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

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

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.

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.

Window of Opportunity in Positional Trading in Nifty - Part II

In the last post we asked the question, if Nifty were to drop down from here, what would be the target?

Lets look at the weekly chart for possible answers. Again the 20 day WMA waves are superimposed ( the blue and the red lines).

One operating hypothesis we can make is the weekly wave will not be breached. In other words, notice that the WMA (High,20) red line is at 3874 and still rising. Notice also that the blue line is at 3591. So, we will ASSUME for the time being that Nifty will not breach these. And this gives us a target between 3874 and 3591.

In fact, we can rephrase the analysis to state that those who are waiting to enter the market ( having missed the bus in late March ) can now plan to watch and observe Nifty around these two levels.

Also, the Slow Stochastic has not come out of the overbought zone yet. Presumably, this means we have a few days to catch the down trend.

Please note that we are making an educated forecasting here. We have to keep watching the price action and validate our analysis forecast. If market action roughly supports the analysis then well and good - if price action is completely different we must be prepared to abandon or modify our approach - Market is supreme, not our analysis.


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.

Window of Opportunity in Positional Trading in Nifty - I

I posted a short and basic FAQ on Position Trading yesterday. It can be seen here.

Today - before the market opens - let us focus on and analyze Nifty. We will analyze Nifty Cash price movements - of course any trading has to be done in the Nifty Futures ( near term recommended).


Here is the chart of daily movements for the last six months. What we have plotted are 20 day Weighted Moving Average (WMA) of highest prices and 20 days WMA of lowest prices in this time frame. Since lowest price is always less than the highest price on any given day, these two curves do not intersect - instead they form "waves" which are very useful in positional trading.

What do we notice?
First of all, note that yesterday Nifty has closed below the "lowest value" WMA. Notice also, how infrequently the price closes above or below these channels. In fact - here is the second observation - it crossed the channel last when it closed above the "highest value " WMA on March 16th and we all know and can see here in the chart too what happened after that.

So it is possible - and by possible I mean that there is a more than 50-50 probability - that the nifty will drift down from here.

But since this is a game of probability, we must keep Stop Loss. What would be a good place for that? 4700 will be a good place because it is just above the highest level reached in the last week and moreover any break out has to cross that. Also, note that the Stop Loss is a good 350 points away - this is a characteristic of positional trading. Do not take the trade if you are uncomfortable with such a large stop loss and wait for other opportunities, OR, cut your position to suit the large SL amount. ( Please refer to my earlier post on placing Stop Loss - they can be found here and here.)

If we short Nifty here, what is the target?
In the next post we will analyze the same from a bigger picture and that will help us to make an initial guess at the target of this possible down move.


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.

Positional Trading - A Short FAQ

Positional trading means making a call ( buy or sale ) and staying with that call for several weeks and may be a few months.

Two things are clear from the above definition.

1. Position trading opportunities will come less frequently than day trading ( obviously!) and also less than swing trading ( usually positions held for a few days )

2. The stop loss will be far from the price where the position is taken. Why? Because, you want to hold the position for a longer time frame and hence a tighter stop loss may close the position prematurely.

What is the advantage of position trading? Less stress (probably) but more importantly intra day or intra week volatility impact is less.

What is the disadvantage? Less trading opportunity. Last time a positional trading opportunity came by in Nifty, it was in the week of March 23/ March 30. ( Hint: check your weekly nift\y chart.

I believe another Nifty positional opportunity is around the corner. More on that in the next post.

Stock Study of the Week - SBI - 14Jun2009

On weekends I spend sometime studying charts of the reputable companies - those that make up Sensex or Nify or BSE200 - either to detect near term price pattern or to seek dips and pullbacks.

This week I looked at the chart of SBI - certainly a reputable company!


As you can see, the last Friday closing price 1634 is below 1660 which is the 20 EMA ( Low). It seems that we can expect the stock to move down further in the next few weeks. Now this down turn will be arrested or over if if the stock were to close above its 20 EMA ( High) which is 1754 at this time.

In other words, aggressive traders can short SBI with a SL at 1754.

What about an investor who is waiting for a chance to buy SBI at lower price? S/he can also make use of this analysis and wait for a lower price to be reached. What target price should we look for in such a case?

Lets look at the chart again. The 50 day EMA ( Low) is located now at 1475. So we can reasonably set a target of 1475.

In other words, a trader can short SBI now with SL at 1754 and a target of 1475. And an investor wanting to accumulate SBI at a more reasonable valuation can plan to - not hope to - pick up SBI around 1475/1500 which is a good 135 points below the current price.

Does this analysis make sense to you?

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.

Bharti - Revisited - 06 Jun 2009

In an earlier post almost a week ago, I suggested for aggressive traders to buy Bharti between 750 and 820 with a stop loss at 720, and for conservative traders to buy above 875.

One more week has passed. From the chart at the left, it appears that while the uptrend is still intact, the upward momentum has stalled somewhat. And Bharti may have entered an intermediate consolidation phase in which it may simply oscillate between 750 and 850.

At this point, I do not recommend adding any long position in Bharti. It is far better to wait for Bharti to come out of the consolidation phase before taking a position.

For long positions already held, the choice is to either hold the position with a revised Stop Loss of 750, or to liquidate the position and get into cash. Individuals can make their own decision, depending on their own overall cash position etc.

The uptrend in Bharti will be confirmed if Bharti closes on a daily basis above 875, Conservative traders can take long position at that point.

If on the other hand, Bharti closes below 750 on two consecutive days, it is likely to enter a near teem downtrend. In such a scenario, aggressive traders can sell Bharti below 750 with a Stop Loss above 815 for likely targets of 710, 660 and 620.

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.