Nifty Trading - The Day After ....the breakout ....

We live and learn. The market is supreme. When the market shows her hand, you gracefully accept that hand and prepare to follow her.

Ok, looks like the market has broken through 5150 with a lot of force. True that it is now in a congestion zone and therefore trading still needs caution. But what about the breakout? How to trade that?

First thing first. This is not a market to short unless you are a genius - very few of are by the definition of genius. So, no shorting for me not even intraday.

You can take a call to go long- As SS has pointed out many times including the last posting here, the moment of break out is also the moment of maximum risk.

One way to reduce the risk ( and of course the reward too!) is to go long on a pull back which will come in 80-90% of the cases, if not today, sometime tomorrow or later this week or next week.

Question is how do you identify a dip? Here are a couple of suggestions:

1. The indicator that you have been using to detect breakout must have a support line - it could be a trend line or a 200 minute moving average or a 100 minute EMA whichever. Now, usually, the pull back to this level even breaking this support is usually a good indication that this the correction you have been waiting for. The logic is simple and works for a forceful breakout like this. The indicator that is in use and signals trend reversal is likely to have a false indication this time around. The bet you are taking is that the trend is intact.

2. Or, you can simply look at the slow stochastic on the 5day yahoo chart. and wait for the time when the signal screams oversold and then buy there. Here is a chart on the left that illustrates this point.

Now what about SL? Any sensible SL will have to be around 5140-5120. And it might be more profitable to let the trend run and not necessarily close the position before the end of the day.

That is all for now ..... Cheers

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

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: 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

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.

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

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.