Wednesday, June 3, 2009

Enter the Trading Range

As the Nifty drifts into a trading range (boundaries 4450 to 4585) day traders and short term traders will find it difficult to catch tradeable moves. This is the nature of the trading range. For the Nifty, the small 135 point range is unlikely to hold. This suggests that the range will expand to become larger by either moving up to establish new resistance, or moving down by establishing lower support. We will let the market decide it.

The theory of trading inside a range is fairly simple. Apply a bounded momentum indicator like the RSI, CCI, Stochastics on an intra day chart. Day traders should use 5 minute or 10 minute charts. Wait for the indicator to reach 'oversold' area. Then go ahead and buy above the high of the previous bar. Keep a stop a little below the low of the recent move. You exit when the indicator begins to touch the 'overbought' area.

Is there a risk in such trading? Not in the way you think. Since the trade has stops and an estimated location for taking profits, the trade works well in trading zones. The risk lies elsewhere. At some point, prices will move out of the trading range. Since you have taken profits or have been stopped out, you will find that a trending move has started while you are out of the market. That's the risk! Now, a solution to this is to wait patiently for the first pullback and get into the trend. yet, there is a psychological setback on having missed part of the trend. Tradrs have to face such real life situations every day. When you are able to find your way through the maze of such circumstance, you will become an efifcient, profitable trader.

I received a comment today which roughly said "Nothing new in this analysis. This is a copy of what vivek patil said...... " The comment was accepted, but now I cannot locate it. If you have RSS readers where you get this comment, please tell me where it is. Sorry for this lack of knowledge!

My Notes: Much to my regret, I do not read any Indian analyst. I have a reading list of blogs mainly in the USA. Often, I quote from them and give links. Thus, whatever I write is not copied.

10 comments:

A Student for Life, of Life (and of Markets) said...

This is a jewel of a posting. Not only it tells us to be vigilant and how to trade in a trading range, it also tells us how to act once the trading range breaks. I doubt this could be said any better. Thank you so much.

On a separate topic, I have been thinking what is a dip ( since traders must buy dips ) how to detect one etc. Some of my ideas I have tried to capture in my blog ( www.stockmarket-methods-in-madness.blogspot.com ). But if you could share your insights into it, that would be great.

anshul said...

sum people need a wake up call.."how can they say its a copy??? iam toatally surprised" ......sudarshan ji do his own analysis....

stockchart said...

hello sudarshanji,,the comment made by anyone ,saying ur views are copy of xxx...shows a typical indian trader mentality..poor guy !! he may be trying to say hes a very good reder..one must be take a lot of care while commenting on views of a gentle and noble person like you sir..such people doesnt try to understand the fact that,technical analysis is a subject narrated thro lots of books,,its followers can easily have significantly similar views on a running trend,,their may be difference of opinions at turning points,,and by the way why people want different opinions ?? is it that one who says something else is a much better analyst ?? very sorry mind status !!!!!

wildeazoscar said...

if someone accuses sudarshan sukhani or ashwini gujral for plagirism, the problem lies with him, not with you.

the amount of insights we receive from your blog can be compared to the amount of knowledge we receive from elder, murphy, bollinger, wilder or demark( and no it is not a pat on the back, you deserve it among the ship shod operators operating with smart money)

the shortcoming of your blog, it seems is the non-projection of long term views, i.e. a reading that comes from a study of weekly,monthly, quarterly charts, combined.....

for example, as i hinted in my last post, people can think of starting to take a bearish position(albeit a very small one), by reading the f & d institution's sentiment, and add up to it, if the trade works in their way. if i was not clear there, i would like to add that a few posts, that does not deal with day trade at all is something we guys would really appreciate ( and yes, we do understand your reaction. the fat bull steak is on our plates, but the knife is simply not getting sharp enough)

wildeazoscar said...

and just if you let me point out to a mistake( am really sorry for doing that because pointing to something u or gujral saab overlooked is like sacrilage to me,the finding of the cup and handle pattern and waiting for an upbreak was real shipshod.....

the bottom of the cup is never found at the left but at the centre of the cup(here the 2250 low of nifty)....

rather it was a adam and steve reversal, followed by liquidity madness, and once over, the market is likely for an unprecedented low followed by at least two more years of bear bear cold

CHANDU said...

Good evening sir,

Because of some people,dont stop blogging,U have a huge fan following in trader community.

MY HUMBLE REQUEST TO (some)READERS

People plz make most of this blog,sudarshn ji's posts are very use ful and we can learn alot.As per my knowledge he honestly shares all thoughts,This paltform is for learning each other.In his previous post he was requesting readers to share their thoughts.If some readers can t see his greatness,u cant see mankind in ur self.

gschandu@gmail.com

Indrajit Mukherjee said...

Excellent post Sudarshanji. You really rock. I also will request you to highlight the signals of break out or down from a trading range in a future post of yours.

Regards
Indrajit
http://www.stockmaniacs.blogspot.com

Bramesh said...

Hi,

Nice post and quiet enlightening.Sir just for knowledge purpose we are seeing a negative divergence on S&P charts unable to cross 945-950 range on closing basis and on Negative divergence on Nifty charts.Can it lead to a correction in near term.

Regards,
Bramesh

sandeep said...

hello sir,
sandeep here.
i am waiting for u r blog
why u don't write after 4 June
pl z
i am waiting
i am really fan of u....
i have a habit of Ur blog and comments pl z,
regards.

technicaladviser said...

few lessons .listen to everyone but take decisions on your own .the market is reflective of one own attitude and discipline .it has nothing to do with our greed and fear but will punish the indisciplined in a befitting way.