30112012

Nifty gaped up above PDH. IR formed . Entered long on the retest of the level after BOF of IR low.. Second trade was also a long trade . BOF of BRN 5900.Bulls are not willing to liquidate their position it seems.

Win More, Lose Less

I had written an earlier post about the three stages of trader development. (Read). This includes defining the structure of the Market and finding ways to trade the moves within this structure. Rest is gaining practice and experience to execute your methods without hesitation.

So it comes down to a method with an edge and execution skill that will not erase the edge in the method. Edge is simply the positive expectancy of the method and this positive expectancy is not a result by chance. Edge is non randomness.

How do we know our selected method is having an edge?  It is very simple. The method will win more and lose less.

Win More, Lose Less

 Most of the trading methods barring few option strategies require directional price movement. We are betting on these price moves. We win by accurately assessing these directional moves. If we are right more than we are wrong in this skill, we will win more and lose less.

Win More, Lose Less

We must win more money if we are right than what we lose if we are wrong. The gain we achieve if we hit our target should be more than the loss we suffer when we get stopped out. In other words Risk/Reward should be favorable

Win More, Lose Less

We need to bet big and win more when we are right. All trading opportunities are not equal. Betting big on high probability trades and being modest on lower probability situations will boost our performance. Position management is very important in trading.

Almost all  the new traders focus only on the first thing as they want to be right always and out smart the market. Real break through in trading will come once you shift your focus on to the other two.

29112012

Nifty opened above PDH and moved 90 points. I was not able to capture any move.There was no reliable signal to enter early. Being expiry, I was not comfortable to initiate a position around BRN 5800

27112012

Market gaped up above PDH and spiked without giving a pull back. IR formed.Expectation was a channel move. Did not enter on first pull back as it was below BRN 5700.BPB of BRN gave a long signal.

Trading the Illusions

Most of the traders are trying to trade the illusions. Once you understand the framework within which the price moves everything becomes clear. Defining the structure of the Market is the first step to trading consistency.

26112012

Nifty Opened just above PDH . First bar acted as IR. FTC above IR High gave a short signal . Entered on break of PDH. TP when PDC held. Another short below PDH on TST of HOD suddenly reversed. Stopped out .Missed the BOF of HOD.Nifty traded within a 20 point range the whole day.

Anchoring

If you visit Kerala during monsoon season ,you can find many hawkers from North India selling blankets and sweaters.They come in groups and sell their stock door to door.They follow a unique selling strategy. First Some of them will go to the villages and quote shockingly high prices for their products.They wont reduce their price and will not be able to sell much.

After a few days another group will come. They will move down the price and convince villagers that they are selling at a discount because the season is over and they have to go back to their native places.People think this  price as bargain comparing with the old price and happily buy out.

This behavior is called Anchoring in behavioral finance.Investors are anchoring when they buy a stock that has fallen a lot without a second thought. They are mentally anchored in the price it was trading before the crash. That makes the present price look like a bargain. Such Anchoring could be injurious to your financial health

Price action trading works because of Anchoring. Traders notice the price levels where the market turned earlier and act there again.These are the ideal locations to initiate trades with the lowest risk.Decision Points and Flip Zones are  nothing but anchoring points.

Half of the battle is won if you know where to initiate the trades.

23112012

Market opened within previous day range. Initial range formed. Could not short IR low break as there was no pull back. Skipped BPB of PDL as the market had already moved nearly 40 points. BOF of BRN gave a long signal this trade moved well.Paying attention to flip area is very important. Notice A here the flip zone failed to hold One can safely short at a with a SL above HOD.If you notice flip zone B you will never exit the BOF trade of BRN. here and will never short here as BOF of PDL

22112012

Market opened above PDH. I was looking to go long. IR formed. Notice the area marked A We will be tempted to go long here. But notice the flip zone just above.Better to wait till the price breaks above the flip zone.Went short on the BPB of PDH. Scratched this trade. Missed the days major move, BOF of PDC

R I P, Mini

Rest in peace, Mini. Don't get upset.Mini is neither my relative nor a regular reader of the blog. It is the derivative contract called Mini Nifty.

SEBI has instructed the exchanges to discontinue mini derivative contracts on Index.According to them , the action is to ensure that small/retail investors are not attracted towards derivative segment.They feel  Mini lots are attracting too many small players !

Mini contracts were introduced in 2007 with a minimum contract size of one lakh. The purpose was to attract more retail participation. So far I could not understand the logic behind this.Reducing the lot size of Nifty from 50 to 20 was a better option.This could have avoided the split of volume. Then Nifty would have become much more liquid . Bigger traders can always go for multiple lots

Now SEBI has reversed their position. Their priority is  to ensure retail traders and small investors are  not getting hurt, playing with the weapons of mass destruction.This is absurd. Don't they know index futures are cash settled and requires very little margin to trade ? Are they thinking that additional margin of Rs 10000/- will discourage these traders ? In reality this action will ensure retail traders lose 2.50 times more .

The message is very clear. SEBI do not want retailers to trade derivatives. So what else we can expect? More stringent measures like  hiking  the margins to 100% ?. You can expect an increase in STT also

Go ahead SEBI. Go and kill the Market.

21112012

Market opened within previous day range.IR formed. FTC below IR low gave a long signal. BPB of IR high was another opportunity. Skipped the BOF of PDH as it was channeling. BOF of BRN gave another long trade.

20112012

Nifty gaped up above PDH. Long on BOF of PDH. with SL below BRN. Stopped out. Went short below BRN on BPB of PDH. BPB of PDC gave another short which moved well. BOF of PDL was also a good trade.

Trading Cults

Traditionally “cult” was a term used for any new religious movement. In fact it is applicable to all walks of life .Broadly it is a group of people intensely devoted to a person, idea, or a movement.

Do we have “Cults” in trading? Yes. I have seen many sites, blogs and forums showing cult behavior. Many of them were started with the noble intention of helping the new traders. Unfortunately most of them have become “cults” over time. If you closely observe, it is very easy to identify cult behaviors.

• The Guru and his teachings are always right, and above criticism. They always glorify the leader. Guru remains a noble gentleman and always the loyal seniors deal with critics.
• Members will be encouraged to confess all their faults and mistakes. They will make you inferior and guilty projecting the leader as a super human. You will never understand you are comparing your performance with something which is not achievable by a beginner.
• The standard answer to your question is a quote from the leader. Members are expected to parrot those answers. Independent or critical thinking is not encouraged. Critical thoughts about the leader or the group are discouraged.
• They make you believe that, what they are doing is of a higher purpose than what anyone else is doing. Others are just doing it for their own sake but Cult members are transforming, building, achieving and doing great things.
• They will provide you a ready-made extended family when you join the group and you will start spending all of your spare time with other members, who are your new circle of friends and will never grow beyond this.
• There are always a few cult members around who proclaim that it is all so wonderful. They rave about how wonderful this group and leader is, and claim they are all making great progress following the Master.
• Sometimes the leader rewards a member with an open praise. Other members will flock to congratulate him and the poor guy feels as if he has achieved something great. Leader only rewards, it is the duty of the seniors to fix you.

You will not get the promised benefits from any of these cults. You just get used and abused. Finally you will become disillusioned and discarded. Avoid Cults like plague.


“It’s your life — but only if you make it so. The standards by which you live must be your own standards, your own values, your own convictions in regard to what is right and wrong, what is true and false, what is important and what is trivial. When you adopt the standards and the values of someone else or a community or a pressure group, you surrender your own integrity. You become, to the extent of your surrender, less of a human being.”

Eleanor Roosevelt

19112012

Nifty opened within previous day range. BOF of BRN gave a short signal. PDL gave support.Attempted two BOF trades of PDL.Both these trades did not move as expected to Overlap range bigh

Thou Shalt Fear

Experiencing fear is normal in trading. In fact, fear is considered as a basic survival mechanism. Without fear, we won't be able to recognize danger and respond appropriately. Fear warns you that something doesn't feel right about a trade, you should try to figure out what exactly is going wrong

Fear may force us to make a decision that goes against good trading habits. It may make us violate our trading plan. We probably go through one of the following at least once every trading session

• We fear our winners will turn into losers and exit, missing bigger profits
• We fear losing money and hold on to losing trades longer, losing more money
• We fear to lose and skip valid trades.
• We fear missing trades and over trade.
• We fear the unknown, we fear the uncertainty.of trading.

No matter how much better we become, we will never stop feeling afraid. No matter how much more experience we get, we will never stop feeling afraid. Trading psychologists may not agree. They will swear and promise us to take our trading psychology beyond fear and help us achieve peak performance. Let them. It is their bread and butter.  

There is no other way but to accept fear as a constant companion. The only thing I can tell you is that while the fear never goes away, the more you work through it the easier it becomes to handle.

16112012

Open within previous day range. IR formed. TST of PDH gave a short signal. It went exactly where it is supposed to go, the IR low.Went long when the second push down failed. TP at PDH. Short on BOF of PDH. BPB of IR LOw was an opportunity to add to the position.

Creativity

15112012

Nifty gaped down below PDL. Bias was bearish. First candle acted as IR. Short when Nifty failed to go above DO/HOD/IR High.Skipped the counter trend BOF of LOD.

12112012

Nifty opened within previous day range. Previous days last down move acted as a range. FTC above IR high gave a short signal. TP at PDL. Did not attempt the BOF  of  PDL

09112012

Nifty opened within previous day range. BOF of  PDH gave a short signal.TP at IR Low..BPB of IR Low gave another short signal.This trade moved till BRN  5700 and gave very good profit.

Make-or-Break Levels.

Imagine a Tennis ball hitting your window pane. What will happen? It may break the glass or bounce back, depending upon your “Head Line”. If you are destined to ruin your weekend, hunting for somebody to fix it, nothing can help. The ball may even break your prized flower vase.

In reality it depends on many factors such as the strength of the glass, speed of the ball, force with which the ball is hit, and how far the ball has traveled. The angle of hit is also important so is the barriers it encountered on the way which might have reduced the impact.

Time and again I have written that my trading revolves around Decision Points. Decision Points are Make or Break levels, which may hold or yield. Acceptance or rejection of price at these levels decides my course of action. We will never know for sure what will happen when price interacts with decision points. But we will be able to anticipate it correctly, most of the time, if we are paying attention to details.

This includes Strength of the Decision Point, trend strength, and origin of the move. How far the move has traveled and barriers encountered on this move is also important. I had explained the strength of the Decision Point in an earlier post.

There are three ways to assess the trend strength. These are.

• Extensions. Notice how far an impulse wave moves over the previous swing high. Compare with the previous extension. If it is more, trend is accelerating.
• Dips. Watch how deep the pull backs are. Compare with the earlier one. Deeper pullbacks denote less strength.
• Angle of the move. Looking at the angle of the move we can see whether the trend is slowing or gaining momentum.

Origin of the move is very important. A move after a BOF will have much more strength than a move after a TST or FTC as there will be trapped traders trying to exit.

How far the move has traveled is another factor. If it has already moved 20-30 points in Nifty Futures, early entrants will start booking their profit on the first sign of a resistance. This will slow down the move.

Arrival of price at the DP is very important. If price consolidates just before the DP for a while, it will attract stop orders above this consolidation. Once price breaks above this, these stops may trigger and provide enough order flow to break the DP

Always pay attention to the details. Never ignore the small stuff.

Please note that I have shown only the "Long" example. The concepts are applicable to " Short" side equally well

08112012

Nifty gaped down and found support at PDL. Went long on the first pullback with stop below LOD and PDL.It channeled for a while. Exited the trade when the channel broke.Nifty reversed at DO without testing PDL. Missed this long trade.Went short at the BOF of HOD. Scratched this trade as it refused to move

07112012

Nifty opened within previous day range. Market was very nervous waiting for US results. When Obama won it broke PDH and gave a nice BPB to go long.It gave a good 30 points. I was looking to short the retest of HOD. But Market reversed early.Anticipated a BPB of BRN.This one also did  not happen

06112012

Nifty Opened near PDH. IR formed and later another range overlapped it. BPB of Range high gave a long signal. Scratched the trade later.Missed the final up move.

05112012

Nifty opened within previous day range. BOF of IR high/ PDC gave a short signal. Scratched when BO of IR low failed. Went long on the second test of PDL.This trade moved as expected.

Small Stuff

Lack of attention to details can cause big problems. This is applicable in every walk of life. A slightest mistake or loss of focus of a Surgeon  can result in a tragic situation. A loose bolt or a misplaced pin may cause a plain crash. In such professions each step of the entire process is given complete and careful attention

As a Trader are you paying attention to the details? Successful traders understand the importance of details. Entire trading environment is simply an accumulation of small details. Lack of attention will lead to under performance, wasted opportunities and inconsistencies.

Habit of paying attention to details does not come naturally. We need to train ourselves. Careful observation is required to absorb and digest everything. We must discard all the unwanted variables and focus only on actionable stuff.

Concentration is the key to details. Do not multi task. Forum postings and bloging can wait. Better to avoid chat rooms during market hours.

Creating a check list will help a lot. Write down important things. Do not rely on your memory, at least during initial period. Organize and plan everything in advance.

Consistent attention to these small details produces trading excellence. That is why we must all sweat the small stuff.

ATD (Attention to Details) is the key to ATD (Achieve the Dream)

02112012

Nifty gaped up above PDL.IR formed. Long on the break of IR high. Scratched the trade later.

01112012

Nifty opened within previous day range.IR formed. BOF of IR low gave a long signal.This trade moved well..TST of PDH gave another long TP near day high.