Wednesday, November 10, 2010

Dull Days

Well, I am writing this at 12:14 PM, afternoon. I do not have any intra day positions, although my Swing Trades (long in Nifty, Renuka & Dena Bank Futures for past few days) are ok. I had mentioned in an earlier post that day trades are coming down, at least for me.

So far, the Nifty has been insde a narrow range today - between 6328 and 6295, just 33 points. hence a dull day. This can also be called range contraction. Markets move into Expansion after a period of contraction. In the 5 minute time frame, we can expect a big move, soon enough.

Yesterday, I had asked readers to avoid buying in Silver since the metal prices rise was becoming a bubble. Today, Silver is down by Rs 2000 about 5 percent. We need to see a significant correction in the metal before another attractive buying opportunity emerges.

What does an overbought oscillator suggest?

Rob Hanna from Quantifiable Edges says this:

Most swing traders understand that the market has a tendency to oscillate. In other words, strongly oversold conditions will often lead to a bounce and strongly overbought conditions will often lead to a pullback. The trick in trading a swing time frame is understanding when the likelihood to reverse is strong and when it isn’t.

Trying to sell short when an uptrend gets overbought can be a dangerous endeavor. Often there will be no downside edge when trying to short into an overbought condition in an uptrend. When the market is strongly overbought due to a sharp acceleration in the trend as occurred late last week, it may even suggest an upside edge.
 In any case, the point is that though the market is short-term overbought, this is by no means an ideal short setup. And in general odds seem to favor a continuation rather than a strong, immediate drop.
My Notes: The study had a simple rule: SPX (S&P) closes above its upper Bollinger Bands for the second day in a row. It also closes at a 50 day high in the last 2 days. The strategy is to buy at close and exit after X days. Mr Hanna tested X from 2 to 10 and found all days profitable, with the profits increasing if you hold for at least 3 days.
The point he made was: what seems overbought can become even more overbought. Therefore, rather than consider overbought and oversold, consider trend. This is what I tell my clients, seminar participants.


rajiv malik said...

namaskar sukhani ji,

this sharing during the running markets by you shows your love for your blog fans.

the insights you share sheer education for a learner like myself.

warm regards
rajiv malik

rajiv malik said...

sukhani ji,

influenced by your comments i have subscribed to powergrid fpo.

keep guiding !

rajiv malik