Sunday, May 10, 2009

Futures Trading Strategy - May 10

The topic heading describes the main ideas that we discuss today in this blog. This post is to reply to a number of comments received since Tuesday. Some replies are in this post. Others will follow soon.

On Options:
Dwarka asked:
Can you please write a post on how to trade delta neutral positions and how to make money out of the same?I know how to set up a delta neutral trade and take a position,but am not sure as to what criteria to apply to exit from the same.It will be very helpful if you can write an educative post on the same, with an illustrative example.

My Notes: Setting up a Delta Neutral Position is the easiest part of the trade. Getting out of it is like Abhimanu's Chakravyuha - no exits. Delta Neutral positions require lot of time to become profitable. This means, you should take such positions when you have at least six or seven weeks till expiration. This restricts the positions to Nifty options which are the only liquid instrument.

Sano says:
But what I find here is that Nifty Options do not move about the same way it is written in most of the books on options. I mean there is no proper match between premium and the stike price. At times I see that both the prices are moving against me or for me. Can you guide me to any good books on options, Sir?

My Notes: Option theories and the actual trade are completely different. As an example, you buy a PUT when markets are falling dramatically. IV's are very high. Now, market stops falling. You will find that your put may actual be losing money even if price has moved slightly in your favor. When IV's start increasing, due to a sudden trending move, prices of calla as well as puts tend to increase even though the market has taken a trend. There are many such differences between theory and practice. Re: book, let me check up an appropriate book. I will write about it in the blog.

Oscillators

Shaq asks:
sir,which oscillator is shown in the graph...is it the RSI/MACD...any link from where we can get these live intraday mappings..thanks.

My Notes: The indicator is a smoothed CCI, with period = 20, then smoothed with a three period average. This means, you first craete a 20 period CCI, then create a 3 period average of the CCI. The average is used.
I do not know of any sites where such intra day charts are available.

men says:
After looking at the yearly chart on yahoo for the nifty, most of the indicators are showing a +ve divergence, could you please clarify and give your comments if it is a buy on declines, as usual it is a hindsight view only.

My Notes: My technical analysis software (trend mechanic and tradestation) does not have yearly charts as an option. I do not track yearly charts. (Yearly means one bar for one year : this is what I understand). But on monthly charts there is no positive divergence yet.

Tushar wrote the comments on Tuesday. He got it right.

I have 2 questions:(1)I saw a bearish divergence in OBV indicator to price on nifty futures. Does this suggests distribution?(2)Was yesterday gap up an exhaustion gap? therefore we are going for a correction if not trend reversal

My Notes: This question was asked on Tuesday, May 5. Since then Nifty Futures have been in a range between 3700 - 3600. Tushar's points are well taken. His observations seem to have been correct. Cheers! Given below is the chart for Futures & OBV. OBC can be part of an online day trading method or futures trading strategy.


Futures Trading Strategy

7 comments:

Paul said...

Sir,

IDFC chart is showing Inside bar for 4 days. Like a spring.as suggested in your blog. How do u suggest we should trade this. wait for the breakout/breakdown. Or trade with a long bias but Nifty is showing weakness yesterday. Or should we trade with short bias.

And Sir, from where can I have a trading testing system on which I can test my trading system. I trade on the basis of crossovers of 2 MA.

Sir also I wish to join your classes whenever you hold them but I do not come to know about it.Is it possible for you to add my email ID on your mail list so that I can be informed about your classes whenever you hold them?

Thanks

(Vasukrishn)

men said...

Hi,
I am giving the link of the chart I was refering to http://in.finance.yahoo.com/q/ta?s=%5ENSEI&t=1y&l=on&z=l&q=c&p=e30e50,m200&a=ss,r14,m26-12-9,w14&c=.
Hope to hear from you, and finally is it possible for us to upload any charts in future on you blog.
Thanks,
Regards,
Sudhin Bathija

men said...

HI,
I am giving some set up which I found on the net, could you improve on it and help in fine tuning this, it would help a lot of investors.

Simple Trading Rules

1. When the 39 MA is moving up buy when the 3 MA crosses up over the 13 MA. and/or when the 3 MA crosses above the 39 MA.. When the 13 MA crosses above the 39 MA consider adding to your long position. Exit and stand aside when the 3 crosses back below the 13 MA..

2. When the 39 MA is moving down sell short when the 3 MA crosses below the 13 MA. and/or when the 3 MA crosses below the 39 MA.. When the 13 MA crosses below the 39 MA consider adding to your short position. Exit and stand aside when the 3 MA crosses back up over the 13 MA.

3. Only initiate trades in the opposite direction of the intermediate trend when the 3 MA crosses above or below the 39 MA, preferably after the 39 MA has already changed direction.

4. This 3:13 MA crossover will keep you trading in the trend with only a small lag and on the sidelines during corrections. The lag only becomes more substantial at reversals of the intermediate trend (a 3:39 crossover), a small price to pay at these uncertain times of trend transition.

You can set your technical analysis sofware to show bar charts with these 3X13x39 simple MAs. This trading system will help you select the best traders while avoiding the less profitable trades in choppy markets
Regards,
Sudhin Bathija

men said...

Hi,
Could you please help when we are under the following conditions.

1. Stock makes a higher high and higher low while the indicator (RSI) for eg. is coming down (50 to 30).
2. Stock makes a lower low and the indicator RSI(for eg is going up from 30 to 50), under these circumstances which is the one giving the main trend?
Regards,
Sudhin Bathija

men said...

HI,
In case there is going to be major fall in the market could you please give your list of stocks to be bought, and would it be a good decision to buy 10 LMW on declines this is purely for my childs future and holding period would be around 5-8 years.
Regards,
Sudhin Bathija

shaq said...

thanks for your reply sir..really appreciate yo sparing some time to clear doubts

tushki said...

sir plzz give me a technical range on gold for a one week horizon??