Trading Steps

JUBL FOODS: Chart for the coming week

2013-06-17T21:45:00.000+05:30

I was going through the technical charts of the stocks i track, as a part of my routine, and came across the weekly chart of Jubilant Foodworks:

Now there are some very interesting things to observe here:

It has been in a trading range since around last 18 weeks, and is all set to break it on the downside. It did break it, but not decisively.
For the 1st time since March '12, which is after 15 months, JublFoods has closed below 1000.
On daily charts, it gave two consecutive closings below 1000, which says a lot in relation to the psychological levels of its prices as well.

Its important to keep in mind that this direction seems to be coming on weekly charts. So while we see what the markets do, we can at least keep this chart in our mind. What say?

Questioning our choice

2013-06-12T16:02:00.001+05:30

One day, a calf needed to cross a virgin forest in order to return to its pasture. Being an irrational animal, it forged out a tortuous path full of bends, up and down hills.

The next day, a dog came by and used the same path to cross the forest. Next it was a sheep’s turn, the head of a flock which, upon finding the opening, led its companions through it.

Later, men began using the path: they bent down, deviating obstacles, complaining and cursing – and quite rightly so. But they did nothing to create a different route.

After so much use, in the end, the path became a trail along which poor animals toiled under heavy loads, being forced to go three hours to cover a distance which would normally take thirty minutes.

Many years passed and the trail became the main road of a village, and later the main avenue of a town. Everyone complained about the traffic, because the route it took was the worst possible one.

Meanwhile, the old and wise forest laughed, at seeing how men tend to blindly follow the way already open, without ever asking whether it really is the best choice..

(based on a traditional Malayalam story)

This story is enjoyable, and that is why I felt like sharing it here.

But relating its learning to the way we carry out our routine, I thought of some points to ponder:

Do we blindly follow what the people around us do?

Do we question the way we trade/invest?

Do we take time out for questioning our way of choice of trading/investing?

Advice to Traders from Paul Tudor Jones

2013-06-07T15:54:00.002+05:30

It is encouraging to see that many readers have also figured out and are helping us all in keeping a close watch on the important patterns that are in the making. (Keep contributing!)

While recognizing patterns at the right time is crucial for our success in trading, there is something more that we need in order to reap the true benefits of the same. In that reference, I was reading about Paul Tudor Jones, one of the most successful traders of America, who shone during hard times.

So I felt like sharing some of his tips, most of which we would be aware of, but would act as reminders & could benefit us all - young as well as experienced traders/investors:

Don’t be a hero, don’t have an ego. Always question yourself & your ability. Don’t ever feel that you are very good. The second you do, you are dead!
Play great defense.
Don’t ever average losses
Never trade in situations where you don’t have control. I don’t trade in front of key reports.
If you have a losing position, get out. Coz you can always get back in. There is nothing better than to have a fresh start.
I don’t really care about the mistake I made 3 seconds ago in the markets. What I care about is what I am going to do from the next moment on. I try to avoid any emotional attachment to the markets
Never think on what you might make on a given trade, but only what you could lose.

Whenever Paul realized that he was trading poorly, he would continually reduce his position size until he was on track again. That way, when he was trading his worst, he was also trading his smallest.

Fascinating, isn't it?

Reader conributed Charts

2013-06-05T08:40:00.001+05:30

Pratik Mukasdar

YOUSUF E.Kottakkal

INFY weekly chart show a range obund b/w 2100-3000 levels

Anish Teli

Technical Patterns in the making...

2013-06-03T16:24:00.000+05:30

"I've come to believe that all my past failure and frustration were actually laying the foundation for the understandings that have created the new level of living I now enjoy."

-Tony Robbins

Often, it is observed that we come across major technical patterns after they reach their targets successfully. And we regret of having missed out on those opportunities. So i thought to browse on some important patterns that are in the making right now (Weekly Charts), and keep a close watch on them.

1. Bank Nifty - Double Top

2. ICICI Bank - Triple Top

3. State Bank of India (SBI) - Break down from a channel

4. Tata Steel - Break Down from a channel

5. Yes Bank - Double Top

These patterns show something eminent on the medium term charts. The markets will do what they want to do, but we can at least stay cautious while taking any position that is against the visible trend.
I look forward to having any patterns identified by you in the comments section, along with the relevant time frame in which the pattern is seen in the making..

Recognizing the opportunity

2013-05-27T08:19:00.000+05:30

When the great library of Alexandria burned, the story goes, one book was saved. But it was not a valuable book; and so a poor man, who could read a little, bought it for a few coppers. The book wasn't very interesting, but between its pages there was something very interesting indeed. It was a thin strip of vellum on which was written the secret of the "Touchstone"!

The touchstone was a small pebble that could turn any common metal into pure gold. The writing explained that it was lying among thousands and thousands of other pebbles that looked exactly like it. But the secret was this: The real stone would feel warm, while ordinary pebbles are cold.

So the man sold his few belongings, bought some simple supplies, camped on the seashore, and began testing pebbles.

He knew that if he picked up ordinary pebbles and threw them down again because they were cold, he might pick up the same pebble hundreds of times. So, when he felt one that was cold, he threw it into the sea. He spent a whole day doing this but none of them was the touchstone. Yet he went on and on this way. Pick up a pebble. Cold - throw it into the sea. Pick up another. Throw it into the sea.

The days stretched into weeks and the weeks into months. One day, however, about mid-afternoon, he picked up a pebble and it was warm. He threw it into the sea before he realized what he had done. He had formed such a strong habit of throwing each pebble into the sea that when the one he wanted came along, he still threw it away.

Learning:

Opportunity shall come our way at its time, as it will. We do not know when, and how. All we need is to do our homework and keep trying, being aware all the time. Be it life, or financial markets. We have to keep our patience and wait for it. Wishing to get an opportunity doesn't get us one. Instead, it stresses us out, only to depress even our normal performance.

The key to recognize and grab the opportunity is to be aware every single time while we attempt, and not do it mechanically as our repetitive routine. Because that one time could get us our ‘Touchstone’!

Are we gambling?

2013-05-23T08:26:00.000+05:30

A couple of days back, I was talking to my friend’s sister who lives in Mumbai and actively trades in Stock Markets since last many years, and also does trading on behalf of her clients. She is way senior to me as far as the experience in the financial world goes. I was talking to her on the theme of my last blog post, and how we as traders/investors need to cultivate and nurture the quality of looking at the markets without any personal biases, which according to me, is the basic ingredient to any recipe we may develop for ourselves for success in the markets.

As I talked along, she seemed to be bothered. I asked her, ‘Is everything alright?’

She said, “My clients are long in Silver, and now we are stuck. What you think? What should I do?”

Having known about her experience, I was unpleasantly surprised.

The questions and answers that followed took me by shock. But then I realized and this tendency happens to overpower us sometime or the other. So, I felt like sharing the gist of our conversation here.

Why did you go long in Silver?

Everyone at my office is, and I felt as if I would miss the opportunity

Do you have any basis for your trade?

Yes, our HO gave us the call

What is the SL you have thought of?

42250. But it has already opened gap down and jumped over my SL

Now, what will you do?

I will wait for my price to come, to exit. Can’t take so much of loss.

Do you read charts?

No, I don’t understand them.

Do you do your fundamental analysis?

No, it is too complex for me.

Do you read what good experts of the market say?

No, I feel all of their views are scripted.

Do you read market related books?

No, they don’t interest me.

So, what will be your strategy now?

I don’t know. May be I ll see what others in my office are doing, and I ll wait for at least my cost price to come. Please let me know if you get any tip or news.

Our conversation ended, but it set me thinking.

Why do we rely on tips and rumors but don’t do our homework?

What stops us from doing our own study?

What makes it so difficult for us to take small losses?

Do we take trading as gambling, where we play blind?

Jack D. Schwager, author of the book ‘Market Wizards’ says, “the synthesis of technical & fundamental analysis combined with risk control allowed me to build my stake of $2,000 into well over $1,00,000”.

He could do this because he did his part of homework.

Do we do ours?

Let's beat the heat!

2013-05-19T19:13:00.001+05:30

As summer progresses towards its high, we are left with 2 choices: Either to crib & cry about it, or to figure out recipes that can help us stay cool and hydrated. Being a part of the later, and more importantly, wiser lot, we can’t help but reach out for water, lemonade, chilled buttermilk and juicy fruits to stay hydrated and feel refreshed. Why do we go for such alternatives? Because we know that the heat will behave in its own way, & do what it wants to do. So we have to find our way out.

Similar is the case with the markets, where the markets are not concerned with what we want. They will do what they want to do. All we can do is figure out recipes that can help us “beat the heat” of the markets, and stay cool!

Let’s have a look at what Bruce Kovner, one of the top traders from the olden days thought; and followed:

Be willing to make mistakes regularly. There is nothing wrong with it. Make your best judgement, be wrong; next best judgement, be wrong; your third best judgement, and then double your money!
Stay RATIONAL & DISCIPLINED under pressure.
Once a strategy is selected, stick to it.
If you apply yourself consistently, great things can happen. It is very easy to miss the point that you can really do it. If you take a position and use discipline, you can actually make it
Only 2 advice: Risk Management, & Undertrade
Discipline & willingness to make mistakes are significant traits of the winning trader.

The common mistake is to think of the market as a personal nemesis. The market is totally impersonal. Whenever a trader says, “I wish” or “I hope”, he is engaging in a destructive way of thinking because it takes attention away from the diagnostic process. Being able to witness the markets as they are without any personal biases is the basic ingredient to any recipe we may develop for ourselves, in my opinion! I would look forward to having your opinion in the comments area.

[Notes from Sudarshan: This is the first post, written by Kirtan, for our blog. I hope we will see his words, time and again]

Trading before an Event

2013-05-10T10:07:00.001+05:30

One of our readers purchased PUT options in Infosys just before the Q4 results were announced. After results, Infosys fell almost 20% giving large profits on the PUTs purchased. Our reader is a wise trader. He has questions on the trade. Here is his email:

Quote

Sir,
I was lucky that
1. I got a sell signal on Tuesday and took the trade.
2. My stops did not get hit in the rise of Wednesday and Thursday
3. I benefited from the fall on Friday
Having said that, given the volatility of Friday, it was a high risk trade and could quite easily have gone the other way.
Under these circumstances, the three options I have going forward is,
1. Do not trade high volatlity events at all
2. Trade the event, but only by buying call or put options hence limiting downside risk but paying high IV in premiums, or
3. Continue trusting my signals, and trade them with futures, and expect that, over time, the percentages would work out in my favour.
I am still in favour of option no 3. From a trade management perspective, is this sound thinking ?

UnQuote

My Notes:

I do not trade news events. But if you do trade them, then option 3 – trade with futures is the best way, since call and put options command large premiums which inevitably drop after the event. The important point is consistency. You have to take all your signals, to enable probability to work in your favour. The mechanical systems that we run, ignore news events, continue to trade just as in option 3 above. We expect that the negative impact will be balanced out by the positive impact over a long period, giving us a net positive edge,

The Nifty takes a one day breather

2013-04-26T16:29:00.000+05:30

Friday saw a minor decline in the Nifty. This comes on the back of big gains seen for the past two weeks. One day is not the start of a correction.It is possible that markets can resume their rally.

Technical Traders should always go with the trend. The basic theme is: assume that the trend continues until proved otherwise.

[I will be in Kolkata on Saturday and Sunday to meet my parents. My visits to Kolkata usually coincide with a meltdown in the market. I wonder if this is a technical indicator?? This was in a lighter vein]

Is falling Gold Good News for Indian Stocks

2013-04-16T08:45:00.002+05:30

Analysts are suggesting three positives for the Indian Stock markets:

01. Falling Inflation
02. Lower Crude prices
03. Falling prices of Gold

Our current account deficit is large mainly because of huge imports of Gold and Crude, therefore, a fall in prices results in lower deficit which could start a virtuous economic cycle.

As Indians, let us hope so.

As traders, we can trade the markets without getting influenced by news or perception. As of now, the Nifty is in a downtrend, for the short term trader, a trading range is developing with resistance at 5600 and support at 5500. Trade a break from this range on either side. If the news is going to make the markets bullish, a breakout will put us in a long trade.

Gold: Reasons for its fall

2013-04-16T07:00:00.003+05:30

Fund Managers using technical analysis outperform

2013-04-13T22:31:00.001+05:30

Source: http://allstarcharts.com/mta-symp-2013/

Wyckoff Made Easy

2013-04-13T22:06:00.000+05:30

Derek Hernquist provides an excellent post on influence of demand and supply on security prices, in his post titled "Supply Side Trading", which you can read here.

I had the opportunity to hear Roman Bogomazov in Singapore during the 2012 IFTA conference. He gave a brief 10 minute presentation, an excellent talk on wyckoff. His way of explaining a complex topic was a wonder.

Excerpts:

Going through slides, Roman commented that analysis of longs should always start with an assessment of supply.

I think it represents everything that is right about price analysis, and everything that is wrong about media narratives. The presence of low supply means an absence of a juicy story, and thus can get ignored. But for me it is the critical factor in finding low risk trades, and on occasion having one of those turn into a high reward trade.

My Notes:

Please read the full post, as well as the links in the post.

Today, Puneet Rathi gave an excellent presentation on synergy between derivatives and technicals, at the monthly ATA meeting in Delhi. I wrote about the meeting a few days ago. IF you live in NCR and did not attend, then you are missing out on a lot of learning and education.

Godl, Silver are going through a mini crash today

2013-04-12T22:22:00.001+05:30

With almost 4% declines, Gold and Silver are going through a min crash in world markets. In India, on the MCX, Silver prices opened at 51778 and are currently at 49695, more than Rs 2000 decline, almost 4%. Same is the case with Gold.

Often, in the current environment, a rally in share prices (risk ON) is accompanied by a fall in precious metal prices. The theory is that Gold and Silver are safe havens, therefore when traders are willing to take risk (buying equities), they ignore safe havens (Gold, SIlver).

With this theory, today's decline may be attributed to increased appetite for risk. But, that is not always a valid theory.

Often, Equity and Precious Metals will fall together when investors are worried about all kinds of speculative risk. Then, there is a shift from all risk assets to risk free assets. That may be going on today. If so, it is not good news for equity investors.

Trading Beliefs and Process

2013-04-11T21:42:00.003+05:30

Derek Hernquist, Portfolio Manager, explains his trading beliefs and process in an excellent post titled 'Process'. You can read it by clicking here.

Derek explains his trading / investing beliefs, thus:

1) Without a marketwide appetite for risk, company signals go mostly unexploited

2) Market moves start inward and spread outward, so studying the “market of stocks” makes more sense to me than studying $SPX

3) Fear(of loss and/or missing out) dominates market activity at the margin, and when enough people are “at the margin” we have a great opportunity to trade

4) I have no way to “outknow” the information on any stock, sector, or asset class; time spent trying is time taken away from honing my true edge

5) Determined trends unfold very deliberately, with regret acting as a powerful catalyst for continuation

6) Distinguishing between a positive feedback loop(trend) and negative feedback loop(range) is the most critical factor in market speculation

He describes his process as " measure relentlessly and objectively…from 15 minutes to monthly, from balanced to extreme, from expanding to contracting, from high to low, by speed and magnitude, etc. I’m looking for very specific market conditions that, in some timeframe, indicate the presence of a determined trend. I care not only about the % of stocks that are “healthy”, but how that number compares to prior readings. Level, direction, and momentum of these readings are all factors in spotting the right climate for speculation"

Please read his blog post here.

Follow Your Charts

2013-04-11T07:16:00.001+05:30

The next meeting of The Association of Technical Analysts, will be held on Saturday, April 13 at New Delhi. Topic is: Derivatives - Synergy with Technical Analysis. IF you live in the NCR, do consider attending. Full details are available here.

The Nifty has been moving around the 5500 - 5550 range for the past five days. I have discussed on TV, the strong support offered by this trading range. There were repeated close below the range, suggesting that the support is not holding. Finally, on Wednesday, April 10, the Nifty made a DOJI, first dipping well below 5500 and then recovering to close at 5550, at the top of the day's range. In the afternoon, around 5545, I suggested buying the Nifty with a stop below 5500.

The reason for the buy was a favorable risk reward as well as the sign that 5500 is holding inspite of the choppiness that we have seen.

As with all trades, there is no assurance that this one will work out. Our trades work on probability. The outcome of a group of trades is likely to be positive. Results of individual trades, cannot and should not be predicted.

Peter Brandt on managing a trade

2013-04-07T21:36:00.000+05:30

Khushang Thakkar pointed out a new post by Peter Brandt. Click here to read it.

Mr Brandt explains his trading philosophy, as well as discusses a potential trade. The post is worth reading, again and again.

Peter Brandt risks about one percent of his capital on any single trade. He calculates his return on the capital he allocates for the trade. (My Notes: The capital allocated will be much more than the margin, maybe three to four times more.) He expects a return of 5 to 10 percent on his capital.

The trade setup is identified based on a number of features, including:

Pattern - Weekly
Pattern - Daily
Length of Patterns
A "Launching" or "Ignition" pattern within the larger pattern
Trend - Daily (using a moving average as proxy)
Trend - Weekly
Any other technical factors

Mr Brandt suggests that large profits are attained by holding a position, not by active trading.

Traders actually do this

2013-04-03T06:49:00.002+05:30

What We,Traders actually do:

-- Overconfident about our ability to pick profitable trades

-- Keep losing trades in hope of 'recovery'

-- Never follow the proven adage of letting winners run.

-- Do not apply a simple trend following indicator to our charts.

-- Easily manipulated by analysts and media into making rash, impulsive decisions

-- Blindly follow people who promise 100% return in one month, without asking the obvious question: why does not he do it for himself?

-- Understand the psychological problems that all other traders face, but refuse to acknowledge that we face the same problems

-- When mid caps start a rally, traders lose their inhibitions and start buying these highly risky stocks as if the shares are running out of supply.

-- Refuse to believe that markets change.

-- Do not adapt to market cycles and changes in market behavior.

All is Not Lost.

Traders have one big advantage and this advantage can overcome all the problems mentioned above.

Traders have a passion for trading.

If you live to trade, love trading then you are half way to success. An open mind and hard work will take you to your destination. Certainly.

Elliot Wave for Systematic Traders

2013-03-24T19:54:00.001+05:30

I received an email from a price patterns follower which says this:

"I hope you are doing good. I am about to start reading of the book
"Five Waves to Financial Freedom: Learn Elliott Wave Analysis" by
Ramki Ramakrishnan. I have always stayed from Fibbonacci and Elliot
waves because it just didn't make any logical sense to me, but I've
finally decided to at least have a good reading on the principle before
making a judgement.

I wanted to know your views on Elliot Waves. If you have some time
could please share your insights on your blog with regards to this
topic."

My Response:

The trader who wrote this email works mainly on price patterns which he has converted into automated systems. When a systematic trader wants to read Elliot Waves, it could mean one of the two things:

1. The trader has suddenly developed a thirst for knowledge of waves, OR

2. Indifferent market conditions has caused enough pain to switch from patterns to 'something better'.

My response is not a criticism of Elliot Waves. Far from it. Traders have any number of tools at their disposal. Each trader finds his or her method. Each method is unique to the trader. Elliot Waves are as good as Channel breakouts or the trading of new highs/lows.

My point is something else: Do not think that Elliot Waves will provide you with a drawdown free / loss free trading method. It will not. It has the same advantages and drawbacks as any other trading methodology.

Therefore, understanding of Elliot Waves for the sake of acquiring knowledge is a very good idea. If the hidden desire is to get some new method, then the trader will be disappointed. He will also get diverted from his skills.

What do readers say?

Meditation for traders

2013-03-21T20:33:00.003+05:30

Akshay Gupta contributes this post.

One of biggest hedge fund managers credits meditation as key to his success in the following interview.

Ray Dalio on Meditation from Meditatio WCCM on Vimeo.

Ray dalio of bridgewater associates says " Meditation, more than anything in my life, was the biggest ingredient of whatever success I've had".

Ray says that it provides him clarity and open mindedness,which i think are two most important qualities for someone who is trading the chaotic world of financial markets.
As Dalio notes, the key for beginners is to challenge themselves to stick with meditation for the first six months. Those who do stick to it and invest at least 6 months in it,never stop doing it.

Zen and the Art of Trading

2013-03-17T16:33:00.003+05:30

Sumit Singh, a young trader sends this:

An interesting similarity I found while reading two different books on two different subjects:

“The “Holy Grail” is not some magical source that is the key to the markets, as most people believe. Nor is it about following someone else’s philosophical secrets of trading. The metaphor of the “Holy Grail,” according to scholars like Joseph Campbell, is all about finding yourself. Similarly, the “Holy Grail” in the markets - the key to unlocking profits - is all about finding yourself. To unlock the “Holy Grail,” you need to appreciate your own ability to think and be unique. People make money by finding themselves, achieving their potential, and getting in tune with themselves so that they can follow the flow of the market. Getting in tune with yourself means finding an inner peace inside. It means finding a balance between profits and losses. The Holy Grail is not a magical trading system; it is an inner struggle. Once you’ve discovered that, and resolved the struggle, you can find a trading system that will work for you”.

Van Tharp - “Trade your way To Financial Freedom”

“I want to tell you that it is destructive to believe anybody, and it will be harmful to your life. No belief, no belief at all! Whosoever makes a belief system a basis for his life is entering into a world of blindness – and no light can ever enter into his life. He can never attain to light in his life. Someone who believes in others will never be able to know himself”.

Osho – “The Path of Meditation”

Selling at the Highs of a Reaction

2013-03-17T16:32:00.000+05:30

It is much easier in a bear market to recognize the top of a rally than the lows of a decline. When a rally hits the top of an advance, Dow theory traders will expect resistance to step in. 'Top' is usually previous support that is likely to become resistance. A decline is likely to begin.

What happens after the decline is crucial. If, on the next rally, prices remain below the top of the previous advance, then the down trend is confirmed.

For the Nifty, the high(5945) made on Friday, March 15 was below the previous swing high(5971) made on March 11. If the March 11 high is not breached in the next few days, then a confirmed down trending pattern will be established.

While the Markets will do what they want, traders will look to sell on any rally that comes about.

A Crash Course in Economics

2013-03-09T17:59:00.000+05:30

SOCIALISM
You have 2 cows.
You give one to your neighbor.

COMMUNISM
You have 2 cows
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The State takes both and sells you some milk.

BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other and then throws the milk away.

TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

VENTURE CAPITALISM
You have two cows.
You sell three of them to your publicly listed company, using letters of
credit opened by your brother-in-law at the bank, then execute a debt/equity
swap with an associated general offer so that you get all four cows back,
with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to a
Cayman Island Company secretly owned by the majority shareholder who sells
the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one more.

AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyze why the cow has dropped dead.

A FRENCH CORPORATION
You have two cows.
You go on strike, organize a riot, and block the roads, because you want three cows.

AN ITALIAN CORPORATION
You have two cows, but you don’t know where they are.
You decide to have lunch.

A SWISS CORPORATION
You have 5,000 cows. None of them belong to you.
You charge the owners for storing them.

A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION
You have two cows.
You worship them.

A BRITISH CORPORATION
You have two cows.
Both are mad.

AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none.
Nobody believes you, so they bomb the crap out of you and invade your country.
You still have no cows but at least you are now a Democracy.

AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive.

A GREEK CORPORATION
You have two cows borrowed from French and German banks.
You eat both of them.
The banks call to collect their milk, but you cannot deliver so you call the IMF.
The IMF loans you two cows.
You eat both of them.
The banks and the IMF call to collect their cows/milk.
You are out getting a haircut…

Stay Hungury, Stay Foolish

2013-03-06T03:04:00.003+05:30

If you are new to trading or have been struggling for a while, please have a look :