Monday, April 5, 2010

Market takes a ride

The Nifty moved up, above the resistance of 5340, with a lot of style. Today's trading has lessons for short term traders.

1. Anticipation. Friday was a holiday in most international markets including India. On Thursday, the Nifty rallied throughout the day to close at its highs. The Market was closing in strength. On Friday, while the U.S. markets were closed, a job report was released which was considered bullish.Sunday saw the Dubai stock exchange notch up gains. (This was a bloomberg news item so it caught my attention). Monday morning saw Asian markets up. The anticipation was then for an up day.

2. Waiting after a gap. Nifty Futures opened with a gap up to 5332 (previous day close: 5305) . After the initial euphoria, prices moved lower below the first 15 minute low, and, then below the low of the first 30 minutes. Therefore, the trader should wait after a gap for some cooling off. The dip was NOT a sell signal. It ws a normal correction after a gap.

3. Strong Close. A trend day ends with a strong close. Today was likely to be a trend day - this indication came from (1) above, confirmed by higher prices throughout the day. Further confirmation came when the gap was not abnormally large. A trend day usually ends up closing at the top of the range (if it is an up day). The trader should have the patience to sit through the day, wherever he went long. At 2:25 PM, the Nifty was at 5341, then a sudden burst saw futures rally to close at 5365.

4. Buy the dull periods. When signs point to a strong trend, dull periods should be bought as they are usually part of the contraction cycle which will eventually lead to expansion.

5. Buy Strength. In the morning, after the first five minutes, I fired up LiveGrid [a software tool available in Trend Analyzer from ] to identify stocks that were the strongest after the first five minutes of trading. Sun Pharma was in the top five list. I went long in April futures at 1822, waited whole day while it did nothing, then, in the last hour saw it rally to 1850. I was comfortable since the instrument was strong in early morning tradng, supported by strength on daily charts.

Have Fun!


Jazz said...

gaps are best played with help of "market profile". In market profile, a gap is out of balance state of market, first two 30 min bar are called initial balance. any breakout of these two bars extremes usually decides the side long term players 5330 spot was the high of first 30 min bar, and thus was entry point for us, which was taken out on 10th bar i.e of 11:30, indicating long term players on buyers side. so it was good day for bulls....

Maneesh041 said...

Dear Sir,
There is a negative divergence in RSI in the over bought region it is also making a faliure swing i am sceptical as to wether the trend will continue or will it reverse the volumes are also not very exciting please tell me shall i ignore these signals and stay long or book profits and go short

ANAS said...

Respected Sir, its me again. You had discussed about Mechanical system last month. I had posted a query but some how , I think it missed your attention. 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.. Other readers are also welcome to give suggestions.

shan said...

thank you sudershanji for this instalment of technology transfer. "buy the dull periods" is take of this post. regards Js