Tuesday, November 9, 2010

One Way Street

The Nifty remains well above 6000. We should remember that the same index was at 2500, two years ago, in 2008. Therefore, at 6280 yesterday, the market has done remarkably well. Sentiment was already positive. Now, thanks to QE2 (Quantitative Easing round 2 announced in the USA), the feel good factor has turned into a bubble. We are now told - this market cannot go down, because - this time it is different.

Here are some thoughts:

1. It is never different. All markets go through cycles of optimism and pessimism. We are currently in the optimism cycle. The trend is up, so traders should be looking to go long. This has nothing to do with QE2, or, Mr Obama's visit, or any other 'news'. Trend is up because prices are going up.

2. It is posible to lose money buying within a bull maket. Some reasons are - Leverage, tight stops, bad selection of stocks, overtrading. You will note that all the reasons are actually within the control of the trader. Therefore, a sensible trader should make money in runaway markets - of the kind we are seeing now. Just exercise some control.

3. Do not go short. This is easy to understand. By shorting, you are tryng to catch the corrections inside a bull market. So, why not try to catch the main trend itself?

4 comments:

VIJAYENDRA said...

sir
rightly said---it is different means something is cooking.Trend is up but then sometimes distribution may take place and latecomer will be punished again.

tushki said...

sir pls suggest something on relaince capital..it has been stuck in the range of 820-835 for a while now...is there any chance of break out on upside or should i get out of it?

gourv said...

Hello SIr,
As 20% return(103-85)is evitable in power grid do u think trader should subscribe into this IPO.I generally dont like IPO but as 20% is gurented ur thougts on this ASAP as last day is 12th

Regards
Gourav

Gaurav Nahar said...

Abslutely I agree with your thoughts. No time is different, its just abt the trend and we are in a bubble zone, god knows when it bursts. There could be a rally from here to 7000 and then back to 4000 over the next few years or from here only to around 4000 !
Gaurav