Thursday, June 23, 2011

Two different positions

Once the trader is aware of the intermediate trend, the question of trading tactics comes in.

I am holding the view, that we are in some kind of a bear market with the market likely to correct the 2250 - 6350 rally. This correction may bring the Nifty down all the way to 4000.

So, I maintain an short position for the intermediate term. This is part of my total trading positions.

The balance of my trading positions are for swing trades: one to three days and intra day trades: closed same day. The decision is done on charts showing signs of expansion - go for swing trades, or, contraction - go for small intra day trades.

Monday, June 20, 2011

Moving steadily down

As I reach Delhi, late evening at 10 PM, there seems to have been quite a decline in the Indian Markets today.

Tomorrow, surely, the fundamental analysts will give us any number of resons as to why the decline took place. As traders, we know that the Nifty is in a downtrend, that's why prices keep on falling.

After sharp declines,there are always relief rallies, which are probably usually worth trading for the day trader.

Will this market go down further? That is for the market to decide. Charts syggest a decline to 4800 at least, with 4200 - 4000 as a possible final target. As we know, charts can change so our view should be: markets are going down - where they will finally stop is anyone's guess.

Friday, June 17, 2011

Markets in slow downtrend

I am writing this on my way to Shimla for a brief holiday. The AC1 chair car is comfortable, but full. Recession or slowdown is not evident here. It is reflected in market mood, with the U.S. markets showing only the slightest signs of a relief rally.
For the Nifty, the view is clear. Since Nov 2010, Nifty has ben making a pattern of lower highs and lower lows.  That is bearish. That's not all.  The recent rally barely touched 5600, which ismuch lower than the previous high at 5950. The bearish move will be confirmed if and when the nifty goes below 5325.
It is always possible for sharp sudden ralies to come about.  Traders should take advantage of such moves.

Wednesday, June 15, 2011

Puzzled

Rajesh Agarwal writes:
Quote
m regulerly hearing u on ETNOW.
But this time i feel that u r not confirm to observe the momentom of nifty. when u told to LONG NIFTY, nifty going down, when u told u r bearish in nifty, NIFTY going bullish.

plz give a strong reading on nifty.
UnQuote

Yes, Rajesh, I have fallen in the trap of becoming biased. Luckily, this distortion has lasted only a few days so nothing much is lost. Over the last 2 days, at some point, ignoring the charts I came to the conclusion that the Nifty was going to go up. Had I removed my bias, looked carefuly at the patterns I would not have been so confident. For the past few months, my views on the Nifty have been fairly on the mark, and this probably led to the feeling of overconfidence.

The Market punishes people who start believing they are smarter than the markets. Going wrong in my analysis is my punishment.

The correct view was: the Nifty is in a downtrend which will be confirmed if the index closes below 5450. This is what I had said when the Nifty fell to 5450 on Monday, but somehow I got puzzled, confused in the next two days..

Now, as I write this: The Nifty range is between 5450 and 5540. A close below 5450 will tell us that the downtrend has resumed.Since the trading range is moving to the downside, it seems fair to expect that the markets will slowly drift down.

Market update video



Hello traders everywhere, Adam Hewison of INO.com just finished his 1 p.m. Market Update for Tuesday the 14th of June.

To see the full video just visit INO TV, its FREE and will give you unique daily insight into current markets and seminars from market legends. Okay, now here's a brief of what’s happening now in the major markets:

- SP 500: -60. This market remains in a broad trading range with resistance coming in beginning at 1296 and 1305 and finally 1315 which represents a 62% Fibonacci retracement. Major downside support is at 1250.

- Silver:-60. Currently this market is oversold however it is in the state of flux with no clear trend. We would use the Don Chin channels and the fact that this market is oversold and expect to see a bounce from current levels. Major Support at $34.00.

- Gold: +55. Gold is currently oversold and we would cool for cool he is is a are slow to reduce this prison abuse or her will way expect to see some further either sideways action or a move to improve levels. The Donchian channel comes in at 1503. Major support at $1,500.

- Crude Oil: -60 Trading range. Long term indicator remains positive. Support coming into this market at $96 a barrel market is currently oversold. Choppy market.

- Dollar Index: -85. The longer term and mid term Trade Triangles remain in a negative position. Resistance now at 75.00 and 76.50. Minor support at 73.50 Major support at 73.00.

- Thomson Reuters/Jefferies CRB Commodity Index: +55. Near-term resistance at 350.00. Minor support at 340. Major support at 335.00. Trading range.

Yesterday he showed us how to find winning trades using trade triangle technology. The market he found yesterday was at FCS which is the symbol for Fairchild semiconductor. This market is higher today however it is still in a negative zone.

Let's see what else Adam finds using MarketClub's Trade Triangle technology today, just click here for instant access.

Tuesday, June 14, 2011

Why I suggested the momentum is up

On Monday afternoon, in ET-Now, I suggested that the trend short term is changing to up. Today (tuesday) morning before the markets open, on TV (ET-Now), I was convinced that the short term trend was up. Then, we had inflation data, with a lot of volatility. The Nifty closed higher, but just a bit higher.

Today, I thought I will share with you the reasons for this change of sentiment from down to up.

1. Acceptance of support. the Nifty fell to 5437 on Monday which was in the 5400-5450 support area. Prices almost immediately rebound from this area suggesting that this zone, for the time being is acting as support.

2. If 5450 is support, then where will the Nifty go? Towards 5600 which was resistance.

3. The Intermediate trend averages are moving up. The short term averages weere down, but they have come to touch the intermediate averages, which can provide support. This is a classic setup - short term averages decline to reach the rising intermediate averages which provide support. the uptrend resumes.

4. RSI3 is touching 20 suggesting an 'oversold' condition. The condition is relevant only when the trend is up, which seems to be so.

Any one of these factors is not enough to justify a bullish stance. But, together they provide the opportunity to develop a view.

Sunday, June 12, 2011

Eye of the Bird

Guru Dronacharya decided to test his students in their skill of archery. He hung a wooden bird from the branch of a tree and then summoned his students. He asked the first one to aim for the bird's eye but not shoot just yet. He then asked the student what the student could see. The student replied that he could see the garden, the tree, flowers, etc. Drona asked him to step aside and not shoot. He repeated the same process with a few other students. When it was Arjuna's turn, Arjuna told his Guru that the only thing he could see was the bird's eye. This satisfied the Guru and he allowed Arjuna to shoot the bird. The lesson here is the power of focus.

Well, dear trader: what do you see? Do you have one pattern to trade with? If you are comfortable with indicators, then perhaps you use the MACD to determine entry signals. Sometimes the MACD will give you big gains, sometimes it just misses a move. Sometimes, there are losses which you control with your risk management methods. All in all, the system works.


Saturday, June 11, 2011

Paul Tudor Jones - A remarkable Trader

Do a google search for more information on this extraordinary trader and human being. I am giving some thoughts on trading from a blog. Read the full article here.


-Never play macho man with the market. Never over-trade relative to the equity in your account
-”Now I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them”
-Be quicker and more defensive. Always think about losing money as opposed to making money. He always has a mental stop. If it hits that number, he is out no matter what.


Thursday, June 9, 2011

Cycles of Expansion and Contraction

This is a favorite topic. Old time readers will probably recall that I have written about expansion and contraction, many times earlier.

Markets go through periods of contraction when prices move in narrow range while trader interest comes down. These periods of narrow range are contraction.When markets are doing nothing, they are giving a message. The message is: the periods of contraction see a balance between bulls and bears. Neither is strong enough to take the market in their direction.

The principle of Confirmation

Arthur Sklarew, is author of 'Techniques of a Professional Commodity Chart Analyst'. In writing about the rule of multiple techniques  he states:

Technicians know very well that price chart analysis is not an exact science. No single chart technique yet discovered is infallible. Despite this lack of perfection, price chart analysis can very often give reliable forecasts of trend direction . . . Confirmation is therefore an essential component of every valid chart signal. In addition to comparing price charts of different contract months and time scales, it has been my experience that the accuracy of any technical price forecast can be improved greatly by the application of a principle that I call the “Rule of Multiple Techniques.”

The Rule of Multiple Techniques requires that the chart technician not rely solely on one single technical signal or indicator but look for confirmation from other technical indicators. The more technical indicators that confirm each other, the better the chance of an accurate forecast. The logic behind this rule is that, if individual timeproven techniques tend to be right most of the time, a combination of several such techniques that confirm each other will tend to be right even more frequently.

Interviews with Technical Traders

ET NOW is starting a new program called “Technical Trends” which will broadcast interviews with Technical Traders. The First epsode features Sudarshan Sukhani.


This show will be aired over the weekend, starting June 11th. The timings are :

SATURDAY :

10:00 a.m.

09:30 p.m. (Repeat)

SUNDAY, REPEAT TELECAST :

07:00 a.m.

12:30 p.m.

08:30 p.m.

A must watch show for all technical analysts and traders. This is for the first time that business channel is giving due credit to technical trading community.

 

Stock Life Cycles - More

Is it possible for share prices to go higher while the stock life cycle goes through its three stages. This question is asked here:
Quote:
On the Accumulation Realization Distribution theory on the NIFTY, I have a couple of questions:


1. Should the distribution bring back the level to old Accumulation levels? Would it not be possible for the base itself is moved up higher because of accretion in value?

2. What if the the given period too is part of accumulation phase spreading over a span of 2/3 years? This would mean that another realization phase is waiting to happen.

Regards

Sudarshan (Namesake)

UnQuote

My Notes:

Hello. First of all, you have a very nice name!

When a stock is in a long term bull market, it does go through the stock life cycle, but each accumulation levels keeps on moving up. It is not neccessary that the process of distribution should bring prices back to the original accumulation level. I am giving a chart which shows this clearly:



2. Markets move in different cycles, at the same time. It is possible for lower time cycles to complete many rounds of the life cycle while on a higher time frame (larger cycle) the process may appear as accumulation. Therefore, the answer to your second point is: yes.



Tuesday, June 7, 2011

Define your Risk

The single most important skill to develop as a trader is the ability to cut losses. The one trading trap that will cripple any trader is the refusal to know and admit that any given trade is simply not working.

The only reason a losing trade happens is because at that precise moment you are on the wrong side of the Market. It really doesn’t matter how that happened, the fact is you are losing money. As long as you continue to remain on the wrong side of the market, your loss will continue to grow.If you do not liquidate the trade (take the loss), it would mean that you have lost control of your trading.
 
To ensure that you remain in control of your trading, define your risk. Define your risk starts with a stop loss for all your trades, but it is much more than that. One question you should ask when defining your risk is “How much do I really know about the F&O market?” If your honest answer is “Nothing, really,” then it would be a very good idea to commit to learning a basic understanding of what traders in that particular market focus on and what tends to cause a reaction in prices.
 
To tarde a market without adequate knowledge is also a high risk activity. Knowledge comes from learning, education, practice. Your actual education process as part of your risk-reducing strategy. Can you honestly say that you are an expert on the market you trade? If not, then learning is an important step in risk reduction.

An Intraday trade in Nifty

here is a Nifty futures chart (taken Live while the markets are open), which shows an excellent buy signal for a 30 point gain. A Buy comes in the TA-Insync at 5528. Exit is done when C9 gives a reversal signal.

What is TA-Insync? It is a momentum+trend indicator. The C9 is a reversal method which identifies the end of a trend.

The purpose of this chart is to explain how intraday trades can be taken. Remember, not all days are like this. But, there are enough such days.

Monday, June 6, 2011

Bullish pattern in Powergrid

The chart for Powergrid shows a bullish pattern. We can see a bullish (inverted) head and shoulder pattern. The pattern was confirmed today when prices closed above the neckline, giving a target of 107 approx. The chart is given below. Trades must be taken in context - if the market is moving up the target has a strong chance of being met. If the market is sideways or down, prices may go sideways and not touch the target. Yet, there is a message in such patterns - the trend for this stock is up.



Sunday, June 5, 2011

Markets: Is any pattern absolute?

Markets have one property - their inherent unpredictable nature. Nothing in the market is absolute.

Technical traders are familiar with the an indicator called - Bollinger Bands. These bands are drawn two standard deviations from moving averages. The concept of two standard deviation is: 95% of prices should be inside the 2SD bands. Therefore, when price moves out of the band, it is just a 5% occurence, suggesting that price will come back inside the band.

However, in real life, prices remain outside the bands much more than 5% of the time. Therefore, what should be 'normal' is not the reality in trading.

Now, a 20 standard deviation move should occur about 1 in 500 times. This means, that it is almost impossible for such a move to occur. But, the markets have seen not one but multiple occurences of 20 standard deviation moves in the past fifty years. Statistics tell us that such a move should not occur. Markets tell us that it comes about many times.

Therefore, there is no such thing an an 'absolute' pattern in the market. But, traders still have to work with some kind of patterns. Therefore, we base our trading on the stock market cycle of Accumulation - Realization - Distribution. We also know that sometimes this pattern will be disturbed or broken in unknown, unpredictable ways.

Nifty - current location in its life cycle

Stocks go through a process of accumulation, realization (when the benefits of accumulation come about in the form of gains in prices), and finally, distribution when smart money sells out, wiating patiently for a corrrection and a new process of accumulation to buy. This is the Nifty chart, shown in the Bhopal ET-Now Beyond markets camp. I have been saying this on ET-Now for some months - markets are likely to correct before another rally starts. Reader comments are welcome. Also note the lower highs.


Saturday, June 4, 2011

Market Noise

Noise is a disorderly move. It doesnt need to be volatile. just erratic and unpredictable.
When prices move from point A to point B in a straight line. there is little or no noise. When prices move with an erratic path. going up and down before reaching point B. there is noise.
Noisy markets should be traded with a mean reverting strategy - using oscillators. perhaps. Markets with low noise should be traded with trending methods - moving averages will work well here.
While it will never be possible to exactly determine when a market is exhibiting high noise and when it is exhibiting low noise. one simple method is to check price movements with moving averages. If moving average strategies are making money consistently. then the market has low noise. If a momentum oscillator like Rsi is catching the highs and lows in prices then we have a market with high noise - do not use trend indicators here.

Trading range again

The Nifty is back inside a trading range. The cycles of expansion and contraction are common to all trading instruments but the Nifty seems somewhat special. This index has a fairly regular process of range expansion which takes Nifty to a new price level. followed by many days of choppy market action.

Again. this cycle is repeating. A big expansion saw the Index move almost 280 points. after whi h we have the trading range Developing. This range seems to be 5500 - 5600. A move out of this range should seee big moves again.

Today. I am in Bhopal for an Et-now investor camp. Ic you live in the city. do come and meet. The event will also be broadcast live at 11 am.

Thursday, June 2, 2011

Silver and the Double Fear Trade


In most cases, gold (and other commodities) tends to have an inverse relationship to the dollar. If the dollar is strong, it requires fewer bucks to buy the same amount of stuff. Therefore, a strong dollar leads to weakness in commodity prices.

The Double Fear trade consists of the unusual combination of rising gold prices and a strengthening dollar. ”Gold demand right now is more associated with safe-haven-type buying,” said Charles Nedoss, senior market strategist at Olympus Futures to Dow Jones newswires.

Sudden change of sentiment in U.S. markets

On Wednesday, the Nifty almost touched 5600, closing at the highest point of the day. Then came the U.S. markets. A sharp and sudden decline in the S&P500 saw almost 2.5% losses in the American bourses. Eurpoe followed suit, as did Japan in early morning trading. So, what happened? And, more important, as our ET-Now anchors ask: what is the way forward?

At least today, thursday, the sharp decline in U.S. did not have a major affect on sentiment in our markets. The Nifty opened almost 60 points lower, then remained above the open, throughout the day. This was surely a sign of strength. If the U.S. markets have a mild recovery in Thursday trading, chances are we will forget about their decline and continue to go our way, which is: a short term uptrend.


Wednesday, June 1, 2011

Problems of plenty - The Technical Analysis popularity

The mass movement toward some sort of technically based trading style has been of epic proportions. One reason may be that so few technical traders were hurt during the 2008 bear market. In fact, many traders made money and protected their investments during the bear run. and many more produced stellar returns.

As technical analysis becomes more popular, most commonly known patterns may begin to lose their predictive value. When any technique or signal becomes widely used, its effectiveness is sure to wane. Those traders who have diligently worked to stay two steps ahead of the typical retail trader are the ones who stand to gain the most.

Bits of News June1-11


Peru, Columbia, and Chile Merge Stock Markets
Peru, Colombia, and Chile will formally merge their stock markets Monday, creating the second-largest bourse in Latin America after Brazil and promising to increase liquidity in the mineral-rich Andean region.

Number of Americans Employed Only Equal to 1999 Levels
Despite substantial population growth, the number of employed Americans in 2011 is no different than it was in 1999.  Or 2001.  Or 2003.