broad market:
I have a chart, which suggests : maybe and maybe not.
Saturday, October 17, 2009
Thursday, October 15, 2009
I applied the Up wave tool to a 60 minute chart of tata Power, and this is what was projected.
What is the message? The instrument is in an uptrend. After an upmove it sees a pullback. (2 after 1, and now 4 after 3). Currently, it is in a pullback of some kind. The main trend which is UP is likely to resume soon.
What should the trader do? identify the point at which the trend becomes uncertain. This is the stop loss. Then decide to buy now, buy at a lower level, or buy on sign of strength. Take the trade, and let market forces decide the outcome.
The complexity of the wave counts is irrelevant here. The main trend was identified with the Wave tool, and trading tactics can then be applied. Listen to the message of the market.
Wednesday, October 14, 2009
The zone between 4950 and 5100 will also act as support, probably around 5040 where a number od trading days coincide.
Will there be a correction? Yes of course. With every passing day, investor sentiment is becoming bullish - "This market is not going down" is becoming accepted. It seems that a correction will come when least expected, probably a sudden decline rather than a rounding turn.
Replies to comments:
Manoj asks: "Is the nifty movement from 4990 to 5030 on monday is the 'big expansion', you are referring to?"
My Notes: The Nifty moved up from 4935 to 5055 in just a few trading hours. This is the move I am referring to when I talked about an expansion. The expansion continued today as the Nifty touched 5115. It seems likely that we will see contraction ( range bound movement) now.
Manoj asks agin "The nifty options move average 30~50 % per day in price,how come 30% return per year will represent excellant performance for an avg trader?So do you suggest that the super high returns per day is not for indian trader only for wall st super computer hawks?"
My Notes: Goldman Sachs, which represents the "wall st super computer hawks" had its best ever Q2 in June 2009, when it earned 22% on its equity. That is 22% annualized. Most hedge funds will average a return of less than 22%. Also understand that we are talking about average return. A fund may give a return of 104% in a year, then maybe -22% and 8%, so eventually the average is around the levels I pointed out.
Jagdish says " love your posts but am really unable to fathom your interest in Bharti".
My Notes: Jagdish makes a well reasoned case for avoiding Bharti. Please read his comments here. I was asked to comment on Bharti / Rcom etc.. so I picked up Bharti. In its bull market earlier, the stock has rewarded me and probably many other traders, so maybe I have some emotional attachment to it. Emotions NEVER go with trading, so thanks for the friendly warning.
men asks "how is one to trade in a listless intraday movement of the nifty,"
My Notes: In recent days, most of the money in the Nifty is made in gaps. Thus taking overnight positions has been profitable while intraday moves have been choppy. Of course, this may change again, but for now, go with the flow (up!), buy on dips, carry positions overnight. Since risk increases, reduce your position size. Also look at the sectors that are flying - metals, infra/construction.
Sunny says "bharti share has been split, so past support of 330 etc ur mentioning cant b compared to current price i think."
My Notes: Charts are adjusted for the split, so 330 now is compared actually to the pre split price equivalent to 330.
In my post on Gold, I wrote "Dhanteras is the thirteenth day in the lunar calender, two days before the New Moon (Amavasya) in the month of Ashwin. The day comes two days before Diwali which ends the month of Ashwin and starts the month of Kartik. "
Sunny put in his comments "the minds of so called educated ppl r stuck sky high in movement of planets, not in astronomy but in astrology , pathetic"
My Notes: This is about calendars, how people identified months & days. My post highlighted the use of lunar calendars as opposed to the currently used Gregorian date system based on solar calendar. It is science. There is nothing about astrology in it. I am sorry to say but this comment made me angry because it shows that young people have no idea about science, history, tradition. Sorry about this, but I thought it best to write my thoughts.
AnandSachs has detailed notes on the long term patterns for the Nifty.
He says "Diagonal triangle pattern/ wedge formation is very clear"
My Notes: Yes, the Nifty rally looks like a wedge.
Anand also says that the current up move may be B wave in an A_B_C decline.
My Notes: Maybe. I cannot say since my knowledge of waves is limited. But, even if it is, so what? Also, we must remember that our analysis can go wrong. Suppose, at 7200 Nifty we realize that this was not really an A_B_C, how will it help us then?
Price is the ultimate and only reality in the market. Go with the flow. It is not easy, but is the only way.
Returns from Investing / Trading
A new hedge fund starting in the USA says it aims to get "almost 15% per year" in returns. This will be better than the average return on hedge funds which is 11%. In India, because of higher interest rates, the aim should be to have higher returns. My own sense is that 30% annualized return (average) for a trader will represent excellent performance. Trader expectations must match the reality of life.
Membership of ATA and the MTA exam
A question on the MTA exam asks if membership of any society is acceptable for this exam.
My Notes: As far as I recall, MTA exams require the candidate to be a member of the MTA. This is a good opportunity to make a case of the Certified Technical Analyst (CeTA) certification that the Association of Technical Analysts is now offering. Please visit http://www.taindia.org/ for more details.
I have requests to review the charts of Bharti Airtel, RCom, McLeod Russell..... . For Bharti, a key question is: Has the stock touched significant support? A look at the weekly (long term) charts will show that current prices of Bharti has at the same level as in November 2008 when the Nifty was around 3000. The current price of 350 has seen many touches over the past three years. It seems reasonable to expect the stock to consolidate at current levels. The second question is: will it move up after such consolidation? There is no answer to this one. We have to follow the price to find out what it will do later.
Tuesday, October 13, 2009
Monday, October 12, 2009
Of course, I could be wrong. But, nothing is lost if a big thrust comes instead of a steady up move.
What are the prospects of a reaction? Now, the markets can correct any time. As the days go by, a sense will develop that 'this time it is different' and the markets will not correct. That will then be a danger point, because extreme optimism is the beginning of a deep correction.
Now, if you do not go short and the market suddenly corrects, you are certainly left out. But, much worse is your position if you are short and the market resumes its up move, as it did today. So, while it is thrilling to sell at the top, it may NOT be good trading.
I will try to set up one more post tonight. Cheers!
Sunday, October 11, 2009
Friday, October 9, 2009
Thursday, October 8, 2009
The final close today was below the lower line of the triangle. But, tomorrow is another day, therefore this close should be ignored and it should be assumed that the triangle is still open. We have infosys results coming in before the open, which are likely to influence the short term momentum. The upper boundaries of the triangle are at 5060 while the lower is at 4995. A move out of the triangle may offer an early indication of the direction for the Nifty.
How do you trade this? Wait for the market to open and the dust to settle. The 15 minute rule combined with these triangle levels could provide you with general guidelnes for trading, tomorrow.
ITC touched 253, its target for a breakout, referred a few days ago. Quite often technical targets are touched smoothly, without much effort. Sometimes, they fail. This is what trading is about - probability.
Shazia asks: "Can a short term (60 minute) chart be used to determine longer term trend?"
My Notes: I always thought the opposite was true, meaning the longer term trend could be used to determine the direction in which short term trades (say on 60 minute chart) may be taken. The 60 minute chart may be used to determine long term trend by using a surrogate trend. For example, if you use a 20 day moving average to identify the trend on a daily chart, you could then apply a 120 period average to the 60 minute chart and get roughly the same trend.
Hemanta Gogoi says "It also looks like an probable inverted HS when seen upside down. Please shed some light on this. "
My Notes: When I read this comment, I thought the chart also showed an inverted H&S and spent some time trying to find it. It is possible that a chart may have more than one pattern. Now that I read the comment again, Hemanta is writing about the chart when seen upside down. Yes, of course, when you rotate the chart, a head and shoulder pattern becomes an inverted H&S, and vice versa.
Now, the pattern is not complete - far from it. The bulls have been in complete control till now. In fact, even a breakdown from 4920 may not result in touching the 4750 target - it could be a whipsaw. But the partially complete pattern is visble, and we need to watch itas it develops.
Re: Certified Techncal Analyst:
suseem asks: "pls tell me if the level 1 exam will b conducted in may/june or will it b level 2?"
My Notes: In December 2009, theLevel 1 exam will be offered. Starting 2010, both exams will be offered twice a year, in May/June and Nov/Dec.
Wednesday, October 7, 2009
The process for obtaining the certification is easy:
1. Become a member of ATA. It is a non-profit body.
2. Register for the exams.
3. Appear for the Level1 and then the Level2 exams. These will be held in Nov/Dec and May/June.
4. Pass the exams, become a CERTIFIED TECHNICAL ANALYST - CeTA
The ATA continues to offer a similar program given by IFTA. Our local certification is of similar standards, hopefully higher. I strongly suggest participation in this program.
Tuesday, October 6, 2009
This is about dips.
The main trend should be up. Without even looking at the charts, we can say with assurance that we are in an uptrend.
A dip can then be described in many different ways. For example:
--> A 1-2-3 pullback. Prices see lower lows for three days signalling that stock is in a minor correction.
--> A fast moving oscillator (RSI2 or CCI5 or Stochastics5-3-3) reaches oversold levels, as also a dip occurs in the price.
--> prices pullback to touch the 20 Day moving average.
--> Prices decline to a fibonacci retracement
Many many more....
Now, in each of these cases, what is the common theme? The trend is up, but prices are falling. That's a dip or retracement - a buying opportunity.
This is what I said - in my opinion Bharti and Idea are in uptrend, so a dip is a buying opportunity. Now, you may have a different analysis on the trend , and you are entitled to your analysis. But, understand, that so far I practise safe trading, I can define the trend as well as dip, in my way.
Readers understand that the market is not perfect. Far from it. So, while in textbooks, pullbacks look good, in reality they are often quite messy. The trader has to make a judgement on the pullback and take or not take the trade. That's ok.
To each of us, the trend as well as the shape of the dip may have different definitions. In fact, in different phases of the market, these will change. This is simply to state the obvious : all paths lead to the same objective.
Think carefully on what I have written here. Your feedback will be appreciated.
On Monday afternoon, as Bharti Airtel showed a lot of weakness, I was asked on CNBC about the stock. I said "This is a correction. It is a buy on dips. So is idea".
I explained this concept in this blog, yesterday. If the trend is up, then a correction is a buying opportunity. Today, telecom stocks opened much lower, with Idea almost 10% down. This qualified as a dip. I went long in Idea futures at 64.60 with a stop that was below the day's low at 60.xx . This is my initial stop.
Now there are any number of ways to analyze and trade the market. With some planning, most of these ways are fine.
Nifty's current behavior (volatility) is similar to the pattern saw in 2007 when the Nifty was moving above 5000. This seems to be a sign that smart money has probably started selling, while the 'hot' money continues to buy. There are many possibilities: smart money may become a buyer if it sees the market going up, or, 'hot money' may become a seller, or the tussle may continue till one of these two gets exhausted. We will watch with interest.
Monday, October 5, 2009
My Notes: Fair question. I am giving below the weekly chart for Idea with notes.
The trend remains up. Prices remain above a previous pivot low. A momentum indicator (smoothed CCI) suggests that momentum has moved into an extreme zone (-100). When momentum suggests an oversold position in an uptrend, we have a low risk buying opportunity. The stock is currently underperforming the Nifty, but we have this pattern of sectors underperforming while they consolidate, then suddenly moving up.
The Nifty continues to show remarkable resilence. Inspite of two days of declines in the USA, we did not break the 5000 psychological support. My own zone of support is about 4950. A close below this point will suggest that the short term trend has turned down.
ITC has moved up from a minor rounding bottom / inverted head and shoulder (depending on how you look at the patterns), and suggests a target of 253 (223 was the low while 238 is the breakout point approx). We will find out in the next few days.
Sunday, October 4, 2009
My Notes: Thank you for your interest, Lalit. You should complete your CA before taking the plunge into trading. As for an Office in Chennai, now with the virtual world, anyone can work from anywhere and still be connected.
Pi wants to know where I get the data for Tradestation.
My notes: I use ts2000i, which I purchased from Omega Research in 1999. Since I wished to use it for intraday as well as end of day analysis, I developed the appropriate data for it. Technical Trends offers intra day feed that goes directly into Globalserver making TS2000i into a live charting system.
For Gurvinder - thanks.
Wildeazoscar asked "A question on the basis of your being associated with the ATA---"What are the job-prospects of a person with the CFTe certificate (not MFT) in India?"
My Notes: CFTe is not a job seeking certification. The certification confirms that the candidate has an indepth knowledge of technical analysis. In a few years, this will probably become an essential requirement for TA jobs (I hope!).
Wildeazoscar says - On second thoughts----" if someone in a secured career with an active interest in trading wishes to take up trading as his source of subsistence by quitting his job(which is nowhere related to any trading activities), would a CFTe certification help him earn a job, if after some period he wishes to work and at the same time trade?"
My Notes: Technical Analysis jobs depend on the requirement of analysts, and is directly influenced by market conditions. Bull markets mean more employment, another recession will mean death of brokerages / funds. If there is a job opening, then a person with a CFT will have a substantial edge over another applicant who just 'knows' TA.
Readers have offered different wave counts which are available in comments Here
My Notes on the use of Wave Counts
I started this process a few days ago when I offered a possible wave count for the Nifty. Since then, readers (who are likely to be more knowledgeable in Elliot Waves than I ever will be) have offered to share their own wave count posssibilities.
I am certain that wave counts will often fail or go wrong. The sensible EW trader will then accept that the count is not working, and, correct or amend the wave patterns and come up with a fresh count. This is what I do with momentum. A failed wave count is a whipsaw, isn't it? Just as with any kind of trend following methods. Since trend following is a mouthful, I call this 'momentum' which is easier to understand and relate to. Therefore, a Elliot Wave Trader is really a momentum trader, keeping losses small, catching trends and accepting whipsaws. The difference is in the tools used.
But, there is another kind of Elliot Wave trader who really believes in the forecasting nature of the waves. This is a dangerous breed, to be kept away from. "My wave counts tell me that the Nifty is in a fifth wave extension which will take it to 6567 and then bring down the Index to 1182." (added: this is only a theoritical example). Now, no matter what the market does the person is fixed on his numbers. I have met many of these people, some of whom put their own and others money on their numbers. All of them fell in deep trouble, more than we can imagine.
In 1995-96 when we (myself , also a number of friends) were just starting in the amazing world of technical analysis , I was terrified of Elliot Waves. I did not understand the complexities of the wave counts. I was amazed at friends saying "The sensex will have to touch 3750, because it is in an A-B-C ...... and this is the C wave which is bound to do .....". What wonderful talent - the ability to predict the future with perfection. I was saved from participation in the elliot wave talent contest since even then I preferred methods that said, the market is doing this, so let us follow it. My freinds using EW said, the market will do this.
I think I have made my point. Cheers!
Friday, October 2, 2009
" If 3 MVA crosses 50 MVA 2 times without yielding profit then on 3rd crossing enter the market. We may miss some opportunites but we will increase the chances of profit and avoid whipsaws. Usually after the end of a long trend , the next trend signal will definitely yield in a loss thats due to a fibonacci retracement. "
Instead of taking every moving average trade, what happens if we trade only after two losses? The assumption is that the two losses take care of the inevitable whipsaws, thus increasing the chances of the next trade.
I put this into a tradestation system. My code says:
Buy when price closes above the 5 day MA and sell when it closes below.
Take all trades after at least 2 losses.
Here are the test results on End of Day Nifty near month futures from 2000 to Oct 1, 2009. Costs and slippage have been taken at 5 points per trade.
System : Raw (basic crossover)
Net Profit: +2105
Drawdown: + 1259
Number of trades: 526
Net per trade: 4.00
System:Trade after 2 loss
Net Profit: +3054
Number of trades: 174
Net per trade: 17.56
Conclusion: trading only after 2 losses reduces whipsaws and increases the efficiency of the moving average system. Aurobindo's system used 2 averages, while I did my test on MA and close. I think similar results will be found on 2 MA. I will do the test over the weekend, and, also test on intraday data. Like most trend following systems, winners are concentrated in small clusters. Only system traders can trade these systems.
One caveat: while I did try to check my programming, I wrote the code quickly so there is a small possibility of errors. I will recheck and come back over the weekend.
A word about Google. My last post was on wednesday. But my adsense earnings yesterday (this comes when readers click on ads displayed by google in my blog) were above average, suggesting that probbaly the right ads were clicked. I do not know which ones come in this category, but Google's technology is awesome.