Nifty Rangebound .... What is the BIG Fuss?

A number of blogs are lamenting the fact that Nifty has been rangebound - a fact that I had discussed more than two weeks ago in my blog Nifty Trading - Range bound ... For how long? . It is worthwhile to quote from that posting as it continues to be relevant two weeks later!!!

"
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!!!

"
However I do not understand what the big fuss is about. In the last two weeks, there has been plenty of good intra-day set ups. So day trading is un affected by this. The interesting fact is that day trading ( or any trading ) requires just the right amount of volatility appropriate for that time scale.

The real difficulty caused by the rangebound Nifty is being faced by positional trader and swing trader. Because every time they think that Nifty is breaking down or breaking out, it reenters the range.

But such is life, the market is not going to oblige your style all the time. However, I strongly beleive that trading opportunities are still there IF YOU LISTEN TO THE RANGEBOUND MARKET.

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 Day Trading - Deadly Temptations - Revisited

Some time ago - almost a month now - I had talked about a dangerous temptation. Based on how I messed up today's trading, I am going to change dangerous temptation to deadly temptation. To understand why, do read on. .....


Ok, to begin with since I was traveling, the first time today I looked at the market was around 1 pm. By that time the market was in clear down trend for the day with spot Nifty around 4330. My first trade was a short sell which unfortunately was stopped out because too tight a stop loss.

And then I misread the market movements because of a preconceived notion and the temptation alluded to above.

Between 1 pm and 2.15 pm, Nifty moved between 4330 and 4310 twice finding support at 4307/4305. Based on Nifty weekly pivot of 4302, I had this preconceived notion that this will be a very strong support. Also at the back of my mind I have been playing the tune that the market has fallen so much, it must find support .

Stupid me.

So despite clear STRONG down trend, I bet on a reversal with Nifty Future rebounding from 4297, I went long at 4323 Nifty Future with stop loss below 4297. And promptly lost 33 Nifty points. Subsequently, I did short and recovered a part of the loss. BUT the psychological damage was more difficult to handle.

I learned two lessons today.

1. When there is a tussle between price action and predetermined levels - follow the price trend.

2. If you follow the path of temptation and predict turnaround, you will be discarded by the market 1 out of 20 times.

In case you want to read about my previous post on dangerous temptation, it can be found here.

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 - 19 Jun 2009

Thoughts on Trading Today - 19 Jun 2009:

The market is at an interesting juncture. The upward momentum has been arrested at Nifty 4700. The market has fallen to its intra day low of 4222 yesterday before closing at 4251.

Is this a correction? Is the correction over? Or is it beginning of a downturn?

No one knows.

And the fun of trading is the joy of decision making in the face of uncertainties, based on some guiding principles.

One of the guiding principles is when things are not clear - stand aside until the market reveals its hands. Since many traders are addicted to trading, they find this difficult to do - standing aside that is.

Ok, if you can't stand aside, what do you do? Since the market has fallen almost 6 days ( with a small +ve Doji in the middle ), an operating assumption can be made that it will take a rest.

Therefore, for DAY TRADERS, it may be OK to trade with a positive bias with SL at yesterday's low which is 4222.

FOR POSITION TRADERS, they need to wait. If the market goes up today then they must wait for a few days to check if the up ward moves halts before reaching 4700. If it does, then that will be the cue that the down ward momentum is resuming. Therefore position traders will need patience or risk taking a trade with a large stop loss.

For Option trader, they can probably do the same as the position trader - that is wait for the cue and then buy a July Put.

Please note that these are indicative strategies - I hope they help you in formulating your own plan of action. I prefer that at this juncture than giving exact entry and exit points for two reasons - 1. the situaion is at a cusp and can go either way, and 2. Trading is an art in which the psychological make up or temperament plays a big role which is why each needs to formulate his/her own detailed strategy.

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.

Technical analysis works ( in a probablistic sense)

Earlier this morning I suggested trading with a negative bias. In fact, part of what I said was

"If the market opens lower, I would wait 4480 to be broken decisively before shorting. Yesterday's high 4540 will be a good SL"

The market broke 4480 early but then went up to 4520 almost. Second time when it broke 4480, it did not look back.

I do not want to say merely that technical analysis work - what is more relevant is to say that if you u use technical analysis AND trade with discipline, then you increase the odds in your favour to buy low and sell high OR sell high and buy low. In this case discipline meant selling below 4480 and keeping SL above 4540!

The day's action has opened the doors for positional traders. I will write about this in my next posting.

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

Support and Resistance in Day Trading - View on 17 Jun 2009

I was away for three days - almost three life times in day trading.

After a quick look at the nifty charts over the few days and also keeping in mind the US market action yesterday, here is my trading strategy:

Trade with a negative bias.

In particular, if the market opens slightly higher than 4520 ( say 4550) - make an operating assumption that 4600 will be a significant resistance level. Why 4600 as a resistance level?

Look at the 5D chart which shows that 4600 was a support last Thursday and broke down on Friday. So it is relatively safe to assume 4600 as a good resistance.

With this assumption you can short closer to 4600 ( in the 4560-4580 level) with SL at 4615. If SL is hit, I would refrain from trading short or long and wait to see if there is a new resistance level. Of course for another breakout to happen 4710 has to be crossed.

If the market opens lower, I would wait 4480 to be broken decisively before shorting. Yesterday's high 4540 will be a good SL.

Lots of options. The trick is to pick one strategy. If that works for the day, good. If not, study the market action and try to understand what the message is before putting in a trade!!!

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

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 Perfect Day for Oscillators

Yesterday, I had mentioned that Nifty 4530 would be an important level. Sometimes the market is nice to you and allows you to be correct. Indeed, today the market pivoted around 4530/4540.


Such days are fantastic for oscillators. Look at the slow stochastic chart. If you bought and sold as the stochastic came out of oversold and overbought regions, you would have made a resonable amount of Nifty points in trading today. I have not checked with other oscillators though.

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

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.

Another Breakout, But ......

The market had another breakout today. All seems to be well, except that the advance / decline ratio for all nse stocks actually reversed in the final hour ( meaning it had more declining stocks than advancing ones).

This could be a cause for worry.

One more observation. Nifty future had a double bottom at 4630/4635. The pivot points for Nifty for tomorrow are PP: 4632. Thus 4630 (Nifty) may turn out to be an important level tomorrow. The S1 and R1 are at 4575 and 4712. You can develop a strategy around the 4630 but do keep tight stop loss and do not fight the market, in case your strategy turns out to be out of favour with the market price action.

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

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.

Listening to the Market - 10 Jun 2009

We seem to be at an interesting juncture. While the intermediate up trend is still intact, there is a debate whether Nifty will immediately break out above 4650 or whether it will take rest for some time and head towards a resting place around 4000. 3800 etc.

No one knows.

And yet we must act in some way. This is where your own sense of the market comes in.

Given the fact that we are at a significant resistance, it may be prudent to trade the next few days with a negative bias. Is there a contradiction between saying the intermediate trend is up and trading with a negative bias?

Not really, since we are talking about two different time frames - several weeks to months for the intermediate up trends vs. trading now for the next few days.

For today I will watch the 4520 -4530 Nifty level - this is a level Nifty tested several times yesterday before finally breaking above 4540 and racing towards 4560.

If this level breaks, then Nifty might begin to drift towards 4490 for the day. It might make sense to trade with two lots ( Nifty or Mini nifty ) - close one for quick gain and allow the other to develop. This is if the market is kind to you. If not, the stop loss must be at Nifty 4570.

Conversely, you can use the strength of 4520 support to go long with a SL at 4490 - the choice is yours !!! Today's Pivot points are as follows: PP:4493, S1:4423, R1:4620, S2: 4296, R2:4690.

What would be the biggest mistake that a trader with a negative bias can make? The biggest mistake is to get hooked to the negative bias and not listen to the market if it does race towards 4650 and above. If that were to happen, either stand aside or participate on the long side.

This is what listening to the market means - be right or wrong in your bias but correct yourself when the market proves you wrong.

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

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.

Are you over trading?

Over trading is often mentioned as one of major mistakes in day trading.

Now I ask the question what is over trading in day trading context.

First of all I follow essentially a trend following system. Which means I must detect a trend before I trade.

Going over many days of nifty daily 5 min charts, I notice a pattern that most major trends last about an hour or an hour and a half. Sometimes a trend lasts through out the day.

Therefore, it would seem that on most days, I could aim to catch may be one major trend. This would mean one trade per day. If I allow for missed or misinterpreted trends, may be I should add 2-3 more trades.

Which means that I should not be placing more than 3-4 clean trades on any given day. I checked my trading record and discovered that typically any day I have traded more than 6 times I ended up losing money.

There you go, if you are putting more than 3/4/5 trades daily, you are probably guilty of over trading and are probably paying for it too.

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

Probability and the Art of placing Stop Loss

As I trade more and more I realize that I have difficulty in selecting the right stop loss level.

At first glance, the technical determination of a stop loss level seems to be rather straightforward. If you are going long, then the stop loss should be the last swing low or even the previous swing low. The difficulty of the situation is that sometimes the stop loss is so far away that it is scary to think of the possible loss.

Take for example the Nifty chart on the left. If you happen to go long between May 19 and 22, your stop loss should have been at 3675 and that is a good 600 points below!!

The important thing to realize is that not only you need to consider the amount of loss but also the probability of the loss being realized.

In other words, if the stop loss is set 50 points away and the probability of its getting hit is 10%, that may be better than setting a stop loss 10 points away where the probability of getting hit is 60% [[This is because 50 x 0.1 < 10 x.06]]. This means that all other things being roughly equal, a wider well thought out stop loss may work better in the long run.

This point is particularly relevant for day trading, A tight trailing stop loss may actually result in getting stopped out more often than what you anticipate ( this is precisely what is meant by high probability of the stop loss getting hit), resulting in large number of mini losses, all adding up to a big total.

Analyzing actual Trades - 04 Jun 2009

This morning, I said

Quote

For Traders with a SHORT TERM BEARISH VIEW OF THE MARKET

Go short if Nifty trades below 4470, SL at 4530 or 4575 depending on your risk appetite and position sizing


For Traders with a SHORT TERM BULLISH VIEW OF THE MARKET

Go long around 4490 ( nifty ) with SL 4430. If 4430 breaks, stay away until a dip is clearly visible

Unquote


As it turned out, the first group of traders would have perhaps broken even with a bit of tight management of SL , while the second group would have made a good amount of money.

For myself, I chose to trade with a negative bias, and was a bit more aggressive than I had suggested. Also, for me preservation of capital is of great importance. Hence I try to break even as soon as possible. Here were my actual trades from today.



First Trade:

Time: 10.08 am: Sell Short at 4494.25, Initial ( Mental ) Stop Loss @ 4540
Time: 10.24 am: Nifty at 4484, placed Actual Stop Loss @4512
Time: 10.39 am: Nifty at 4472, moved Stop Loss to 4591 (BREAK EVEN after commission, YES!)
Time: 11.00 am: SL triggered.
No gain no Loss on this trade.

Second Trade: ( still staying with Negative bias )

Time: 11.14 am: Sell Short at 4487 Initial (Mental) Stop Loss @4512
Time: 11.17 am: Nifty at 4493, placed Actual Stop Loss at 4504
Time: 11.27 am: Nifty at 4475, moved Stop Loss to 4485 ( In the Positive , YES!)
Time: 11.36 am: Nifty at 4463, moved Stop Loss to 4474
Time: 11.45 am: Nifty at 4457, REALIZED STRONG RESISTANCE at 4450, moved Stop Loss to 4563
Time: 11.47 am: Stop Loss triggered
Net Gain - 20 points after commission

What happened during the rest of the day? Watched the market recover ground, realized my negative bias is not supported by price action, chose not to participate.

What is the moral? If you have a reasonable strategy, and you stick to it, you have a reasonable chance of getting somewhere even if you misread the market.

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 day trading is not for the novice and there is significant risk of loss of capital in trading.

Pre-Market Opening thoughts - 04 Jun 2009

It is now 9.50 am. India Time

SGX Nifty bid / ask are 4490/4495.

For short term trading, this is a key level.

For Traders with a SHORT TERM BEARISH VIEW OF THE MARKET

Go short if Nifty trades below 4470, SL at 4530 or 4575 depending on your risk appetite and position sizing


For Traders with a SHORT TERM BULLISH VIEW OF THE MARKET

Go long around 4490 ( nifty ) with SL 4430. If 4430 breaks, stay away until a dip is clearly visible.


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 day trading is not for the novice and there is significant risk of loss of capital in trading.

How to identify a dip or a pullback?

Continuing with yesterday's topic, we need to understand the relevance of trading time scale in discussing dips.

For example, today 3rd Jun 2009, the nifty "dipped" to 4480. This is clearly an intraday dip relevant for day trading but may not be relevant for swing traders or positional traders.

A sudden fall is not a dip. It may be just one leg of consecutive falls. For a sequence of falls to become a dip, it is necessary that the price action starts heading back up. If you are a swing trader trading using EOD price indicators, then a good, working definition of a dip could well be a day which has higher prices for two days before AND two days after. This means if you use this definition of a dip, you cannot detect a dip right at its lowest point. You have to wait for two more days.

There is nothing sacred about the number two. You can have three or five in place of two. Of course the number of days you have before and after will also determine by much you miss the bottom of the dip. In my experience, 2, 3 days work well.

Another way to detect a dip and a pull back would be to use plots of Highs and Lows of the moving averages. If you plot Highs and Lows of 5 days exponential moving average for the last six months, you can see that there are wave patterns which allows you to identify a dip soon after it happens. This is the basic idea. You can choose another time frame to suit your own needs. But once you choose a time frame, stick to it.

Lastly, you must decide on stop loss and when to take profits. We will cover these in later posts.


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 day trading is not for the novice and there is significant risk of loss of capital in trading.

Traders must buy of dips... What is a dip?

This is a very important question. No doubt that traders must buy on dips since the trend is up. But how do we know when the dip happens, and what should be the stop loss?

I leave the reader with this important question and with a hint: Whether it is a dip or not will depend on the time frame of your trading strategy.


Look at the one month chart for Nifty. There seems to be a dip in May 26. should you have bought then and what should be the stop loss?

I shall share my thoughts on this in my next posting.

Forecast for June 2 came through

In yesterday's post, I had suggested to go short if nifty fell below 4490:

"Wherever it opens, if it trades below 4490, we can short there with SL at 4535, and target 4450."

I am fortunate that the market obliged and at least part of the market action went that way.

I do not mean to suggest that I have a magic formula which will ensure correctness of my forecast all the time - I will be lucky if I get it right 35-40% and the time. The other times I am wrong, I must manage the stop loss in such a way that my overall profit ( 35% of the time ) is more than the losses for the rest of the trades ( 65% of the time).

That is the name of the game - the game of probability - and these are the methods in seeming market madness.

I do not have a forecast for tomorrow as I am not well today. Wish you the best in tomorrow's trading.

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 day trading is not for the novice and there is significant risk of loss of capital in trading.

An Examination of Today's Nifty - 01 June 2009

Before we discuss today's nifty price movements, let us start with a very important topic, namely, relevance of the opening price in day's trading.

Here I can do no better than quoting from Brett Steenbarger's recent blog post on 21 May 2009. Here is the opening paragraph:

"
The opening price .... represents the market's first attempt at locating value on the day. A trending market will stay above or below the opening price for the majority of the session, as we reject that early estimate and probe value higher or lower. A bracketing or range market will tend to accept the early estimate of value, and we will oscillate around the open and/or the day's volume-weighted average price for much of the session.
"

Coming back to today's trade, it opened higher and within half an hour raced towards 4545 which it reached at 10.22 am. Now the index had gone up so much in the last two days, so the question was, is it going to be another tear away day, or will it be range bound and will the market accept the market opening as a fair value?

Such questions can only be resolved by waiting for the day to unfold. As it happened, by 11 am it was obvious that 4545 was the day's tentative high and the market was falling from there. The prudent thing to do was to wait again and see if yesterday's closing held. It did. It reached 4476 at 11.22 and began to turn up.

Thus by 11.30 am, the market had established the day's high at 4545 and day's low at 4476. And the chance increased that it was going to be a range bound day.



Notice also that the market established another support level around 4495 which it visited thrice during the course of the day. By this time, it was a relatively safer bet to put in a long trade around Nifty 4500 with SL at 4476. In other words, we could treat 4500 as a support level with 4476 as the "get me out of here" kind of SL level got long trades.

One can argue that hindsight is 50-50 and it is easy to analyse these at the end of the day rather than during the day. That is true. However, it is only by analysing such price actions can we develop our own approaches to identifying support resistance levels in future trading days.

The other interesting point is that this whole analysis is solely dependent on the day's price action, no fancy indicators needed, only requirements are patience and interest in listening to the message of the market for that day.

What about tomorrow?

Well, again watch out for the opening price and look at the price action to gauge whether the market is accepting the opening price as the fair value or not.

Wherever it opens, if it moves above 4555 and continues to stay above 4555, we can go long with initial SL at 4500. Use trailing SL to protect gains.

Wherever it opens, if it trades below 4490, we can short there with SL at 4535, and target 4450.

The price in the range of 4550 and 4490 is a kind of oscillating zone. I shall try to resist temptation to trade while the price is in this range.

We will know by the end of tomorrow how things pan out, won't we?


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 day trading is not for the novice and there is significant risk of loss of capital in trading.

A Dangerous Temptation

Personally speaking, some days during day trading I have this incredible urge to make a trade in the opposite direction of the trend. The thinking ( or the emotion) behind this goes like this: The market has gone up say 150 points already; how much higher can it go? So, you short the market with a very tight stop loss ( very tight because your know that if the highest point is taken out, it can go much higher). Alas, your stock loss is hit, but the market does not go zooming higher immediately, and it retraces a bit. So you think that your decision to short was right but the timing was a bit early. So you do it again. And again the trade is a loss!


Here are the actual trades - ALL SHORT sales - from May 29 ( taking into account 3pts for commission per trade) :

Bought	Sold		Profit	Loss
4453.9	4449.1			(8)
4481.85	4477			(8)
4489	4485.5			(6)
4483.35	4484.1			(2)
4467.4	4481.1		11

Notice the last trade was profitable. And it had the potential to make more money. But I closed it a bit early. Why? Because I was afraid to lose money again after four losses.

Actually, I estimate that the probability of profits from such trades ( going against a main trend ) is perhaps 1 in 20. In other words, you can lose 190 points in 19 trades ( assume that average loss is 10 points)., and you gain may be 50 points in ONE winning trade. Net loss 140 points!!!!

What is the moral? Trading against a major trend is dangerous. It is very tempting, but the temptation is likely to lead to heavy loss on that day.