Tuesday, September 2, 2008

Planning your Short Term Trades

The Nifty moved up by 155 points today, a gain of 3.57% over yesterday's close. Yesterday's post had this suggestion:

The second range is between 4360 and 4200. This is the range which can easily be broken out from, tomorrow. If this happens, traders should go long, with proper stops.

The Nifty moved around 4360 in the morning, then took off to close at 4508, a big gain. As the Nifty was trading above 4360 in the morning itself, what did you do ? Did you buy ?

Traders can take a trade with confidence when they have a complete trading plan. Buying on a breakout of 4360 was a significant part of today's plan. Yet, there were other components.

Where should the protective stop be ?

For a day trader, the stop should be below a three standard deviation of the ATR. This was around 25 points. If you had entered at the open, you would be stopped out duirng the period of drift, just before the market took off. There is no way to avoid such a stop loss. The correct approach is to renter if and when the morning highs are broken.

For a swing trader, who is tracking the market with 60 minute charts, the 2 standard dev stop ws 80 points. An early morning trade lasted throughout the day.A t the close, the trader could take profits on whole or part of the position.

My point is: There was a sense that a move aboe 4360 should be used to go long. Yet, even with this widely available idea, traders could have made mistakes and actually lost money on such a trending day. Why ? because they did not have a plan.

Always have a trading plan, written down, that will act as a guide during trading hours.

2 comments:

Deepak says sudershan is Best said...

Yes Mr Sudershan Sukhani ,You are absolutely right ...I actually close all my long position from tursday just when market started to drift below and buy Cairn at 243level and I am stuck may be for few days .........

I saw you saying on tv buy cairn this is the only stock which you recommended many times and you are very bullish on this.

I know its not good to discuss stocks on this blog as this is something which nobody can predict ......

But if you could clarify few things

first few factors of strength and weekness in different sector like the impact of inflation is most weekness in Infrastructure,banking ,reality & auto and reverse is also true.....

Other things how these oil stocks like cairn ,ONGC ,& neyvellie lignite works ....

Cairn rises with crude but still is it a good stock if crude fell....

I know I am demanding too much but it is only your genrosity because of which I could ask for these clarification ..

I know you read every comment and remember every thing and give the answer when you are writing and appropriate times comes. Please remember this also and write at right time ..........

Ilango said...

That is as elaborate and convincing as one can be. You have managed to bring the horse to the water. Now the horse has to do the "Drinking" (or the "Trading").

I see everyday, intelligent traders make blunders because they consider "writing down a plan" is juvenile and then they get caught up with the market swings and blame everything else except themselves.

Very sensible and very profound. I only wish every trader takes some time to understand your logic and do some homework (Trade plan) before putting the money in.

So much steadiness and maturity in your write up.

Thank You.