More on Structure

Markets cannot be traded without defining a structure, a frame work within which prices move. Nobody knows and will never know the exact structure of the market. It is an approximation, just a thumb rule

We need a directional price move to make money from market. So most of the people define a simple structure like HH/HL  LL/LH  for a trend and try to trade this frame work.( Pic 2). Trade tactics is an entry either on BO or on a pull back. Most of the time pull backs are not that simple. We rarely find single leg pull backs in text book fashion. When the trend is not very strong pull backs become complex and become ranges ( Pic 3)

Later, traders understand this structure is inadequate as markets do not trend most of the time and in between it ranges. Solution is either to stay out or learn to sell the highs and buy the lows of Ranges (Pic 1)

We consider ranges as the building blocks of trends. Successive higher or lower ranges are considered as trend. We try to buy the lows and sell the highs of these ranges. In a higher range we prefer to buy the lows to stay with the trend. Selling highs are preferred when price is trading in a lower range. If you plot ranges in a time, price graph it will look like Pic no 4. Ranges may overlap and can gap up also.

When price escapes and move over to a new area nobody knows where it can range later. Ranges form when price get trapped between demand supply areas. The concept of DPs and Flips helps us in this regard. Most of the time Decision Points and Flips act as range extremes. ( Pic5)

Pic 6 represents a typical range. A range forms when price gets trapped between demand and supply zones. Sellers are aggressive when price moves to the higher area. Buyers dominate the lower area as represented by shaded side bar. There will be a mid point for all the ranges where price simply drifts as neither the buyers nor the sellers are aggressive there.

Price move inside the range itself is mostly random and most of the time just noise. It is extremely important to have the entry and exits as close as possible to the range extremes for a good RR. Average range of NF in 3M time frame is within 20-25 points. Waiting for confirmation reduces the profit and increases the psychological pressure.

I feel, we need to take more TST and TT entries. I will try to write more about these types of entries in next week.

28112014

Gap and initial spike consumed 100 points. Did not get any good chance to long. It was channeling all the day. Channel breakdown came very late. So avoided. no trades today

27112014

Nifty opened near PDC and moved up.IR formed. My expectation was a move up to BRN or at least to IRH. Entered a TT at 8475 with SL 8465,  Trade moved favorably a little  and stayed above PDC for long . SL shifted to 8469. Stopped out. Could have shifted to then LOD. I did not find any good signals later. Expected chop for expiry and stayed out

26112014

Nifty opened within Previous day last move and moved down. Expected PDL to hold on the first test. Thought of doing a TT ( Touch Trade) Buy at 8440 with stop at 8430. Entered the order and waited. Nifty fooled me and went up. Tried a TT at range high. Sell at 8472 with SL 8482. This one got filled. Brought down SL to 8475 with 3 point risk. I was targeting PDL . But price bounced from then LOD covered at RN. Again I expected a test of PDL.Did not get a fill. Price again went up a little tested range low again. Bought at 8451 with SL at 8443 . 8 Point risk. I strongly felt price is not interested to go below RN and the expiry game has started. There was a little chop around NS RN which was also IRH. Did not micro manage. Price moved up after a TRAP. Usually I used to get stopped out here. Price went up vertical and moved above BRN. Long covered. My short order below the swing low did not trigger. Missed the final short.In hind sight I feel it was a good blind short above BRN

25112014

Nifty opened near PDC/PDH and sold. IR formed. Shorted below IRL. Covered at BRN as I suspected a bounce from the LOL level. But PDL held. Again shorted below BRN as BPB of BRN/PDL. Covered at 8073 when the down impulse failed. Pulled back to 8490 level. Hesitated and missed the TST there. Missed the down move as I did not want to enter the extended move. A long on BOF of LOD above RN. covered at 20 point profit. Expected a move to 8490 due to the fluid and short covering. but did not work

24112014

Nifty gaped up above PDH and moved up. An outside trend gap. Hesitated to short below the pin bar and missed FTC trade. Price did not give a good location to short later. Went long on BOF of PDH. Covered when price bounced from HOD. Then it was a choppy channel move rest of the day.

More on Critical Mass

The concept of Critical Mass is one of the Seven Pillars of Decision Point trading. I had written an earlier post on this concept earlier.Read it here, just to refresh your memory.

The concept is very valid on Futures market. As there are no delivery based trades, every position can be cancelled only by executing an order against our own position. In other words every position guarantees a future order in the opposite direction.

For the purpose of analysis, we assume there are two types of traders in the market, Day Traders and Positional Traders. The concept is applicable to both the groups, but we are more concerned about the Day Trading brigade.

Market is a place where countless people execute different strategies at the same time. They have their own methods and tactics to enter and exit. Everybody is attempting to capture a directional move and more people joining the move means more people need to exit on reversal.

Please do refer to the above picture. Price is moving down. People are shorting different signals such as Swing point break, MA break, Fibo levels etc. Finally price hits a demand area and start moving up. As it moves up, earlier shorts start exiting on their signals and create a lot of buy orders on the way up. Momentum traders also join and fuel the up move. DP traders enter early on the BOF to take advantage of Critical Mass exiting

Look at the second part of the picture. In situation A, Price gaps up and nobody was able to participate in the up move. Critical Mass will not help you on the reversal. Situation B is a vertical move. Very few could take a long position. Situation C is a gradual up move with orderly pull back and might have attracted a lot of longs. The possibility of a reversal is higher in situation C

In case of a reversal, Move from A an B can be faster due to the Fluid created. Fluid moves happen not because of Critical Mass selling but lack of buying on the way down.Do not skip a trade into a fluid thinking about Critical Mass. Moves can happen even if Critical Mass is not trapped.  

The concept is applicable for Positional Trades also. When price reverses after a multi day move, it can trigger a fast and furious move in the opposite direction. A Counter trend outside gap is an example of Positional Traders getting trapped

Hope I could convey the idea clearly. Please feel free to ask if you have any doubts.

21112014

Nifty opened near PDC. Shot up after a small pull back to NS BRN. Consolidated within a 10 point range. I was expecting a TRAP like pattern there. Did not attempt the BO which went to 8499.75. Missed a short there also. There was no reliable pattern. Finally went long on the TST of Range low and bagged  20 odd points. Did not attempt the BOF of BRN as it came very late

20112014

Totally messed up the trades.Missed the BOF of PDC in the morning session. Then took three trades at the same DP, PDL and got stopped out in all. Finally Hesitated to take the PP and missed that one also. All the three trades were attempted within a Barbed Wire around PDL. Violated the rules and got chopped.

19112014

Nifty opened near PDC and fell. Tried a long on BOF of PDL. I was not confident with the trade as it did not break the extreme. Managed a scratch. Short on BPB of PDL moved well.Ignored the NS RN as it was a fluid below. TP at 8390 when price failed to move beyond the early extreme.There was an opportunity long on third test of LOD. Did not take it

18112014

Range day as expected. Nifty opened within previous day closing range and traded within it most of the day. There were too many levels inside the range. Attempted only one trade which ended up as a scratch. BPB of PDC and IRL

17112014

Nifty gaped down below PDC. IR formed. Price broke IRL and found support at PDL. There was a BOF at PDL. Avoided lond as it was a minor one and IRL was very near. Went long on BPB of IRL. Then it was just trailing till 8460. Both Nifty and NaMo were firing on all cylinders.

14112014

Nifty opened near PDC. IR formed. Avoided long above IRH as BRN was near. Price struggled a lot to move above BRN. A long trade above BRN, BPB failed. Stopped out below BRN. Then it was a BW around BRN. Finally went long on the BOF of range low. Trade moved well . But after stopping me out.

13112014

Nifty opened near PDC. IR formed. Never expected such a fall and missed the bus. There were too many supports to break. Did not traded the up move also. Looked for a short at BRN . But price was making a BW for a while. Finally shorted below BRN when price fell below all the major levels. Target was LOD. But it moved further to RN. Covered above the pin bar

12112014

Nifty gaped up above PDH and BRN. long on the BPB of PDH. Expected an explosive up move as Nifty was breaking out of a very long period range. TP when price failed to move above RN 8450. Expected a range within the last impulse. Long trade of range low BOF ended as a scratch. No other trades.

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11112014

Nifty opened within previous day range. Went short when price got rejected from BRN for the second time. Stopped out.Short on BPB of IRL. Price did not reach RN as expected. Covered at 8367. A long PP trade above IRL also failed.Price went to the target BRN only after stop out . Price action was very choppy.Price trading within 8350-8400 range during the month. An explosive move likely soon

10112014

Nifty gaped up above PDH and BRN. Tried to go below them and got rejected. Went long on BPB of BRN/PDC/PDH on break of IRH. Price got rejected from ATH. covered on break entry bar low.Short below IRL. Covered when price refused to go beyond RN. Long on BOF of LOD which was also NS BRN 8300 area.Entry was above RN 8350.  Exited on price getting rejected from PDH/PDC

03112014

Nifty gaped up above PDH. Failed to go beyond the first bar. Attempted two BOF longs and a short at range high. Nothing worked well .Managed without loss as all the trades were at the extremes. Daily still in rally mode and price within a higher range. NSE is conducting trading from their DR site on Nov 5,7. Data vendors are not equipped to connect to DR server so do not expect live charts.