Saturday, January 7, 2012

View on the Nifty

For short term traders, the Nifty gave a trend day on Tuesday. After a big move, markets were expected to remain choppy. On Wednesday and Thursday, the Index moved inside a narrow range giving a range boundary of 4720 and 4800. On Friday, a breakdown was quickly proved false as the Index went below 4720 then recovered and closed inside the range.

Now, the Nifty has been inside a fairly narrow range for three days (four, if we include Saturday). It is reasonable to expect this process of contraction to move into  expansion, soon enough. This means, we can expect a breakout / breakdown and a trending move.

When? And, in what direction? Both the questions will have to be answered by the market itself. What is easier to do is to avoid trading inside the range. A risk then arises, what happens if markets open with a breakaway gap (up or down.)? Traders who wish to avoid this risk can buy an options straddle - Buy 4700 put and 4800 call. Here, the risk is of price decay in options if the Nifty continues to remain in a range. But, then there is no free lunch.

Trading Friday's move:

Pradeep Rajput writes: Need ur view on today movement. since it breached the 4720,but soon came back and made the day high and finally settled almost flat. though it went above to SL 4780, in this kind of sudden spike do u follow ur SL or wait for the market to settle down with ur open position continue.
Ur comment is highly appreciable.


My Notes: Thanks, Pradeep for this important question. On Friday, the Nifty went below 4720, triggering a short trade. Once I am in a trade, I feel I should remain with the position unless proved otherwise. I look for the market to close above the opposite side of the range. In this case, I waited for the Nifty to close above 4780, an event that has not yet come about.


The reason for this rule is to avoid making many whipsawed trades while prices chop around intraday. So, I have an initial short position in the Nifty. I will add to this position if the markets move below 4720. On Monday, I will exit the trade (a) if the Nifty gives a bullish ORB breakout and then goes above 4780, or, (b) finally closes above 4780.






12 comments:

Rajesh said...

Sir

What you say to wait till the close to reverse the trade. What if in the present short trade if the spike yesterday would have gone past 4850 and further closed at 4880. In that case one is risking 100 points more than the stop loss. This will affect money management also.

Tomichan said...

As u said on cnbc, the long position on infy continouing now? The market may go down at a slow pace initially? There is a fair chance for that. Everyone expects a pullback everyday but it comes only in intraday. Some more bleeding in selected stocks. Aban, with year low of 333, now at 350 is a potential candidate to move to 230-265 range. But it can be accumulated in sip mode as sudarshan sir advised (on SIP) for long traders during this period.

Pi said...

I am just trying my hand at trying out trading strategies on EOD Nifty data in excel.

I just wanted to get an idea about numbers. How does a system with an expectancy of 1.07% per trade look as a ballpark. Good/average/bad etc.

This is raw number without any slippage.

Pi said...

a

Rushabh Shastri said...

As you rightly said nifty if give much trouble than focus on individual stocks....JET AIRWAYS,SUNPHARMA,DRREDDY,SESAGOA,HINDALCO,PANTALOON, should do well for the next week...
NIFTY-RELIANCE is JUDWA no doubt about it,,,,to lift nifty above 4800 and to retrache upto 4900/4950we must require RELIANCE to touch above 30 DMA ...

Tomichan said...

it was positive from 3rd january onwards. The smallest being on saturday, 40 ps! The US could not chew a series of good news coming inside. Europe debt is again coming forefront. I think America is clearly back into growth and its own trajectory. The europe crisis is a crisis, but not affect world as fierce as that of the American recession. But past history doesn't favour january. Hence bad news will be the front runner this month. Then this month, it will not be a news driven market. Market falls first, and atracts bad news around the corners. But on a news driven market, the latest us jobs report may makes the world on its heel, i say. But market goes to where it wants to be, sudarshan sir following it, and we too along.
Salute master.

pradeep rajput said...

Thanks for your view Sir.
Seems like it will eat up margin money then only trend.Fed up with Nifty, both ways only eating stop-loss.

satish said...

Sir, you speak about trading range. We are in trading range till we break 6300-6400. As a investment strategy we should keep all equity money in FD till nifty crosses 6350. In we get nifty close above 6350, covert all FDs to diverified equity mutual fund or large cap stocks with little flavour of midcap. This 4800-6300 is boring and wastage of time phase. If we look nifty to go to 14000-15000 over 8-10 years, these 1500 points (4800 to 6300) won't matter much, just like whether we bought at when nifty was 1500 or nifty was at 2200...please offer you view.

Tomichan said...

The market has resistance at 4800. Hence why not to take a short position near that level keeping a stoploss of 4811 or so. We all expects a downtrend also. (market may keep the level upto 14th jan? I suspect, but the market may be looking for 12 to make a direction) Expect ur valuable advice sudarshan master.

Pranali Khanolkar said...

Sir,

What are the exact times you come on CNBC? I dont want to miss any of your interviews.

Thanks.

sudhin said...

Mr. Sudarshan, any good stocks for say 1-3 years?

pranav.kulkarni said...

Dear Sir,
Request you to share your daily routine with us. The time you gives to updation of charts, chart study, analysis etc

Regards,
pranav kulkarni