Wednesday, July 15, 2009

Day Traders delight!

The Nifty had a classic trend day, opening near the lows of what became a strong up move. For the short term trader, there were many signals for a long position. Once a position was taken, the stops were installed but never triggered. Such was the strength of the rally!

For short term traders, there are two issues to think about.

First, what should be the approach to trading? Do you wish to take small profits which assures a high percentage of winners. Or, do you wish to capture these trend days (like today and yesterday), which will give big profits but many small losses. All of us want the big profits, but these profits come with many days of whipsaws and losses.

Second, should a trader begin the day with a view or theme? I start the day with a view on the market - go long or go short. Sometimes, this changes during the day, but mostly I trade on one side of the market which makes life easy.

The answer to the first question is: Our system testing suggests that waiting for trend days makes more money as compared to taking small profits. But, this also requires lot of patience and the ability to take numerous small losses.

For the second point: having a view is really a personal choice. I think each trader needs to determine what suits best psychologically. But whanetever course is adopted, be consistent.

3 comments:

sandeep said...

sir please kindly sugest tradestation or metastock

Pi said...

hi sir,

first a point - today was not a classic trend day - a classic trend would being with a decent size gap, hopefully after a day or two of range bound trading, and would see a smooth uptrend through the day.

Today lacked all these characteristics - though the strength of the move was phenomenal, the candlesticks chart looked quite messy, but yes it took supports at the right place and kept breaking past resistances.

For what i meant by a clean move have a look at today's s&p intraday chart -

http://ichart.finance.yahoo.com/z?s=^GSPC&t=1d&q=c&l=on&z=l&p=e20&a=ss,r14

Anyways, this was a side issue - main issue is how does one identify such a day when a gap is not present - or today, when one expected a gap, but the early weakness made it seem like market was going to continue with the downtrend and last two days move was just a blip.

Further, we've now had two trend days in a row. The way s&p action tonite has made short, maybe even medium term outlook bullish. But how does one play it tomorrow. Global market will look strong - but can we expect another trend day ? asking for too much ? should one wait for a dip tomorrow day after to get in.. or get in tmrw itself.. gap or no gap.. ?

gofi said...

Hi Sudarshanji,

I was reading Monday's edition of "Brand Equity" in Economic times. In the technical analysis section, the author has beautifully explained why we need to be very cautious in the near term. Following are some of his observations.

1. The head and shoulder pattern on nifty chart is very similar to the H&S formation from Aug 2008 to sep 2008.
2. The pullback to the neckline is also similar in both the formation.
3. we all know what happened in sep-oct 2008. Nifty fell from 4300 to 2200 !!
4. Tomorrow we have met department update on monsoon and on Monday we have RIl-RNRL case hearing. This increases the probability that we may have a repeat of sep-oct 2008 this year also !!


Keeping all this in mind, i am inclined towards staying away from market till oct end. Please share your thoughts on this. Or do you think that this is the right time to invest ?

-Gofi