Wednesday, April 30, 2008

Will Bernake Do a Reddy? Nifty Recap For The Day!!!

Today was that typical day when one needed to take a break from the markets and sit on the fence. But for people who get their daily rush of adrenalin from intra day trades this was next to impossible to do. I don’t know if they did any fruitful trades or not, but yes with the volatility we witnessed it sure must have provided the excitement,if not the money. Today move in Nifty was more on a subdued note; it was more of like how to spend five and a half hours. With US FED meet today the majority wanted to stay on the sidelines and take a fresh look at the markets from Monday onwards. Nobody likes the idea of getting caught in the wrong foot just prior to this important meet. Can Bernake do a Reddy? This was an interesting message I received during the day regarding the possible reactions to the FED meet today;

  • If the Fed cuts 25 bps and talks about an end to the credit crisis, expect a boom in global stocks.
  • If the Fed cuts 25 bps and talks about inflation-management, expect stocks to drop.
  • If the Fed cuts 50 bps...That would be an indication that "problems" haven't yet gone away. Expect global stocks to fall.
  • If the Fed give hints that they'll soon stop cutting and will also think about the next logical step: A hike...Expect a rise in all stocks markets.

Looking at the daily charts we find nothing major has changed yet, in fact as suggested earlier, we seem to have tested the 200 DMA and found it so far holding! Any major impact of the Dow we will again miss out tomorrow as we are closed. So the action shifts to Friday, which will be pretty interesting to witness.

"Move out of your comfort zone. You can only grow if you are willing to feel awkward and uncomfortable when you try something new."

Brian Tracy

Tuesday, April 29, 2008

Reddy Steady Go! Nifty Recap For The Day!!!

Yesterday only I had mentioned that we won’t just walk across with ease past 200 DMA and behold we just cut through it, like a knife cuts through butter! (So much for my analysis, but then this is what market is all about, it tends to surprise you when you least expect it to do so and one must accept in all humility when one is wrong).

Anyway speaking of today’s action we started off on a flattish note and showed some signs of nervousness while waiting for the RBI policy meet to end at 12 p.m. I feel that the pros did have some inclination of the outcome of the meet, before it was announced to the public. The MACD gave a buy signal at 11:20 a.m. After that we made two smaller higher highs and higher lows (as if someone was taking their mark before the start of the race!!! And exactly at 12 p.m. it was Reddy Steady Go!). This was nice day to trade with momentum on our side and every pullback (to the DMA) giving a chance to get in or add to you existing position. If you notice that MACD did give a sell signal well in advance at about 1:35 p.m. but still we soared. This again is an important reminder to all the students of Technical Analysis that any sell signal in indicators and oscillators should be confirmed by Price Action. For Intraday players’ time to book profits was when we broke the trend line and also the MA.

Taking a peek into the daily chart we see we have closed above the 200 DMA which in all probabilities should be tested to make it a stronger support in the event of more forceful move to the upside. The upward rising channel suggests a move up till 5400 where it converges with an overhead resistance line. Similarly 50 DMA and the confluence of three trend lines at approx 4950 provide a logical support. We have another trigger left the FED. They end up with their meet tomorrow. Since we are closed on Thursday we might react to those triggers on Friday!

"It's choice - not chance - that determines your destiny."

Jean Nidetch

Monday, April 28, 2008

Nifty Recap For The Day!!!

Once I read, that round numbers pose as good resistance and support points no wonder my 50th post took me like four days(actually was busy with my 6 year old daughter’s cultural program….East or West, time spent with the Family is the Best!!!).

Coming to Nifty, we opened firm inline with our last week’s strength. Had a straight jab at the 200 DMA (and backed off). Nifty drifted between a tight range most of the time, it did give a double top trade, but then also frustrated coz the move down was not as swift as one would desire. Nevertheless we meandered down making lower tops and lower bottoms. It seems that due to the RBI meet on credit policy and the US FED meet, the traders want to keep light positions and then decide what shape the trend would take. Whatever is the outcome of these meetings, one thing is sure that this week might see some wild swings and test the nimbleness of traders.

If you look at the daily chart on the right (still rumble in the box) we are still between the two DMA’s and personally I feel we just might not trade through the 200 DMA and walk across with ease. We might need a gap up to break this resistance (just the way we gapped up at 4950) and for that we need a good trigger. Assuming that the gap we had at 4950 was a breakout gap and, if and only if we gap above 200 DMA then that would qualify as a continuation gap. It looks like a lull before the storm. I am guilty of being repetitive here, but I still feel that for the time being its better to trade in individual scrips than NIFTY. But then as they say its different strokes for different folks!

"If money is your hope for independence, you will never have it. The only real security that a man can have in the world is a reserve of knowledge, experience, and ability."

Henry Ford

Thursday, April 24, 2008

Rumble In The Box! Nifty Recap Of The Day!!!

Today was the expiry day so some wild gyrations were expected. The market opened on positive note with a Gap Up (yes once again Fade the Gap trade and the target was the yesterday’s close). I took the trade infact now I am kind of getting the hang of this set up. After filling the gap we started a very slow and a tiring move up (it was really boring!) as if we were bidding our time till Europe opened. With a negative opening on that front coupled with some profit taking Nifty took a plunge (yes I am short in May futures at 5037 with a stop at day’s high). The Battle Royale was 5000 mark! Right now on intraday charts the base (4998) of our breakout gap (on 21st April) is providing the support. If you take a look at the dailies on the right side you will notice, that we seem to have moved into a box. This range between 200 DMA ( hamein jeenay nahi degi!) and 50 DMA ( hamein marney nahi degi) will be frustrating, and till the time we are trapped in between these two, we just might have to be very patient, and take whatever comes as loose change to us. Better idea is to take a dekko at RS of stocks that are performing better than Nifty and trade in them. And why I am suggesting this??? Read the following quote...

"Opportunities multiply as they are seized."

Sun Tzu

Wednesday, April 23, 2008

Wolf(e)! Do You Know, When One's Lurking Around!!!

This particular methodology is perhaps the most unique, effective trading technique.It was developed and shared by, Bill Wolfe. For more information please visit his site. Bill's theory of wave structure is based on Newton's first law of physics: for every action there is an opposite reaction. This movement creates a definite wave with valuable projecting capabilities. This wave most clearly sets up when there is good volatility. With a bit of practice, it is easy to train your eye to spot these patterns instantly. The following rules will make sense when you examine the examples. (Please note the odd sequence in counting. As you will see, it is necessary- for the inductive analysis.)

By starting with a top or bottom on the bar chart, we are assured of beginning our count on a new wave. This count is for a buy setup. We begin the count at a top. (The wave count would be reversed if we were starting at the bottom looking for a sell setup).

1. Number 2 wave is a top.

2. Number 3 wave is the bottom of a first decline.

3. Number 1 wave is the bottom prior to wave 2 (top). Point 3 must be lower than point 1.

4. Number 4 wave is the top of wave 3. The wave 4 point should be higher than the wave 1 bottom.

5. A trend line is drawn from point 1 to point 3. The extension of this line projects to the anticipated reversal point which we will call wave 5. This is the entry point for a ride to the EPA line (1 to 4).

6. The Estimated Price at Arrival (EPA) is the trend line drawn from points 1 to 4. This projects the anticipated price objective. Our initial stop is placed just beneath the newly formed reversal at point 5. It can then be quickly moved to breakeven.

IMPORTANT POINT: You cannot begin looking for the Wolfe Wave, until points 1, 2, 3, and 4 have been formed.

Keep in mind that point 3 must be lower than point 1 for a buy setup. It must be higher than point 1 for a sell setup.

Also, on the best waves point 4 will be higher than point 1 for a buy setup and lower than 1 for a sell setup. This ensures that absolute runaway market conditions do not exist.

Though this setup occurs in all the time frames, I personally like to trade Wolfies on Intraday Patterns.

PS: If you really look hard than Wolfies are nothing but a way to play the Up and Down Channels??? Am I right?

Indecision Prevails! Nifty Recap For The Day!!!

Well, well so we did break our six day streak? You can attribute this to a weak Dow or Law Of Averages or for that matter anything. For me today was a satisfying day trading nifty. I love the “Fade the Gaps” trades and that’s what I did today. Though we opened with a wee bit of a gap, failed to sustain our gains and closed in the red amid much volatility (yeah I know it is expected when expiry is near).The second trade I took was a Wolfe Wave short (will explain about this setup in a different post). Today’s close on the dailies resembles a Spinning Top. A Spinning Top is a variant of a Doji. A Doji indicates only a state of uncertainty but a Spinning Top indicates volatility as well and that’s what we witnessed today. Now what makes this pattern (red circle on the daily chart above, on your right) interesting in the dailies is that, depending upon tomorrow’s move, we can label them as Reversal Stars (go down) or Consolidation Stars (go up). Confused? Well that’s why they tell Technical Analysis is not an exact Science it’s more about Probabilities. So what do we do? We take our call tomorrow on break of either the High or the Low!!!


Tuesday, April 22, 2008

A Trader’s Self-Evaluation Checklist By Brett N. Steenbarger, Ph.D!!!

1) What is the quality of your self-talk while trading? Is it angry and frustrated; negative and defeated? How much of your self-talk is market strategy focused, and how much is self-focused? Is your self-talk constructive, and would you want others to be talking with you that way while you’re trading?

2) What work do you do on yourself and your trading while the market is closed? Do you actively identify what you’re doing right and wrong in your trading each day—with specific steps to address both—or does your trading business lack quality control? Markets are ever changing; how are you changing with them?

3) How would your trading profit/loss profile change if you eliminated a few days where you lacked proper risk control? Do you have and strictly follow risk management parameters?

4) Does the size of your positions reflect the opportunity you see in the market, or do you fail to capitalize on opportunity or try to create opportunities when they’re not there?

5) Are trading losses often followed by further trading losses? Do you end up losing money in “revenge trading” just to regain money lost? Do you finish trading prematurely when you’re up money, failing to exploit a good day?

6) Do you cut winning trades short because, deep inside, you don’t think you’ll be able to make large profits? Do you become stubborn in positions, turning small losers into large ones?

7) Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied? Are you having fun trading even when it’s hard work?

8) Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs—for excitement, self-esteem, recognition, etc.—that are not being met in the rest of your life?

9) Are you seeking trading success as a part-time trader? Would you be seeking success as a surgeon, professional basketball player, or musician by pursuing your work part-time?

10) Can you identify the specific edges you possess over the many other motivated, interested traders that fail to achieve success in the markets? Do you really have an edge, and—if so—what are you doing to maintain it?

For some of you who are not familiar with Brett N. Steenbarger, he is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and writes occasional feature articles on market psychology for a variety of publications.

Nifty Recap For The Day!!!

A weak opening, following the global cues, and a smart comeback, on later recovery in Asian markets. Then again looking clueless and waiting for signals from European markets. I wouldn’t say today’s move was some heavy bull initiative carried forward from yesterday. I did trade in Nifty for about 20 points but than thought it was wise to stay in the sidelines (Yes I was clueless, confused and bored!!! It’s still better than getting whipsawed and loosing money!!!). Like I said in one of my earlier posts that the MA crossovers (in this case the death cross at 5090/95 odd levels) is most likely to be tested by the price. Above it we have 200 DMA at 5135 odd levels. So two main hurdles on the upside and below we have 50 DMA there to provide some support. I personally feel with IT Index witnessing profit booking ( don’t blame TCS… its smart people cashing out of the run up we had in IT INDEX!) we need more than Midcaps( yup they were heroes today!) to sustain a strong follow through. Todays candle again shows indecision and lack of conviction (and to top of it all I still don’t understand why ADX is so quiet?). The 60 min chart also shows negative divergence and hints at a pull back (may be we close yesterday’s gap!). Let’s see what’s in store for us tomorrow???

"Good judgment comes from experience. Experience comes from bad judgment."
Jim Horning

Monday, April 21, 2008

A Well EnDOWed Nifty Avoids CRRack!!! Nifty Recap For The Day!

Yeah! That’s what we did today. With a gap up, courtesy Mr.DOW, and then we spent the better half of our time to save it. Nothing great today we just mirrored global gains and then drifted, looking for Europe to provide us clues. The push what the Bulls managed on Thursday, looks like a shove now with today’s candle on the dailies. But one should also take into account that this shove is courtesy the gap up and not because of any major bull initiative. All the proponents of Black Monday on the weekend (CRR hike) had to eat their words. No I won’t berate them, because every trade has two sides, and today, they were on the wrong side; that’s it. With CRR hike, one expected a sell off in bank stocks, on the contrary, it looks like that the market seems to have discounted this news. Today’s culprit was the IT index; I guess some profit booking there. Though some might term today’s candle as Bullish Belt Hold but I have my doubts. Yes it is a tall white candlestick that opens on its low. It is also called a white opening shaven bottom. But its more potent if found at lows. As for me I am a kinda confused and will take my call on break of either 5050 or 5000.

Saturday, April 19, 2008

Trade On The Price...Not On The Indicator!!!

This by far the most sensible statement I have read. And before someone yells at me let me clarify I am not berating Indicators or Oscillators. I myself use them extensively but after what I read today, I will try and use them more sensibly. Here is a brief note on the article I read. As we all know that our biggest enemy in trading (at least mine!) is the Emotional Behavior. Yet another culprit is, the misuse of indicators and oscillators (yes I am guilty on this front too!). We must understand that the movement in price, in any and all free markets, is a function of, the pure laws and principles of supply (resistance) and demand (support). Opportunity exists when this simple and straightforward relationship is out of balance, period. Let's now explore reality through the eyes of objective logic. When prices are trading sideways, supply and demand are in balance. The only thing that can cause a price rally from an area of "balance" is when the supply and demand equation becomes "out of balance." In other words, there were many more willing and able buyers than there were sellers. Simple economics at work!!!

We spend so much time in trying to discover or finding that one perfect indicator (I was in this trip for almost a year before I decided to end my search, and embrace KISS!). Yet we find ourselves heading nowhere. There is a reason for this which is the one thing you need to know about indicators and oscillators: They have NO IDEA there is an ongoing supply and demand relationship at work every second in every market at every price level. They are simple math calculations derived from price. Most are averages of price, which means they lag price. Any indicator that lags price adds risk and decreases profit margins in your trading which is not ideal. Lets take an example of Moving Averages (I cant live without them!), Moving Averages lag. They are averages of past data. They can only turn higher after price does. So if waiting for price to move above the MA to enter we are risking;

  • First, risk to buy is high, as one would be buying far from the supply/demand imbalance.
  • Second, profit potential is decreased.
  • Third, those who wait until prices have crossed back above the MA to buy will likely provide profit for the reality-based trader/investor who bought at the low risk/high reward entry area.

So now the question is how do we eliminate this problem? The answer is quiet simple; when an indicator or oscillator gives you a buy signal when price is also at an objective demand (support) level, that buy signal is likely to work. The key is to only take those buy signals and ignore the rest. In doing this, we are filtering an indicator through the laws of supply and demand and this is the key in using any indicator or oscillator.

This is neat stuff I will be tryin2incorporate this funda in my trading. In case you also apply this and find success do let me know!!!

Friday, April 18, 2008

Trading Survival Rules!!!!

These are few rules I am putting in here today. Hopefully I intend to read them daily.

· · Try to keep a current P&L; it’s easier to take losses.

· TRADE; you’re a trader, not an investor; but

· Never trade for trading’s sake; it’s better to do nothing.

· Never trade without a healthy attitude.

· Watch liquidity before trading.

· When there is nothing to do ---- DO NOTHING.


· Trade what you see and not what you think (this is a personal favorite).

· The trend is your friend.

· If you are having a good day, read these rules again!

· Always keep track of all your open positions.

· Don’t sweat it, trade it.

· If you are not sure, don’t do it.

· Never trade against the biggies; if anything, trade in front of them.

· Never use hindsight; instead look ahead to the next trade.

· Never say “never” and never say “forever”.

· The tape tells the story.

· Relax when nothing is going on.

· Never listen to opinions; deal only with facts.

· Never fantasize; focus on the next trade.

· Buy rumors, sell news.

· Keep expectations low; the profits will grow.

· Don’t carry mistakes home overnight.

· Be Patient; profits for the whole day (week/month/year) can come from one good trade.

· Never, never average down.

· Recap all trades at the end of the day.

Thursday, April 17, 2008

Penetration!!! Nifty Recap For The Day!

Yeah you read right, Penetration! (Don’t we all love Penetrations?). Well that’s what we did today. We have penetrated (a gentle poke by the bulls….the bears might not like it though!) the 50 DMA and the Trend line (see daily chart on the right). Encouraging? Yes! But before we get euphoric about it, there is a caveat attached to it. According to the pundits a mere intra day penetration is not enough. To rule out a false breakout and a whipsaw, one should apply the following two rules, when Price breaks an important moving average or a resistance line.

· Percentage: One school of thought prefers that the penetration to be valid should be in the region of 2 to 3 percent. This has a slight drawback, now a days waiting for such a penetration can rob you off nice scalping opportunity.

· Time: This school of thought suggests that the penetration to be valid, the price should have to successive closes above the moving average or the resistance line it had originally penetrated. This makes sense to me and I shall wait for it to happen in the next week. Yes sir the bias is not changing at the drop of a hat!

So coming back to today’s action Nifty just tested the strength of the resistance it’s faced with, and quietly backed off to a respectable closing. We had good inflation figures (they had to be… after all so many people worked overtime to fudge them). The market wasn’t impressed, maybe coz they expected this financial wizardry from the government. You see Politics Smart… Market Smarter! Today’s close is acceptable to both the bulls and the bears. The bulls are happy coz they managed to nudge past and close near the psychological level of 50 DMA, and bears are happy that 5000 stays for now. Again we are going to have DOW effects petered down because we are closed tomorrow. And to top it, this news of CRR hike. If you are sure of your overnight positions then sleep well, and for the rest, it’s going to be a very long Thinking! Weekend!!!

Wednesday, April 16, 2008

Your Belief System is Your Trading Style !!!

This is a nice write up I received from a friend. It’s written by Sam Seiden of Thought I will share it with you people.

Moves in markets are a result of mass psychology. We make money in the markets by being masters of human psychology and supply and demand. It is well known that trading is 90% mental. Winning in the markets is more defined by your mental make-up than your trading style. What is more important than chart reading is to first understand how people think? Instead of focusing on changing our actions if you're having issues with trading, it's time to notice where those actions come from. Moving backward, one step at a time, actions stem from behavioral patterns, and behavioral patterns stem from beliefs. So, it's at the level of beliefs that decisions are made, and moreover, where your ability to differentiate reality from illusion lie. It's time to start considering where your beliefs about what works and what doesn't in trading come from. In life, which includes trading and investing, most of us tend to repeat the same processes over and over, expecting a different result. Over my many years in the business of trading, there are some very clear differences between the consistently profitable trader and the consistent losing trader.

The Novice Trader

1. They tend to follow the crowd.

• Watch what others are doing

• Comfort in numbers

2. They avoid taking risk unless others are sharing the risk as well.

3. They feel that if others are buying then it is "ok" for them to buy, too.

4. They act on the advice of so called "experts", i.e. the advice of market gurus, CNBC, analysts, and their brokers.

5. As humans, they tend to complicate the trading process and ignore the important simplicity of markets.

6. They always make the same two mistakes: They buy and sell after a move in price is well underway (late and high risk) and they buy into resistance and sell into support (low probability).

The Consistently Profitable Trader

1. They lead the herd.

2. They tune out all the subjective noise that can get in the way of making proper trading decisions. They don't care what others are doing and make decisions based on a very mechanical and unemotional set of criteria based solely on the laws and principles of supply and demand.

3. They learn to identify the proper entry that most people never see.

4. They buy after a period of selling and into support. They buy fear.

5. They sell after a period of buying and into resistance. They sell greed.

6. Successful traders:

• Can identify opportunity before others.

• Execute trading plans mechanically.

Successful Trading

1) Having the ability to find two sets of ill-informed individuals in the markets in any time frame.

• Those willing to sell their stock or futures to you at a price you know is too cheap. You know by objectively assessing supply and demand.

• Those willing to buy your stock or futures at a price that you know is too expensive. You know by objectively assessing supply and demand.

2) Having the tools, knowledge, and ability to take the proper action when these two groups appear.

3) Play the bandwagon correctly...

• Proper trading is knowing, how other market participants think and react when they are correct and, more importantly, when they are wrong. Price patterns are thought patterns.

Mental Musts...

1) Confidence

2) Discipline

3) Patience

How to get these...

1) Reduce and eliminate subjective analysis.

2) Learn to fight the urge to do what others are doing and make decisions based on a very mechanical and unemotional set of rules and criteria.

The Proper Entry

Know Where To Enter, Support and Resistance.- Smart money enters here.

Entry Must Be Low Risk.- Most important part of the trade.

Enter Before Others.- This is how we get paid.

One of the most important things to understand about proper trading and investing is that visible confirmation and opportunity are completely inversely related in trading.

Doji…A Confused State Of Mind! Nifty Recap For The Day!

Like I said yesterday the first challenge is to close above 50 DMA. That’s what we attempted today (see the daily chart). Nothing much to write about today’s intra day action. A flat opening, a new high, and a failure to capitalize on that. We ended with a Doji. Well traditionally Doji’s are known for indecision and tiredness (both bulls and bears are not able to make up their mind). But what makes this Doji important; it is formed right at the resistance. Doji is nothing but a battle between the demand and the supply. Doji in itself doesn’t signify much but when combined with other candle sticks, can form an important pattern. Will this Doji turn into Doji Evening Star? This can be only be answered tomorrow. As of now I won’t be changing my bias (the status quo remains) and would like the Price to dictate the direction. I leave you with this quote;

"The only true wisdom is in knowing you know nothing."


Some Basics Of Technical Theory!

I am putting forth some basic tenets of Technical Theory. These are principles, which R.W.Schabacker had outlined. One of his most avid followers is Linda Raschke (I like her!). She presented the following in one of her workshops.

Theory Of Cycles: Markets fluctuate in extremes and to measure these extremes, one needs to have historical ranges. It also pays to look into business cycles, the tendency of bonds prices to reverse before stocks prices and stock market to reverse before the fundamentals.

Trends: Price movement progresses in certain trends, which are more likely to continue, than to reverse, over the bulk of any time interval. Once the market has started in a direction, it is assumed that the direction will continue rather than reversing immediately. Trends can be defined as Up Trend (higher highs and higher lows) and Down Trend (lower highs and lower lows).

Theory Of Action-Reaction: In normal trading, bulk of the transactions is done by the traders and not investors. An advance in the market implies, traders have been buying and will eventually sell off to square their transactions. Therefore the rapid up move will be followed by partial reaction. The extent of these reactions then indicates Technical Strength/Weakness in the market.

Intermediate Reaction: Growing irregularity and volume indicate an Intermediate Reaction. It shouldn’t retrace more than 50% of the previous move. Intermediate Reaction does not indicate reversal of a major trend, but can last for a few weeks.

Secondary Reactions: Smaller reactions follow Intermediate Reactions. These primarily test the support and resistance of the Intermediate Reaction. After the secondary reaction, there often follows a period of calm. There does not always have to be a secondary reaction.

Resistance/Support Levels: S/R levels take the worry out of trading. Use them to monitor risk. The longer it takes to form the stronger is the indication that the next major move will be in the opposite direction, from that on which, the support and resistance was encountered.

Accumulation/Distribution: These reveal themselves in chart formations. The most common reversal formations are Rounding Tops/Bottoms, Head and Shoulders and Multiple Tops and Bottoms.

Closing Prices: Continuation of any movement is probable, if the movement is not too fast, if most of the days gain is held at close and if the volume of the day is not too large. Closing prices are more useful when determining a shakeout from the S/R levels.

Volume: High volume at the beginning of the move, shortly after the price has broken out of consolidation signals a confirmation of a strong Trend. Similarly high volume after a long trend signals that the trend is loosing steam and its time to reverse.

Gaps: Gaps are the most reliable signals. Look for break away gaps out of chart formations. If not covered during a day or two, then assume it’s a beginning of a potential strong and reliable move.

Schabacker’s Principles Of Trading

  • Build a campaign or a policy, before you take the trade. Take losses philosophically even though they maybe exasperating.
  • Follow the crowds in group movements (Relative Strength).
  • Cross the crowd when the movement is sharper and abnormal.
  • Movements from one stage to another occur without a dividing line. Scale in and scale out, never enter your whole line at one go.
  • Short Swing Trading capitalizes on quick technical factors.
  • Long Swing Trading capitalizes on fundamentals and cyclical fluctuations.

R.W. Schabcaker’s main works:

  • Stock Market Theory And Practice. 1930
  • Technical Analysis And Market Profits. 1932
  • Stock Market Profits. 1934

Tuesday, April 15, 2008

Saved By Ram On Monday !!!! Nifty Recap For The Day!

Hmmm so Lord Ram ( holiday on account of Ram Navmi) did indeed save us on Monday, from the Dow Effect! Today we opened on a very cautious note, tested the 4700 support (remember heavy writing in 4700 PE), found it strong enough to build up today’s gain. Any one who shorted in the morning must have been caught in the wrong foot today. All in all, a good trending day, with every pull back to the MA, there was an opportunity to pyramid. It looks like writers of 4700 PE have booked their profits, and shifted the action to 4800 PE now. We have not only closed on the upper end of the intraday range but also managed to make a new High for the month (well it’s just a fraction of an increase, but an increase nevertheless!!!). 4960/70 is important now, because thereabout resides our 50 DMA. Above that we can target the area (5095) where we had a Death Cross. All this talk though certainly smacks of bullish bias, but one should still look at the Price for confirmation, as they say “Its not over till its over!”

Saturday, April 12, 2008

Pulling The Trigger ! Dhiskiyaoon!!!

Do you have trouble pulling the trigger? If so, you're not alone. Greed and fear exert a powerful influence when the time comes to enter the trade. This is especially true for newbies who have great difficulty visualizing the rewards or risks they're about to incur.

Effective trade entry requires skill, confidence and a strong stomach. Most of the time it should be an uncomfortable experience; no one likes to lose money. But the ability to follow a disciplined entry plan, even when it hurts, separates profitable traders from the hordes of losers who take up the game. Read the full questions and answers by Alan Farley here

I wont be posting for next two days as I am traveling, so see you guys on Tuesday,till then Hasta la Vista !!!

Friday, April 11, 2008

BSE Sectoral Performance Chart !

Nifty Recap For The Day !

Ok so we had yet another small gap up today, promptly filled too. The Inflation numbers were bad, and the news I guess, was discounted by the market (or maybe we might have late reaction next week??? As it is, we are now days, kinda reacting late to things!). What confuses me, why we had Inflation numbers early today? Anyways we failed to hold to our Highs of the day. Maybe it was just profit booking on the weekend, considering the fact that on Monday we are closed. Now 4700 looks like a good support, and 4800, though it looks like a good resistance, but I feel we might take out the resistance next week and pave our way for higher ground. The reasons for my bullish bias; Open Interest in 4700 PE and improved Market Internals. But on the other hand it’s a long weekend for us, and Markets tend to surprise us when we least expect them to do so. As for our favorite Dow: any movements in Dow today, will have a filtered effect on us on Tuesday, till then I guess Que Sera Sera!

Thursday, April 10, 2008

Whats Hot And Whats Not In The Bank And IT Index!

Retired Hurt??? Nifty Recap For The Day

I wasn’t around today, so thought that I had missed a lot of action. Now sitting in the evening and seeing the intraday gyrations of Nifty, I guess I didn’t miss much! Though the last one hour movement looked good to trade, in fact, it is the only trade, I would have opted for. We had a two Bar Reversal, right at the resistance level and was confirmed by a sell signal from the MACD and the Moving Average Crossover. It looks like we couldn’t carry the overnight bullishness. 4800 still looks like a tough nut to crack. And it seems now we have formed a Double Top at 4795 levels. It will only be confirmed if we break below 4670. There is such a state of confusion with both bullish and bearish patterns intermingling with each other, that one is forced to change his views frequently. On the dailies it seems Nifty has made a Shooting Star. If tomorrow we get a Big Red Candle then we might have the Evening Star Pattern. For a learner like me I am just tryin2keep myself sane!!! And for you people out there, I leave you with this quote:

"The elevator to success is out of order. You'll have to use the stairs... ONE step at a time."

Joe Girard

Wednesday, April 9, 2008

Alls Well That Ends Well !!!! Nifty Recap For The Day

This one goes for the Decoupling Theorists. With almost no positive cues from the world markets, we have held up on our own today. We opened, with a little bit of gap down, and promptly moved to fill it. An attempt to take out the all important resistance (4740/50 levels) in the morning failed. Nifty drifted to test the lows, and in the process made a higher low. This also gave us a Bullish Hidden Divergence. For the benefit of friends who are ignorant of the above term I will give a brief here:

  • Bullish Hidden Divergence as the name suggests is bullish in nature!
  • What is it? We get Bullish Hidden Divergence when the price makes a higher low and the indicator makes a lower low.
  • What does it indicate? It indicates underlying strength. Normally occurs during retracements in an uptrend. Nice to see during price retest of previous lows. “Buy the dips”. Good entry or re-entry!

It paid to trade this set up. What’s more important about today’s move in the last session, if you look at the chart on the left (30 min chart), we attempted a breakout from a symmetrical triangle (marked in red lines). Another thing interesting about this symmetrical triangle is that, it is a part of a larger pattern…bullish inverse H&S! I don’t know how we might do tomorrow, but given the look of the charts, and if we are well enDOWed ( Dow decides to play ball), we just might see 4850/4900.

"Yesterday is history. Tomorrow is a mystery. Today is a gift. That is why it is called a Present."

Origin Unknown

Tuesday, April 8, 2008

I Will Be Watching These Scrips !!!

These are a few scrips which are showing strength. I will be keeping a tab on them. These are again, in continuation with my Relative Strength Obsession.!!!!

Nifty Recap For The Day !!!

Let’s see what Nifty did today. With no positive cues from anywhere, and Asia providing the fuel for downfall, well that’s what we did, we Fell! I took this short trade but just could muster about 40 points in my short. What really got my goat today ,was the price action in the encircled area. First we had a bearish flag (I shorted this one and was stopped out on break even) and then we developed into a small H&S pattern. This one too I traded, again no moolah ! Now looking back, I see why this pattern ( a bearish flag accompanied by H&S) did not produce the desired results as was expected out of it.

  • These patterns were forming at the bottom. Therefore there is less likelihood of them, producing any substantial down move.
  • Second this entire circled action was happening when the Stochastics was already in OS zone and RSI also wasn’t exactly signaling major bearish sentiment.
  • Third, MACD was tracing a bullish divergence.

The final signal to go long came, when price broke out of its MA and sloping Trend line(no I did not take this trade, with 2 failed trades already in my kitty I was bit low on confidence). I am personally not able to trade these intraday gyrations, as keeping the Stop Losses is a major challenge (somebody smarter than us is gunning for them on both sides). So if you are like, one of those characters on TV called Quick Gun Murugan types, Happy Shooting! As for me, I prefer my Gun for Fun !!!!

Monday, April 7, 2008

Nifty Recap For Today !!!

I just came back from a party, so thought let me recap today’s Nifty action in a jiffy. We had a wee bit of gap up, promptly filled, and then no looking back. Every rise in Nifty was meticulously, followed by sideways consolidation. It was step by step approach, which took us to the day’s high, where some profit booking was seen. From the chart above we can see, though the Nifty made higher tops, the oscillator below traced lower tops. Sign of bearish divergence and an opportunity to short (unfortunately we never got a convincing short). This is where basic knowledge of the Dow Theory lends a helping hand. If u observe, throughout the day we made a series of higher highs and higher lows. Never was this series broken till we made our first lower low at about 2:55 p.m. And personally I feel, after that we had to make a lower high, to safely assume, that the trend had reversed for the day, and an opportunity to short convincingly. In my view, we have still kept the option of taking out the higher high at the close of the day. In my humble opinion I feel, friends who want to make trading a profession, please start reading. I leave you tonight with yet another quote:

‘‘A traveler without knowledge is a bird without wings.’’

Sa’di, Gulistan (1258)

Free Videos From Market Club !!!

Adam Hewison of Market Club has posted a series of free videos titled as "The Traders White Board",You can watch all the seven videos here. Enjoy!!!!!

Sunday, April 6, 2008

Of Inflation,Interest Rates And Inter Market Relationships !!!

I confess, up till now, whenever we had talks about Inflation, Interest Rates and Inter-Market Relationships, my reaction was like many others, just give the figures a quick glance (couldn’t help, you see, because my knowledge was absolute zilch!!!). This weekend was dedicated to do some serious reading, and try to simplify things for my self. Inflation, I still don’t understand (may be never will, there are certain things, the government doesn’t want you to understand….what the heck they themselves don’t understand!!!). I remember a few months back during the bull frenzy, every Friday we celebrated Inflation figures. The way they were decreasing, I started to think, maybe we might hit 0% (wishful thinking!). Well during that time when Inflation was almost 4%, things weren’t cheaper than they are now, with Inflation touching 7%. I am still clueless; I guess its better left to the learned people.

Anyway Inflation leads to Interest Rates.

Let us see how the change in Interest Rates affects the stock market:

  • Any change in price charged for credit, has an effect on levels of economic activity and therefore on the corporate profits indirectly.
  • Since change in Interest Rates affects the bottom-line, therefore the levels of rates have a direct affect on corporate profits.
  • Movements in Interest Rates alter the relationship between bonds and equities, two primary competing financial assets.
  • Most of the stocks are purchased on margin (debt). Any change in cost of carrying that debt will influence the investors to maintain these margined positions.

According to Martin.J.Pring “It’s not the levels of rates that is important, but their rate of change, because this has bigger influence on profits & equity prices”.

Discount Rates: Movement in Discount Rates, reflect changes in monetary policy & are therefore of key importance to the trend of both the short term interest rate & equity prices. Reversal in the trend of Discount Rate implies that the trend in market interest rate is unlikely to be reversed for at least several months.

  • How Discount Rate Effects Short Term Rates

A Discount Rate cut after a series of hikes, acts as a confirmation, that a new trend of lower rates in under way

  • Effect On Stock Market

It is said, every major Bull Market peak in equities, has been preceded by a rise in Discount Rate.

There is a well known rule in Wall Street; Three Steps & a Stumble! It was developed by Edson Gould, and implies that after three consecutive rate hikes, the equity market is likely to stumble, and that it is time to enter the Bear Market.

All this leads us to Inter Market Relationships.

Early warning signs of Inflation & Interest rates are usually spotted if one does Inter Market Analysis.

Here are a few Inter Market Relationships.

  • Program Trading

There is a close link between stocks & futures & this is seen very clearly in the relationships, between S&P Cash Index & its Futures Contract. Normally the Futures Contract trades at a premium to the Cash Index. The premium is decided by short term interest rate, yield on Index & days to expiry. Each day institutions calculate, what the actual premium should be, and this is called FAIR VALUE. When premium exceeds Fair Value, this is an arbitrage trade. In such a scenario traders sell futures & buy a basket of stocks to bring both these entities in line. It’s the opposite case, when premium falls below Fair Value. Program buying is positive for the market & selling is negative

  • Link Between Bonds & Stocks

Stock market is influenced by the direction of Interest Rates. This can be monitored by tracking the Bond prices. The Bonds move in the opposite direction of Interest Rates, therefore, when Bonds are rising, Interest Rate declining, it is positive for stocks. When Bonds falling and Interest Rate rising, this is negative for stocks.

  • Link Between Bonds & Commodities

Bond prices are influenced by expectation of Inflation. Commodity prices are considered to be a leading indication of inflation. As a result Commodity & Bond prices normally travel in opposite directions.

  • Link Between Commodities & Dollar

Rising Dollar has a depressing effect on most Commodity prices, in other words rising Dollar is normally considered as non inflationary. The best example of Dollar & Commodity link is, seeing Gold & Dollar in action. It’s observed that the Dollar & Gold trend in opposite direction & Gold acts as a leading indicator for other Commodities.

So it all boils down to inter linking- gotta keep an eye on all this- Dollar affect Commodity, which in turn affect Bonds, which in turn affect Stocks.

Phew!!!!! Hard work … who said being a TA & a Trader, is an easy work. I don’t know whether all this will make me a better trader, but one thing is sure, all this will certainly make me sound intelligent (perhaps this intelligence can make some money for me finally). For all you who want to read further on the topic, can read Inter Market Analysis by John Murphy and When The Markets Moves Will You Be Ready by Peter Navarro. As for me I am going to explain my wife how we can’t buy that popcorn & cola during the movies……Inflation!!!!!

Saturday, April 5, 2008

Just Some Explorations !!!

Well lazing around today I thought of putting my RS concept of selecting stocks to use. Man this TA stuff certainly aint easy !!!!. In the above charts the Green Line is the Price of the scrip and the Red Line is the Nifty Index. In the lower pane, in Blue is plotted the RS line.Any way coming to my exploration this is what I did:
  • First I ran Comparative Relative Strength exploration on my stock watch folder, containing 209 scrips. The result of this exploration led to a selection of 59 scrips.
  • Secondly I used the results (59 scrips) of the previous exploration and subjected them, yet to an another exploration. This exploration was about ADX beginning to rise. The result of this lead to just 6 scrips out 59.
The purpose of this exercise was, to select first, the the scrips which were relatively stronger to the market. Second, another filter was used to select scrips, which showed strength in trend, that is, ADX beginning to rise(we got 6 out of 209!!!).Now I am not suggesting that the above scrips, will be definitely up on Monday. The idea is to keep a watch on them and find an entry when the Index starts to turn up,assuming that these will be the first to run when the going gets good!!!

Fading The Gaps......Intra day!!!!

Since now a day we are either opening gap up or gap down so I thought I would share a strategy how to profit from these situations. I am myself learning how to Fade gaps and finding these setups as one of the best Day Trade opportunities. Here are a few simple rules to trade intra day gaps.

  • The first trade we generally look at is to fade the gap. If we open gap up, we wait for the price to break its recent low and enter with a tight stop loss just above the high. The idea is that the price will close its overnight gap. The target is more often, the previous close. It’s vice versa in case of a gap down.
  • The second trade is to enter in the direction of the gap after the gap is filled. The price tends to retrace back sharply after filling a gap. This time we target today’s open.
  • If the price on gap up or gap down retraces a bit and makes no serious attempt at gap filling, then one must trade aggressively in the direction of the gap. The ideal entry would be, when the price breaks out of its open and also the high (gap up) or low (gap down) of the day.

The Hound Of The Baskervilles.....Woof Woof??? Not really

Why I decided to write about this signal was, because its time has come. We have been seeing too many inverse H&S and indicators’ giving a go ahead for long but the price is failing to confirm yet. This brief is from the book Trading for A Living by Alexander Elder.

Elder says this signal occurs when a reliable pattern or an indicator does not lead to the expected action and the prices move in an opposite direction. Alexander Elder names this signal, as The Hound Of The Baskerville, based on a famous story written by Sir Arthur Conan Doyle. In the story detective Sherlock Holmes was called upon to solve a murder case in a country estate. He found the essential clue when he realized that the family dog did not bark while the murder was committed. This meant that the dog knew the murderer, and that this was an inside job. The signal was given by lack of expected action-by lack of barking!!!

When the market refuses to bark in response of a good signal, it gives you The Hound Of The Baskervilles signal. This shows that something is fundamentally changing below the surface and it is time to get in gear with a new powerful trend that is developing.

Thursday, April 3, 2008

Tails I Win...Heads You Loose !!!

Nothing is making sense now a days…we have feeling of déjà vu every time we see an inverse H&S…they seem to be in plenty now!!! Today we had a flattish opening. We made a swing high, went down tested the lows of the day and finally had a small triangle breakout. The breakout culminated in a Double Top (though a small one) and we far more exceeded the target to the downside. In the end it was just a tug of war between the Bulls and the Bears, where the Bulls managed to defend the lows of the day.

It’s getting more and more difficult to keep our bias intact. Though intraday movements are leaving one disturbed and confused, there is some solace in the daily charts (that is just for the time being!!!). In the daily chart of Nifty given below we can see that the MA crossover between the 50 period MA and the 200 period MA (circled area in the chart, also refer to my earlier post titled “Death Cross”) has already taken place and that point will be eagerly watched by both the camps. It’s still a matter of concern that we are failing to crossover over 50 period MA (we need to overcome this obstacle if we ever have to try and touch 200 period MA).Now for the point which provides some optimism. Our small little inverse H&S is still not threatened. In fact it now has a prettier Ascending Triangle to it!!!

Just a curious observation, though the overhead resistance for time being is 4962 and 5090, what’s really scary is that the REAL SUPPORT on the downside is at 4380. (Scared???well I am!!!). Leaving you with a one liner I read somewhere:

Don’t Be An Optimist Or A Pessimist Just Be A Realist!!!!

Wednesday, April 2, 2008

Just Some Chit Chat!!!

Today I had a discussion, which eventually turned into an argument with a friend and a fellow trader. It was about learning Technical Analysis from a Mentor or a Guru or for that fact, from books published by the likes of Charles Dow, Schabacker and Wycoff.

Well my friend had a point that none of the Masters will teach you everything, and that they will definitely hold back something, because by sharing that something, they would have to give up their advantage. Incidentally I had read the same thing about books published by celebrity chefs and famous restaurant kitchens, that, they either miss out on a key ingredient, or withhold an important step in cooking. Sounds logical who will ever go out to eat, if they can prepare the same delicacy at home.

My point was that, in trading, the key lies with YOU and only YOU. It’s in your MIND. There are no secret codes. It’s just that there is so much of information floating around, and in that information, one needs to discover the truth. Separate the wheat from the chaff. For a probing mind there are no secrets. The Holy Grail exists!!! It’s not in the well guarded secret of the professionals. It in fact lies within each one of us. We all have our Holy Grail; it’s just that we are looking for it everywhere, other than in ourselves.

Speaking about the argument, well it ended in a draw. We both agreed to disagree with each other. As for you, if this post has made you think, then I would certainly like to have your comments….maybe it will help me to wipe out some dust from my eyes.

‘‘We have more ability than will power, and it is often an excuse to ourselves that we imagine that things are impossible.’’

Rochefoucauld, 1665