Wednesday, December 31, 2008
The charts below are of Reliance (RIL) futures and the time frame is 25 minutes. Its one of the stocks I like to daytrade apart from Nifty.
The chart below is when I entered RIL, I found it a low risk setup and took my dig at it;
I got out with 15 bucks scalping trade and went short at 1258 and once again took my 20 points profit. Didn’t venture out after that, you see, I wanted to end the year on a positive note.
This is how RIL ended the day!
"The big shots are only the little shots who keep shooting." Christopher Morley
Sunday, December 28, 2008
In my last weekend view I had commented on a good weekly close, this week it’s rather bad, but not all hope for the bulls is lost yet. The weekly chart below shows the recent bearish engulfing bar, encased in a nice triangle of sorts. Speaking of triangles, they are not only notorious for false breakouts; they are also not tradeable till they give you a convincing breakout on either direction. I feel this one is going to penetrate on the downside and quickly reverse and still leave us in lurch as regards to the real direction of the price. Why I am saying this is because Nifty has a strong support at 2800/20 (2780 is one support to die for!). Anything below 2750 and we are surely going to be in lot of trouble coz then the talks of new lows gather momentum (personally I still feel the real trouble starts on breaking 2500!).
The Daily chart below(left) shows that the 20(green) and 50(blue) periods MA’s are converging(a 20 crossing the 50 to the upside would do good to the bulls confidence); this is likely to provide some support or resistance depending weather the price is above or below it. Another important thing is that price is at very important Fibonacci cluster as shown in the chart to you left (it’s the zoom of the shaded area on the daily chart on the right). The problem is that all supports when broken are becoming formidable resistances and all resistances when overcome have failed to become strong supports. I guess maybe this is the trait of bear markets.
The hourly chart below shows oversold, will it provide meaningful bounce? If we find support at 2780/2800 and reverse it would be prudent to go long with a stop at 2750. Nifty has good resistance on the hourly charts at 2910/15 first aggressive stop if you are already short and then at 2960/70(see all the MA’s converging there!), this should be the conservative stop for shorts.
"Genius is one percent inspiration and ninety-nine percent perspiration." Thomas Edison
Saturday, December 27, 2008
This is the story I came across in a forum where I often interact with friends. Somebody had pasted the link in there…I couldn’t resist it to put it in my blog, I was deeply moved by it. Hope you would enjoy it too. The original link is this
Daddy, Why Aren't We Rich? A Stock Trader's Story - By
One Saturday morning, while he was sitting at his computer studying the market, David's 7 year old daughter came up, tugged at his shirt sleeve, and said, "Daddy, why aren't we rich?"
He looked his child in the eye, and thought to himself, what a great question - why aren't we rich?
As she stood there expectantly waiting for an answer, he struggled to come to grips with the realization that, although he had focused his undivided attention on nothing but creating wealth for more than 15 years, he was still broke.
He had bought and sold hundreds of Stocks and several properties over those years, but had never made any real money to speak of.
He looked at his daughter, and asked, “What makes you think we aren't rich, sweetheart?”
She looked at him sternly and said, “Because you said that if we were rich, you and mom wouldn't have to go to work any more, and you both still work all the time.
You said we could live near the beach and play in the sand every day. I want to know what you are doing about that. When can we go and live at the beach?”
There’s nothing like a child to cut straight to the heart of the problem - and what was he doing about it?
“We're not rich because daddy made some mistakes,” he finally answered.
“What kind of mistakes, daddy?” she asked.
“Well, I bought some shares that were going down and then didn't sell them soon enough. Then I bought some houses but sold them again just before they went up in price.”
“Why did you do that?” she asked.
He had to think long and hard about that. He had no reason to buy shares that were going down in the first place. He had no reason to hold on to them when they kept going down. He had no reason to sell the properties either, come to think of it.
Her logic was flawless – why wasn’t he doing better financially than he was?
He knew in that moment that he had to change his strategy.
He owed it to himself and his family to finally get his act together and make some changes - that was the day the pain of not living up to his potential made him sit down and write out his stock market trading plan...his trading strategy and rules – he had to have a life raft.
He started by writing out his vision - what he wanted his life to look like when he became a successful trader and investor, then worked backwards from there - through the details of how he was going to achieve his dream.
He saw in his mind the 4 bedroom penthouse on the beach, the red Ferrari 360 Modena, the 80 inch plasma screen computer monitor in an office overlooking the surf beach 17 floors below, the family holidays, the million dollar donations to worthwhile causes and children's charities.
He visualized all the tremendous benefits of becoming a successful trader, investor and philanthropist.
He realized that his main problem all this time had been that he was afraid of losing, and that fear was just too expensive to let it control his life any longer! He had been playing not to lose, instead of playing to win.
He decided he would never again sell a property unless there was a compelling reason to do so.
He decided that he would no longer accept anything less than perfect execution of his stock trading plan.
He decided that he would take every trade entry signal his system gave him and follow his trading plan as if his life depended on it.
As if, after each trade was closed out, he had to stand in front of a panel of super traders, and explain his actions to them - why he entered where he did, where he placed his stop losses, why he exited when he did.
And if they weren't convinced he followed the rules of successful trading, he would be taken out and shot!
This certainly focused his attention on only trading strong trends - trends where the price bars were trading above their respective moving averages for long trades, or below for the moving averages for short trades, and the Stock price was moving strongly in one direction.
He pretended that if he couldn't justify his trading decisions to his trading Mentors, he was dead...
That was the day he resolved to study his selected group of Stocks, the ones that had a track record of trending strongly, every day.
He would then take every trade his system produced, put his stop loss orders in the market as he entered each trade it a place where the trend had to change to take him out of the market, and he would hold every position until the trend changed.
He would act 'as if' he was a great trader, even though his record up to that point had been less than inspiring...
That innocent question from a child turned out to be the start of David's successful trading career.
He started to trade profitably and consistently for the first time in his life. He thought he was doing well, and indeed he was making money.
He knew from his wealthy mentors that rich people are different; they make rational decisions based on facts, not emotions.
They understand the value of money - they respect it as a tool for building a better world. They buy well for logical reasons and hold until there is a valid reason to sell.
Then one day, he closed out a trade, and excitedly told his daughter, “Daddy made a big profit in the market today darling, come and look and see what I did.”
His daughter came over to the computer and looked at the screen as he excitedly showed her where he had bought a Stock and then sold for a $13000 profit. She looked at him and said, “But daddy, it's still going up, why did you sell now?”
His smile faded as the power of that question sunk in...why had he sold it?
What was he doing getting out of such a strong trend just to take a profit? What would his trading Mentors say?
She was right...the market was still open, so he bought back in again. He had never been able to bring himself to do that before - he was becoming a great trader!
The rally continued and he kept buying more as it rallied. The trend finally changed, but his profit on that trade, when he eventually got a valid sell signal, was $34500!
His daughter's simple, logical question 5 weeks earlier had been worth over $20000!
That was the last time he ever got out of a trade based on his emotions. His fear of the market was gone - thanks to some simple questions from a 7 year old...
So now, it's your turn.
Whenever you are preparing to place a trade, find a small child, even if you have to borrow one, and ask them what the trend is. Then don't trade the other way!
If your trading isn't as great as you know it could be, decide to create a trading plan now that will become your life raft.
Remember, fear is just too expensive folks.
If you are afraid of losing money, reduce your position size until your fear goes away.
Once you have made a series of small profits, you will be trading with the markets money and you can increase you position size according to your growing confidence and account balance.
If you have a series of losses, reduce your position size again until you get back on the right track. Stick to your trading plan once you have something that works consistently.
Then, just go out and do it!
Wednesday, December 24, 2008
Sunday, December 21, 2008
I know... I know most must be thinking yet another Divergence Chart! Well I can’t seem to get enough of them, there my favorite poison. I just love seeing them unfold and play accordingly. The chart below is of BSE Auto Index, I am not analyzing the chart per se, but putting it as just another illustration on Divergence play!
"Decide what you want, decide what you are willing to exchange for it. Establish your priorities and go to work." H.L. Hunt
A good week and a good close on Nifty! We are still doing the same thing; cementing and testing supports with intraday dips and then moving up.
The Weekly Picture:
We seem to have a good weekly close. The RSI above is ready to break its long term trend line. The MACD lines are yet to give a buy on the weekly chart. The MACD histogram is getting shallower. I would have liked to see a bullish divergence on weekly chart to confirm a stronger bullish bias. Weekly support is at 2700 and resistances are at 3160 and 3250.
The Daily Drama:
Nifty seems to be flirting and testing the 50 periods moving average. Both the sides are trying hard to prove their dominance. If on the 17th we had the bear day, then it was followed by the bull day (a two bar reversal pattern) and yesterday it was followed by a very small bar almost like asking for a timeout, a pause, before taking their respective positions. Ideally one conquering the 50 periods MA, the next target is the 200 MA, in this case the 200 is too much of wishful thinking. The price needs to pause and consolidate so as to enable to bring the 200 MA down enough to take a dig at it. Most of the indicators are hinting
"You cannot discover new oceans unless you have the courage to lose sight of the shore."
Thursday, December 18, 2008
Sunday, December 14, 2008
An auto bailout that’s gone awry in US, bad domestic IIP numbers and two Doji! Yes we have couple of them signifying indecision among market participants. We have been going up (well closing up after intraday weakness) on news which isn’t so good for the markets. So, are we disregarding bad news or is it an entrapment of the bulls?
The first chart below is monthly chart, just put this to show why all the people around, me included, been calling 2500 and 3250 the broader range- The play ground for traders.
The next chart is the daily chart with those two Doji, we just mentioned, nestled between the 20 and 50 periods MA’s. Remember my last chart posted on Nifty (the multi colored one!), we broke out of the range at 2830. We have tested it on intraday dips; therefore one can safely assume that till 2800/2830 is held this uptrend is safe, breaking 2860/70 will be first warning of weakness.
The hourly chart is showing price resisting at the 200 periods MA, with the indicators showing overbought levels, a lil negative divergence. See divergences are not per se reversal in the trend, think of them as momentary lapse of reason (temporary pause is a better word) the overall trend resumes once the price gets past this important resistance or support levels.
So where does it take me, a bit confused and undecided, well for me the breakout happened at 2830, now supports are 2800/2830, talking about resistances, we have 2950 and 3030 to take care of. Like I said Nifty is giving good ranged movements, and the strategy should be to play these ranges. It’s too premature to call it the end of the bear run yet!
"Everyone thinks of changing the world, but no one thinks of changing himself." Leo Tolstoy
I am taking on the Gold this week for analysis. Never looked at it earlier, so thought why not give it a try and see how I interpret the charts. As usual I begin with the weekly chart and move to the daily. So here it goes;
The Weekly Picture:
Gold is very delicately placed for a good breakout. A good push and it is sure to break the clusters of resistances it’s sitting at. Speaking of resistances; we have the 20 (810) and the 50 (825) EMA’s (Green and Blue lines respectively). It’s just managed to close a wee above the 38.2% retracemnt taken from the March highs October lows. The RSI below has broken its short term trend line, the MACD lines are willing to give a buy signal will Gold play Ball? Weekly range for now stands at 850 on the top and 750 on the lower side. The Bias? Bullish!
The Daily Picture:
If it was 38.2% retracement on the weekly chart, in the daily Gold is facing resistance at 61.8% of the swing marked on the chart. Plus there is the 200 EMA it’s trying fend off. A nice converging of the 20 and the 50 EMA’s are there to cushion the fall. The flip side is that the MACD histogram is showing bearish divergence. The RSI is at 60 from where it has been reversing lately. Let us see how it unfolds in the coming week. My amateurish eyes see a CNH pattern (shaded area in yellow), and with ADX below 20, I am hoping that any break above the current resistance will be followed by ADX also showing strength thereby confirming a strong uptrend.
Well if I am writing about Gold I might as well write about Silver and Dollar too. The chart above is nothing but a collage of things we are discussing(actually its one of my templates I have saved). Like Gold, Silver is also critically poised for a breakout. As for the Dollar and Gold, it’s a proven fact that they move in opposite direction. A quick check of the Dollar chart and you will see if it is showing bearish bias. So time to sell the Dollar and buy Gold or Silver? Well so much for my amateur analysis, all comments and suggestions are welcome so that I can improve upon my analysis.
"Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude." Thomas Jefferson
Tuesday, December 9, 2008
I am actually bored writing about nifty as it is doing nothing other than keeping both the bears and bulls on tenterhooks. Below is a very simple chart (had to make it colorful...man you ought to feel you are putting work behind it!). The chart in itself is self explanatory; we are in range, and between this broader range we have some pretty tight intraday ranges, so the only way to play such range bound moves is selling the highs and buying the lows. In fact sell at resistances and buy at supports sounds better (gives it the professional touch)! For the fence sitters the wait has been long and frustrating but it will pay. Patience always pays! As for others if you good at ping pong, well you have a game!
"First say to yourself what you would be; and then do what you have to do." Epictetus
Monday, December 8, 2008
Just a few days back I had written about divergence. Well it’s a favorite trade set up of mine so thought would make another post out that with illustrations. Two reasons for doing this, one, this is my blog, two, I wanted it in my blog for future reference. As Pring states when the momentum and price are moving in tandem, there isn’t much to read other than assuming we have a healthy trend. It is when the momentum and price get out of sync we have Divergence in hand.
There are 2 basic types of Divergence.
1-Price is making higher highs while the indicator is not: Bearish
2-Price is making lower lows while the indicator is not: Bullish
3-Indicator is making higher highs while price is not: Bearish
4-Indicator is making lower lows while the price is not: Bullish
Divergences test your patience, you have to let them develop and then get ready to put in your trade. One of the mistakes us novices make is we jump the gun too soon when we spot Divergence. It should be remembered (I might as well put this in bold font to drive home the point), Divergences in themselves do not signify a reversal or a trend change, they merely gives us an advanced warning of the underlying strength or weakness in the prevalent trend. The real confirmation comes from the Price action itself.
There is a lot one needs to understand about Divergence, than these simple interpretations. The significance of Divergence, the Divergence Trap and Complex Divergence (will add these later). I reiterate again that one should read Pring’s book on Momentum to get better hang of things. Divergences if traded right, can give phenomenal trades, but then you need to spot them, and wait patiently to let them develop, and finally pull the trigger when the PRICE gives the signal!
"Whether you think you can or think you can't, you're right." Henry Ford
These are just a few instances how we can play the gaps. The charts below are self explanatory. These are not exactly how the gaps would play themselves out, but would give you an idea, if such a situation occurs then these might be the possibilities. This is in keeping with the theory of KISS. By the way the conservative trades mentioned in the pictures below are nothing but the Dow Theory in action!!!!
First The Gap Ups;
Now The Gap
"If you are aware of your weaknesses and are constantly learning, your potential is virtually limitless." Jay Sidhu