Finance Education in Hyderabad

As I ventured into financial markets education space in Hyderabad, I happened  to meet many interesting people.

1. My  deepest regard for Dr KG Ray of VJIM for his emphasis on Empirical Research and grooming students on research methodology.I learnt a lot from him  academically even though there are minor differences with style of admin. I can vouch for the superiority of VJIM's PGDM program, its pedagogy, curriculum, student culture and Vibrant atmosphere with top class infrastructure.
2. Mr Vishnu Mohan of Firstmove Advisors for his clarity and confidence of his techno-Fundamental approach.
3. Damodar Sai for his Intraday  and Technical analysis skills.
4. Harsha for his expertise in Commodities Trading and advisory.

Different ways of approaching the Market

Some of my random observations interacting with market participants and self styled portfolio advisors

1. Need to appreciate that there are many ways of approaching the market from different angles
2. Market comprises of different risk and time frames. Both long and short may be right when viewed from different time frames
3. Market consists of RISK. It is like a raw material made available to the participants.They can manufacture their own risk ( dish)
4. Experts trying to tell about their succesful tips but unwilling to discuss methodology and concepts of Trading.

Trading the Earnings Season & FY 2009-10 Results

Always the results season offers good opportunities and volatility for the Intraday equities Trader.

1. I would like to be ready and prepared for this earnings season
2. Infosys results on April 13 before Market opening ( BMO). Early results are expected to be in-line as market is not showing any trembling. Surprises happen in the direction of Trend ?
3. Identifying stocks in play (SIP) as per SMB Training
4. Proper stock selection provides most of the edge in this season
5. Information regarding the exact timing of company announcements of their results is not available to me ?
6. How far the announcements are priced in the stock and expectations
7. Post earnings announcement drift( PEAD) is some thing traders have to be careful about.
8. Interesting post on playing the earnings season

NCMP Level 4 Modules @ BLACKSWAN

BlackSwan FMB-School is launching NCMP Level 4 Training from May 10

• The modules we are covering are  
• 
  
  
   1 Capital Market (Dealers) Module
• 
  
   
  2 Commodities Market Module
  
  
   
  3 Derivatives Market (Dealers) Module
  
  
   
  4 FIMMDA-NSE Debt Market (Basic) Module
  
  
   
  5 Financial Markets: A Beginners’ Module
  
  
   
  6 Mutual Funds : A Beginners' Module
  
  
   
  7 NSDL–Depository Operations Module
  
  
   
  8 Options Trading Strategies Module
  
  
   
  9 Securities Market (Basic) Module
  
  
   
  10 Currency Derivatives: A Beginner’s Module
  
  
   
  11 Equity Derivatives: A Beginner's Module
  
  
   
  12 Interest Rate Derivatives: A Beginner’s Module
  
  
   
  13 Investment Analysis and Portfolio Management
  
  
• BlackSwan aims to add value by access to Live Trading facilities, Thorough discussion of concepts, Using standard reference books like 
• INVESTMENTS - Bodie, Kane, Marcus, Mohanty
• TRADING & EXCHANGES - Larry Harris
• HANDBOOK Of FIXED INCOME SECURITIES - Fabozzi
NCMP can become a gold standard of Financial Market Education BlackSwan has the will and knowledge resources to provide 24- Carat Financial Market & Trading Education to  a very large audience.

Benefits of not Trading alone

Since I started trading from an office , I noticed several changes.

1. Compared to home trading, I am more in control
2. It is difficult to go on tilt when your co-traders are observing you
3. I am trading more responsibly as I am assuming the role of a mentor as described by Dr Brett in The Daily Trading Coach
4. Some distractions relating to admin tasks may arise
5. Running a training and also trading operation gives me that emotional satisfaction of sharing ideas and developing clarity of thought
    
6. I hope this will exert positive influence on all the traders I encounter and associate with in this journey

Some very fine posts  regarding this topic are

• Doug Tucker on Trading Methods & usefulness of trading groups 
• Dr Brett on Networking

Professional Trading Course

BlackSwan FMB-School is launching for the first time in Hyderabad CERTIFIED PROFESSIONAL ACTIVE TRADER Course.

1. My inspiration for this is derived from SMB training in US and CD integrated in Indian Context.
2. BlackSwan would like to provide solid basic foundation for trading in the markets.
3. Association with RLP securities will help in providing sufficient Intraday exposure to the active traders
4. Components of this course will be in the lines of Active Traders Course
5. All ingredients required for stock speculation like Intraday Fundamentals, Chart reading, Risk management, Trading psychology, Understanding macro data, Reacting to news will be dealt.
6. A disciplined environment and lessons from How not to run a trading operation will guide this effort.
7. Giving best chance to the active trader to succeed is the motto.
   

NCMP @ BlackSwan FMB-School

BlackSwan Training can add value to financial market training.  We are starting with NSE Certified Market Professional ( NCMP) a high quality program from NSE. Their study material is of top quality.

1. How BlackSwan can add value  to NCFM certifications ?
2. I believe it is in detailed explanation and discussion of concepts
3. Providing live trading environment for students to observe markets
4. Learning about the thinking process of active investors and traders
5. Access to standard text books and case studies of International quality
6. Team work and seminars information sharing
7. Training by NCMP Level 4 Professional - ID 28075
8. Training by NSE Certified Trainer
9. Access to real time traders
10. Highly educated and qualified persons to give lectures

If the above combination is irresistible to any keen student of markets, BlackSwan is here to help  you find satisfaction and success in Markets.

Financial Market Education in India

Financial Markets have grown both in volumes and reach in the past decade.

1. The amount of literature available on Trading, Market structure, Various instruments has exploded.
2. Media focus on Markets has also increased phenomenally. Local Channels are also taking to business programming in a big way.
3. I would like to highlight some of the education providers I have come across in my research in the process of establishing BlackSwan Financial Markets B-School.
4. Finance Certifications : a) Kredent Academy

b) Ideators

c) NISM

d) ITM Financial Markets

e)BLB institute

f) FTKMC

g) Mansukh Institute for Finance

h) Equity Rush

i) APTART

j) Pristine Careers

k) Ace 3 levels

l) IQFI

m) Quantamatics

n) Torux

o) CD integrated

p) Inspire education

q) iicm india

r)iifp india

s) Kunvarji Academy

t) finosys

Role of Fundamentals in Intraday Trading

In my new journey of BlackSwan Financial Markets B-School and setting up a broking office in association with RLP Securities I would like to share some of my observations

1. The role of comprehensive view of Market Context. Often beginning traders may be looking at price levels or chart patterns, where as they need to put all this into sectoral context, Traders Behavioral reaction patterns, planning the trade in terms of risk
2. It is taking time for me to get reconciled with lack of control when the trader is given a free hand and the limitless environment of trading will make the trader go aggressive at the wrong time.
3. As often the Chair admonishes in DailySpec, beginning traders fail to scratch the trade, when survival is very near.
4. The importance of survival cannot be overstated
5. Market tuition fees must be paid so that it repeatedly drills the riskmanagement rules into the trader's head.
6. The importance of market context was highlighted on Friday's trade when I am trying to trade Pharma stocks from the Short side.
7. Often CNBC's hyping of certain stocks or sectors may give the intraday trader fade the sentiment extremes.

NSE Certified Market Professional Level 4

I am glad to announce that I have received NCMP Level 4 certificate from NSE.

1. NCMP  Level 4 is awarded to candidates who have cleared 9 + Modules.
2. I particularly liked its new addition IAPM module which has lot of relevance and market interpretation scope  with an MBA ( Finance) equivalent course content in it.
3. IAPM has been taught by me in various B-Schools with my major text being BKM,Nofsinger
4. BlackSwan is launching a 3-month full time/weekend batch for intensive training in NCMP Level 4 Course.
5. This course comes with a hostel accomodation, Placement tie ups with Brokerages, and Certicication assurance else fee refund options.

Importance of Trading Environment

Intraday Trading needs to be conducted in a conducive environment.

1. As Intraday Trading needs intense concentration , the trader needs to avoid all distractions.

2. The trader needs to access his meditative flow state.

3. There needs to be no opinion sharing itch among fellow traders unless there is a clearly defined protocol. This reminds me of how Victor writes about Trading Operation.

4.Need for maintaining silence in the trading room.

5. I am willing to admit that these unnecessary mistakes cost me yesterday and I paid the market a huge tution fee.

Pursuit of ShortCuts

In my interaction with many investors in the process of operating Blackswan FMB-School my observations

1.Pursuit of Shortcuts in the form of TIPS and sure-shot recommendations by investors surprise me .

2. How pursuit of money is put on top of market understanding and pursuit of knowledge

3.Market should give the participant energy rather than draining it

4. Having some framework or method in place of no method


I believe only when the market participants enjoy the journey they can go up the learning curve and increase their expertise.

Grand Strategy in Trading

As a student of market,grown up on traderfeed by Dr Brett , I find his posts resonating in my trading approach.

1. In my recent effort to build a Trading & Markets Monastry in Hyderabad , I had immense satisfaction in interacting with Beginning Traders and Students.

2. I had associated with RLP securities in this venture to offer trading facilities. My need for intraday flexibility and easy approachability of top management together with sppedy response fitted with RLP.

3 My basic approach of Risk Management,Viewing every Trade idea as a hypothesis, having a Grand Framework for Trading ( Mostly derived from Dr Brett), Identifying the particular traders' niche, I am trying to instill in my co-traders and speculators.

4 I am fortunate to find able friends like Mr VVM Reddy an IIT Chennai Grad and and an expert physics tutor for IITJEE. He is very enthusiastic about fundamental research and deep value investing. Another trading friend Mr Venkatgiri an engineer who is very keen on learning trading and analytics.

Intraday Trading - Best practices

BlackSwan is organising a seminar on Intraday Trading - Best Practices at Hyderabad.

1.Our office is at Flat 402, Srigurudatta Towers, Nizampet X Roads,Hyderabad -72
2.The motivation is derived from Dr Brett's articles on Trader Training,SMB Capital , Trading RM
3.Approaching the markets with a basic foundation on risk,trading psychology and structured way for continuous feedback.

Training on Financial Markets

My effort to train Traders and students in Financial markets and trading is taking shape in the form of BlackSwan FMB-School at Hyderabad.

1. I came across many talented youth interested in Markets in this venture.
2. My inspiration is derived from many top-quality programs envisioned by Dr Brett, SMB Capital, Trading RM with the motivation from EdSpec, DailySpec.
3. I would like to implement Trading & Exchanges by  Larry Harris as a foundation for students of markets as everyone is a lifelong student

BlackSwan FMB School

It gives me great pleasure to inform all readers and well wishers that I have brought into existence Blackswan Financial markets B-School and Stock Trading Facility.

1. My aim to provide a professional stock trading facility with value addition to Traders.
2. Trading environment on the lines envisioned by Dr Brett Steenbarger and Implemented on the lines of SMB Capital.
3. Rigorous study,observation, review and feedback facilities for Intraday Trading
4. A methodical approach with Morning worksheet, Afternoon Review, Post Market Review will help traders immensely.
5. I would also like to implement programs for Practical NCFM +,Professional Trading,Research Analyst.
6. Some of my inspiration for this program in Indian Context derives from  Kredent Academy, CdIntegrated.
7. My trading room contains wisdom from Dr Brett, Victor and Taleb.

Exchange Traded Currency Futures in India

I am glad to see in Business Standard about the SEBI approval for Exchange Traded Currency Futures.

1. Presently USD-INR futures are being traded and a succesful instrument on various parameters. Dr Ajay Shah has an excellent piece on Currency futures and an early advocate and pioneer in this area.
2. Prof JR Verma blogs about OTC derivatives here. I have used and admired his book DERIVATIVES AND RISK MANAGEMENT at VJIM and students liked his treatment of the subject which is clarity , precision and brevity.
3. Previously I have read and enjoyed a book about the genesis of currency futures and the role of Leo Melamood in The Vandal's Crown.
4. Currency Futures gives a great platform for both hedgers and speculators and arbitragers in India. I particularly noticed in Hyderabad many dubious outfits as they lure customers into OTC international currency broker trading platforms with horrifying results.
5. I wonder how the owners of these shops are blissfully unaware of market design fundamentals? Atleast now they can engage in a settlement guranteed and scam free Speculation in Currency market.
6. I may ask my freind Pradeep to shift from OTC forex broker to NSE CD Segment .
7. My sense is that this will greatly surpass equities trading as youth are increasingly taking to currency trading. Currency pairs are also less subject to assymetric information as they are macro underlyings.
8. Will new pairs INR-JPY,INR-EUR,INR-GBP bring Volatility ? I think USD-INR annualized Vol is low at 8.77% compared to Nifty annualized Vol at 17.7%.

NCFM Exams in CM & DM

I have taken NCFM examination in Capital Market ( Dealers) Module and Derivatives Market ( dealers) Module.

1. I am satisfied with my scores 74% in CMDM, 95% in DMDM
2. My feeling is that DMDM question paper strength is decreased due to separation of Option Trading Strategies module.
3. CMDM level of difficulty and questioning increased.
4. The quality of new study material is high and the flow is very smooth.

Important Readings

Some of the must readings from the resources I follow

1. Brett on Trader Education, Training, Mentoring
2. Victor on Checklist for Traders
3. Nice Humour from Newton Linchen

Newton Linchen's Insightful Comments

I always look forward to my dear friend Newton Linchen's insightful comments, critique, advice and direction. As a Speclist author, Trader and a great teacher willing to share his ideas, he has been a source of inspiration even in difficult times. I take liberty to post his comments here.

I rejoice to know you are involved in such a high standard project.Most brokerage houses are just interested in commissions, whether or not the client learns something or is profitable.
To develop an environment in wich is possible for the customer to grow, both in wealth and knowledge, is indeed a noble way to do business.
May all the good influences come in your way, and may you, your partners and clientes prosper!Regards from Brazil,
Newton Paulo Linchen
www.markettiming.com.br

Financial markets School

Presently my intentions to develop a stockbroking & research office complete with training facilities is taking shape.

1. My intention is to setup an office which offers quality trading facilities , atmosphere and culture from the lessons I learned in typical Brokerage Trading rooms.


2. Can I replicate the atmosphere of University Research Lab with the precision and quality which Brett often describes. It reminds me of Victor's Comments.


3. SMB Training is a pointer in this direction with their daily rigorous structure for preparation, execution and review.


4. The advantage of training operation gives a feedback mechanism and I feel it a natural extension for my academic background


5. Presently youth interested to learn about Financial Markets need more quality training facilities which are accesible, practical oriented, free of anecdotal nonsense,ability to validate with data,Scientific appraoch of viewing the markets.


6. These are available at big cities and reputed institutes like NISM, IICM, IITs etc which are out of reach for Graduates and Other persons interested to make a career in stockmarket or trying to become Professional Traders.


7. Another aspect of developing a professional approach to trading and speculation by retail investors with the help of good information and ways to approach this data can be an area which needs intervention and offers scope for value creation.


8. Is there a positive feedback to Market Training and related activities like Broking, PMS and Research. Since Market is a truly a knowledge and information business, I would hypothesise there are increasing returns to investment in Knowledge creation and dissemination.

Wonderful world of Econometrics

Financial Econometrics combines financial theory with econometric methods for forecasting.

1. The need for crunching huge data with availability of databases is bringing Financial Econometrics to the fore.


2. Some of the excellent authors in this field I came across are Chris Brooks, Tsay, Eric Zivot,Carol Alexander


3. I have yet to find an accesible book in the Indian Context with finacial data from Indian Exchanges. I hope NISM will bring out such a work. It could be good companion for their NSMD database. HF data analysis in the context of Indian Markets is a growing and important area.


4. High Frequency trading and Algorithmic Trading is adding to the requirement of familiarity with Financial Econometrics.


5. I think there are lot issues which traders implicitly assume needs to be empirically validated. Some of the examples are

Open Interest (OI) data in Futures as a predictor for nextday's Spot price

TEA near BSE

After NISM workshop is over myself and Mr Srinivasan, PhD Scholar with Pondichery University have gone to BSE.

1. Here I could feel the seductive nature of stockmarket as the participants gather watching around the ticker. This reminded me of the feelings expressed by Victor Niederhoffer on Visiting NYMEX floor.


2. Volatility of markets is a contributing feature to the seduction of stockmarket. Market will die if there is no volatility. I think many academic papers are starting to recognise and defferentiate between information induced volatility and spurious volatility.


3. We have visited major bookstores like Bookzone & Sterling book house & Strandbook stall near CST railway station.


4. We have spent time near Gateway of India and taken photographs at TajHotel.

Learnings from NISM

Attending NISM workshop had been an enriching experience .

1. The unique format of closely tracking the session structure without random lectures from different speakers had given depth to the topic.


2. The group is cohesive with background in finance and statistics that enhanced discussions and interaction among the group.


3. Lot of my questions regarding empirical research in finance particularly market microstructure were resolved.


4. I am able to access and become comfortable with econometric terminology and financial interpretation.


5. Having a trading experience in markets gave me a unique lens to understand the empirical and theoretical angle in the discussions.

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.