Friday, August 27, 2010

American Markets slip, what's in store or us?

As the U.S. markets fall day after day, with the Dow moving below 10,000 - a pychological number - there are questions on what our market may be doing.

According to me, the Indian market is already in a correction. My support level was 5480 on a closing basis. The Nifty closed below 5480 on Wednesday, and, remained lower on thursday, thus confirming the start of a minor down move.

This was the analysis. A key question is: how do I trade this?

Many methods:

1. Follow our trading systems. keep volumes low on long positions, while increase volume on short positions. In this way, we use position sizing to manage the directional view.

2. Stay away since we are in a corection, and, corrections are difficult to trade.

3. Shift to a lower time frame to take short term trades, only on the short side.

There may be many oother ways of converting our analysis into actionable ideas. How about some inputs from readers?

8 comments:

kk said...

RESPECTED SIR
THERE'S BEEN A LOT OF TALK ABOUT COUPLING OR DECOUPLING OF OUR MARKETS WITH THE WESTERN WORLD.

FOR ME, WE ARE NEITHER COUPLED NOR DECOUPLED. WE ARE JUST DOING WHAT WE WANT TO DO, FOLLOWING THE TREND , FOLLOWING THE BASICS .AND THAT'S THE RESPECT INDIAN MARKETS SHOULD BE GIVEN. WE ARE NO MORE A STUDENT MARKET.

WE ARE IN A 15 MONTH HIGHER TOP , HIGHER BOTTOM RANGE .5550 WAS GIVEN , IF WE FOLLOW THAT RANGE. AND TO GET THAT WE OUTPERFORMED EVERYBODY FOR THE LAST 4 WEEKS.
AFTER 5550 , WE WERE IN FOR A CORRECTION AND THAT'S WHAT WE DID, DESPITE THE FACT THAT THERE WERE NO NEGATIVE GLOBAL CUES.

WE CAN'T IGNORE GLOBAL CUES, BUT WE CAN'T BE PUNISHED FOR THE THINGS WHICH WE HAD NOT DONE. THIS IS OUR TIME AND WE ARE GOING TO LEAD IT.

tushki said...

hello sir
I think your idea of short horizon trade is fully justified..Carrying forward the positions have started turning risky due to high volatility again in the domestic as well as International markets

Gaurav Verma said...

Sir,

As you said 5480 is broken so a minor downturn in store.

Instead of taking 5480 as confirmation I use MACD hourly to determine the direction of trend and I think MACD direction is correct 70% of the time in trending market.

After that I use fractal system which is consolidation breakout breakdown buy sell system in expert advisor in Metastock to take the stock directional signals on 5 min time frames.

Also to determine the trend I use weekly charts to see if the stocks and Index are rangebound or in a trend so I decide the bets accordingly.

Can you please evaluate this logic of trading with some improvements.It would be really appreciated .


I am currently doing MS in Computer science in California,US and waiting for my trading career to stabilize to come back to India otherwise I will have to do coding in life which I never feel like doing.

I believe your advice can make a difference in my life.

I appreciate you for your teachings.

Gaurav Verma said...

Continuation of above comments...

The above hypothesis will make money according to following reasons.

1.Technicals in the system - Consolidation breakout/breakdown rule which is feasible.

2.Psychology - Not much Psychology involved as most of the rules are defined so 85% of emotional decisions are ruled out.

3.Money Management - All the trades are placed with 0.33% SL(Like 300 Re stock will have 1 Re Stop loss). So when there is buy or sell signal I determine the nearest support or resistance on 5 min chart and place the order with 0.33% Sl and 80 % of the time the trade gets executed.

Why I think it can make money- In a month if I get 2 trades of 3 % move and 18 trading days , it will be small +ve and small -ve (As max I can lose in a trade is 0.33%)which will neutralize.So in conservative case it will make 3-4% a month on equity .

Sir,Please comment even if you feel this is baseless.

Your advice awaited.

Regards
Gaurav

men said...

How do stocks behave when they are under 200 dma? In RIL on most of the times it came down by 40%, so the 200 dma on 28-07-2010 was 1048 and it closed below that till date, hence could we see 650? Also 632 odd is one retracement level, so can anyone here update on this.
The above data is my view which could be wrong so hence kindly take your decision.
Thanks,

drpm said...

i think worst is converting trades into investments--nobody should do that.
even taking partial profit booking on long term investment calls is good idea
getting ready with good fundamental stock list to buy in correction is also recommandaed.

Ravi said...

After the start of a correction in India and a large dip in he us markets we saw a large engulfing candle yesterday with the dow closing over 1.5% strong. How do we read the correction now Mr.Sudarshan, do we see the correction coming to an end? If not what would be the final stop-losses for the correction?

Krishna said...

Stock market is what all about..??
Business or Emotions...??
At first sight it looks like tracking the business aspects of a company through FA is much wiser way.
But the fact is that stock market all about trading "emotions than business".
I take an example of AXIS Bank.
It was around 1000/- or so before 2008 crash and then during the crash it became 300 perhaps or even lower.Now this stock is again at its life time high at 1300/-.
So the big question is that what had actually happened to the balance sheet of AXIS Bank during the period when it crashed drastically.
Answer is nothing...it was just the "panic" which was driving its fall.
So it means that no one was bothered about its fundamental or business or future potential etc.
Emotions were just being traded....and that is the truth in stock markets.
Many experts have been studying even human psychology & behavior science to tackle the stock market through study of past data.
TA is nothing just a form of study of human behavior & subsequent reaction in past at certain price levels.
And the fact remains that in stock market "Emotions" are traded & not the "Business".
Regards