Nifty Trading - Range bound ... For how long?

Whichever way you look at it, whether it is the daily chart or the weekly chart, Nifty has been trading in a 15% range (4000-4600) since the big gap up post election.

Thrice it has tried to breakdown below 4200/4100/4000 and thrice it bounced back - the last time it bounced back it made a fool of people - including me - who had discovered the head and shoulder and thought that the market was about to go down and close the gap.

On the upside it tried to take out 4700 and failed; again in the last week and this week it is trying to breakthrough 4600, and right now it is faltering a bit ( who knows what will happens today and tomorrow and next week ..... ).

Clearly, one possibility is that it will breakout above 4700.

The other possibility is that it will be range bound between 4000-4600 for another 10 weeks!!!
now, why did I pick up that number 10 weeks?

If you look at the weekly chart, you can see that Nifty - after the break down in October 2008 - entered in a range of 2500 and 3100 on a closing basis for 23 weeks!!!! Of course in percentage terms that was a bigger range of about 20% but that was also because of the low base effect. In other words, it will not be unusual for Nifty to be range bound for another 10 weeks (since it has already spent 10 weeks in this range).



Now, people like excitement - for many of them range bound movement is boring and worse still, it catches them off guard apart from tasting their patience. Just when they think the market is going to break out or break down, the market reverses and reenters the range!!!

So lets recap the two possibilities.

1. Break out above 4700. You know what to do. Buy on dips with SL at 4500 perhaps , if you are trading on a weekly basis.

2. Range bound movements - here you sell at the upper end 4600-3700 and buy at the lower end 4000/4100 with SL above and below. It may be boring but then you have to decide whether you want to be entertained by the market or you want to earn money.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading

Trading Nifty - Dealing with Monday AND Reliance - 27 Jul 2009

I always find it difficult to trade on Monday mornings. I mean the world has had chance to review and plan their moves for two days. I feel intimidated with a feeling like being me vs. the world on Monday morning. This may not be logical or whatever, but that is just me.

And I have realized that trading is such an individualistic activity that it is very important to develop and follow a plan with which you are emotionally, psychologically at ease. So for me no quick trades on Monday morning; in stead, there is waiting and understanding how the world has decided to act after two day's of thinking.

Now this morning, in addition to Monday, we have to deal with Reliance result which most analysts are saying is below expectation and is likely to drag the script down.

Now the question is will it impact the uptrend in Nifty?

Lets look the chart comparing Nifty vs Reliance for One year:



The chart shows that for a major part of the last year, Reliance performance has lagged behind Nifty . BUT MORE SIGNIFICANTLY, in the last three months Reliance has consistently underperformed Nifty.

What is the conclusion?

Perhaps, the broad market will react negatively for a few hours or day, shed a few tears or two for Reliance - after all, the market does need an excuse to take a breather, consolidate etc. but after that it will ignore reliance and likely to follow its own trend.

Of course time will show what happens, but as long as Nifty remains above 4100 any dip whether because of Reliance or otherwise, is likely to be a buying opportunity.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading

Nifty Trading - Trying to Anwer a few Questions.....

I got a few questions from one of my readers. For the benefit of all, I am posting the questions and answers here.

The reader wrote:

"""
I have few queries w.r.t. to slow stochastics indicator which you seem to be using for intra-day trading:

1. What kind of chart is appropriate for using slow stochastics as a intraday trading indicator - 2 min or 5 min chart?
2. Do you only use slow stochastics or use it together with RSI, MACD or Bollinger bands?
3. I understand that one can get a entry point using slow stochastics. But how do you decide exit point and stop loss? Please try to help me understand this.
4. Finally, isn't slow stochastics a good indicator in range bound markets and not in trending markets? What indicator you use in trending markets?

"""

My answers:

1. What kind of chart is appropriate for using slow stochastics as a intraday trading indicator - 2 min or 5 min chart?

I typically use 5 minute charts. But Yahoo charts allow me to update the chart as often as I would like. So, even while using 5 minute charts I might update/refresh the data every two minutes - I have written a three/four line code that does this for me automatically so that I need not hit refresh button manually all the time, and instead focus on the market.

2. Do you only use slow stochastics or use it together with RSI, MACD or Bollinger bands?

I personally find it confusing to use so many indicators at the same time. Which indicators to chose is a very personal decision. It is like having friends vs. acquaintances - there is nothing wrong with people who are your acquaintances but you select only a few friends.

Recently, I have begun to use Moving Average ( EMAs) cross over systems along with slow stochastic. For me, MACD and two moving averages convey almost similar info. Therefore, I would like an independent oscillator type indicator such as RSI, Stochastics. I have a hard time acting on RSI, hence my PERSONAL choice is Stochastic. Why slow stochastic? because the fast one is too jumpy for my taste/ability to deal with the information.

Bottom line, I like to work with simple systems which rules out using many indicators and I chose two moving averages and slow stochastic.


3. I understand that one can get a entry point using slow stochastics. But how do you decide exit point and stop loss? Please try to help me understand this.

I try to decouple entry from exit. The simple reason is once I am in, my entire focus is on managing the trade, trailing stop loss OR ( on those days when trailing SL too tight is not the right strategy because it might hit ) on getting out with a profit. Of course, my SL has already been decided before I took the trade. On trending days, I move my attention to one of the two moving averages as trailing SL. I still keep an eye on the slow stochastic to see if there are indications of trend reversals.

Deciding on SL is an art. In my blog, I have already posted few articles on this. I will continue to return to this topic.

BUT BOTTOM LINE IS: focus on minimizing losses.

4. Finally, isn't slow stochastics a good indicator in range bound markets and not in trending markets? What indicator you use in trending markets?

I believe Slow stochastic is an excellent indicator to use in strongly trending market as well - though in a rather subtle way. First of all, the fact that the market is strongly trending is indicated by Slow Statistic as it remains in the overbought/oversold zone and refuses to come out. But then it does come out, and one can wait for it to go to the other direction. So, for example from overbought it goes to oversold. This is an indication of a DIP in the original trend, and can indicate a entry/rentry point.

Ok so there it goes. Please remember to use your own judgment while using my responses in your trading. Trading is a very individualistic activity. What might work for me might not work for you and vice-versa.

On a lighter note, all the above might give an indication that I am a big DADA in trading. Hardly. I have been trading for about 9 months now, and I lost so much in the first five, that I am yet to break even. MY most recent goal is to have two positive months in a row! ( Now you might think twice before asking me anything !!!) Please wish me luck AND DISCIPLINE.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

A Pause is a Pause ... is a Pause?

The markets finally took a breather. Is it a pause before moving up or is it a pause before moving down?

I wish I knew.

However, not knowing for certain cannot result in inaction. And today, I have no action to suggest beyond what Sudarshanji has mentioned this morning in his blog. Reading that carefully is likely to help traders prepare well. The summary of what he says is that a breakdown of yesterday's low 4436 will probably result in further downward move towards 4350. Trading above yesterday's high of 4510 will signal resumption of the upmove towards 4700. You can read his posting in its entirety here.

What about the unlikely possibility that the resistance 4500 holds? Well, we shall discuss that if 4350 is broken on the down side which seems unlikely now but since the market can do whatever she wants, it cannot be ruled out for sure. But we can wait for that to happen before making actionable plans.

Yesterday, I came up with the following saying that

"If everyone one knew where the market was going, the market probably would not go there".

Perhaps it has been said before, but it does not matter - it is the joy of thinking these thoughts that matters the most.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Trading Nifty: Disbelief? Better Believe it.

Many traders - I am included - watched with disbelief how Nifty climbed to 4500 while they waited for a big dip, or thought it had risen enough and "must" fall anytime now, etc.

Those who believed in the Bull presumably went long or stayed long and were happy as their belief paid handsomely.

And then, there might have been some traders who despite their disbelief reposed faith in their mechanical trading system and participated in the trend. Which was up in case you did not notice it.

This episode - in which I did not do well - has again brought home to me how mechanical trading system / rules can help trader set aside their emotion ( fear/disbelief) and trade in the right way.

After all, when most of the moving averages are so beautifully aligned UPWARDS and keeping a constant gap between them, why shouldn't you go long?

You see the very terms belief and disbelief are rooted in human thought processing - in contrast to something like rules in physical sciences - for example, when an apple falls on your head, you may experience disbelief and other emotions but the apple did not care, it had to fall. And whether you believed or not liked it or not, it fell!!!

Not to belabor the point, the mechanical rule ( for instance EMA lining upwards ) does not care about your belief once they have been formulated - the rules are not handicapped with disbelief.

Don't get me wrong. I am fully aware of the importance of belief systems in many spheres of human life. What I am suggesting, however, is that with respect to trading the proper and rightful place of reasons and beliefs are in formulating the rules and not in minute to minute trading decisions during the madness of market hours.

In other words, put all your reasons and beliefs in formulating the system. Once formulated, believe in the system and not in your thoughts/beliefs during actual trading.

OK, now coming back to how did I do yesterday?

Embarrassing to admit - especially after such theorizing above - but I did not do well. I kept waiting for a dip - a big dip - that never came. Twice I followed slow stochastic to catch a potential turnaround - a dangerous thing to do, but at least I used an instrument, slow stochastic, rather than gut feel - and thrice I got stopped out - and then finally I went long around 4880 spot only to get out after ten points as I was overcome with worry that I must manage my loss for the day to a smaller amount. Loss!! On such a day!!

But there are silver linings - Just about two months ago on a similar day I would, like a deranged person, try to catch the top and go short repeatedly thereby losing 70-120 points ( in a day!) . I have now learned to NOT TO DO THAT - clearly my learning is not complete otherwise I would have shorted perhaps only once and not thrice - but my learning and improvements are in the right direction.

I write all this, dear reader, for two reasons: ONE, it helps me to learn even more efficiently. Public disclosures always has that effect that it reduces the chance of fooling yourself. And TWO, I hope there are some readers who may not only learn from my experience but also regain a sense of hope and self worth which are two biggest casualties when you lose money in trading.

Thank you for your time and Good luck.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Nifty Trading - The Consensus View on Monday Morning - 20 July 2009

A quick reading of most of the financial blogs indicates that the consensus view is that the market has formed a low around 3900 and has resumed its uptrend now.

What do the charts say?

The charts say that what was lost in the week of July 6 has been regained in the very next week of July 13. We are back to the state we were in before the budget. The chart also says short term uptrend will be tested at the resistance of 4500 and then at 4700. Presumably, these are the chart patterns that have generated the consensus view mentioned above.

My own thoughts are that yes, the short term trend as measured over one week is up, as measured against 2 weeks is flat, against 6 weeks is probably down and as measured against 13 weeks ( 4 months ) is again up. Which probably means that the market is fighting to keep the uptrend intact and we should give the up trend the benefit of doubt; therefore, we should trade with a positive bias.

BUT and this is a BIG BUT, because the market is fighting, there will be bloodletting even if the eventual up trend resumes. In other words it will not be easy to pick the dips on where to buy, if you are planning to buy on dips. My view is that only way out is that you must have predetermined technical criteria and stop loss to enter the market - step aside if the market proves you wrong and enjoy the ride if you get it right. AND do not overtrade.

Also, have a lot of patience - do not chase the market in either direction. Remember that before you count your potential profit pay attention to protecting your capital.

OK, after all these generalities a specific contrarian thought and suggestion. What is the probability that the market will retest 3900 before the end of month of August? My pick is about 50-50. In which case, I want to protect my investment assets. One way to do this is to buy one or two August Nifty puts. Please note that this is not trading in options but purely a measure to buy insurance against a possible unanticipated move towards 3900.

Good luck and always keep in mind that you can count on the market springing surprises and leaving a lot of blood on the street.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Herd Mentality and a Refreshing Blog

A couple of days ago, while writing Pre-Market Opening thoughts - Trading Nifty- 14 Jul 2009 , I wrote the following lines:

""
It seems therefore that we may have a uptrending day - the problem with my statement is that almost everyone may be thinking the same - where is the edge then?

""

This reflects an agony I always feel when I write - am I saying something different or am I just following the herd? We will return to the importance of this chain of thought some other time, but I must say when I read blogs - especially related to the market moves - I am struck by how many of them are saying the same things.

Over this weekend I accidentally came across a blog that I liked a lot, primarily because the freshness of its line of thinking and its similar preoccupation with search for what is not obvious.

The blog contains a presentation (webinar) which is excellent - it was presented on June 7 ( not that old ). The presentation can be found in a pdf document here. As a summary there are three points from this PDF that I found very striking and am quoting here.

• "A GREAT EXERCISE Investors should do regularly is to ask you: What's the one thing that nobody expects to happen?"
  
• "I try to make it my business never to get too bearish or too bullish."
• "There are hundreds of ways to analyze markets. The key is chose yours and respect others"
  

There are many other gems here. Any serious student of market will do well to read the above pdf document and the blog.

The blog, by Deepak Singh, can be found here: http://www.stateofthemarket.net/blog/.

Another refreshing thing about this blog is that it does not try to sell you market calls, treats you as a thinking individual and leaves you with a lot of ideas.

I hope you will ENJOY the articles as much as I have.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Nifty Trading - Reversal after Reversal - What Next

[[This is my second posting this morning. The first one, nifty-trading-responding-to-request, can be found here.]]

Nifty has been on a trip to a mela or a fair ( as modern india would refer to a mela) - She, Ms. Nifty, has taken a fascination for the roller coaster ride. Last week, she just wanted to go down and when everyone thought that she is going to drop dead, there she goes up and up for two days and with what a smile on her face.

We - mere mortals and poor chasers of her - would like to follow her but feeling out of breadth trying to keep up with her.

Here is my attempt to regain myself from this dizzying spectacle by looking at the bigger picture.

What do I mean? Lets look at a standard daily chart.


It seems to me that we have begun a down turn in the last couple of weeks and have made at least ONE LOWER LOW.

In technical analysis this is a significant event.

However now we have strong up move. Does it mean that downward move is over? May be, may be not.

The 4500 level was the last swing high - So, we need to watch out whether Nifty crosses that or not. If it does not, then we will have a lower high as well and the downtrend might continue. If if does cross 4500 decisively, then the downtrend will stand neutralized.

My gut sense is that even if 4500 is breached, 4700 will be very tough. Even though in following price actions I should not ask for the reason, I cannot figure out what will support the price above 4700 other than sheer momentum , liquidity but certainly no rosy economic growth story.

Therefore I suspect we are now locked into a range 3900-4700. If 3900 breaks - and that probability is higher than 4700 breaking! - then we will find support hopefully around 3500 which is where the low of the 20EMA weekly chart is - the reason being if Ms. Nifty closed below the low of 20 EMA weekly average, that will be very bad not just for her but all of us.

In this analysis, I have not offered much for the day traders, but I hope the above analysis will help the positional traders.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Nifty Trading: Responding to a Request

Recently, I left a comment on Sudarshanji's blog and this morning one Mr./Ms. "MG" left me a message on my Live Chat - s/he left the message at 2 am Indian time, when I was not quite alive nor dead for sure, just sleeping soundly. The message is:

""
hello...., you wrote " I sure hope so - which is why I am so fond of 20 EMA waves!!!!" in sukhani's blog... can you please tell how to use 20 ema in trading

""

Before I respond to this request, it might be better if I briefly summarize the content of the Sudarshanji's post "Worries on the long term" and my comment. In essence, the issue was DOW Jones is at the same level NOW where it was in 1997. This is the result of reversion to the mean, and might also imply that Indian markets would remain range bound for many months or years having had a growth phase from 2004 to 2008. In my comment I suggested that positional trading would be one way to beat reversion to the mean phenomenon. You can read both the post and my comment here.

Now coming to the request, I can do no better than going back to the master Sudarshanji himself - the major source of my understanding of technical analysis. Please study and review many many times his amazing post Swing Trading Presentation - March 7, 2009 which clearly explains how to use WMA ( or EMA for that matter ) waves. I hope this will help the person who made the request.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Nifty Trading - Sticking to a Plan and Missing a Rally

Today, 15 July, I had planned to trade long as I thought yesterday's breakout rally would continue. The only problem was that the price had gone ahead so much that I could not afford the stop loss. I mean I believed that theoretically at least it could retest the highs of yesterday. So I wanted to wait for a dip. I use slow stochastic to detect dips or pullbacks, so I decided to wait for that to happen.

In the meanwhile, around 10.30 am I noticed that slow stochastic was beginning to decline. So, I thought let me use this opportunity to go short before going long at the end of the dip.

The problem was the dip was a puny one. It came and went. I shorted future at 4130 and my first target was 4115. The Nifty Future reached only 4118 and then never looked back.

Fortunately, I realized quickly that the edge in my shorting was gone. And I exited around 4132.

Rest of the day, I waited in vain looking for a dip that never came. I was both worried and hopeful that there could be a quick sell off that will allow me to enter but that never came.

Looking back, I realized I could have gone long at 4155 with SL at 4118 - but the SL was still on the large side and I believed a dip would happen. It didn't.

One way I am sad that I missed a great rally.

Another way I am really really glad that I did not second guess my plan nor did I go short after the first time, as I would have done many times in the past. Even around 4200, there was a sense that profit booking was imminent but I avoided the deadly temptation which has resulted on large losses in similar previous trading situations ( you can read about the deadly temptation here and here).

Also, I use a system that is ok in detecting a new trend beginning but not so great at reentry which is what happened today. I am hopeful however that if I tread with the same discipline, on other days I would be able to spot good reentry points.

To summarise: trade with discipline and simple rules - not to worry if that makes you miss one rally, there will be other days.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Pre-Market Opening thoughts - Trading Nifty- 14 Jul 2009

Dow Jones last night made an impressive recovery - I have no idea why, nor do I need to know - suffice it to to say that in one day's action it has recovered what it had lost in last four days - in my book, that is impressive whether this reverses a down trend or not.

The last five days of Nifty also shows that it had lost ground in four out of those five day.

SGX nifty is trading +50 points - hovering just around 4020/4030 which was the highest level on Friday before Nifty suddenly gave way.

It seems therefore that we may have a uptrending day - the problem with my statement is that almost everyone may be thinking the same - where is the edge then?

At any rate, it might be prudent not to short today ( not until we reach somewhere near 4220) and perhaps go long with a Nifty spot SL at 3920 which was the lowest point yesterday.

If it turns out to be a volatile day as well, trailing SL may not work, in which case book profit when your target is reached . What could be a good target? For day traders, a target that gives them silghtly above their average profit per trade might be a good target.


If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

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.

Dow Jones below 8200 - 7 july 2009

Finally after a brief struggle on Monday, today Dow Jones wilted and closed below 8200.

I believe this is bad news for our market as well.

While market can do whatever it wants to it pays to be cautious, after all the first rule of trading is to guard against loss and the second rule is not to forget the first rule.

For day traders in Nifty Tuesday was an inside day and an NR7 as well. Watch out for if Nifty trades below the low of the day yesterday which was 4156, it is likely to go below 4100.

My last analysis on Dow Jones, breakdown-in-dow-jones-revisited-03 july 2009, can be read here.

Has Nifty made up its mind to go down for now?

In my blog posting on June 28 - not too long ago - I revisited the case of positional shorts in Nifty. Here is what I wrote:

""
The prudent thing would be to watch if the resistance at 4452 or somewhere near - meaning in 4452 to 4700 region - and to short only if that resistance holds. Conservative trader may even wait for 4200/4100 to be broken before shorting.

Summary: Right now the uptrend seems to have resumed. Therefore, no point in shorting. However, the case for shorting may re-emerge if the uptrend reverses at 4452-4700 - we need to wait for price action to confirm the shorting scenario at that point.

""

Yesterday's price action seems to have reopened the case for shorting. I had discussed the target for the down move in this post where the target was mentioned as between 3874 and 3591. Some more time has passed since then, the revised target is between 3970 and 3690.

Of course the market can do whatever it wants, but the case for renewed uptrend is arrested for now and the down move is likely to continue now.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Budget Vs Charts

I know the buzz has been around on what the budget would or would not do. For myself, I have no expectation from the budget. I mean I am not just neutral but numb about it. Indian policy makers seem to specialize in taking 9 steps forward and perhaps 8.5 or 9.5 steps backwards at the same time; perhaps they work in an environment or within a physical and mental structure or system that does not allow them to do otherwise. However, I have gotten used to wait for the budget and then take actions that make sense in the light of the budget decisions handed down.

At any rate, it is very clear that the budget event injects a dose of uncertainly in the market. I am not one who likes to bet big on such events - if that means that I miss out on a big move on the budget day so be it. Even though I am a trader, I do not like to trade blindfolded. Besides, this is just one day in a year, there are approximately 259 other trading days in the year.

Put another way, when things are not clear I prefer to be on the sideline and have no position, UNTIL the price action says which way the trend is likely to emerge.


Therefore, let us return to charts. The last day of the last week, 3 July, saw a big struggle between 4340 and 4375 for four hours(!) before the bulls finally broke through the day and ended very very close to an important resistance of 4450. If this momentum continues, and if spot nifty trades and closes above 4450, we will have a break out which will negate for the time being the the correction that began in mid June.


In other words, it seems that it is advisable to trade with positive bias above 4450 with SL at 4350.

Now is that not better or at least easier than speculating on budget moves?

For me, between budget and charts; there is no question - I choose charts.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Breakdown in Dow Jones - Revisited - 03 July 2009

I am writing this at 12.30 am Indian time. About 3 pm NY time which means NYSE will close in another hour. But since I cannot stay awake that long, hence writing this blog now.

The Dow Jones has taken a severe beating today until now - to put it mildly.

It is down 178 points or 2.12% and tottering at 8326.

A head and shoulder formation is likely taking shape, BUT for confirmation, we will have to wait for the breakdown below 8200 which is the neck line.

I leave it to the reader to contemplate the implications of this for Indian market. True, India is somewhat insulated but with a global economy still reeling ( though not slipping down an abyss anymore perhaps), I will be concerned about the US stock market potentially heading down.

Actually, I did write on 22 Jun about a scenario of Dow heading south in my blog Breakdown in Dow Jones - 22 June 2009, worried as I was about the ferocity of that fall. I am worried in the same way today after today's fall in Dow Jones.

Perhaps, Dow will find support at 8200, perhaps Nifty will not fall even if Dow goes down to 7800, but it does pay to keep this scenario in mind and take some basic precaution (such as buying a July 3800 put).

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.

Trading Nifty in a Sideways market

As everyone has noticed, the market has been trading in a rather narrow range.

While, the trend has been up, and we should give the benefit of doubt to the existing trend, the fact is that there has been intra day fluctuations that are sharp.

How do we trade in such a range?

1. If you have an mechanical system that has a proven record, stick to that. Mechanical indicators may have a few loss making trades, but they will not become emotional, will not over trade and eventually will catch the trend when the big move takes place.

2. Reduce your volumes. Now, if you have been trading with only one nifty, you cannot do that, and you can refer to the next point that might help you. But if you have been trading with two or more lots ( I hope not too many lots ), then it will be very prudent to reduce the lot size to one now and increase it to two when the breakout or breakdown take place.

3. For day trading, trade only in one direction. Wait for the set up that makes sense for that direction ( long or short) and take only those trades. This will automatically cut down number of trades. Remember though to join the trend when the breakout or breakdown takes place.


For today, signals are confusing. Dow last night was up but the structure of the price movements does not suggest a lot of strength in that up move. SGX nifty is up this morning. So, we are likely to open near 4370. There is a big resistance at 4420. So, now it is your call whether you want to wait for that to be taken out or not. On the down side there is support at 4300-4320. A number of scenarios are possible. The right thing to do - but it is tough to do it - is to take a position on one scenario, if it plays out good, else stand aside and do paper trading.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.