Afraid to Trade Options

I had interacted today with many option traders who apparently know nothing about the concept of Volatility. I shiver at the description of their trading strategy confined to directional option bets. Disregard or lack of understanding for Time Decay or Implied Volatility.

1. Interesting post on Options


2. What are the parameters to look for in deciding whether option is attractively priced ?


3. Are we aware that Option is a non linear convex instrument unlike stocks or Futures ?

Simplifying Your Trading Framework

Active Traders internalize market lessons through exposure to patterns, pain of market losses, learning forced by the market.

1. There are many stages in the development and evolution of a trader.


2. I believe it is always difficult to predict the market as it appears mostly random. But a trader with clarity of his approach and trading framework is not surprised by the market moves . This progressive elimination of being surprised by the market makes him resistant to being fooled by randomness.


3. The trader should be able to explain his approach on the back of a visiting card in three steps.


4. The trader can reduce most of the trades to three approaches . Thus the concepts of trading are superior and of lasting edge than a single trade idea.


5. I would admit most of the trading experience and knowledge can be distilled in this excellent article by Brett Steenbarger.


6. When the market movement cannot induce surprise in the trader most of the negative power of the market is reduced. As the greats in trading say " In the expert's mind there are only few possibilities where as an amateur sees many possibilities".

Trading and Econometrics

I have been reading a bit on Econometrics recently sparked by my registration at NISM workshop.

1. My friend Newton Linchen has interesting comments on Trading and Econometrics
2. Econometrics of Tape reading where Newton Linchen discusses Strategies and Models. As pointed out trading is more about skill than knowledge.
3. Good posts by SohamDas relating to Quant and Econometrics, Basics, Concepts
4. As Newton Linchen rightly pointed out , Insightful analysis by Victor in DailySpec, here
5. Thoughts on Trading Price levels

Econometrics for Finance at NISM

It's has been almost three weeks since I posted . My aplogies to the readers and my friends.

1. I am eagerly looking forward to attending Econometrics program at NISM, a prestigious institute by SEBI.
2. Presently I find Chris Brooks book on econometrics interesting.
I look forward to post some interesting notes on the econometrics workshop in the coming days.

Lessons from ANACONDA,the movie

Some of the points that struck me from watching the Anaconda movie today

1. Deception : How the snake hunter practices deception leading the others in the Amazon Jungle. Parallels to market where traders are mislead by the hidden motives and apparent movements to one direction sharply reversed in the other direction
2. Insearch of Risk : My favorite analogy of a trader in search of risk is the snake hunter in search of Anaconda where other people are afraid of the snake. When I encounter questions about risk of a given trade, I wonder why they are in the market if not in search of risk
3. Preparation : Jon Voight is well prepared to catch Anaconda. He is anticipating and longing for it to show up. Instigating it with his monkey bait. He is ready with ropes,net, gun with anaesthetic etc. Proper preparation with his trading framework , significant price levels to watch for, trade structure, awareness of context is essential.
4. Timing : Acting decisively when the snake appears. The trader is not surprised. Extreme agility to time the trade not missing the shot at the right time is critical.
5. What are the signals similar to the trembling Monkey: When big predator is around the market weather changes. The prey gets the signals. Monkeys holler and make unberable noise. What are similarities in markets. I have witnessed trembling in leading stocks in leading sectors before a panic sell off or Squeeezes. Can we look for trembling and howls in VIX, Int Rates, Gold, Oil, Dollar Index, Baltic Dry Index, Credit Spreads.

what shows fear before big predators make a move in markets ?

Fading Other Traders' positions

Assuming Day Trading is a fight between participants in the trade, Is there an edge to fading other traders positions ?

1. Trading floor used to give advantage of reading other traders or Tells.
2. Can similar edge be gained in brokerage trading rooms where novice traders positions are displayed to all?
3. What are the characteristics of "fadeable" traders ?
4. I am surprised to find sometimes the positions of other traders overriding all indicators, TA patterns will give a clue to short term positions.
5. If daytrading needs flash opinion on a stock what better market tell than an injured trader on the other side?
6. This may sound cruel but the practice of deception is the nature of the market.
7. Some characteristics of the trades I can fade are

• When there is a random stop on a losing trade
• Trader has taken a position rather than voicing his opinion
• Revege trading is visible
• Trader is trying to break even
• Cursing or exhorting the financial instrument
• Entering into trade to avoid regret
• Lowering stops on a losing trade
• Avoiding when the trader is strong or profiting in the trade
• Quick and random profit booking by the trader for emotional reasons
• Larger than normal size by the trader
• Timeframe of fadable trader should match your own

Can these observations of traders strength or weakness in a particular trade give an edge at least for entering the position and relying upon TA and indicators for managing and exiting the trades ? I had lot of anecdotal evidence of Stockbrokers fading the positions of their clients when they run their prop books.

Can the daytrader use this as a shortcut cutting across opinions , news, TA and Random noise?

Newton Linchen on OVERTRADING

Newton Linchen , SpecList Author has nailed the issue of OVERTRADING. I take the liberty to post here.

Dear Prof.
Overtrading is the greatest issue for a trader with internet dealing access (home broker).
Really nothing prevents the trader to enter another trade, to his own misfortune.Some time ago (it seems in fact another incarnation!) I can say I was the master of overtrading. Really! My brokerage statement showed up to 25 + "trades" for the day. The results were quite poor.As I developed as a trader, I learnt some key aspects of market behaviour, which allowed me to enter trading in very good trading opportunities.My overtrading stopped completely when, after doing this a thousand times, I asked myself: "wow, I just bought the downtick in the first trade... what were the other 19 for?" "Couldn't I just be quiet with that first entry and enjoy the move?????????"
The breakthrough came remembering Larry Williams approach to day trading: find a spot, enter and hold till the close.In my case, hold till the close doesn't work very well, but I manage to discover key levels where to scale out the position - now doing just one or at tops two trades per day!
The real point of overtrading, I realized, is that intraday charts has much NOISE - and this NOISE gets you out of the trade if you are:a. Following price action tick by tickb. Using moving averagesThe fix I use was to identify entry and target points, so, once the trade is begun, I minimize (yes, shut down!) the trading screen and put alarms to the price levels (stop and targets) - and then go play chess with my work colleagues, so that we are not shaken out of our position by market noise.Once the alarm rings, (I just love Nelogica!), we see whether we were stopped or profitable.With this simple solution our ration fell to one, two trades a day, and our sharpe ratio is in the vicinity of 5.
Regards from Brazil,
Newton Paulo Linchen.
November 21, 2009 3:59 AM

Identifying Overtrading

What are the parameters to identify Overtrading by Active Traders?
Some of the following can be of help.

1. Number of Trades
2. Total Trading Volume
3. Vig to Trading Capital Ratio
4. Number of Instruments Traded
5. Duration in the Trade ( minutes held)
6. Number of Orders Placed / Cancelled Orders
7. Number of Unplanned / Impulsive Trades ( which are based on " Breaking News", Based on Other Traders's Positions, Reacting to Opinions of Other Traders )
8. Position Size in a single Trade ( Above Avg Size)
9. Number of positions at a particular point of time ( More than two ?)
10. Tight stoplosses ignoring the Logical stops ?

As I struggle to cut down overtrading , I understand the Broker's ( Market Infrastructure's) way of turning thr trader's networth into his own through VIG, SPREAD, SLIPPAGE.

NSE Adv- Dec Line : Identifying Day Structure

As an Intraday trader, I want to arrive at a working hypothesis of whether the day is trending or ranging? For this I use the following proxies inspired from Brett

1. NSE A-D Line ( ADL): I would prefer a calculation from the open . As an intraday trader the overnight situation may be misleading . As of now I could not get ready caluculation.How this Adv-Dec is developing as the day progresses is an important factor in my decision to fade strength or trade for breakout moves. This will also guide me in position sizing, adjusting the tightness of stoplosses, Necessity for taking scalping profits or scratching the trade.
2. SECTOR BEHAVIOR : How the leading sectors are behaving. What the leading stocks in these leading sectors doing. I am taking 5 stocks from 8 sectors ( IT, Pharma, Metals, Realty, OIL, Banking, Auto, FMCG)
3. CORRELATED ASSETS : Behavior of USD/ INR, oil, Interest rates and commodities

Interesting Readings

The quality of the information available free in web for any willing and hardworking trader surprises me. What are the incentives available for traders to share so much information and insight so freely ?

1. Newton Linchen 's insightful post on Trading Behavior
2. Another great piece from Newton on Fun in Trading
3. Dr Brett on Trading Education

Few Queries

In my quest to learn trading , I had great teachers in Dr Brett, Victor, Newton Linchen, SMB. Their thoughts continue to light my path towards finding consistency in trading. In following their articles and discussions , I had a few queries in Indian Context.

1. Is there a similar indicator as NYSE TICK ?
2. Any trading platform allows caluculation of % Change from OPEN ?
3. How to get Adv- Dec line caluculated from OPEN instead of Previous Close ?
4. Market Delta and Market Profile how to access in India without high cost for retail traders

I would highly appreciate responses from fellow traders to share their nowledge in this area.

Interesting Readings

I found the following interesting for the weekend reading.

1. Newton Linchen on the trading process. Infact a whole trading course can be designed on these SIX elements. Trading structure beautifully contained in these six bins.
2. Brett on Preparation for trading . I find this a common occurence with me as I frenetically search for trading ideas when I am not fully prepared for the trading day.
3. Lot of interesting trading concepts on Stocktwits. This can act as a model for thinking about setups and distilled wisdom from experienced traders. Must watch for professional traders to imbibe the thinking process and the language of the protrader.

Falling In Love With TradeTiger

As a small speculator earlier I did not have access to real-time intra-day charting. It is a bit expensive for independent traders and infact not possible to access in crowded brokerage trading rooms.

1. Many retail traders are forced to trade with tape reading and their own imagination from the screen.
2. Tradetiger of Sharekhan really a good tool for prepared traders.
3. Multiple time frame view of price action ( 3D,5D) helps traders to form a opinion about likely support & resistance areas.
4. Using this tool I could form a likely supply area for DLF at 487 in the morning trade. Combined with a range trading day hypothesis , me and my co-learner in the trading course decided to take a short trade. We covered for a 2% gain when other indicators started to deteriorate.
5. How many retail day traders can access multiday view of price action of their stock in real time? I would presume not many.
6. Chart based viewing of price action also helps traders avoid impulsive reactions and they can view with respect to a reference frame.
7. I am trying to illustrate my trade ideas and decision making process using Tradetiger in the trading course.
   

Fighting the Isolation of trading

Trading is based on Individual Opinion synthesised from various sources. But ultimately the trader has to decide and execute on his own. Trading is isolating in a way so as not to be biased by others random opinions.

1. In an effort to interact and share my opinions I have started my blog. I could form friend ship with excellent market participants and human beings like Newton Linchen, Soham Das, Sushil Kedia
2. I started to comment on market related blogs and in this process found myself approval from DailySpec , Newton Linchen, Jumpup
3. For the past one year, my thought process has got refined and I could explain my framework as a combination of ideas to beginning traders.
4. Initially I used to work from home but I shifted to my friend's office which made me more in control and reduced my overtrading to avoid boredom and frustation.
5. When I keep a trading student with me and start explaining trading setups to him and my process becomes more evident and my trading more responsible.

Newton LInchen's Observations on Course for Traders

I take liberty to post my esteemed friend, SpecList Author 's observations.

"Dear Prof.
I read the comment before your answer to it.I must tell you it has great merit to maintain such an aggressive comment in your blog, and it takes great humility and courage to answer it openly.I don't know the trading background of this person, but I'm suspicious of everyone who claims trading to be an easy task.Anyone who claims trading to be easy - surely doesn't make a living from trading. (That's why I don't like very much Dr. Brett books... It's clear to me that he is not a trader in the full meaning of the word. I rather to learn "trading psychology" from traders who really live from trading - In that matter, I would recommend an excellent book by Mark Fisher (the man who trained Paul Tudor Jones pit traders) - "The Logical Trader" (you find it at www.avaxhome.ws).You know, I also had my ugly ups and downs."BEEN THERE, DONE THAT, BOUGHT THE SHIRT"I started searching for guidance and I first found it in the person and work of Larry Williams (www.ireallytrade.com). Then I started to read other authors, (including Victor).The point is that I spend many years just to develop a conceptual framework for trading!!!! Many years just to understand (although roughly) the INTELECTUAL part of trading.Now, imagine my position, some time ago: being a market encyclopedia - and trading poorly.When I had enough bad trades, I realized that INTELECTUAL knowkedge of the markets wasn't enough.And... no "psycho trading" books were of ANY help.ANY. AT ALL.The first good "trading psychology" advise came from Larry Williams (I will quote it in my blog, next post!). It was something like this: "It's not the positive feelings that generate good trades...It's doing the right thing that generate good trades - and the good trades generate positive feelings."SO, there I was, stuck in the middle of bad trades - but "knowing" a lot about the markets. In sum, my TRADING didn't correspond to my KNOWLEDGE.Then I realized a trading METHOD that just solved every trading discipline issue I had. And it worked well for my students and for everyone who started using it. (I can disclosure it for you via skype).But, the point is: one struggle a LOT to achieve a minimal understanding of the markets - then, one have to struggle EVEN MORE to make this knowledge "work".I can see you are definitively in the path of making your knowledge work... And if I can be of some help in this process, I would be honored.
NAMASTE! " - Newton Linchen
I believe we all get resilience and humility from the exemplary path shown by the Chair Dr Victor Niederhoffer.

Why A Course for Traders

A reader commented on the blog about teaching trading without being a super trader. I will summarize my thoughts on this in response to his observations.

1. I am a co-learner in this course for traders. Each participant is a student as well as a teacher including the mentor.
2. I humbly accept that I had my highs and lows in the never ending journey called Trading ( " Hilotrader")
3. My effort is to find my own fusion of academic finance and trading.
4. I am not teaching a canned system but a thinking process.
5. Can I emphasize Mechanics,Tactics and Strategies thereby accelerating the learning curve of beginning traders.
6. My own learnings from 2003 onwards in the tradition of DailySpec, Traderfeed, Fooled by Randomness will give a framework to approach trading.
7. The course fulfils my desire and need to express myself and find flow in the feedback of my co-learners.
8. My effort to integrate Pivot points, Day Structure,Sector Themes, Preparation for the Day, Risk management,Trading psychology into a coherent framework will definitely protect beginners from blowing out before market allows them to learn to be competent traders
9. To put things in perspective, I have never blown my account in the past ten years of my active trading. Never panicked in a 10% move in Index, 70% down move in my stock ( Unitech in Oct 2008) in one trading session and always manged my risk.
10. An approach to markets, relentless drive to find your own trading style, Discovering your niche are the points I drive home in my course.
11. As for being a supertrader, knowledge is necessary but not sufficient, Risk-taking capacity is also needed. I try to trade within my risk parameters avoiding entering into Gambling territory.
12. I thank the reader for helping me clarify my thoughts on the course for Traders

Horse sense in the Market and Underestimation of VIG

Allow me to quote from Daily Spec

"This reinforces T@leb's argument that life is becoming over-optimised, reducing the slack in the system that's necessary to absorb the impact of the unforeseen. I have seen this myself recently, having interviewed a kid who was near top of his class at IIT and IIM, top of his class at a top tier MS in quant finance, straight As and a bonafide mathemagician. But he had zero intuition about the mechanics of the market, the vig or anything else. Everything was an equation to be solved where one simply cranks the wheel and spits out the answer." - Nick White

I have encountered situations where learned people under estimating the market realities and friction ( transactional costs).

1. One stockbroker explaining to me how high brokerage costs doesnt matter . It reminded me of Victor's anger when he was given dubious quotes on the floor of the exchanges.
2. Dealers buying 5% spread for customers and buying at the market in which there is scant volume.
3. Inappropriate use of Order types in the market situation.( Stop loss, Limit Orders)
4. Need for recognising how the " Obvious therefore Dubious " ( Courtesy GM Nigel Davis of DailySpec) more often than not as evidenced by Indian Market on Friday ( Nifty opening at + 110 points and closing at -40 points). Am I hearing Victor's admonition here ( You can find any example retrospectively in the market to fit your analogy )
   

My Friend a Fantastic Teacher, Trader & SpecList Author

Today I had wonderful conversation with Newton Linchen. I am all ears to his most incisive explanation of edge in market microstructure and Index futures trading.

1. I believe Newton Linchen 's constant encouragement enabled me to succesfully launch the " Active Trader Course " in Hyderabad.
2. I am very excited for the past two days looking forward to this conversation. We had a good time ." Trading & Exchanges " is a book that has to be digested many times over.
3. The excitement with which Newton Linchen described Round numbers and their relevance still resonates with me.
4. As the saying goes " When the student is ready, the teacher appears ".
   
5. I look forward to more conversations with Newton and India - Brazil Connections .
6. The effort to meet the Stock Exchange authorities to discover the edge is a lesson I always keep with me.
   

Learnings from Trading Course

Some observations from my trading course conducted successfully.

1. Two participants having good educational background attended the course.
   
2. I am really pleased to have them as co-learners. We enjoyed mutual sharing of knowledge.
3. One participant who traded forex has very good feel for charts and Elliot wave, Fib retracements. This has shown me the importance of trading niche and individual style. Another participant has feel for Correlation trading.
4. I enjoyed interacting with them and we could observe the market real time making good inferences.
5. Another point that came to the fore in my discussions is individual risk tolerance levels.
   

Index Futures Trading by Newton Linchen

Insightful observations as usual by my friend and SpecList Author
Newton Linchen. I take liberty to post here.

Dear Professor,Namastê.Honoured to be mentioned in your post.
About your question: it is - at least in Brazil - for the retail trader to perform well in such arena of index futures.First of all, there is the "easy" path of the mini contracts, ideal for the undercapitalized trading as well for to put some new ideas to work in the markets with low exposure.
When you go to the "big" contracts, you can count on the institutional hedgers and arbitrageurs as LIQUIDITY PROVIDERS, (Market Microestructure - an idea from "Trading and Exchanges".All "mean reversion" traders, all arbitrageurs, all "pairs trading" traders will act as liquidity providers for the DIRECTIONAL TRADER.I myself am a directional trader. Always been, and perhaps always will be.
What one must understand, however, is that index futures may contain more intraday noise, but, as a good side effect, it is more influenced by international environment (such as Gold and Bonds trading), wich makes it easier to trade in the context of a CORRELATION STRATEGY.And, as a benefit, the LEVERAGE acts to smooth VIG and SLIPPAGE.
Regards
Newton Linchen
October 25, 2009 4:42 AM

Newton Linchen on Insider Trading

Newton Linchen had read my mind. Recently I am toying with the idea of shifting to Index futures. Trading in individual stocks I may be at a disadvantage due to informational asymmetry. Company managements are accessible 24/7 to large funds. I have witnessed how the inner circle operates when I am a sell side analyst in a brokerage firm. The only hesitation in my mind of the suitability of Index futures to a retail , independent trader is Institutional activity in Index futures for purposes of hedging and arbitrage. Is it possible to a retail trader who is doing predominantly directional trading not to be overwhelmed by the Basis ( discount / premium to the spot index). Does the independent trader has the necessary skills to combine it with Index options for proper hedging. Where as apparently it seems individual stocks show a clean trend ( sometimes!)

Insider trading is what made me turn my trading activity to index futures and to market microstructure. I don't depend on large moves to make money. I really don't care were the car is going - and what car is, who is the driver, etc - for I'm trading on its mechanics, it's engine, it's structure.

For example, my day target is 30% of the day's bar range. Achievable and reliable.

Regards from Brazil!

Newton Paulo Linchen

Notes on Insider trading

These are further observations on Insider trading.

1. In depth post on Insider Trading


2. I held a view earlier that Insider trading improves price discovery and infact compiled an article for Analyst magazine of ICFAI way back in 1996.


3. Now I lean toward Prof . Gordon Haave's point of losing an edge to insiders.


4. Insider trading is so rampant and considered as common place like corruption in Markets like India, many market players are not surprised about it.


5. Average players should take care not to foray beyond well covered stocks ( Nifty Junior), where there may be risk of Insider trading and pump and dump schemes.


6. I have seen traders taking pride on their inside info and connections to operators in a stock as their edge and source of folowership.


7. Retail traders I discuss with cannot digest the futility of trying to gain inside info and the wisdom of concentrating on liquid and index stocks basing their views on market generated data.


8. Rampant trading by promoters of small companies through fronts and benami names are not considered as a surprise in emerging markets like India.


9. Broker-Promoter nexus before fund raising, creeping acquisitions,major corporate announcements,squeezes are well documented in India.
   

Identifying Significant Price Levels

One of the challenges faced by beginning or junior traders approaching the market is identifying significant price levels. These levels give a reference frame to understand price action. When I started to trade I am unable to place market movement in a framework and make sense out of it .However tentative it may be it provides a discipline and allow the trader emotional control.

1. As I gained more experience and paid the market for the tution and education I found more resources which helped me to find the reference points.


2. Following Dr Brett , I reduced the data visible on my screen to Open, ATP, %Chg, Volume. I am trying to focus more on PDH and PDL rather than day high and day low .


3. VFMDIRECT is another resource to identify significant levels like PIVOT POINTS, R1,R2 and S1,S2. Moving averages are also given.
4. JustNifty gives lot of data to understand price action for Nifty. These levels and their explanation puts into perspective the apparently random movement of the market.
5. ICharts is another good resource for various screeners and price levels. When I chat with traders they repeatedly assume and express their feelings without reference to objective levels or data points. I may feel the market is gioing down or up but unless data ( MAs, Trendlines, Sector strength etc) coorobarates my view I am simply hallucinating and acting randomly.
6. My inspiration for this post comes from the God of Modern Trading Psychology
7. The concept of hard vs Soft levels in trading using volume traded at that level at SMB Capital. I think experienced traders distinguish betwwen levels like a shepherd distinguishes between each of his sheep where as for an external observer all sheep are alike.
8. Round numbers also provide mangnetic attraction. Watch round number 5000 on Nifty and stocks like HDIL at 400. More on round numbers from my friend and DailySpec member and author .
   

Insider Trading and Research

For a brief period I have worked as a Equity Research analyst in the sell side for a Brokerage House. Some of my Observations are

1. This is relevant in the context of allegations of insider trading by Galleon Hedge fund managed by Raj Rajaratnam.


2. Information is the most precious commodity in Dalal Street or Wall street.


3. Infact Satyajit Das mentions in his interesting book " Traders , Guns and Money " how Brokers at BSE wonder about maing money without previeliged information.


4. In my experience what is most important for the analyst is his contacts with company managers and excutives. Networking abilities were found to be more in demand than analytical abilities.


5. Because only incremental information affects the stock prices what is not discounted is valuable to the analyst.
   

Educational programs for Traders

I am working on putting together a training program for active traders in Hyderabad.

1. My inspiration for educational program for traders here from Dr Brett
2. I wanted to integrate real time reasoning in the market rather than power point presentation.

"This is enough for a technician to say: “See? This setup works!” (I always wondered how can technicians give training courses using – at least in Brazil – only Power Point presentations… I.e. only selected material!)

(In our training program, we don’t use Power Point – we use the real chart software – so the student can see by himself other data than the “selected”.)

So, it’s always easy to collect anedoctal evidence to support any trading idea."

- Newton Linchen

3. Ongoing dialogue and discussion between the trader and trainer is one important component in the educational program.

4. Dr Brett on structured trading curriculum

5. How to find the best Teacher by SMB Capital

Monday's Trade in OFSS

Some of my notes regarding my trading on Monday 12thOctober

1. I had a Nifty Short position carried over the weekend on the premise of weakening breadth and sectoral weakness. My stop loss was hit at 4970 which is around friday's ATP
2. I had entertained a view of strong market above 5020 which is PDH
3. Breadth measure ( A-D) were strong from the open.
4. I had entered an impulsive trade in the open seeing softness in OFSS at 2090 . My execution is poor as I had to put my trades through phone . Opening session speed and volatility need to be taken care where slippage is hurting me.
5. Stopped out at 2150. Saving grace is only one fourth of my trade size. OFSS hit a day high of 2198. Seeing the broad market strength I hesitated to take a trade till 12 am.
   
6. OFSS continued to slowdown and traded below ATP around 1255. My idea here is that stock made a high for the day and showing that it cannot make a higher high. Naive contrarian traders ( Me included) trying to sell previousday's 7% move were squeezed out.
7. This morning high can give a reasonable stop and typically market makes Dayhigh / low in the first hour and highs or lows made in the afternoon tend to sustain in the last hour in the same direction on an average.
8. As the Vol of the stock is high ( High-Low range of 110 or 5%) I had kept a SL of 2165. Entertaining the idea that ATP should not be taken out and Volumes were high only in the morning.
9. Seeing the stock's softness relative to Nifty arond 1.30 added to my position. Further added after stock retraced to 2i44 from short swing upto 2160.
10. Overall the afternoon trade exploited stock's divergence from Nifty. Closed the position around 2120. As it is my full position I could bring it to breakeven.
11. Moral of the story is I should avoid fading against the Intraday trend.
    

Stockmarket through the lens of Scientific Method

Markets can be viewed and traded in hundreds of ways. Participants can choose and manufacture their own risk and time frame. Ultimately the instruments we trade facilitate us to express our opinion with in the chosen risk parameters.

1. My understanding of markets and price action remained hazy till around 5 years ago without any real education .
2. I came across the Giants in the field of markets & Speculation Victor & Brett which opened my eyes to Scientific method & Counting and I started an endless journey.
3. My interest and fascination to understand statistics started from DailySpec and EdSpec
4. Interesting and educative in the tradition of DailySpec by NewtonLinchen
5. Quantitative and Systemic thinking from SohamDas. Fascinating reading . In his words Mathematics appears like Literature.
6. I believe for a starter 2 readings of Investments, Trading& Exchanges, EdSpec will provide solid base of operations to have a framework for viewing the markets.
   

Innovation at StockExchanges

I am pleasantly surprised at the information available for the independent investor at free or very small cost.Exchanges are improving their service for the benefit of investors & traders.

1. Excellent and further simplified trade verification from NSE. You can also download to Excel. I routinely use this to verify my trades. It brings transparency and all traders must utilize this.
2. Colorful view of sector strength, best and worst performers in the sector. Yet another visualization tool from NSE.
3. Useful data from BSE . This shows the democratisation of financial markets where tools available only to institutions are within the reach of independent investors at free of cost.
4. Stockwatch from BSE to get comprehensive information.
5. Live Sensex view from BSE
6. Interesting charting application from BSE. Though I could only get line charts. I would prefer Candlesticks.
7. NSE's charting application available only to member brokers. I think they will release to investors at a later time.
8. Though this is not related to exchanges another useful tool from Volumedigger. Here you can see heatmaps of sectoral indices as well.
9. Market profile like charts here.
10. Real time Advance - Decline chart here . This is one data point I use for assessing the day structure . The day developing structure of Trendiness or Ranginess can be gauged to some extent by this information.
    

Stock Selection for Shortterm Trading

Most active traders face a dilemma regarding choice of stocks for Trading. With experience they may gravitate towards their favorite sectors or familiar names.

1. Useful stock screener at Icharts
2. Most actives list at NSE on the previous day
3. I personally prefer stocks fronm Nifty as midcaps may have wild movements intraday
4. Atleast if the stock is in F&O there is some sort of balance through options
5. Significant news on the stock. I try to avoid trading on the breaking news unless I already have a position and a view on the stock.
6. If the stock behaves whackily , try to avoid it for intraday trading ( eg Everonn, Educomp)
7. I try to distinguish between morning, afternoon, evening movement in the stock.
8. I try to fade extreme reaction of the stockspecific news ( Extreme is gauged by 2 sigma movenent of the stock's return in the previous 250 days )
9. Avoid small and midcaps as they are jerky and force the trader to shift timeframes
10. In the earnins season, I have to be careful of trading the results announcements after 2.30 pm ( I had a bad experience trying to fade JSW Steel at Q1 results )

Trading in harmony with the market

"Instead of focusing on what we're doing wrong and trying to prevent ourselves from doing it (which only keeps us problem-focused), we instead craft solution patterns out of our best trading." - Dr Brett Steenbarger

I am trying to identify when I trading with positive approach to the market.

1. Well prepared before the market Opens :Reviewing previous day's market action, Analysing NIFTY Chart for S&R ranges, Significant levels ( Chart based pivots),Volume action,Price wrt 20DEMA,50DEMA,200DSMA.


2. Waiting for the right spot : Patience to let the opportunity present itself, waiting for good prices. I have learned not to fade intraday highs unless there is good volume and market made a identifiable top on the chart ( Lower highs, Lower lows, at least one candle in my time frame ) . Taking into account the time of the day ( most important for intraday traders)


3. Establishing Stoploss levels : I am most comfortable when I have logical stops to execute against ( ATP, Open, Chart based pivots, Volume spikes, Signals of traders caught in one direction)
   

NCFM vs Trading Course

Many students of financialmarkets queried me on the difference and suitability of NCFM and Trading course such as the one offered by me.

1. NCFM deals with Market Structure and Market Design
2. NCFM is mandatory for employment in Brokerages/ Subbrokers
3. NCFM does not deal with market decisions
4. Trading course teaches one what and when to Buy/ Sell
5. NCFM gives additional knowledge and strong base of Operations in trading the market.

One to One Mentoring for Traders in Hyderabad

"The challenge for the trader is not so much one of making market predictions as refining trading hypotheses as market data unfold. The effective trading mentor models this reasoning process, but eventually needs to let junior traders try out their own reasoning, with prompt review of solid and flawed reasoning. That is why sound mentoring has to occur during the trading process, just as effective training of physicians has to occur at the bedside or in the clinic." - Brett Steenbarger

How to implement the idea of modelling the reasoning process by hand holding beginning traders in Hyderabad? I came up with this idea after attending some trading seminars where the speakers are discussing Charts, Indicators in Isolation and analysing historical charts by hind sight.

I wanted to reason out the markets along with the learning traders. Here all the participants are both teachers and students. By trying to teach others my concepts and rules will become clear and I will be able to better understand my method which is a mixture of knowledge gleaned from great personalities mentioned in this blog.

Trading Course in Hyderabad from Saturday October 10, 2009

GANGINENI DHANANJHAY's



Stock market Course for Active Traders
     http://www.hilotrader.blogspot.com/

gdhananjhay@gmail.com
Mobile : 09391319721         






Module1 – Basics of Trading -


Trading Vs Investing Vs Gambling, Types of Trading, Players in the Trading Industry, Orders and Order Properties . Why People Trade ( Utilitarian Traders, Profit Motivated traders ),Cardinal Rules of Trading
FA,TA, Traders Mindset.,


Module 2 – Understanding Candlesticks & Indicators:


Candlesticks, Simple patterns ( Doji,Bullish Engulfing, Bearish engulfing etc)
Indicators – trend following ( SMA,EMA,MACD)

Momentum Oscillators ( RSI,Stochastics)




Module 3 - Tools of Trading –


 How to identify the trend of the market ? Larger time frame (20DEMA,50DEMA,200DSMA)
Intraday ( 20 EMA, Open, ATP, UpTrend(HH,HL), DownTrend(LH,LL),Swing High, Swing low, Chart based Pivots)
Determine the strength of a trend ( ADX,A/D, Sector Behavior, MACD,RSI),
Low risk entry into the trend (Pullback to 20 EMA,ATP, Open, Volume action)




Module 4 – Preparation for the Trading Day:

1. Identify intermediate term trend ( Uptrend, Downtrend or Range- 20DEMA, No of Stocks > 20DMA, Basket of Stocks (5 each from 8 sectors) strength)
2. Yesterday's Price stronger, weaker or in range wrt previous day (Hi&Lo prices across sectors, Indexes, DoD Changes)
3. Special Circumstances likely to affect today's trade ( RBI, Economic numbers, Holiday period)
4. What are relevant Price target Levels and Reference points ( PDH,PDL, Previous day ATP, Intraday Pivots S1,S2,S3/ R1,R2,R3)
5. Close of previous day and Open of today
   ( Near the top of the range / Above yesterday 's PP – Strong. Near Bottom of range/ Below PP – Weakness , Around PP/ Mixed A-D in early trade – Range)
6. Global Cues - S&P 500, US CBoE VIX, USD Index, CRB Index, Crude Oil, Gold, Baltic Dry Index, Nikkei, Chinese, HangSeng, SGX Nifty )
7. Writing down all observations and Opinions in a Notebook and reflecting daily.
   
   
   
   
   
   
   
   
   
   
   
   
   
    

Module 5 – Intraday Trading strategies

1. Identifying Stocks in Play for Intraday ( Stocks in News, Earnings, Policy announcements, Most actives, Contrary Behavior) ( Less than 3 to focus on )
2. Keep track of key levels and inflection points on SIP
3. Know what sectors are in play, and what stocks within those sectors are strong or weak.
   
4. Look at different time frames, 1min, 5min, 15min, 30min, daily, monthly and yearly.
   
5. Make one good trade and not necessarily one profitable trade
   
6. Stick to one stock on the open, Avoid
   Flipping
   
7. Focus on Buying supports, shorting resistance, playing held bids, held offers, consolidation and ranges
   
8. Trade in the direction of intraday sentiment ( A/D,ATP,Open)
9. Start with profit targets: range extremes, pivot prices, and R1/R2/R3 and S1/S2/S3 targets. First figure out where you think the market is likely to move
10. Don't chase price highs or lows. Make the market show you that it is making a higher low (uptrend), a lower high (downtrend), or holding support/resistance (range).
11. Stop loss level ( logical stops, random noise, Small position size with larger stops adj for Vol)
12. Catching the late day volume surges
13. ATP as an evolving estimate of fulcrum/value
    
14. Characteristics of a trend day (Breakouts from short-term ranges ( previous day's range, multi-day range, opening range) on strong volume; Strength in market's leading sectors, Confirmation from correlated markets, Extreme readings in the day's advance-decline readings)
    
15. Understanding price Spikes
    
16. Sharp Moves vs Mild moves ( mean, SD of a Normal Distribution)
17. ORB Strategy
18. Opening one hour / Closing one hour ( DH/DL made in first hour ?)

 


Module 6 – Best Practices in Trading & Trading Psychology

1. Reading Inter market Themes (Pro Risk Vs Anti Risk, Dollar weakness, Interest Rates )
2. Reading Volume ( Volumes, Delivery %, OI)
3. Reading Sector themes ( Strength in metals, Oil , Commodities)
4. Stresses for Traders : Excessive risk taking, Changing markets, Unrealistic Expectations, Departures from prudent risk management
5. Trading Mechanics( Dr Brett , ETP page 140), An Observation Checklist(ETP,page143)
6. Mechanics of Risk management ( ETP, page 145)

Mixing Volatility Regimes

I had an interesting conversation through the blog on Mean reversion of Volatility with SohamDas

1. While searching DailySpec on the same topic a good post here
2. Bernanke on why crashes happen in October
3. A dash of insight on the same topic
   

SohamDas on Volatility and Mean Reversion

I take pleasure to post SohamDas's thoughts on Volatility

Historically, VIX is strongly mean reverting, hence we should be able to fit a standard mean reversion model (usually I gravitate towards Ornstein Uhlenbeck, but I couldnt fit properly) to some extent.

So, if we are indeed able to form a consensus on the "low"-ness of the present VIX, we should be seeing a run up very soon, how soon I dont know.So yes, it would be better to go long in ATM straddles.

About VIX, consensus
The point is exactly that! Is it obvious to market participants that VIX is low? And low doesn't give any information. I would rather say, are they discerning, if its historically "out of whack". I might be wrong, but I dont think many people will think that way. So I would say, it is a fantastic opportunity to apply a trading strategy which is totally different from the usual market strategies, i.e less $$$ are chasing it.
Everchanging Cycles?
Umm...The cycle behaviour is not that pronounced, cycles are mean reverting but all mean reverting signals are not cyclic. So, as it becomes non intuitive, you know...

How to detect a regime shift?

Well, VIX shooting up wont really be a full scale regime shift, because it again reverts back. But if we want to detect/predict a rise in VIX,MA-GARCH modelling might help {I did some work in it, but didnt really exploit it commercially yet}

Free Stockscreener

Wow. The web is a goldmine for motivated and interested market participants. Lot of tools and Information is available free!

1. Excellent Stockscreener here
2. Any Intraday stockscreener available ?
3. Nice fundamental data here
4. Free downloadable books on stockmarket here
5. Another good screener here
6. Even horly intraday screener here
   

Long Volatility Trade in October

I have tried to look at monthly volatility of NIFTY Index.

1. The inspiration for this post here.
2. Average Monthly range is taken as proxy for volatility ( Ln(H/L))
3. Data from 2003 to Apr 2009 is available - 76 data points
4. Most Volatile month is October at 18.94%.
5. Least Volatile month Feb at 8.83 %
6. October has highest correlation of volatility with previous month at 0.98. Even though volatility clusters this is pretty high

What are the Implications ?

1. Given that Volatility is low till now can we expect increase in volatility or this time it is different?
2. India VIX low
3. Will the low IV s signalling a blowout run in Indian markets ?
4. If the hypothesis of October expected to be volatile can we set up a options strategy being Long straddles

Trading Education Framework

I am taking up a project to launch real time training for short term traders in Hyderabad.

1. The motivation for this program came after seeing lot of trainers selling tips, Blackbox system sellers.
2. My aim is to provide a framework for understanding market activity.
3. Taking market microstructure as a base ( Trading & Exchanges by Larry Harris ).
4. Topics I am going to discuss and share include Charting basics, Trading Psychology ( drawing inspiration from Dr Brett ) , Qualities needed for a Speculator ( EdSpec by Victor Niederhoffer)
5. How to Understand Intraday Action ( SMB Capital is my Inspiration )
6. Basics of Derivatives ( Understanding Volatility and Options )
7. Combining all the elements into a framework ( Concepts of Auction theory and Market Profile)
8. Utilizing Fundamentals and Macroeconomics as a handle for Trading decisions

I am going to release ads offering this service as fully refundable if not satisfied after one week of training and mentoring the traders. This is my way to share what I have learnt . I dont claim to be perfect though. I feel this knowledge is necessary for any trader.

Trade Tiger of Sharekhan

My friend opened a franchisee of Sharekhan. I got to see their TradeTiger Platform.

1. It has good charting facilities. Chart updation and clean screen impressed me more than ODIN Diet 9.1.0.5.
2. Tick, 1,3,5,10,15,30,60, upto monthly charts available and fast updation on the platform.
3. I am unable to keep ATP on the Market watch ?
4. ATP is coming as a fixed line on the chart. Can I see the building up of ATP in real time. I am not sure. One popular indicator with American markets is VWAP and its MA.
5. I felt brokerage charges are bit high ( default of 0.05% intraday) for my style of trading.

TA & Price action

My idea of understanding Technical analysis found resonance in an excellent post by Newton Linchen in his characteristic clarity.

1. Earlier I struggled with Charts having huge number of Indicators , Filled with lines. But now I feel simplicity is the best and understanding of price action is more important than indicators.
2. Basics of candlesticks and how they are forming is intutively appealing.
3. I find Maoxian's illustration of charts worth studying.
4. Illustrating how the process of arriving at a trading decision and the details of building evidence before the trade is the hallmark of good trading educator.
5. After the fact the patterns appear to be very easy and to see the Seminar gurus keeping on explaining the left hand side of the chart is irritating. The trader has the challenge of deciphering the the hard righthand side of the chart.
6. In many cases market moves by surprise and with violence. What you see on the charts might have happened in one bar or spike. The trader studying static charts with indicators does not realize this.
   

Trader Education

I have noticed increased interest in Trading Education. Yesterday I attended a 1-Day Course on Trading by Mr Vivek Khemka, CA and CFP by Qualification. Some of my observations

1. Youth are increasingly participating in the Trading of stocks. Business Line also reported on a Google survey .
2. Online trading increasingly democratised access to financial markets.
3. IT & Software employees are increasingly being attracted to Trading the markets. This is anecdotal evidence of my observations.
4. Youth is adapting currency trading diversifying away from stocks.
5. I have observations of Women Traders also actively trading in Hyderabad and even special branches of Brokerages for women in Hyderabad.
6. Some of the trading educators in Hyderabad whom I have come across are Mr Ajay Kumar, Mr Vivek Khemka, Mr Damodar Sai. Their focus is on TA and Chart patterns with a bit of Trading psychology and money management thrown in.
7. Some times I wonder what is the prerequisite for a trading educator. Because there is no curriculum or Common body of Knowledge as in other fields. Lot of opacity and non verifiable track records in this field.

Intersting Readings

I had the pleasure of going through the following readings in the weekend.

1. Trading lessons from Newton Linchen, my friend and a SpecList Author
2. Best Practices in Trading from Dr Brett
3. Deepaksingh 's way of keeping track of Global Cues

Fundamentals for Intraday Traders

Understanding of fundamentals cannot be brushed aside for intraday traders. This came to the forefront in the ABAN trading.

1. My colleagues at TCSS used to have an excellent handle on fundamentals. When he prepares a spreadsheet the numbers used to be at his command. That fundamental handle of working out the value of the company from basics gives the trader an edge in designing the trade.
2. In the ABAN situation, first there is a rerating of the scripand there is a valuation surprise in the analysts estimates of rig rentals. This may not be adequately appreciated by a retail trader .
3. Another microstructure factor of ABAN fresh positions banned in F&O led to short squeeze.
4. Thistaught me the importance of market design issues and keeping multiple time frame participants actions in mind .

Being Stubborn

It's almost ten days since the last post. Meanwhile I had endured roller coaster ride of P/L reminding me the mistakes.

1. I learnt the danger of hoping and being stubborn in a trade and going against my own rules. Very important article by Brett on trading rules. Having short on AxisBank in the morning trade , I refused to scratched when it violated my rules ( Normally I don't keep a short position if it crosses above both open and ATP) and paid the tuition for education to the market.
2. My trades should start working within short period of time. If it is taking longer than normal, some part is suspicious. I should review the trade.
3. You cant scare the market twice on the same factor ( China Scare).
4. Tomorrow I would like to watch how the second time invasion of HDIL in 300 level pans out.
5. Though there is brader weakness today in Banks, I failed to keep settlement week pressures and other market context in mind.
6. Axis bank OI up 52% any corporate news or short squeeze in the offing?
   

Fading UNITECH

Today I tried to fade UNITECH's Strength in the opening. My thought process behind the trade is as follows.

1. Unitech is near its monthly high of Rs 98. This may be overhead resistance or supply area.
2. US markets flat with Asian markets marginally negative.
3. Market Context of 4600 Nifty and 7% move in Unitech and Real estate stocks yesterday.
4. Anecdotal evidence of large number of retail traders entering real estate stocks on Thursday.
5. Futures data suggest mild Open Interest Increase ( + 9%) which does not indicate explosive follow through IMHO
6. India VIX stable ( Not down )
7. Volumes moderate ( Rs 90000 Cr)
8. Anecdotal evidence of traders faked out of their shorts in Real estate counters at the closing yesterday.
9. Unitech's inclusion in MSCI Index may already have been in the price discounted by smart money.
   

Though I could close the trade for 1% gain

1. I entered large size ( 10 times normal ) trying to come back from previous day's draw down of 2% of my account.
2. I should always keep in mind Brett' s advice of "Drama Creates Trauma "
3. However I have taken solace from reading EdSpec where Victor comments about Losses and Comebacks and going right after a losing trade with size.
4. I always try to visualize how Victor would have traded that piece or Read relevant Chapters from EdSpec for guidance and inspiration. New meanings and previously hazy material comes to life each time I read perhaps reflecting my incresed struggle to make sense of market movements . It is a constant companion for me.
5. I regard Victor Niederhoffer, Brett Steenbarger as my two Dronas while I am their Ekalavya student according to Indian Mythology.

Forecasting EPS Projections

This is a writeup I prepared when working in Equity Research for TCSS.
http://bullstocks.blogspot.com/2008/10/forecasting-financial-statements.html

Looking for Proximate Causes

Today after the NIFTY closed around 4400, many traders are asking the reasons for the fall.

1. Media and analysts are citing proximate causes such as Monsoon
2. I think as traders our job is not to ask why and search for reasons. Trade the price action reasons will come later
3. Market focuses on whatever it wants and whenever it wants according to its Path of Least Resistance. Who are we as traders to ask the market to give reasons for a particular path.
4. Following my method in the set risk parameters and in my time frame taking least possible heat in the trade, minimising the vig, trying to articulate my edge and looking for disconfirmation of my hypothesis will allow me to survive in this game.

Indian Market Wizards

When I used to work with ICFAI, I had an idea of editing a book on Indian Market Wizards loosely modeled on Jack Schwager. Some personalities on Indian Markets I follow very intently. This is not a comprehensive list of course.

1. Devangshu Datta : Columnist in Business standard. Very incisive and fluent analysis in Monday special Smart Investor. His two page analysis is worth reading, chewing and digesting. I specially like his way of explaining his thought process behind the trade recommendation which Dr Brett always advises.
2. Udayan Mukherjee : Excellent commentary on Daily Stockmarket movement. I have many times benifitted from his themes and macro views. I think the traders' job is to synthesise various sorces of market information, opinion, analysis, recommendations, commentary and form his own trade hypothesis. Trader should always remind himself that nobody is responsible for his P/L except himself. Blaming others comes easily . I particulary admire the way he negotiates the short term daily fluctuations and ties them in a thematic frame work. His questions to Market analysts are striking compared to similar channels.
3. Ajay Shah & Susan Thomas : Two finest Financial Economists in India. Ajay Shah's writing style is fluid and I read him very closely. His trade mark logic on business channels is worth watching which is packed with data and statistics rathe than anecdotal impressions.
4. Sameer Arora : Sameer Arora 's ideas are very miuch packed with lot of analysis.
5. Ashwani Gujral
   
6. Deepak Mohoni : The man credited wiyh coining the term SENSEX as a short form of sensitive Index.
7. JR Verma : The academician and SEBI SMAC Chairman and author of my favorite DRM book which I used to teach DFE at a B School in Hyderabad.
8. Ruchir Sarma : Morgan Stanley
   
9. Shankar Sarma : First Global
   
10. Devina Mehra
11. Mukul Pal at Orpheus Capital

This is a work in progress list. I verymuch welcome suggestions and additions to the list.

Understanding Pain & Regret

Pain & Regret are two powerful emotions in Trading. Market always ferrets out traders' weak points and exploits them to extract maximum energy.

1. I think after all Fundamental and technicals , the edge of a trader lies in his observation of other traders and self observation of these two emotions.
2. Pain of a position going against the trader, Regret of exiting early from a profitable position these two emotions can be used to the traders' advantage.
3. Today I have traded IOC trying to fade consensus bullishness in the stock. Traders are citing reasons of Oil India listing as trigger for the stock. I had a hypothesis of price already reflecting that news.
   
4. IOC opening was weak relative to market and also in the context of price appreciation in the previous days, I shorted the stock for a 2% gain.
   

Fighting the vig in Day Trading

Brokerage and Taxes form a very big part of any day trader's P/L .

1. 50% of p&l is being eaten away by commissions and taxes . Even with low commissions for high volume traders taxes form an amount equal to brokerage.
2. It is difficult to fight the vig if the trader is fixated on the market gyrations and start over trading.
3. Dr Brett has an excellent piece as always here on Over trading.Comments to the post are also very readable.
4. Vig, Spread and slippage are the three enemies of any Day trader. I have often seen upwards of 25% spreads being routinely quoted and being bought in Options market particularly in stock options. The trader is being butchered alive in the stock option market with these spreads.
   

Options Trading by Retail traders

I have observed many retail traders trading options purely as a directional bets. Most of them are not aware of the basic properties of the Options Instruments they are trading.

1. NSE has to its credit prepared a freely downloadable material on Options Trading Strategies
2. How many retail traders are aware of Volatility trading and Caluculation of Implied Volatility
3. Sharekhan has a nice caluculator based on Excel here
4. What I observed in Indian Brokerages is lack of basic market understanding which is a prerequisite for market participation.
5. The best antidote to this situation is a thorough reading of Trading & Exchanges by Larry Harris available at any college book store at hugely discounted price of Rs 300 ( $6) in India. This should be made mandatory before any trade is entered.
6. I think many trading demons can be exorcised with good reading as suggested by Victor and also repeated in this site. My favorites are the two by Victor & Laurel, the three by Brett and one by Larry Harris which are minimum for any educated speculator.
7. Excellent discussion of Options Trading here
   

My Trading Plan

1. Review Yesterday's Most actives, Top gainers / losers and any headline news in BS/ ET for zeroing on Stocks in Play.


2. I keenly watch 9.00 am UDAYAN's show on CNBC TV18. Useful insights and synthesis of market action. The way I use this info is writing down all his observations in my note book so that they go through my internal processing. This covers currencies, commodities, asian, US markets and corporate developments.


3. I narrow down to 4 or 5 stocks as possible trading candidates for the day and then look for more info on these stocks.


4. Using websites as vfmdirect , I check for useful indicators like 5DMA,20DMA,50DMA,200DMA, RSI . These indicators are not absolute but has to be used as handles only. Review intraday, weekly, Monthly charts for any eye balling of Support and resistance areas. Remember reading charts is not rocket science. After all it simply tells us where price had travelled in the past. Also remember Victor 's remark " Why the market has to give money for knowing how to draw lines on a chart ".


5. I use NSE website for stock volume, delivery positions and OI data on the futures.


6. I would like to form a tentative opinion on the stocks at the time of market open. I may further narrow down to 1-2 stocks to have more focus in the first half hour.


7. Once this hypothesis is formed, I start observing the market generated data to implement my idea. As Dr Brett often observes market mechanics and execution is very critical part.


8. I watch for ATP, Open price as crucial pieces in my execution.


9. The Chart should be in my mind once I am at my trading terminal.


10. How the price and volume behaves as it approaches Open and ATP is a clue. In my experience Day high and Day Low are not as significant as Previous day high and Previous day low. Day high and Day low are obvious points for shaking out intraday players.


11. I try to assess the likelihood of reversion to ATP or building distance from ATP and try to play the odds.


12. All this information has to be seen in the context of Trend day / range day structure.

Random Thoughts on 6 th Aug

1. " As expected/ As predicted " is one of the most frequent phrase used in analyst comments/ Media reports. But Market movement is probabilistic involving both luck and skill. Only in hindsight we attribute market success to the competence of the trader. Read NNTaleb's Scandal of Prediction.


2. When I am working with TCSS as equity research analyst one of my tasks is to prepare a Daily Report in the morning which is a combo of Previous day's activities, Today's forecast. This is where I used to have a bit of dissonance later when I look at the market as a trader. I felt some conflict between my stated opinions in the report and need for time decisions in the market.


3. My recollection of Taleb's ideas such as " Scandal of Prediction " used to trouble me in forecasting.


4. When you trade a stock on both long and short side, you get to know the stock's significant intraday levels. This levels can be used for next day. This I have observed in ABAN's case. The level of 1200 proved to be a good resistance and stock behavior is with less conviction. Laboured pullback to around 1198 yesterday convinced me to short on the open for 2% down move.


5. I tried to trade metals weakness via Tata Steel and the fund raising plans also helped me on the short side. But for risk management purposes, I have quickly closed the trade.

EUPHORIA needed

NSE Nifty crossed the round number 4700 to close @ 4711.

1. Though the market registered significant gains ( YTD up 50%) we are yet to see euphoria.
2. I doubt strong markets correct easily without making euphoric moves though we are seeing some of it in midcaps ( Bharat Forge, ABAN ? )
3. Market Overshoots as a way of maintaining ecology ? ( DailySpec)
   
4. Excellent post on Invasion of Stock prices by Victor
5. Volumes remain low = Energy in the market is low. More energy has to be extracted by the market from the participants. What is the best volume path to achieve this ?
6. Real estate is lagging the market. Will new set of stocks ( Power, Education sectors ) lead this move.
7. Market may not wait for inflationary pressures to manifest. It will react first. Watch Autos, Real estate
   

Trading ideas beyond TA

1. I think every trader has his own unique style or Niche once he has gained sufficient experience in the school of hard knocks. This is becoming apparent to me when I try to frame a trading idea.
2. When I try to synthesize all the fundamental information, Technical levels I often doubt how this will give me an edge? ( Which is in the public domain). As Victor often asks why the market should give any one who knows to draw a straight line money ( Technical analysis )
   
3. The edge comes from framing in the concepts of Round Numbers, Lobogola, Tension and release, Market torture, Traders being forced out of a position, Markets volume path or Path of least resistance etc which I learned and continue to learn from Giants like Victor, Brett.
4. This is the secret sauce of Legendary traders.
   

Round Numbers in Indian Market

Attraction of Prices to Round Numbers is a concept discussed in DailySpec by Victor.

1. Today Indian markets are close to round numbers BSE Sensex near 16000, NSE Nifty above 4700.
2. US Markets are nearing round numbers . Nasdaq at 2000. SP above 1000.
3. Newton Linchen has a nice post on Round numbers which is an inspiration for this post.
4. I have traded reliance today based on attraction to round number 2000.

Derivatives Expiry day

Today is F&O expiry in Indian Market. Normally I would like to avoid expiry days for Intraday trading. Some of the observations from market action

1. Yesterday Volumes at Rs 147000 Cr , 3rd highest. Shows lot energy in the market. Volume path is important ingauging the price movement. Market tries to move where volume is greatest.
2. Expiry day - Participants trying to adjust positions frenetically may lead to spurious and strike gunning.
3. Today being heavy results day - I may wait for selective trades with less size as stops may be inappropriate to manage risk in this heightened volatility situation.