Tuesday, July 24, 2012

Identifying Contraction

There are no set rules for identifying contraction but some properties are available, that indicates or suggests that the contraction may start;

  1. When prices are far away from MA
Suppose a stock have in a strong uptrend in EOD Chart. In 60 min chart, if the 20 period MA is far below from the prices then there is a strong chance to begin a contraction.

  1. After a rally of 30-40% in Stocks and 20-25% in Index
Prices have a tendency to trading in a range after a rally.

  1. When volatility are its low
A high volatility in a stock suggests the movement will be more and a low volatility suggest the movement will be less in price.

  1. When volumes are decreasing
Decreasing volumes in a stock suggest that the interests of traders are coming down in a particular stock. This will lead a less movement of the prices and a range may visible.

This post has been adapted from a  presentation by Mr Sunil Miglani, made at ATA on July 14.


SHAHAB said...

Dear Sir,

I take great interest in following your comments and opinions at CNBC at the pre-openings / openings and during 2.30 p.m. I am an ardent fan of yours. What I like most about you is that you speak your mind with all truth. One day you may give buy call to a stock and the very next day you give a sell call. Initially puzzled, but you always have reasons right behind your act. That I feel is more important. Truth (what you can see in charts) and simple straight-forward statements (depicting conviction & commitment)! I have grown interest in technical analysis by reading and listening to you only. I have made more money than I have lost following your ideas and stock selection. Thank you very much for all your advices.

I know very little about technical analysis. Beating bush here and there. I would like to discuss rather seek your advice and opinion on VIX which I have been following since last august-september, when the market was crashing from 5400 levels to 4600 levels. Conversely, with falling nifty, VIX rose and reached around 32 and then reversal happened. Those days I read an article on net explaining that nifty will take a u-turn when vix would touch 32-33 and precisely that has happened. Vix didn't even touch 33. The author also mentioned that 16-17 is the lower end of the vix. For quite some days VIX is at sub 20 level, precisely in 16-18 range. Does this mean that reversal of vix as well as nifty is on the card. And if nifty and vix are inversely co-related (which is what we usually see), then we should see nifty crashing soon (in short time frame). Although I have nowhere read that lower price means high volatility. Please explain vix vs nifty and enlighten us with your honest opinion as always. Thank you in anticipation.

With my best regards.


Reckless Cerebration said...

Dear Mr Sukhani
It is always a pleasure to read your views on trading and one trait I am trying to learn from you is to accept wrong trading calls with humility. Thanks for your views. By the way, I have one of the topic question, is trading in derivative considered as speculative business or non-speculative business?