Friday, March 26, 2010

Replies to reader comments March 26

Thanks to reader rajamani for asking a facility of google search in this blog. You can now search the blog using google. The widget is on the right sidebar. (scroll down a bit). Google is awesome. Just type 'Breakout' or 'Stop Loss' and see how google spews out the relevant posts.


Jazz asks:


"how to trail my stop loss. i've bought apollo tyres at 58 on a breakout. Even 30 dma is at 62 which is still 20% below cmp. Have not found any reversal signals on it. how do you exit a profitable position plz guide !!!!"
My Notes: I have a blog post which discusses stop losses, Here.  Apart from suggestions in the post, you can also keep a stop below the last day's low. This is also a tight stop.


kk asks:


A CHART MAKING HIGHER TOPS AND HIGHER BOTTOMS IS A SIGN OF BULLISHNESS. NOW THE PROBLEM IS HOW ONE CAN MATERIALISE ON THIS BULLISHNESS OR HOW DO WE KNOW THAT IT IS FINALLY BREAKING OUT. THINKING OTHER WAY, A RISING WEDGE IS ALSO A HIGHER TOP HIGHER BOTTOM FORMATION, BUT IT IS A BEARISH SIGN .


My Notes: Good question. This is a chicken and egg story. After a breakout, the rally may fail, OR, we wait for confirmation and the rally runs up, leaving us aside. So, there is no way of getting 'confirmation'. The buying point is the price at which the higher highs, higher lows pattern is confirmed. This is always the point of highest risk. To avoid this risk, traders can buy on pullbacks, but there is no way to know for sure if this is a pullback or reversal. I recently wrote a post on breakouts and there was a lot of reader comments, so use the google search written above to check it out.

Is the higher highs pattern a rising wedge or is it the real thing? For me, a rising wedge comes in a downtrend. The downtrend should have started and be visible. The wedge should be narrowing down with both lines meeting at the apex. You must also be aware of the controlling trend.

Reader devesh dikshit says some stocks like Rel Capital and Suzlon have underperformed the Nifty. They are much lower than their 2007 bull market highs while the Nifty has rallied a lot. Will they catch up, he asks.

My Notes: Well, each bull market has its favorites, so these stocks are out of favor. Also remember that Rel Cap had rallied to bubble levels, which are unlikely to be touched soon. So, the answer is: If we see the current up move as part of a secular bull market, then these stocks will rise but probably not to their 2007 bubbles.

7 comments:

ANAS said...

MY OLD QUERY: Respected Sir, its me again . As no one posted any
comment on mechanical trading system yet, I founded it
as an opportunity to get in touch with you. The following
is my mechanical trading system (or what I assume to be
a system, ]. I use daily charts , and trade only in NIFTY. I
use MACD(12,26,9]. I short after, when the FAST line
crosses the SLOW line, from above. (both are above 0] and
the FASTline stays below the SLOW line , for the next three
days. I short near the end of the third day. also, i use
SLOW STOCHASTICS(14,3] and CCI(20 & 30 too], to
ascertain OVERBOUGHT&OVERSOLD levels. Sometimes I just
check the ADX(14] , to find the strength of the TREND(I
Consider trend as my friend as adviced by you ]. The stop-
loss is kept above the most recent turning point. The
above principals apply also, when I go LONG (of course
the opposite set] MY QUERY IS: is the system overall
correct?, can you please suggest some alternate strategy
of ascertaining stop-loss?, are the time frame of using
above indicators correct? or will you suggest some other
sets ?, many times I miss a considerable portion before I
enter the trade, can you suggest some better method
where I can take positions early and without facing any
whipsaws? I understand and respect the considerable
effort & time, which will taken on your part to advice on
my query. I request a generous reply from you. THANK
YOU ONCE AGAIN , for KEEPING IN TOUCH WITH US.

mas said...

Dear Sukhani Sir,
I am great fan of yours and writing first time in this blog.My query is - for short term periods can one trade with only MACD (with default setting) on daily charts and still make decent profit? Or can one trade with using simple moving average (say 15 day)on daily line chart and make profit? On both the cases how can one avoid getting whipsawed? Or do you suggest some other strategy?
I beg for your reply.

S said...

I am new to trading in stocks. Though I read your blogs, I find it difficult to understand the technical jargons mentioned in them. Can the explainations be sometimes made in lay-man terms?

My query is - I tend to buy a stock after I see a distinct uptrend in the stock. However, by the time I buy it, the stock has already reached its peak and does not move much further. How does one identify whether or not to buy that stock? Also, how to identify other potential stocks that may move in future?

tushki said...

sir pls suggest me level for L&T keeping a 1-2 week horizon....should i go short now as the markets have risen nearly 8% in 1 month???

rajamani said...

hi sir,

thanks for adding google search

could you pls give me your views on real-estate sector and on
ib-real estate

ib-real estate stock has +ve divergence in oscillators, is it reliable and how can we trade it now

regards
rajamani

Siddharth said...

Respected Sudarshan Sir,

I have been following you on this site for quite a time and have always appreciated and benefitted from your insights.

There is this particular scrip - Tata Communications Ltd. It has been going down ever since the great Indian Telecom Bubble busted.

I see bottoming out of this counter. Guide me if I am wrong..
Regards & thanks

Gaurav Verma said...

Sir,

Can you please clarify if we should "Buy weakness Sell Strength" that you said on TV or the opposite of this that book say.