Ajay Shah's blog: The BPO path to international finance

Ajay Shah's blog: The BPO path to international finance

Market Review 26/2/09

Today is F&O settlement. Market remained subdued till afternoon. Volatility picked up in the afternoon session. I think some of the factors played out in the market today.

1. F&O lot sizes are increasing in March contracts. Any short/long positions have to be squred off.This played out in some of the heavily shorted stocks like DLF, TataMotors
2. Banking sector weakness is a prevailing opinion so I doubt whether this will continue
3. Weakness in L&T. I am able to recognise this as the stock is weak against market showing strength and unable to cross ATP and Day high.
4. There is a very good article on mental flexibility of the trader from the ever favorite Dr Brett
5. I wonder how traders feel the regret and bias of knowing after the fact.
6. Intersting post on Day trading and arbitrage from Dr Ajay Shah

Stocks in Play

Trading stocks in Play is very important for the Day trader.

1. See a good post in SMB Training on stocks in Play.
2. stocks that might be in play for 24 th feb in Indian market are ABB, TechMahindra, Satyam, M&M, Matrix
3. ABB is short covering on the cards on the back of decline pre results ?
4. Bank stocks may be in Play = ICICI Bank, Axis Bank ( watch for US market and Bank stock movement there, expectations of RBI action, Considerable decline in stock prices as a back drop, Small short covering can lift )

Preparation for the Market Day

Active Traders must prepare for the Market Day. Here I compile some guidelines for participating effectively in the market.

1. Identify a Stoploss level for the Day. Identify a stop loss level for each trade depending on no of trades derived from that.
2. Identify major world events that are currently in Play ( eg Bank recapitalization in US,Expected announcements, Gold as a risk aversion trade, weakness in Metals & Crude)
3. Check Asian Markets ( Nkkei, Hangseng, Kospi, China)
4. Check the movement of Macro data points ( Oil, Currencies,Precious metals)
5. Check overnight movement in Europe and US ( Focus on Intraday movement and sectors in Focus eg Bank Stocks, Shipping etc refer to Bloomberg, Reuters )
6. Filter the News items - News that affect your positions and stocks
7. Focus initially on one stock at the opening.
8. Try to identify the structure of the market day - Range bound, Up trending, Down trending
9. Which sectors in Play?
   
10. Which stocks in Play? watch levels . Support resistance
    

DELAY in Market Moves

Markets delay the moves to frustate traders and force them out of their positions.

1. Stock price delays moves. This is an important characteristic of the market. Price movement will not happen when you are anticipating it.
2. Price moves when it is inconvenient for the trader.
3. This is recently observed in EDUCOMP.
4. The movement we think random may be in the scheme of things for traders on the other side.
5. This is the reason why for active traders path dependence is important.
6. If the stock price hits my stop before making the favorable move I am forced out of the position.

Trading at Brokerage Office

For Active Short term traders there are lot of lessons while trading at Brokerage office.
Of course this is my personal experience.

1. Aviod taking advice from VOODOOS
2. Lot of opinion floating around which is random impressions . This tends to confuse and panic the trader out of his position at exactly the wrong moment.
3. Psychological Capital is more important to a trader than financial capital.
4. Cramming more traders to one terminal creates a sense of urgency to trade with shouting of orders by other traders and noise
5. Comments on your trades and their opinion disrupts your equilibrium.
6. Engaging in social chatter
7. Constant phone calls & attending to personal work during market time resulting in loss of Concentration.

I think a post by Victor on How not to run a Trading Operation is must for all speculators.

Indian Market on 20/2/2009

Market opened with a gap around 2750 Spot Nifty .However there is no big sell off.

1. I had a long position on Feb Nifty at 2790. Luckily I hedge it with Short 2800 call @ 38
2. Closed my NIFTY @2740. Opened fresh short @2743
3. Closed fresh short on Nifty with a trailing stop @ 2720 and also call @14
4. Market remained listless with little volatility till 2 pm.
5. Market searching for intraday bottom and taken out stops around the round number 2700 by dipping to 2690.
6. Closing saw some covering of short positions ahead of long weekend and recovered to 2630.

The lesson I have learned is to be ready with what - if scenarios and use appropriate type of orders for the market conditions and opinion.
For e.g If my opinion is for the market to gun for stops below round number 2700 I have to be ready with a deep limit order around 2690 with a stop of 20 points.
Another way to trade may be wait for a botom confirmation and enter Nifty on the market with stop at the day,s low @ 2690. Ofcourse all this appears easy with hindsight. Action in the heat of markrt battle is always hazy and fraught with uncertainities.

Learning to Trade

The education needed to effectively participate in Markets is wide and intensive. In this post I will discuss my observations regarding the beginning trader starting with a clean slate and resources available to him on web 2.0 for self development in the Indian Context.

1. Start with a very good introduction to markets from Trading & Exchanges by Larry Harris
2. Good resource for observation of market data like volumes, price history from National Stock Exchange.
3. The short term trader can concentrate on Most active Securities and Top Gainers/ Losers list.
4. Active Day traders benefit from a market scanner like FALCON software.
5. For general understanding of trading psychology there is no better resource than Dr Brett Steenbarger