Reading: Secret Methods

There are so many trading offers out there that supposedly have “little-known” or “secret formulas” for profitable stock trades. After 18 years of trading and reading over 200 books on the subject I can tell you that even the best trading "secrets" are just old concepts viewed from another perspective.

Here’s the most profitable secret you need to know…NO trading method that is supposedly “secret” or “little-known” will work. You must come to understand that the very premise of making a profit in the markets is to enter trades (long or short) that other profitable traders are trading.

Now think about this…If it’s “secret” then very few traders are using it. Doesn't it take more than a few traders to move a stock price? The aggressiveness of buyers or sellers in a single direction is what causes a stock to rally or decline in the first place. This concept is so simple yet so many traders are suckered into thinking that there is some method, system, technique or indicator out there that no one else knows about and will give them the “winning edge.

You don’t want to be a lone wolf with a winning edge in trading; you want to be part of the pack on the right side of the price moves. It is, always has been, and always will be that plain and simple.

 Kevin Brown

Angry Trader

Self Feeding Loops

While I was in primary School , one day our science teacher showed us an experiment.When a burning candle was covered with a glass tumbler, the candle burned for a short while and the flame died out.She explained to us that it was because of non availability of Oxygen.

Then I was wondering how the gun powder packed tightly inside the Diwali cracker is getting Oxygen to burn. I was afraid to ask her. Later, I could learn that Gun powder releases Oxygen while burning and this is used to continue the chemical process.It is a self feeding mechanism.

Markets, especially the Futures,move in self feeding loops.Order flow is the Oxygen that provides energy for the Market to move. When order flow dries up,Market will cease to exist.Like any other living organism, the first priority of the Market is to ensure its own survival.

The beauty of the Futures Market is that nobody can close an existing position without taking an opposite action against their own position.So every fresh order creates a future opposite order.Sooner or later Market is going to trap those who trade the current move.Market will force them to create order flow in the opposite direction.

Your success as a trader will depend upon your ability to accurately anticipate where the Market is going to do this, and to take decisive action without hesitation.

29062012

A soft trend day. Nifty gaped up above PDH.  BPB of the IRH gave a long trade.Much awaited BOF of BRN came too late.Very boring.

28062012

Nifty opened above PDC , but within yesterdays range,Traded within the IR till 12.45 testing our patience.Finally broke the IR low and gave a BPB signal which moved well.BOF of PDL gave a long signal.

Trading cannot be contained in a few simple rules. We need to assess each and every set up on their merit.Every moment in market is unique. For example if you traded a BOF at point A, you will get stopped out.Price remained below the IR low for nearly half an hour." A "was a weak attempt by bulls which failed immediately.First you need to focus on the rules and slowly "defocus".
 I will write a separate post later on why you need to "Defocus" to achieve Automaticity

27062012

Nifty gaped above PDH. Did not move above the first candle with topping tail.Expectation is a range move between PDH and first candle high. First signal was a short at HOD-DT . I would have taken profit around point marked A. Notice the point marked A. If you were not short from the HOD, you will surely go long here as BOF of PDH and will get stopped out.If your trade at any DP fails never reverse a trade. Most of the time it will chop.

26062012

Nifty opened near previous day low and BRN 5100. Moved up and formed an initial range.BPB of the IR was the first signal. This trade ended in a loss. If you get stopped out, do not attempt  another trade around the same place, especially on a weak DP like IR High/Low.FTC at A is looking good in hind sight, very difficult to trade in live market.BOF of DO-PDL-BRN gave a good long signal. I was holding it and expecting it to cross above HOD.

25062012

Nifty opened near PDC . Went above the PDH and formed an initial range. Bias was bullish.Skipped the BPB trade of IR high as BRN was very close.BOF of BRN gave a short signal.As expected it went down to PDH. No long here as there was too much congestion just above . My expectation was a LOL long trade at PDC/DO as the bias was bullish.or a short at DT/BRN/HOD at 5200. Missed the last 80 point move.

Reality of the Market

Majority of the traders fail because they do not understand the reality of the market.Most of us are not even playing the right game.Materials available over the net and the books written by failed traders teach technical analysis patterns and indicator based signals and we assume this is the reality.

The indicator based TA signals and price patterns are illusions. These are only effects. Cause is something else. Then what is the cause ? Price .Indicators and  patterns are derivatives of price. Then price is the cause and TA patterns the effect.So we need to focus on price.

Do not reach a conclusion so fast. Price is another effect and there is something that makes prices move in markets. What it is ? It is the order flow. Orders make the market move. If the net order flow is on the buy side market will go up . If net order flow is on the sell side market will drift down.

Then order flow is the real thing  that moves the market. Oh No . Dig a little more deeper. Yeah. got it . It is the people who act in the market by feeding their orders.When people start bidding higher,price will move up when they start lowering their offers price will start moving down.

A little more deeper. When people are going to bid or offer aggressively ?. It is when they feel the urgency and desperation to transact. This is when they become emotional.. So it all comes down to the emotion of  the market participants.Fear and greed are the most powerful emotions that can force people to act.

If you are able to identify the price levels where a large enough group of traders succumb to these emotions and  able to act there without hesitation , you will win in this game. Trading is nothing but engaging the other party. Encashing  their fear and greed.

Suppose you are in a shopping mall. People will  be moving  around in a random manner. Then you hear an announcement that the first ten purchasers of  a particular item will get another free. You can see  so many people rushing to that counter .That is greed in action. Then you go and press the fire alarm button.Everybody except you will rush to the exit. Fear in action.
Now you know it. Fear is much more powerful emotion than greed.

Trading is war, whether you like it or not.We need blood on the trading floor

22062012

Nifty gaped down 50 points and started moving up. Bias was bearish. I was looking for an area to short. No Decision Points nearby. Nifty formed an initial range and tested the IRH at area marked "A". Do not try to trade counter trend on a TST. Wait till you get a message from the Scouting Party 
BOF of IR High gave a good short opportunity.I thought it will reverse from LOL of IR Low and yesterdays breakout point MSP. But nifty fooled me and went down to BRN-PDL. BOF of BRN gave a long signal which moved well.
Did not attempt BOF of HOD as I noticed the Spike and Channel Pattern early. Read more on SAC 

Spike and Channel

In an earlier post , I had written about a dangerous patten  called "Barbed Wire" formed around decision points.. Unless you identify this pattern earlier, you may get whipsawed left and right before you know what is happening."Spike and Channel" is another dangerous patten. If it happens immediately after day open ,you may be able to ride it.But better to stay out.SAC is nothing but a diagonal Barbed Wire.

A relatively large move in a short period of time is a spike. It could be an up move or a down move.A spike can be a gap, Wide range bar or a few bars in the same direction.After the spike price moves in a Channel in the same direction of the spike.While trading BOF ensure that it is not a SAC move.

 Above chart is today's price action . You can also see a narrow SAC  previous day evening.If we did not notice the SAC most of us will get trapped in BOF trade of HOD.Today those who have traded the BOF of BRN-LOD made good money. Imagine if  it turned out to be a SAC to the down side.

Quote of the Day

"Information is everywhere but as a trader or investor it is your job to find what you can act on.  It goes back to the two types of people.  Those that want to read about trading and those that want to trade.  It appears on the surface that one transitions into the other but it does not always work out that way.  Understand why you are seeking out the information you are seeking out and if it gets you closer to your goals."

Eli Radke

21062012

Nifty opened within previous days range. BOF of PDL-BRN-IR Low gave a long signal.I expected it to break the IR High. The breakout of IR High failed . Did not short here as I was long and looking for an exit.BOF of PDL and TST of LOD-DB was an opportunity to go long which gave very good profits.If you remembered the VWAP strategy, you will not prematurely book your profits.
Trend always starts and ends at range extremes. Love the extremes.

20062012

Nifty opened above PDH and sold. Bias was bearish. First two candles formed an IR.Went short on BOF of PDH and stopped out. BOF of IR high gave another short signal which was also a LOL trade.This moved to the IR Low as expected , but market scared me and I  exited at a very small profit. The LOL BOF at BRN 5100 was a good opportunity to go long which moved very well. Did not attempt the last BOF as I was already in a long position.

19062012

Nifty opened within previous day range. First three candles moved in one direction . Usually this initial move will act as a range. BOF of IR Low gave a long signal.TP at IR high.
( Dont be in a hurry to short here. When the breakout of a range extreme fails expect the breakout of the other extreme)
The second signal was a FTC trade which moved well. BOF of MSP gave another long signal.
Notice the absorption taking place at 5120 level.Market traded in a 10 point range for half an hour. Somebody was absorbing all the buying. Always look for absorption after a steep vertical move. Wait for the second push to fail after a climatic move.

Rule of Two : If the market fails to do something twice, usually it will try to do the opposite

18062012

Yet another announcement day.Better to stay out till the market stabilizes after announcement. When the market is in panic, it will break every technical level in front of it until it exhausts.These announcements  will influence large investment houses to become either buyers or sellers of the physical stocks.We cannot anticipate which way the market will move.Today the bias was clearly bearish, but there was no reliable short signals during the Barbed wire move at PDL.
You will be tempted to go long at the area marked A as BOF of PDL.. Never attempt counter trend trades on these kind of days.

Help

I am reproducing an Email received from Nifty Baz which is self explanatory

"I am experiencing difficulty in posting comments in your blog. The comment gets posted and a message is displayed on top that the comment has been saved and it will take some time to appear on the site. I then log out. However the comment does not appear in the post when I open your blog. I am attaching screenshot of your blog after having posted my comment at 10.11 pm. Thereafter I have signed out. But the comment does not appear in the blog. I don;t know why it is happening. I tried posting this several times today morning without success. It has happened on earlier occasions also."

Anybody encountering the same issue ? What could be wrong ?. If  you know the solution please let me know. 

Trends

" Trade the Trend"., "Trend is your Friend". Every trader might have read it a thousand times. But unfortunately nobody knows what a trend is,where a trend starts and where it ends.Many traders think a trend starts when price breaks out of a range. Wrong. They are going to miss most of the trend move

 Trend is nothing but a prolonged movement of price in a particular direction.If you approach the market as if it is ranging all the time, There is no confusion. Almost always a trend starts at a range extreme and terminates at the extreme of another probable range.In the above example you are entering at the BOF of a range extreme marked A. You expect the price to break out above the other extreme and move up to a higher trading range high marked B.This approach will help you to capture a major portion of the trend move(from A to B) and you are doing it with the lowest risk.So love the extremes.

15062012

Today was a type one day . Market was trending up from the open..There were only two decision points BRN 5100 and PDH both of which could not stop the up move.Most of us will short and lose money at area marked A. In a strong trend most of the counter trend trades will fail.
As I have written earlier, a trend is a series of range breakouts. Market moved in three ranges today and if you traded  the range lows marked you could have captured most of the move.If  the current price range is above the previous one, always better  to buy the range lows.You can find a no mans land between the ranges. I have marked these areas as "Buffer Zone" . Buffer zones are always present in strong trends.
I will make a separate post on Buffer zones, later. I am afraid I am going too fast.

14062012

Another data announcement day. Earlier I have lost a lot of money trading on  these volatile days. So usually I stay out till the market stabilizes after the announcement.I was attending office today and may not be able to take leave for a few days.I will analyze the chart in hindsight and will try to explain another concept.

As I have written many times the core concept of my trading is the acceptance and rejection of price at decision points. The second concept is that the market is always in a range and the decision points are probable range extremes. A trend is simply a series of range breakouts.. I try to sell the range highs and buy the range lows.I had written earlier about this concept If you have not read it , Read it

Today Nifty opened within previous day afternoon range marked Range 1. Buy the Trading range low. BOF of MSP ( Major Swing Pivot). It would have gone up till PDH the range high. But on inflation data market sold, broke the range low and found support at PDL. Now we are in range 2 between MSP and PDL sell high and buy the low. But notice the new range is below the previous one and inflation data is disappointing. Bias is clearly  bearish . So selling  the high is the high probability trade. Sell the BOF of MSP.

13062012

Nifty opened near PDC and drifted down. Reversed without testing BRN. BOF of  PDC -DO was a short trade for an experienced trader.BOF of LOL ( LOD/BRN) was an excellent trade. BOF of LOL(HOD/PDH) was a short which also moved well.. TST of DT at PDH gave another short signal.
If you are not familiar with the  Layer Over Layer concept , read it here
If you are not aware of LOL, you may short at point marked "A" and go long at Point "B".as BPB.

Most of the days the market will be in control of the day trading brigade.These people are creatures of habit and play by rules. Learn to swim with the sharks and hunt with the hounds.

I have removed the unwanted and rarely used items from the glossary. Now it is not confusing  and looks neat .

Demotivator

12062012

Nifty opened below PDL and refused to go down below the DO.I do not trade if any major announcement is scheduled. Natural ebb and flow of the markets will be affected during these days. So it is prudent to stay out till the market stabilizes after the announcement.Early morning there was a tendency to form a barbed wire around PDL/PDC.. Took only one trade BPB of ITR.Missed both A and B as the price reversed before reaching the DP. I was ready to short at PDH at point C.But when I looked at VWAP, I stayed out.
You can see the screen shot of VWAP below the chart.Read about VWAP strategy here if you have not

11062012

Nifty gaped up above PDH and traded within a 20 point range till 2.45. Even though the bias was bullish, I skipped the 1PB marked A because I felt after such a run up it may need some rest. Skipped the FTC at B also as there was no space for the price to move.BOF of TRH gave a short signal.I expected the price to go to PDH (LOL Trade). Exited at the BOF of BRN/DO. Went long on this BOF , TP at HOD. Hesitated to short at area marked D and missed the down move .BPB of PDH gave a short signal That one moved very well.. All the trades in profit.

The lower band is the screenshot of my trade book. This one is not for everyone  but for the gentleman who made a ridiculing comment(deleted it) on this weekend.Dear Sir. Please see the screen shot of first two trades, Notice how I have traded a 20 point range. It is possible with practice. Regarding the third trade, the PDH was protruding and hurting our left eye from morning. BPB of PDH ( a 40 point trade) was a child's play. If you missed this location and the BPB shame on you.
Here I am sharing the knowledge I have accumulated over the  years for free. Everything may not be useful. but at least some beginners can get the benefit, I feel. Please do not force me to delete this blog.

How To Be Successful

“I've got strengths, and I've got weaknesses. I don't work on my weaknesses. I ignore them, and I cultivate my strengths. The level of achievement that we have at anything is a reflection of how well we were able to focus on it. Because the only thing that's holding you back, is the way you're thinking.” Steven Siro Vai

Steve Vai is an American guitarist, songwriter and producer who has sold over 15 million albums.He is one of the artists that have attained the highest performance level on their chosen instruments. Listen to his advise.

08062012

Nifty opened within previous day range but below PDC/PDH. First two bar strongly moved down. Morning spike may  act as a range. BOF of probable TRL was an opportunity to go long. Skipped it as it was CT and the range was a tight one.TST of the DO gave a signal to short.  TP at PDL.
Absorption just below BRN was a short signal .( There is a  separate post on absorption. If you have not read it ,read it here.)
This trade moved well. Covered the shorts at the point market TP when the second push down failed. I missed the entire up move happened later. I just froze and watched in disbelief . I really forgot about the VWAP Strategy.( Read )
I think the big boys who absorbed just below the BRN 5000 panicked and started exiting when the price moved above it, fueling the rise. Further Bears might have decided not to carry their shorts home for the week end.

VWAP Strategy

VWAP is the Volume Weighted Average Price of a security. It shows the average price of the positions traders carry at the moment. In NOW terminal it is shown as ATP . Today, Market gave a very profitable opportunity to use this strategy. But unfortunately I could not capitalize. I just froze during the final up move

I learned this from smart trade, the Moderator of Traderji Forum. Long back he had made a post in Traderji which I copied and kept . I do not have the link to the original post, hence reproducing it below.

This is one trading technique which I use very regularly and I wanted to share the same with all. At 2:40 -45 I was long in Nifty Futures and the market was looking strong. I had to take a decision whether to book some profits there or wait till the end.

We play on simple technique that find out which is a side which is trapped and how much are they under water. At 2:45 the weighted average of Nifty future was showing 5035-40 whereas NF was quoting at 5085....a clear gap of 40-45 points. This means that the market is heavy at the bottom or lots of trades have happened below 5035 ......and the longs are comfortable but shorts are now feeling the heat. They will come for covering their short positions......also at 3:10 the brokerages will square off all loosing positions which are not covered by margins. So here instead of booking profits add on every dip ......the bears are dieing to cover their short positions.

After 3:10-3:15 there is panic in bear camp.......the die-hard bears come to cover after 3:20 and it is adding fuel to the fire. We just have to watch market going up like a rocket.....last 20 min give us a very quick move up.......and we get best price when the bears say " damn.....cover at any price...." and that is where we liquidate our long position built up anticipating this to happen.........it is a fun to trade this move....

PS. Recently there was an allegation that I am posing as "smart trade" and misleading the readers. Kindly read the anonymous comment and my reply here


 This is the screen shot of NOW terminal at 3.20 PM today Notice the LTP and ATP

Barbed Wire

Normally price will not stay at the decision points much longer. Decision points  are areas from where price moved away historically. These points are proven levels of demand supply imbalance. I expect a significant group of traders to react and act at these levels and create an imbalance again.

On rare occasions price will not run away from these areas, Instead it chops around it creating a tight trading range(TTR)..This is a very dangerous pattern which I call  "Barbed Wire". If you try to trade the DP , you may get whipsawed left and right.Fortunately this pattern is rare and most of the time it appears around BRN.Once a BOF trade fails dont be in a hurry. to enter again. Better to stay out till price moves out of the TTR. Never attempt Counter Trend trades.
When in doubt, stay out

07062012

Nifty gaped up above PDH. After yesterdays run up and morning gap up Nifty needed some rest and consolidation. Experienced traders will short below the first candle targeting PDH. I missed it.
Went long on TST of PDH  which ended as a scratch. BOF of PDH and DB moved well . Counter trend BOF was a disaster. Rest of the day Nifty traded in a TTR which I like to call Barbed Wire  Pattern.. I will make a separate post on this.
Hard and fast rules will not work in markets. Every moment in the market is unique. Today's gap up requires a different approach . If you try to go long on Bar 5, you will get  stopped out.

06062012

Today Nifty opened above PDH with bullish bias. For the next fifteen minutes it traded within DO and BRN. One can go long at 1PB as there is LOL support below and the price was within risk tolerance zone. Next low risk long is at TST of TRL.Alternatively one can go long BPB of TRH.
Soft trend days such as this requires a lot of patience.Avoid CT trades. If you are able to enter early you will make good profits. You will not find much reliable patterns during soft trends.

I could not post for the last two days. I was attending a motivation programme  by my employer. But they do not know

Motivation does not create action but action creates Motivation,

Reading : Brian Hoffman

Trading will often take you to your breaking point and then present the opportunity you were looking for once you have given up.This is the rotation that most traders are trapped in.  Hitting all their losers and scratching or passing on most of their would be winners.

These occurrences are no coincidence.  The market is designed to do this.  This is how a live auction comes to a fair price.  Everybody is competing at once to find an edge.There are many participants with varying agendas running a countless number of strategies at any given time.  The price is rarely going to do what you want it to.  If it did, there would be no price efficiency and price would tend to perpetually move in one direction.

 The market has a single purpose.  That purpose is to make sure that nobody has a static edge by repeating the same exact strategy.  Otherwise, it would get massively exploited with huge capital.If there was such a loophole that developed, it would be quickly closed.  Participants instantaneously catch onto it then the price returns to complete efficiency.This action is not created by any individual or specific group, it is the auction itself and all the participants acting in the entirety that create the movement.

This makes even the best hindsight or paper strategy completely ineffective without an experienced speculator driving the decisions.

 Profitable trading day in and day out comes down a trader being able to use their feel and experiences to quickly adapt to what they see.  This is not avoidable.  Many will try to convince you otherwise but it is just simply not true.

Brian Hoffman

Concepts and Tactics

Today Sunil Saranjame of timamo has made a post linking my blog. I would like to thank him for the link . please read it here.

If you have carefully gone through the actual trades taken, you will find some difference in entries and exits. This is because the tactics differ. Very same concepts can be traded with very different tactics. The core concept of my trading is the price acceptance and rejection at trader decision points. Scans, indicators, candle patterns etc are all about tools and tactics to trade the concept. The method I trade is only "one of the ways to trade" this core concept.

The critical thing in trading is basing your trading strategy on a core proven concept.If the core concept is sound, rest is all about tactics. Concept comes first, then only tactics. Deep understanding of concept will help you build a strong foundation on which you can build a trading system. Low conceptual understanding is the main reason for failure in trading

Next time when you read about a new trading method, think about the core concept behind it before jumping on it. You can avoid a lot of frustration and save a lot of money.

Only conceptual understanding will help you to build an enduring edge

01062012

Nifty opened within previous day range. Breakout attempt of the opening bar failed. This gave a FTC short targeting the PDL.. Second short was the FTC signal at BRN 4900. Both trades profitable. Afterwards there were no reliable signals