Saturday, March 13, 2010

When the market is slow and dull

The Nity is in a slow market environment. 10 day Historical Volatility has fallen from a high of 30.04 to the curent level at 13.70 on March 11. This is a slow market.

Many traders make money in high volatility markets and then stop making money in low volatility environments.
Setups which rely on volatility expansion no longer work in low volatility markets.
Traders who trade on price movement may find it difficult to catch a meanigful trend since price setups are not available in slow markets. For example, a hed and shoulder pattern or an ascending triangle which may be difficult to identify in slow markets simply becasue these patterns are not being formed then.
Fast movng markets are trending or momentum markets. This requires buying strength and selling weakness. Traders can identify a trend, then ride it. Slow moving markets may become mean reverting markets, meaning buying weakness and selling strength. The transition is not easy to do.


Suggestions:
If you do find a pattern, identify a nearby profit target, then maintain the discipline to exit when the target is hit. Move stops to breakeven quickly to avoid a sudden mean reversion.
Trade less, or do not overtrade. Understand that slow markets offer few opportunities. The problem lies with the market, not with your trading.
Stand aside when markets are not giving you good trades.
Trade like a cheetah. The cheetah waits patiently stalking his prey for hours, sometimes days. When the opportunity is right, he suddenly jumps to catch the victim.

INFORMATION

Continuing our plan to hold monthly meetings, the next meeting of the ATA (Association of Technical Analysts) will be held on March 27, Saturday in Delhi. Attendance is free for members. Outstation members have the opportunity of viewing the presentation sldies, and, supporting maerials. The proceedings are being video recorded. Snippets will be posted on web site for all members, while the full dvd can probably be acquired for shipping and handling costs (for members). If you are not yet a member, do so. Visit www.taindia.org 

8 comments:

Rashmi said...

dear sir thanks for your suggestion.I would like to know your advice on use of moving average. Which moving average should i use simple or exponential ?? pls guide me

regards
aansh

Saurabh said...

Sir, as all of us realise, post facto it is relatively easy to see the chart and say " this was a sideways market , I should have bought the weakness and sold the strength " , which is diametrically opposite to the trend following theory that tells us to buy the strength and sell into the weakness.


During the course of the day, which indicator has proved to be the best leading indicator of impending fall in volatility ?

Apart from the gut feel, How can one anticipate that the market is going sideways and it is time to come up with an alternate strategy ?

All the trend following traders, should't they just keep out of the market when it is sideways , rather than changing the strategy and use a strategy that is the absolute opposite of what our mind gets trained to use ?

Could you please give an example of a setup that can be used for mean reverting markets ?

As you rightly said " The transition is not easy to do." therefore I request you to kindly help us make the transition with least amount of pain.

Your input will be highly appreciated.

Looking forward to meeting you on the 27th.

Regards

Saurabh

Student Of Market said...

Sir,

how true it is that indicators or systems that thrive on identifying trends, become insanely loss making when the market is slow and dull.

Here are a few things that I have been trying out; each with its own plus and minuses:

1. If the overall trend is up, take only those signals from your system that say go long. The idea is since the trend is up, you bet only on that and statistically, you are likely to have a higher chance of being rewarded. Of course, when the trend changes, be sure to start trading in the other direction.

2. This method, a variation of the first, trades on both sides but with different volumes. e.g. if the trend is up, but the market is dull and slow, trade 2 units on the long side and 1 unit on the short side. And again, be watchful for a trend reversal

3. Draw a line in the sand on both sides of support and resistance - after a few loss making trades - and do not trade until these levels are violated on whatever side, and then start trading as per your system.

All the above are really variations on the theme of money management.

I guess the challenge as always is to find a method that is psychologically compatible with yourself and then use it consistently. Probably no one else can help here but the person himself or herself.

warm regards,

Niftic said...

Hi Sudarshan Sir,
Nifty on the verge of making Head and Shoulder Formation Top,Bearish- Target 4150 if 4750 is broken.



Be careful before initiating any fresh long positions this time.Because with the recent PRICE ACTION nifty may touch at the most 5198 but after that there is a posibility that it will retrace back.Volume in Nifty have dried down while making this second Shoulder.Please refer to the Chart attached.

Its an early sign of Bearish Trend Reversal.

This is the content which I have posted in my blog: http://niftron.blogspot.com

What should we get prepared for the upcoming HEAD and SHOULDER formation in NIFTY:

1. Donot initiate any fresh long position in Nifty or any stock before we get a close with high volume above 5330.The recent dullness in the market proves that the upward momentum has dried down and there is strong probability of a break up or down.So 5330 should not be hard to reach iif its really a strongly trending bullish market.

2.Observe whether 5198 acts as a strong resistance.If we fail to get a close above 5198 then one can initiate short with a strict stoploss of 5211.Initial target is 4940.A bounce back from this 4940 is expected,wait patiently to find out the lower high to initiate shorts on nifty during bounce back. Initiate short again.

Target will be 4800.

3. While 4750 is decisively broken,two successive close below 4750,initiate aggressive short for a target of 4570 and then 4200.

ALL of this price action in NIFTY may occur during 16th Mar- 30th reacMAY'2010.

BE CAUTIOUS WITH LONG POSITIONS.

As of now there is no reason to panic till 5082-5099 is not breached by CASH NIFTY.

I may be futuristic and sound bearish but this is what 6-7 month daily NIFTY Chart is whispering in my ear.

HAPPY TRADING.

sahil said...

Well said Mr sudarshan, after many weeks I ended up this week in loss. Bcz i trade breakouts ( or breakdowns) in intraday. All breakouts failed n those handful who went to hit targets i exited at cost panically. So this resulted in brokerage losses + small trading losses. I hate flat market. Uptrend or downtrend duznt matter, all a trader need is the trend. Even in weak uptrend inviduals stocks give breakout but nowdays im not able to find inviduls stocks breakouts except the ones who have negligible volumes generally

amitkbaid1008 said...

Dear Sudarshan Sir

Thanks for replying my comment regarding CCI(3). I was overwhelmned with you full blog reply to my comment. Thank you very much.

Sir
I use multiple time frame trading strategy and I identify trend on 5min TF and then look for pullbacks on 1min TF using CCI(3). Is it OK or not?

Thanx

shan said...

Yes, an experienced trader waits for the opportunity. Don't have pay-cheque mentality. 80% of the profits ceom from 20% of the trades. Rest 80% trades account for the losses and expenses and stress.

Nilesh S Joshi said...

dear sir,
what is your thinking regarding market in short term to medium term? give your analysis for maruti becoz i think this stock will start down movement in near future. sure tell me your thinking about it.