Friday, November 14, 2008

Early Morning Review - Friday 14 Nov

While we enjoyed a well deserved holiday on Thursday, the US markets went through some ineteresting phases. With a big decline on wednesday and then an equally big rally (a bit more) on thursday. We start trading with the most markets covering up their losses.

For short term, momentum traders, this is indicative of an up move. Do not try to go short today, or even next week while this up move continues. Eventually, resistance will emerge around 3200.

For Investors / Position Traders, such choppy markets are confusing. This is a pity, but we have to accept what the markets tell us. The markets are telling us the primary trend is down, with a lot of volatility that is virually un-tradeable. If you are an investor, buy on panics with a 3 to 5 year time horizon. Invest small parts of your capital - since there can be many panics. For position traders, in theory it is possible to buy during panics, and sell on rallies. In reality, this is not easy to do in volatility. What defines the end of panic ? Not clear. Yet, with stop losses, small volumes such trades can be taken. Some of them will result in getting stopped out - so be it.

4 comments:

Mind Without Fear said...

Dear Sir,

I am an aspiring and practicing day trader - and I am ready to admit that for myself it is not an easy trade to learn! ( Pun intended ). I have already lost quite some amount in the last three months, though the rate and frequency of losing trades have decreased by use of keeping a trading journal, and other techniques aimed at increasing discipline etc. But I am still a learner who makes a lot of mistakes and pays for them.

Day like today are difficult for me to trade. Your blog suggested that momentum traders should go long. But the day's trend today seem to be downwards until 12.30 if not for the whole day.

It would help if we could find some mechanical indicator to indicate the major trend of a day within the first hour of trade. Are there such indicators? Of course no indicators are perfect, and price action confirmations are important. Still such an indicator would help day traders like me who would like to trade only in the direction of the day's trend and perhaps catch at least half or two thirds of ONE major movement during the day. Also, I would like not to trade in a day if such an indicator indicated non existence of a significant trend ( range bound fluctuations through out the day )

I apologize if this is a naive question. But I take the liberty to ask you in this forum hoping that you would not mind indulging a genuine learner of the trade and perhaps would shed some light on it in your future blogs ...

With High regards, ....

s.k said...

For MIND WITHOUT FEAR. I take the liberty of replying. Gentleman-If clear trends were known on daily morning basis,every trader will laugh his way to Bank,there will be no utility of udyen mukerji and his team on CNBC. More importantly if the trend/move for the day is known for sure,who would like to be on loosing side?The reality is mkts have their own minds-most of the times unpredictable.It is really difficult to day trade unless you have your own tested and tried systems for Risk management and you are a full time trader.These are my personal views based om my experience in the market since 1978

B M Kajaria said...

Hello,

There is a meeting going on in USA of G20 nstions.

How will it effect and or support the market.

Please give Elaborate it to help us understand the future of the market in the light of the same.

Mind Without Fear said...

Dear S.K,

thanks for offering your experience and your point of view. I was not looking for a 100% accurate indicator to predict a day's trend. I would be happy to devise a method which, based on the first hour of trade and the previous days trades, suggests the possible major trend of the day with some consistency (30 /40 percent consistency). May be such a mechanical indicator does not exist and may be it cannot exist as you suggest.

At any rate appreciate your insight, and heartily agree that day trading is very very tough.

Warm regards, ....