Typical Trader

Majority  of the traders will miss the reality of Market. They fail to understand the real reason of  price moves.
They will waste their time and exhaust their energy trying to trade the shadows.Finally they will get frustrated and quit.Find out the real thing and stop chasing shadows.

Most of the retail traders are not even playing the right game

Three Trade Setups

My trading revolves around trader decision points. I trade the acceptance and rejection of price at these areas and always trade away from the decision points.

Decision points are price levels where the market strongly reacted earlier. Most of the time they are proven price levels.But market will always create  new DP levels  Traders are creatures of habit and you can expect them to react at these price levels again

There are three trade setups when price encounters a decision point.

1.Price stalls just before the DP and there is no attempt to break the level. In other words it is failure to breakout. I call this TST and FTC (There is a slight difference between the two). After a TST and FTC price drifts down to the lower DP

2.Price breaks the level and pulls back. Pull back find support at the breakout level and the new level holds.
this is a signal to trade with the trend.If the level holds price can only do one thing that is to go to the next DP.This setup is called BPB

3.Price breaks above the DP but fail to hold the level.There is strong opposing order flow on the other side and price get rejected.. Naturally it has to come down to a lower DP where new buying emerges.This is called a BOF.

I have only given the long examples These can happen in short side also.There are other factors to be considered while trading these setups. like Strength of Trend,Strength of the DP. Price action at the DP , distance to the next DP level etc. I will try to explain these factors later.

 These are the three setups you can trade with the lowest risk.

04042012

Nifty gaped down . FTC gave a short signal. But price did not fall as expected. BOF at DB was a disaster CT trade. The Pin bar and good volume trapped many. TST at a major swing low was a clear long signal . see the massive volume at the area..Another range day..

Rubik's Cube and Trading

Rubik's cube,the mechanical puzzle invented by Erno Rubik, was the international rage during early eighties. Over 100 million Rubik's Cubes were sold in the period from 1980 to 1982.

I was a student that time . I spent a lot of time on this. But the only way I could solve it was by removing the coloured stickers and refixing it to restore the original appearance. In our town only two guys could do this and they kept their methods secret.

The "Aha!" moment came when I met a senior scientist from ISRO on a train journey.He told me that Solutions follow a series of steps and include a set of algorithms for solving each step.Basic solutions require learning as few as four or five algorithms.He taught me a method with which I could solve it .

The method he taught me was not very efficient. It needed around 200 twists and took more than five minutes to solve. But it was more than enough to beat my home town wizards.I was really surprised to see these guys who turned a blind eye towards me earlier, approached me to discuss the methods.

Trading is not different. Most of the thinking is done before hand.The Logic is converted to a method or system involving different steps and these logical steps are executed as per the situation. Earlier,I wondered how these experienced traders are able to take split second decisions while trading. Now I know they are just reacting to the situation by just executing a well thought out,well defined,logical step

03042012

Nifty gaped up above PDH and pulled back to the PDH. Trade this as a  BPB of PDH as the bias is bullish. BOF of the HOD gave a short signal. One can go long at TST of DB at PDH. All scratch trades only. Nifty moved within 20 points the whole day.

02042012

Nifty opened just below PDC . Price rejected the low level. FTA is PDH exactly where it stalled. Retest of the PDC and LOD gave a clear long signal. Those who missed it can go long when Nifty made a HL.
BOF at the day high gave a short signal
Avoid trades too close to trouble areas . For example if you try to short at rejection at point "A". FTA is PDH and it is  too close and there is no space for the trade to move. Further the trade is CT