Thursday, January 26, 2012

Going with the flow

Traders should always go with momentum. If momentum favors the bulls, then we should stay with the long side of the market. It is not our job to question the wisdom of the market. We should have one objective - Go with the flow.

The Nifty is in an uptrend. The trend has been up since the Nifty moved above 4635, and, the Index closed yesterday at 5150 at a new 10 week high. The flow is clearly UP, therefore traders should position themselves on the long side.

This week on CNBC, I have explained that traders should maintain overnight long positions in the Nifty because the big gains will come in the gaps. There are periodz when the gains come on gap ups, then the market trades in a narrow rangw throughout the day. In such scenarios, day traders do not make money even though they may be positioned on the long side.

Can this long trade go wrong? Of course, anything is possible. The trade was taken at 5100, with a stop below 5050. This level of 5050 remains the point below which long positions will be closed.

29 comments:

Pi said...

You are absolutely correct about the holding positions overnight bit. I read this somewhere and then tested it in excel, and the results say exactly that.

Bull markets gains are made through gaps. Market gaps up, or individual stocks gap up, and value is accepted by market participants at those levels. Where as bear markets, most of the losses happen through the day session, rather than through gaps.

Most participants fear that there will be adverse news and market will open against them etc. But typically large gap downs don't happen in uptrending markets. One will notice that when markets are trending above 20day and 50day moving averages, news flow typically tends to be positive. Corrections in uptrending stocks are running 2-3 day corrections.

I find this difficult to do, holding positions overnight as I use large leverage. But I have seen over the past 10 days that gains will not be made unless one holds positions overnight. Will have to adjust strategy accordingly.

I was waiting for a 1-3 day correction in market to buy. But I realize that in up trends and bull markets, the high correlation between indices and individual stocks begins to break down to an extent and stocks continue to move on their own trajectory. Will keep eyes open for buying opportunities on hourly charts.

Tomichan said...

Master,
i likes positional or short term trading than day trade from my recent experience. Hence, taking overnight position with 5050 as stoploss is the automatic choice, as u suggested.
Salute master.

tanmoy said...

I am new to trading and yes after expecting market to break downwards whole month I have started questioning the wisdom of Market. This post will help me sooth my nerve and be a little wiser next time. Thanks.

Vimz said...

Hi...Since last month you were positionally short. OF course you covered on 21st December seeing positive divergence on the hourly nifty, but only to reinstate the shorts above 4700. After that at what point did you decide that the positional short had to be covered and why?

Sivasubbu said...

You are always rocks..

Unknown said...

Hi Sudarshan,

I keep experimenting my trading systems. I created a trend following trading system and I tested this from 2002 to 2012 historical data.
I wanted get your feedback on this system.

The market will be at different states and its hard to make profit with one setting or one trading system. So I
created a different trading systems with same strategy but different settings. I have created 20 systems
with macd

(20,22)
(40,42)
(60,62)
(80.82)
(100,102)
(120,122)
(140,142)
(160,162)
(180,182)
(200,202)

So at any given time, there will 20 systems following the trend at different levels. This system gave me a smoooth equity curve and
very less drawdown of 20%. I want share your views on this system.

Thanks
Avinash

shruti said...

Hello Sir, now that the expiry has hit 5200+, shall this mark the starting of a new bull market for nifty?

Naran said...

I have already initiated short positions from 5200 on Friday !!!!!!!! See 200 dma is a major resistance if it is only a bare rally.

Kuldeep.rk said...

Dear Sir,
Is there any technical way of identification of various Pattern formations apart from Flag?

In my opinion, Tata Motors is creating inverted head & shoulder on weekly charts. However I am not very sure of the same... Can you throw some light on this please...

rgds
kuldeep

Rajveer said...

Doji was followed by inverted Red Hammer, followed by lower close. I am short nifty at 5174. It will be fun if nifty breaks 5065 rather than 5050. Some1 pls help me with options, 5100, 5000, 4900 are all adding OI and agressive writing with no addition in 5000, 5100, 5200, 5300 calls. What could be the cause?

Unknown said...

Its closing with piercing line candlestick pattern. Tomorrow there will be a gap up opening.

Technotrader said...

Sir, do u remember Sun TV? Gave excellent breakout today and I m long in it @ 302 (Futures) I expect 340 to 360 level in near future.
Sir, sometime we do not understand why the market is up or down? why to look for reasons? just ride the trend and I m riding it.
Thanks sir, u r a excellent teacher and I would always like to remain a student of T.A. till my life.
Lastly by using TA we can trade any stock, currency, commodity, and in any country without looking for whats the company manufactures or sells and as Shakespeare said WHATS IN NAME? so doesn't matter whats the name of a stock.

Akashlug said...

i lost my half capital in a journey of six month in stock market,but i will never leave market because i love it and one day i will succeed..

Tomichan said...

Going and going without breaking major support levels.

Amarpreet Saluja said...

dear sir... i have been waiting for a dip to buy in....
if this is a bull market.... will i get a nice 300-400 points dip in nifty after such huge run up to enter...?

Vasant kumar said...

Sir, Please post your views on daily basis...We would be very much delighted to see ur comments...However, what u have said on CNBC the other day (Friday) was excellent....A sharp rallied stocks are supposed to be bought into after a consolidation and u dont like giving targets. Thanks

Tomichan said...

Nifty is in unknown territory. May we wait for a close above 5400?

Dinesh Rishi said...

Sir,

Waiting for your next update
, ,

Sivasubbu said...

Sir,
I am avid reader of your Tips and recommendations.

Still the flow is on ?

Ammature trader said...

Hi Sudarshan,

I would like to know weather in your opinion the January monthly candle was a reversal candle or not. The difference between the December low and January Low is only 50 pts with January being a higher low. If its not a reversal candle then is it safe to assume the downtrend will remain intact for the long term?

Thanks

Unknown said...

please write everyday..daily i check ur blog many times bt feel disspointed..regards

Tomichan said...

Time for a downmove upto 4980.

Chandrashekhar ( 2 M I ) said...

Dear Sukhani Saheb please continue writing as we are very egar to read you. We watch you on cnbc 18 every time without missing but some times could not understand but when you write we refer to dictionary n somehow understands you. so please keep on writing for people like us who understand english language only in written.
May god bless you, you are incredible!!
peace be with you

chandrashekhar

Balu said...

Hi Sir!!

Congratulations!! Your only son's marriage today, learned from Udayan's comments morning today..
Party all over!!

Regards
Balu

GA said...

It is a long time since you wrote. Very eager to know your views on when the markets will take breather for the people on the sidelines to get in. Is it something that got initiated yesterday?
Thanks
Gopal

Jitender Yadav said...

Dear Sudarshan Sir
Congrats for your son's marriage,and best wishes for the newly wed couple.
Your Fan
Jitender Yadav
New Delhi

rajiv malik said...

dear sukhani ji,

me too join your millions of fans in congratulating you on your son's marriage.

warm regards !

Tomichan said...

Happy married life to ur beloved son.

Dinesh Rishi said...

Compliment on your Sons wedding! Let love and happiness stays with you and your family forever!