Cigarettes

Do you smoke? If yes pay attention to the “Cigarette” patterns that frequently occur in Nifty Futures. It may give you sufficient money to buy enough Cigarettes with which you can smoke your soul out. Non smokers can think of some noble cause like donating to some pain and palliative clinic for oral cancer patients.

I had mentioned about this pattern earlier. Many thought it was just a joke. No. It is real. It is actually a very tight trading range .Mostly this pattern appears immediately after the open. Usually a very narrow initial range continues for hours together. Range hardly exceeds 10 or 12 points. This happens because order flow remains more or less matched. This Cigarette like formation at the end can go up like a puff of smoke or fall down like the ash.

Most of the traders enter their position within the first half an hour of trading. As the time passes more traders join. These people will keep their stop loss orders just above or below the range. Some others will place limit orders at the extremes to capture the imminent breakout. Now there are clusters of orders above and below the range.

Finally some small imbalance pushes the price to an extreme and these orders start triggering causing an explosive move to that side. Almost always you may get a 15 to 20 point move within a few minutes. You must be very nimble to trade this. Keep your entry order a little far from the range extreme to avoid false breaks. You should book your profit immediately when the pull back starts. Don’t expect a new trend. If the break out fails and price moves back into the range, kill the trade fast.Explore the possibility of reversing the trade as most of the time BOF of a range extreme will lead to a successful breakout of the other extreme

These moves will almost always come back. There are Algos sniffing around looking for such temporary imbalances. They will act within seconds and execute trades to exploit this price variance. Index arbitraging and cross exchange arbitraging are their bread and butter. Their action will make the market mean revert. Your paper profit may vanish.

Rush in where "Algos" fear to tread. But do not forget to  rush out.

19102012

Nifty gaped down within previous day range. Failed to go below yesterdays major swing low . IR formed and Nifty traded within the range for nearly 3 hours.This is a  pattern which I call "Cigarette Pattern".Shorted the break of range low . Another short opportunity came on the BPB of IR low. TP at PDL. Did not attempt the BOF of LOD as I thought there wont be any commitment from operators due to week end and coming holidays

18102012

Nifty opened within previous day range.Initial range formed. Skipped BPB of  IR low as PDC/ Gap Closure level was too close. Went long on BOF of IR low which moved very well breaking IRH, PDH and BRN.. I was looking to short HOD as BOF. But avoided it as I noticed a  Price Flip Zone very close.

17102012

Nifty gaped up within previous day range due to overnight global cues. IR formed. Short BPB of IR low. Scratched the trade when it failed to move down. Nifty then moved in a 10 point range. BOF range low gave a long signal. Scratched this one also when it reversed immediately.

16102012

Nifty gaped up above PDH. Bias was bullish. BOF of PDH/IR low gave a long signal.TP at IR High/HOD. Rejection on TST of HOD gave a short signal which moved very well. It went down breaking  PDH, PDC, BRN. When it started channeling near PDL, I exited and missed the final 30 point move.It was just a flag.

Reading: High Speed Trading

The hottest new thing on Wall Street is cooling down. 

High-frequency trading firms — the lightning-quick, computerized companies that have risen in the last decade to dominate the nation’s stock market — are now struggling to hold onto their gains. 

Profits from high-speed trading in American stocks are on track to be, at most, $1.25 billion this year, down 35 percent from last year and 74 percent lower than the peak of about $4.9 billion in 2009, according to estimates from the brokerage firm Rosenblatt Securities. By comparison, Wells Fargo and JPMorgan Chase each earned more in the last quarter than the high-speed trading industry will earn this year. 

Read the full article at The New York Times