Saturday, November 21, 2009

Volatile moves in a narrow range

Friday's price action tells us that there is a lot of intra day volatility inside a narrow range. The Nifty is locked in a range between 4940 and 5080 for past eight days. Inside this range, we see big moves on some days giving the impression of volatility. In reality, it is not volatile, but probably random moves inside an indecisive market.

What about my absence? I was in Ahmedabad for two days, on a private visit. I did my CNBC interview on Thursday morning from the city. I received a report from my office giving the basic features of market on Wednesday. Then, at 10:00 AM, the Nifty opened slightly lower. Udayan asked me for my Nifty strategy for the day. That one was easy. Obnly for the day trader - go short with a stop above 5080 and look for a 40 - 50 point downside reaching somewhere around 5000. The Market did almost exactly this.

Why was this easy? On the prior day, Nifty futures moved in a narrow range of 47 points. This was the narrowest in a month. Any break from this range should give some kind of a trading move. When the Nifty opened lower on Thursday, a down move to 5000 support was reasonable to expect.

Traders are well advised to study the process of contraction and expansion in the markets.

Now for responses to comments:

Gaurav asks: "So if we are of the view that India is going to underperfom in coming years...should we tarde other markets like DOW,HANSANG,FTSE etc...what are the advantages and challenges for tarding other markets specialy the FOREX."

My response: Diversifying into other markets will become essential for traders. Forex is an easy option, because you can trade the USD-INR in India, and, trade the many forex pairs on websites abroad. (www.interactivebrokers.in offers such facilities in Indian Rupees).

Sanjeev asks: "What are the basic principle/assumptions which determines sidewise market ?"

My response: This is a sensible question, but requires a more detailed answer. Basically, market often has periods when it does not exhibit any trend. Visually, on the chart, it becomes possible to define boundaries of support and resistance inside which prices appear to be locked. The Average True Range Indicator will fall to its lows, Bollinger bands will contract (come closer).

Nirav asks: "Can you tell me that what is the difference between Elliott Wave and Normal Wave Count which you normally prefered?"

My Notes: Some differences are:

1. Elliot Waves will always try to find some wave count or the other. Often, the market is not moving in a wave sequence. Momentum waves will identify wave counts only when they are visible.

2. There are possible many rules in Elliot Waves. In momentum waves, we have simple rules, easily understood.

3. Every technical trader can use momentum waves (because they are easy to use), but only specialized wave practioners can trade with Elliot Waves.

7 comments:

Nirav said...

Dear Sir,

It is said that our emotions affects our trading decisions. So, one should keep apart its emotion during trading. If this is true then should we trade totally mechanically for the better results?
Or what do you suggest for long term better results?

gourv said...

Hello Sir,
It is great to see your writings after a gap of few days.Without reading to your blogs my day is incomplete.Sir is there any plan for a technical session in near future.Waiting for it.And sir 1 more query..what are the advantage and disadvantage of trading the FX say for example USD-EURO...//


Regards
Gourav

kk said...

RESPECTED SIR

THERE ARE MANY PATTERNS WHICH GOVERN THE MARKETS, RANGING FROM H&S TO WEDGES AND MANY MORE.

SIR I HAVE A QUESTION ,WHO IS THE PRODUCER OF THESE PATTERNS??
WHY DEMAND AND SUPPLY ARE TAKING THE FORM OF THESE PATTERNS.

I AM DEAD SURE,NOBODY IN THIS WORLD CAN CHALLENGE IN THE BEGINNING OF THE FORMATION OF A H&S PATTERN , THAT YES NOW WE WILL HAVE A LEFT SHOULDER ,THAN MIDDLE ONE AND THAN RIGHT SHOULDER . IT IS ONLY AFTER THE MIDDLE ONE THAT ANALYST COULD PREDICT NOW WE COULD HAVE A LAST LEG DOWN BEFORE THE BREAKOUT.LIKE ONE WHICH HAPPENED WITH NIFTY IN RECENT TIMES.

BUT THERE IS SOMETHING LEADING FACTOR WHICH KNOWS THAT WE ARE GOING TO MAKE H&S PATTERN.

IF WE HAVE A 5000 DAY TRADING HISTORY FOR SENSEX, THEN WE HAVE NO 2 SIMILAR DAYS. THIS MEANS THAT EVERYDAY THE DEMAND AND SUPPLY ARE DIFFERENT , THEN WHY WE HAVE A REPEATATION OF SIMILAR PATTERNS.

PLEASE GUIDE
WITH REGARDS.

Viral Rajnikant Dholakia said...

Dear Sir,

You had advocated few months back that Technicals suggest a new peak on cross over of Nifty 4750 levels over the medium term horizon.

I would like to ask as to whether there is any basic Stop Loss to be kept in mind as a base level below which this assumption may prove a bit difficult from technical perspective.

Say, for example, it could be a move below 4400 or 3900 or some levels which represents strength. It could as well be the very recent lows recorded at 4550.

I would like to know your views whether Stop loss levels applies for your views of markets attaining peaks on cross over of the then levels of 4750 - crucial resistance.

tushki said...

sir pls suggest me levels for unitech..??

Manish.T said...

For stop loss orders on day trades which one do you use - trigger+limit or trigger+market? I am asking this because the former has the risk of not being executed while the latter has the risk of slippage.

Raju said...

Sir, I'm R P Kulkarni from Mumbai working in Air India as Aircraft Engineer age 41. I am trading in stock market (F & O - nifty) last 2 years. I'm not a professional trader.

Sir to me you are among the very few TAs in India who are honest as well as quite intelligent in their job. This is a rare combination. Thank you very much for serving the people & keep up the good work. I never heard a single wrong or suspicious call from you. I wonder how you do it?
Sir I'm your fan & will always follow you.
R P Kulkarni