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.
   

Guaranteed to Happen

In the tradition of DailySpec, Indian market movement of going down 4% intraday in sympathy with Chinese market is guranteed to happen. Here I quote from DailySpec

" Looking at the performance of the major indexes to date, one notes that the three biggest markets are up 1 to 10% and the average of the 150 medium markets is up about 40%. What is the explanation for this divergence other than the ruination of incentives, and the adjustment of price levels to equal after service returns in the future? Israel up 3% over nite and 44% on year to date gives good precis of what would have happened. "

1. Whatever may be the proximate causes spewed out by Financial Journalists ex-post and ever- ready to attribute and concoct reasons for market movements , Traders are better off considering the pathof least resistance.
2. Many market tells were visible. Bank stocks lagging, No broad sector participation, Low volumes in yesterday's trade.
3. "Market travels in the path that maximizes Volumes" Since marketinfrastructure has to be maintained and paid for it has to extract maximum amount of energy from participants.
   
4. If the trader considers which path will maximize volumes that can give him clues about possiblities.
5. Price discovery being a chaotic process and market does not move in a straight line, Market is about surprises and trading is about nor being surprised by the market can act as a conceptual foundation to react.
   

Web 2.0 resources for Indian Investors and Traders

There are a number of resources freely available to any motivated trader or Investor in search of knowledge and wisdom. I believe markets are ultimately a search for truth and love of knowledge. I list the resources I found useful in my search for market Understanding in Indian Context.

1. Indian Market Monitor : Gives data based view of Markets. His focus on empirical methods and simple explanation I relly found interesting.
2. Yahoo India : Useful for Basic charting and updates intraday with delay of 5 min.
3. Deepaksingh : Liked very much his conversational style,weekly quiz and entertaining way of Market views.
4. Just Nifty:Nice posting of Indicators. But indicators are helpful if you understand the context and have no intention to directly come to a conclusion . Overbought and Oversold can remain more time than you are solvent.
5. VFMDirect : Remarkable format with all the Pivots, Indicators, Charts at one place. You should have your own sauce to apply by taking this raw information. Useful for short term traders.
6. ICharts: Has a free section for registered users charting facilities. Clean interface
7. NSE: Nse has wealth of information for any discerning user. Their delivery stats, Volumes, Corporate announcements, Resultsgive lot of market tells for the motivated trader. I often use the sit intraday to sift for Most actives, Top gainers & losers for possible intradaytrading candidates

High Frequency & Algorithmic trading

HFT or AT is drawing huge attention with the Goldman Sachs episode. Here are some posts on HFT in India. SEBI has not permitted HFT in Indian Markets . But with one of the experienced traders Mr Prakash has brought to my attention the increasing presence of Algorithmic Trading in India. It will be interesting to see how Indian Traders cope wiyh the ALGO Monsters disrupting the order book and having discretionary & manual traders for lunch !

1. Dr Ajay Shah here

2. Business Standard on SEBI allowing AT

3. Galatime on AT

Tape Reading at Indian Brokerage Trading Rooms

Good posts on Tape reading and order flow caught my attention.

1. www.tradeorderflow.blogspot.com
2.http://traderfeed.blogspot.com/2009/07/trading-order-flow-lost-skill-important.html
3.http://www.smbtraining.com/blog/?p=1547


A topic which I am thinking of for a longtime. Being a trader in Indian markets, Brokerage trading rooms do not have access to charting and indicators for retail traders. I have observed that some experienced traders watch order book and other info like VWAP, Open. Being forced to form opinion from order book in the initial phases helped me in the market rather than going for Charts from the start. This gives the trader a feel for the market color. Combining this with some microstructure aspects ( Trading & Exchanges by Larry Harris ) will give the Short term trader an advantage. I have seen some scalpers purely depending on Order book to hypothesize on significant levels.The intutive understanding of markets in the absence of technical tools made many old Indian traders that much formidable.

Newton Linchen & Soham Das

I am previleged to be quoted by two fine quant traders & system developers.

Newton Linchen of http://newtonlinchen.wordpress.com
Soham Das of http://jumpup.wordpress.com

I have enjoyed their clear expression of ideas and energetic nature.

Some thoughts on my Trading

Today is a range day in the markets, masking stock specific action.

1. Delay in F&O segment orders on NSE caught me on the wrong foot in HDIL futures. As there is no order confirmation, I have sold two futures short and increased my trading size dramatically.
2. On hind sight I could have waited for my level of 273 as discussed in the previous post which is ATP + one SD. It could have minimized my heat on the trade.
3. On the cash segment also I have gone short increasing my exposure. Luckily I am able to scratch the trade on weakness around 12 am.
4. I should not violate my own concept of shorting a stock above open and ATP and sector RS as DLF and Unitech are showing strength.
5. Power failure irritated me and gone to brokers office and scratched the trades.
6. Scalped some trades on DLF and Tata motors trying to fade after results announcement.
7. Dr Brett has good posts on respecting size in trading and how drama leads to trauma in trading. He elaborates on how the trader becomes a different person when he puts on the trade and when he is managing the trade
8. Lot of tension and release on HDIL as it closes at 275. Most active list. Results on 29 th.
9. Anouncements on Share holding, FM announcements on Real estate.
10. Look to see the stock reaction tommorrow. I want to be prepared to fade any post results strength. RBI policy may also affect rate sensitives.

HDIL

Stock price of HDIL has gone up 50% in 10 days.

1. Real Estate stocks showing relative strength compared to market.
2. HDIL has strong resistance in the 269-273 zone.
3. I know traders holding large positions relative to their risk tolerance or financial position
4. High beta of around 2 .
5. Quartely results on july 29
6. F&O settlement on July 30.
7. My assumption is overbought in the short term ( till expiry ) based on only 50% position limits, and only 1.5% OI increase not displaying bullish expectations.
8. Rate sensitives including banks and real estate may be in focus next week on the back of RBI Monetary policy on 28 th.
9. I would like to trade on the short side assuming a range bias at best. My stop loss around 275 given high volatility of 7%. ATR of Rs 15.

How not to run a trading Operation

I would like to further submit some observations from trading in Brokerage Offices from India.

1.Engage in lot of conversation,personal mockery of other traders with lot of unrelated arguments of political nature or other wise
2.Keep CNBC with constant shouting and comments on breaking news,worse still keep shifting channels for cricket and Romance to keep you out of Boredom in seemingly slow markets
3.Always be on the look out for others random opinions and commentary with out any reason or data.Try to win them over to your point of view even when the market is open.
4.Give and recieve unsolicited, free opinions during market hours
5.Keep looking into other traders positions and get emotional excitement
6.Criticise others for trades not taken when they have gone your way
7.Express opinions on others trades when they are still on and get influenced inevitably by their intentional or unintentional commentary on your positions mostly negative
8.Ask for dealers opinion, Consult your broker for trading advice
who is looking for churn and maximising turnover ( Forget the Stock Brokers aim is to convert client’s Networth into his own)
9.Be intolerant of any small adverse excursions of price against your position, Be jubiliant of any small profitable movement and close the position to realise the profit ( Forget that the ” Speculator’s aim is to take reasonable losses or reasonable gains “)
10. Keep your trading room noisy with constant ringing phones and uncomfortable and crowded so that you are always under pressure to trade.
11.Take lot of breaks from trading terminal to chat with other traders,lunch breaks,attending to small personal works.
12. Invite friends and relatives to your trading room to engage in conversation
These are only a few along with many others exist in Brokerage Offices.
I feel fortunate in finding this forum of intense intellectual discussion with nothing spared in helping me to protect from some of the above.

Bewildered looks from other traders are common when I try to make some cryptic remarks like
a)Respect vig, spread,getting into huge positions
b)Why do you quote long term fundamentals and brand name of the company as a crutch for short term trading
c)Price knows al the published facts and much more
This forum helped many a trader exorcise his trading demons. I always keep my copies of EdSpec,PracSpec,Trading&Exchanges,Enhancing trader Performance handy to refer , chew and digest in times of market turbulence and frustation. They protect me from deep losses and show me the path to survival.

Concepts of Short Term Trading

As I have struggled to understand markets , my concepts mostly came from a synthesis of ideas from Brett from Traderfeed and The Chair's forum at Dailyspeculations. Here I will briefly outline my idea of approaching markets which is a never ending work in process.

1. Understanding the Day's Structure : As a short term day trader I want to form an initial working hypothesis as to whether the unfolding day is Trending, Rangebound. This has to be continuously revised in a Bayseian approach as new market generated information is taken into consideration. Data I normally consider are Advances vs Declines, Sector strength ( what sectors are leading, percentage movements ), Correlated asset price movements like commodities , currencies, Asian Markets, European Markets, US Futures data.
2. Observing VWAP or ATP : One of the useful practical technique I have learned from Traderfeed is tracking the evolution of ATP ( Average traded price). This is volume weighted average of price. Trader can form his opinion on how the price is reacting to vwap. Whether market is taking support at VWAP or rejecting VWAP and going lower thus effectively VWAP acting as resistance.
3. Reaction to Opening Price : How the instrument is reacting to opening price. Is it rejecting open price with volume or finding support at opening price.
4. Concepts derived from DailySpec: Always many approaches from posts in DailySpeculations act as a conceptual background. some of the examples are

• Market Overshooting to extremes as form of maintaing Ecology
• Market trying close the door if you have only one Exit
• Market's technics of Torture
• Survivl techniques when in a bad position, crying for help
• Not Panicking, Proving to be difficult to be devoured by market
• Market being more bullish on extreme negative mews and vice versa
• Reaction to news and economic announcements
• Deception and camouflage trying to lead you in the wrong way

These are some of my observations . I will keep posting as new ideas develop.

India's Financial Markets Book

A very incisive and thoroughly researched with lot of empirical data in this book by Ajay Shah, Susan Thomas & Michel Gorham. I have compiled microstructure articles in a book with ICFAI University Press and is published http://www.flipkart.com/indian-equity-derivative-markets-players/8131421635-tu23f957q4 . I have always got deep admiration for the crisp comments of Dr AjayShah on CNBC and his formidable grasp of Indian Financialmarkets.

Books for My Daughter

I would suggest the following books my daughter Gangineni Hita who understands my efforts at markets & Trading. I would suggest her to read the following when she grows up as presently she is 11 years old studying class 6.

1. Trading & Exchanges - Larry Harris
2. Education of a Speculator - Victor Niederhoffer
3. Practical Speculation - Victor Niederhoffer
4. Psychology of trading - Brett Steenbarger
5. Enhancing Trader Performance - Brett Steenbarger
6.Daily Trader Coach - Brett Steenbarger
7. Fooled by Randomness - NN Taleb
8. The Black Swan - NN Taleb
9. Dynamic Hedging - NN Taleb

IntraDay Trading

Intra Day trading offers the most exciting opportunities and also risks with it. In my discussion with traders I came across lot of misconceptions. This is an attempt to clarify some of those.

1. Intraday time frame players are generally large speculators and moves are deceptive. As Victor notes in DailySpec " In Intraday price inevitably tend to go to the traders point of ruin".
2. Trader keeps his trading position when it goes against him for the next day. Trader rationalises and moves his stop further increasing his stop loss.
3. Anecdotal evidence of some stocks returning after 1 or 2 days to his buying price. This may be selective memory and market teaching you the wrong principles of speculation.
4. Inability to distinguish between Investing, Speculation & Gambling.
5. Entering into the arena of Gambling unknowingly aiming to speculate.
6. Having a fixed bias overriding price action.
7. Assuming ability to interpret news as positive or negative to stockprices instead of companies.

These are some of my observations in discussions with short term traders.