Sunday, September 2, 2012

Subtle changes in Market Behavior

For technical traders, it is possible to be bullish one day and bearish the next day. Look at a chart where prices have fallen and are now finding support at (a) a rising trend line (b) previous high. It is possible to take a long trade since this is a buy on dips setup. Next day, for whatever reason, the stocks gaps lower. The trader gets stopped out. The gap down breaks below the trend line giving a sell setup. Trader can get bearish. Small changes in charts at critical points can led to significant changes in perception.

To avoid repeated changes in perception, traders use long term charts to identify the long term trend. Then, they favor the setup which matches the long term trend.

But, at reversal points, the short term trend will reverse quickly and traders should be agile to capture these reversals. It is as such points that the bullish - bearish changes can occur with some frequency. That is the way the market behaves. Or rather, that is the way technical trading is done.


5 comments:

Sameerbhai Limaye said...

Well said Sir, "that is the way technical trading is done".

Sameer Limaye

pranav.kulkarni said...

Dear Sir,
happy teachers day!!!! thank you for being my teacher and thank god I had best teacher in this world....
regards,
pranav

wildeazoscar said...

is it not easier to approach the issue in either of the following way

1. Do not enter the long term trend if it is very ripe ( in momentum terms overbought or oversold)

2. If you do identify the longer term trend , you also do identify its phase.... like A, B or C...... when you decide to enter the correction after any one of them, go for a divergence of either volume or sentiment against that correction and in favour of the longer term trend..... for example, if the longer term trend in NIFTY is down, short only if you find the VIX falling below the previous support in case of pullbacks and vice versa in uptrend.

A subtler approach can always be done in equities through pre planned volume targets, as outlined by Levine in his Topfinder, Bottomfinder algorithms of the MIDAS Study....

Ajay Gupta said...

RIL to remain underperformer:
Reliance Industries is likely to be an underperformer, says Sudarshan Sukhani of s2analytics.com. It rallied and then retraces 85% of its rally, is not going to add significant momentum.

Pls explain how did you calculate 85% retracement. Per my calculation its not more than 70% which signifies that their is no trend reversal.

discipline focus said...

sir,
vsiting daily since last two years almost.........the frequencyof ur posts have declined in last 2-3 months.....u must know.... lot of traders...find solace........clarity.....and peace in ur writing......do it for us plz!:) .........very few people can present/talk about ideas with clarity....and that too with humility..whether its ur TV presence or Your writing...its your humility and humbleness that draws.....ppl to u........As far as i am concerend...in India u are perhaps the only TA with professionalism, humbleness...and one who accepts when the markets humbles us.....its been 6 years I have followed you on telivision, read your book.........and whatevr little sucess, i can attribute today...........a lot of it comes from you........don't stop blogging

regards
discipline