Saturday, April 5, 2014

Choppy Markets are not a downtrend

One down day in the Nifty and TV channels have started calling it the 'end' of the bull run. If we have one more down day (we could!), analysts will start proclaiming that the markets had run ahead of themselves and a sharp correction may be coming.

I have often wondered if analysts have ever done any systematic and disciplined trading in the market. Many technical analysts disappoint me, when they speak on TV. I regret to write this, but this is true. It seems that the analysts have read a few technical analysis books and become experts. The basis of trading lies NOT in chart patterns or indicators, but in probability.

If you want to become a good trader, read easy to understand articles on probability. The web will have many of them.

Markets are random most of the time. Sometimes, there is a window of opportunity that opens up for the patterns that you trade. In these periods the probability of success goes in our favor. When the windows open up, the probability is in our favor, but there is no certainty at all. We cannot predict what markets will do in the next minute, then how can we predict what markets are doing in the next few days or weeks?

My point is: the Nifty is probably entering choppy areas. Life time new highs are NOT bearish. We have no idea of what the markets will do in the future, so we follow the trend assuming that the trend has more chances of continuing than reversing. 



Abhay Vaidya said...

Perfectly written and explained Sir, this is what the basis of trading and the returns out of it should be..! There is a famous book by Nassim Taleb, "Fooled By Randomness"..Your thought reminds me the concepts mentioned in that book.

Thanks a lot for sharing this!

I have been your big fan for many years..and always try to learn every-time you speaks.. :)

Thanks for every-thing you have been sharing over this blog and also on CNBC.. :)


Nirav said...


It is good to see you posing regularly on this blog again. Your point is very correct that we trade probabilities. I have a question here and that is option trading is also on probabilities, so can we back test option strategies on past data? Have you done this type of research?

Looking forward to your valuable inputs.


Rajesh Alawadhi said...

Dear Sir,

One big problem faced by me is stock selection while retaining a certain view on general market.Kindly give us some guidelines for selecting stocks to go long in while we have a bullish trading outlook or view for the general market.
The worst thing that hits the psychology of a trader is getting the call on the market right and sitting long on stocks which do not move contrary to their normal nature and vice versa.How should we trade a bullish market and what kind of stocks one should be long at,how do you chose the stock and when do you enter it.Please answer the question on a swing trading perspective.


THE most honest technical analyst.#salute#respect.