Nifty Trading - Lesson from the Market - Friday 10 July 2009

Last week, I have been less regular in writing this blog than I wanted or intended to as I was traveling and visiting my parents. It was great taking a break and be with family.

In the mean while, .....

The market provided a fascinating instance of learning on Friday 10th July 2009.

Look at the five day chart.

Can you see

1. how for almost two days nifty moved in a very tight range?

2. how it broke out once one on the upside, and lastly,

3. how the false breakout reversed with great ferocity and broke through 4000?

I do not know about you, but here are the lessons for me:

1. Be patient - if you can detect a tight range - use that info either not to trade until a break out happens OR trade with low volume and increase volume after break out.

2. EQUALLY importantly, be prepared for a false breakout ( especially if it is against the prevailing trend) . Prepared but HOW? By keeping a Stop Loss. On Friday, those who traded long late in the afternoon and forgot to put a SL , hoping that 4050 will hold must have learned this lesson the hard way.

3. There is no sure thing in trading. Be prepared and have SL.

More on these themes and other stock specific ideas later in the week.