Tuesday, March 30, 2010

Mood of the master can be judged from behaviour of the servant (Mastering RSI)

If the priceline is the master, RSI is the master's most faithful and beloved servant.

The mood of the master can be judged from the behaviour of the servant.

When the master (price) is in a strong mood to trend, the obedient servant (RSI) bangs his head straight into the 80 or 20(rsi) wall !

And since the master is in no mood to stop trending, the faithful RSI keeps bouncing and bumping into the 80-90-100 or 20-10-0 rsi wall again and again after retracing a step or two repeatedly.

And all this while the master keeps moving further, till he runs out of steam!

And then, the alert servant rsi takes the hint and retreats.

If the master is in mood to move but not too much too fast, his trusted servant retreats from 70-75 wall after just one hit and the master is visibly pleased at his "employee's" diplomacy.

When the master is in a casual mood, the loyal footman RSI retreats from halfway, pleasing his boss further.

RSI is to Price what Abdul Karim was to Queen Victoria.

Very faithful and intelligent and useful

but hated by co-workers

like RSI is hated by other Technical Indicators for its potency.

Anyone wanting to master the master, watch his shadow

the RSI.

Sunday, March 28, 2010

R U a developed country?

When I was in school our Social Sciences teacher asked us the difference between a Developing country and a Developed country.

I remember none of us could answer properly.

We had only a vague idea.

We thought that poor countries were developing countries and the rich ones were the developed.

But didn't know that the "rich" countries had more debt than the "poor" countries!

Then the teacher gave us the "proper" definition of the two.

"A developed country is the one which has sorted out its basic concerns and met its basic needs.
They are now focusing their energies on advanced issues and not petty trivial ones!", she said.

"And the developing countries are the ones which are still grappling with the basic questions of life and society, which haven't yet overcome their absolute basic problems."

Years have passed and this definition has stuck in my head.

In every area of life I have used this definition to guide me.

Even in stock market, for a long time, I was always struggling with the basic issues.

Issues like principle amount, methods, discipline, basic mistakes, emotional decisions etc....

So much so that I was frustrated to see myself unable to focus on bigger and advance issues like maximising the returns and learning advanced techniques.

I was a developing country all the way....

till I couldn't take it any more and decided to sort out my basic trading issues once and for all!

Now, I am atleast satisfied that though I may not be in the frontline of 'countries' but am definitely not a 'developing country' anymore.

I have sorted out my basic trading issues and habits and problems and am feeling much much better.

Big profits may still be a little away but big or stupid losses are no more there.

I am still developing and always continue to develop

but in developed issues only.

I am a developed country!

and it has nothing to do with being rich.

Saturday, March 27, 2010

Trading with RSI

For Day trading
click on 1day chart
set rsi as 14,2min

short when rsi crosses 80 for the first time in the day.
if rsi comes down but price doesn't fall much, square off
otherwise, hold on till rsi falls till 40
then, if rsi goes up but price doesn't rise back, hold on till rsi falls till 20
otherwise, book profit
then, if rsi goes up but price doesn't rise back, hold on till rsi falls further
otherwise, book profit

=================================

go long when rsi dips below 20 for the first time in the day.
if rsi goes up but price doesn't rise much, square off
otherwise, hold on till rsi rises till 60
then, if rsi goes down but price doesn't fall back, hold on till rsi rises till 80
otherwise, book profit.
then, if rsi goes down but price doesn't fall back, hold on till rsi rises further
otherwise, book profit

=================================

For 1-3 month ride:-
click on 1yr chart
set rsi as 14,1d

For 2-5 day ride:-
click on 1month chart
set rsi as 14,30min

Short when rsi is "clearly overbought under the rally conditions"
Buy when rsi is "clearly oversold under the rally conditions"

It is advisable that we don't jump in the train of trade immediately after the rsi-whistle but board the train when it actually starts to move on the platform.

Often there is some gap or premature alarm between the rsi signal and big movement just like there is some gap between the train's whistle, 'down-signal', the guard's green flag and the actual movement of the train!

Rsi signal should alert us, but we should wait like a pro before entering.

Price generally has some life left before turning finally.

======================================

Pl remember, in trending markets 70/30 is shifted to 40/80 or 20/60 (depending whether it is in uptrend or downtrend). Sometimes, even 5 and 95 levels can be seen.

More important than selecting the rsi boundary (70/80/90 or 30/20/10) is mastering the underline concept.

Once the reason behind the method is clear, u will not need to memorize rsi trigger levels, these will become IInd nature to you.

rsi trigger boundaries are not hard and fast, these keep changing as per the bull or bear or dull markets.

stock trading is a fine mix of science and art. practice and you will not need to be anxious about exact rsi level.

=================================

Also, RSI and 34/8 SMA can be a deadly combination. Try it.

======================================

Tuesday, March 23, 2010

5 is a Porfolio, 40 is a Zoo!

We all have heard the proverb "don't put all your eggs in one basket"

Well, while it is a wise thing to do as far as eggs are concerned, for stocks it should be followed with care!

While diversification, being a defensive strategy, is good for capital protection, it rarely increases your wealth in leaps and bounds!

Warren Buffet once termed a portfolio of 40 stocks as a Zoo and not a portfolio!

He had opined that focusing your investment seems risky but isn't really.

According to Buffet, if focusing your investment in a few stocks makes you do your homework intensely then that is very healthy.

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." Buffet says.

At the end of 1999 and 2000 Buffet's company Hathaway Berkshire had 70% of its investment funds in just four companies.

It is "too hard to make hundreds of smart decisions."

Even Peter Lynch said : "The smallest investor can follow the Rule of Five. The part-time stock picker probably has time to follow 8-12 companies."

"Owning stocks is like having children--don’t get involved with more than you can handle."

"All stocks in the portfolio have to pass some stiff tests and you will not know if they pass the tests unless you are able to spend time analyzing them."

Philip Fisher had rightly warned :

"......buying a company without having sufficient knowledge of it may be even more dangerous than having inadequate diversification."

To sum up in Warren Buffet's words : Diversification may preserve wealth, but concentration builds wealth.

"Hasta la Vista, Baby!"

Hasta la vista in Spanish means "See you later"

Arnold Schwarzenegger made this phrase immortal in the 1991 sci-fi thriller 'Terminator 2: Judgment Day'.

I use this phrase for my dear Nifty.

Whenever I buy Nifty after a thorough homework

and still find it going down

I don't panic.

I don't book loss......never!

I have seen so many times people book loss in panic only to see the nifty pull back / climb back sans them!

I know the dip (small or big) is temporary and Nifty "will be back".

Anyway, in stock markets it is an unsaid "guarantee" that markets will come up.

There is no such guarantee that markets will come down.

So, confidently hold on to long position in Nifty if you have sufficient funds!

So, whenever u r in such a situation

let the Terminator in you smile and say

"Hasta la Vista, Nifty!"

Sunday, March 21, 2010

A daylight robbery!

Two robber brothers quit their "line".

They wanted to "do" something "different".

They took to stock trading.

But old habits die hard.

One day the younger brother got restless.

"Bhai! Why can't we make more money faster? Why can't we buy a bagful of this stock at much
lower price?" he complained to his elder brother.

"Nobody will sell you this stock at lower price. Yahaan aisa nahin hota, chhote!"

The younger brother got angry.

He reached the drawer and took out his loaded gun!

"I'll see how they don't give me their shares at half the price", he murmured.

The elder brother stopped him.

"How many will you force to surrender this way? Don't be childish, Chhotu. This line is different! Come near...".

He then whispered something in Chhotu's ears.

A smile beamed in the eyes of the younger bro.

He phoned his broker and instructed him in code words.

Next morning, his broker started dumping lacs of shares the two brothers held in the said
company.

The retail investors panicked.

Some started selling.

The shares started to fall!

Nobody knew what was happening.

Rumours spread like wildfire!

More people started to sell.

Now the share-price started plummeting.

This transformed into a stampede!!

The "friendly" cartel mopped all the shares, silently!!!

All this happened in broad daylight!

The "robbery" was complete.

Without gun!

In broad day-light!!!

Dhyan Chand (a biographical sketch)

Photobucket
Major Dhyan 'Chand' Singh
August 29, 1905 – December 3, 1979
Widely regarded as the greatest hockey player of all time!
Dhyan Chand is to hockey what Bradman is to cricket, Mohammed Ali to boxing and Pele to football!
Legendary center-forward!
Won 3 Olympic gold medals
Scored more than 400 goals during his international career.
Awarded Padma Bhushan in 1956.
Born in Prayag, Allahabad in Uttar Pradesh.
His father Sameshwar Dutt Singh was in the Indian Army and played hockey in the army.
Had to terminate his education after class six due to frequesnt transfers of father.
Young Dhyan had no serious inclination towards sports, though he loved wrestling.
He did not play any hockey worth mentioning before he joined the Army.
He occasionally indulged in casual games in Jhansi with his friends.
Chand joined the Indian Army at the age of 16, in 1922 .
Subedar-Major Bale Tiwari noticed his dribbling skills. He became his mentor and laid the foundations of his game.
Between 1922 and 1926, Chand exclusively played the army hockey tournaments and the regimental games.
Chand was ultimately selected for the Indian Army team which was to tour New Zealand.
The team won 18 matches, drew 2 and lost only 1, receiving praises from all spectators. Returning to India, Chand was immediately promoted to Lance Naik.
====================================
Once while playing a hockey game Major dhyan chand was not able to strike ball into the goal post of the opposition's team. After several misses he argued with the match referee regarding the measurement of the goal post and amazingly it was found incorrect!
====================================
Final of the Punjab Indian Infantry tournament in Jhelum.
The UP team was leading by three goals to one.
Only 4 minutes to go.
Dhyan chand responded with three goals in four minutes to lead his team to victory.
He seemed to be able to pass opponent after opponent at will.
====================================
Photobucket

it is said that at the Berlin Olympics in 1936, Dhyan Chand could not play for finals against Germany, as he was hurt. At half point, when India led by only 1-0 Dhyan Chand removed his shoes and entered the field bare foot. He took India to a stunning victory scoring 6 more goals. Adolf Hitler left midway as he couldn't bear to see his "racially superior" team being demolished.

In his autobiography titled “Goal!” published in 1952 by Sport & Pastime, Chennai, Dhyan Chand writes about that match as follows:

“When Germany was four goals down, a ball hit Allen's pad and rebounded. The Germans took full advantage of this and made a rush, netting the ball before we could stop it. That was the only goal Germany would score in the match against our eight, and incidentally the only goal scored against India in the entire Olympic tournament. India's goal-getters were Roop Singh, Tapsell and Jaffar with one each, Dara two and myself three.”


Later the German dictator offered to elevate 'Lance Naik' Dhyan to the rank of a Colonel if he migrated to Germany. Of course, Dhyan Chand refused.
====================================
In Holland, the authorities broke his hockey stick to check if there was a magnet inside.
====================================
After India played its first match in the 1936 Olympics, Dhyan Chand's magical stickwork drew crowds from other venues to the hockey field.
A German newspaper carried a banner headline: 'The Olympic complex now has a magic show too.' The next day, there were posters all over Berlin: 'Visit the hockey stadium to watch the Indian magician Dhyan Chand in action.
'After every India match, hundreds of spectators would troop down to the players enclosure and touch Dhyan Chand's hockey stick to see what trick it was that kept the ball from leaving his stick as he dribbled his way all over the field.
One journalist reported: 'It looks like he has some invisible magnet stuck to his hockey stick so that the ball does not leave it at all.'
====================================
So great was the magic of Dhyan Chand that the Tokyo Olypics officials broke his hockey stick to search for a magnet inside. Embarrased on finding nothing, they consoled with the theory of a glue.
====================================
On one occasion, a lady from the audience asked Dhyan Chand to play with her walking stick instead. He scored goals even with them!
====================================
Don Bradman and Dhyan Chand once came face to face at Adelaide in 1935, when the Indian hockey team was in Australia. After watching Dhyan Chand in action, Don Bradman remarked "He scores goals like runs in cricket"
====================================
An artist in Vienna depicted him as having eight arms.
====================================
Once during a tour of Lyon in 1963, a female fan planted a kiss on Dhyan Chand despite him trying his best to avoid that.
====================================
When everbody else thought he was going to shoot, he passed, to induce surprise.
And when he passed to you, you did not want to miss.
On that 1947 tour, he put through a wondorous ball to KD Singh Babu, then turned his back and walked away.
When Babu later asked the reason for this odd behaviour, he was told, "If you could not get a goal from that you did not deserve to be on my team."
Keshav Dutt, Olympic gold Medallist, said "His real talent lay above his shoulders.
His was easily the hockey brain of the century. He could see a field the way a chess player sees the board. He knew where his teammates were, and more importantly where his opponents were - without looking. It was almost psychic.
He treated everybody as pieces on a board meant for his use. He'd know from his own movement how the defense was forming, and where the gaps were. In other words, he was the only imponderable, Everbody else (opposition included) fell in predictable patterns around him."
====================================
Residents of Vienna, Austria honoured him by setting up a statue of him with four hands and four sticks, depicting his control and mastery over the ball.
====================================
Dhyan Chand owned a licensed army gun which he would use for hunting (which was not banned in those days).
He also loved to fish.
Cooking was his other favourite hobby. He was a non-vegetarian and enjoyed making mutton and fish dishes. He liked making halwa dripping with ghee.
His indoor pastime was billiards. After retirement in Jhansi, he used to play billiards till late in the night.
Dhyan Chand also played cricket well, and was good at batting due to his strong wrists. He used to play carroms and loved photography.
He admitted that he was not a good social mixer. While at home or during play, he kept to himself. He thought that it would be better if he kept quiet and just did his duty or job.
====================================
In 1956, at the age of 51, he retired from the army with the rank of Major.
After he retired he coached for a while, then settled in his beloved Jhansi.
The last days of Dhyan Chand were not very happy, as he was short of money and was badly ignored by the nation. Once he went to a tournament in Ahmedabad and they turned him away not knowing who he was.
He developed liver cancer, and was sent to a general ward at the AIIMS, New Delhi. He died on the 3rd of December 1979 penniless and uncared for in a hospital, receiving a meagre pension..
====================================
His birthday is celebrated every year as National Sports Day. The Indian Postal Service issued a postage stamp in his memory, and the Dhyan Chand National Stadium at New Delhi has been named after him.
====================================
"Goal" is the autobiography of Hockey wizard Dhyan Chand published by Sport & Pastime, Chennai, 1952
====================================
Hockey or Stock Trading....passion and dedication is magical!

A stock without face!

Many friends ask me

"Which stock should I buy?"
"What all stocks should I track?"
"Which stocks are good for trading?"
"...so and so are my favourite stocks for trading. Which one are yours?"

Frankly, I don't trade "stocks"

I trade "tradable signals".
I trade "chart patterns"
I trade "buy and sell triggers"
I trade "indicators"
I don't trade stocks, I trade "favourable chart formations"

It doesn't bother me whether I trade a Reliance or a Tata or a Bajaj or a Birla or a Mahindra...

It doesn't bother me whether I trade Hindustan (Unilver) or Punjab (Tractors) or Gujarat (NRE Coke) or India (Cements)...

It doesn't bother me whether I trade a Nalco or Balco or Hindalco or Malco...

It doesn't bother me whether I trade a NFL or CFL or MFL or RCFL...

I don't trade for dividends.

I am not an investor either.

I don't see the face of the stock

I see its shadow...

Its graph...

In the graph I look for signal(s) of an upmove or downmove...

I look for a higher low (or lower high)...
I look for a rising triangle...
I look for a sleeping volcano formation...
I look for the baseline / topline hints...
I look for 34/8 contours...
I look for spikes...
I look for the weakness or strength in the chart structure...

What's in a name, after all...as Shakespeare had famously said...

I am not interested in the name or face or history of a stock

Rather, I am not interested in stocks per se...

I just look for the trading signals

Any stock will do if it is carrying the placard reading "trade me, NOW!"
Otherwise, no stock will do...even if it is the mighty Reliance or ONGC...

This way my search is always limited and fast and stressfree.
Everytime I start searching for "the suitable" chart, I come across one very soon.

When I look up to see the name of the stock in the end, I am generally amused. And, I have never been betrayed!

(Ofcourse, after seeing the name if I am not comfortable with the name for some bad reputation etc. I look for the next chart!)

So, my friends no more ask me

"which stock to trade? what to buy?"

They, now ask me

"Which signal to trade."
"Which chart is showing the signal?"

As a trader, I can't afford to be emotional about any stock...especially when I am not the promotor of them.

However, I AM the promotor of "I,me,myself Inc."

My loyalties are not towards specific stocks

but towards me, my methods, towards chart patterns, profits and opportunities!

Ofcourse, I diversify!

And look more for charts in a sector I think has started to move!

But I have become habitual of ignoring the names.

I am constantly looking for a stock without face

but with character

to go places!

Thursday, March 18, 2010

The Boy Plunger (a biographical sketch) !

Jesse Lauriston Livermore (1877 — 1940)

Photobucket

Also known as the Boy Plunger, an early 20th century stock trader.

Famed for making and losing several multi-million dollar fortunes.

Short sold the stock market crashes of 1907 and 1929.

Started his trading career at the age of fifteen.

Ran away from home to escape a life of farming his father wanted him to have.

Began his career by posting stock quotes at the Paine Webber brokerage in Boston.

Married thrice.

He had the habit of writing down certain hunches he had about future market prices which he used to check for accuracy later.

A friend convinced him to put his first actual money on the market by making a bet at a bucket shop, a type of gambling that took bets on stock prices but did not actually buy or sell the stock.

By the age of fifteen, he had earned profits of over $1000 (equivalent to today's $20,000).

Eventually banned from most bucket shops for winning too much money from them.

He then moved to New York City for trading in legitimate markets.

And devised a new set of rules to trade the market.

During his lifetime, Livermore gained and lost several multi-million dollar fortunes.

He was worth $3 million and $100 million after the 1907 and 1929 market crashes, respectively.

Subsequently lost both!!!

Livermore's philosophy - Keep increasing the size of one's position as it goes in the right direction and cutting losses quickly.

Livermore sometimes did not follow his own rules strictly. He claimed that his lack of adherence to his own rules was the main reason for his losses after making his 1907 and 1929 fortunes.

Livermore first became famous after the Panic of 1907, when he sold the market short as it crashed.

He noticed a lack of capital to buy stock and predicted that there would be a sharp drop in prices when many speculators were simultaneously forced to sell by margin calls and a lack of credit.

Photobucket

He violated many of his key rules.

Though he preferred working alone, yet he listened to another person's advice and added to a losing position.

Gradually, he was $1 million in debt and declared bankruptcy.

He proceeded to regain his fortune and repay his creditors during the World War I bull market and resulting downtrend.

He owned a series of mansions around the world, each fully staffed with servants, a fleet of limousines, and a steel-hulled yacht for trips to Europe.

Livermore continued to make money in the bull markets of the 1920s.

In 1929, he noticed market conditions similar to that of the 1907 market. He began shorting various stocks and adding to his positions and they kept declining in price. When just about everyone in the markets lost money in the Wall Street crash of 1929, Livermore was worth $100 million after his short-selling profits.

Through unknown mechanisms, he yet again lost much of his trading capital, accumulated through 1929.

March 7, 1934 = the bankrupt Livermore was automatically suspended as a member of the Chicago Board of Trade.

He had lost it all.

November 28, 1940 = Livermore shot and killed himself in the cloakroom of a Hotel in Manhattan.

He got the nick name of 'boy plunger' because of the manner in which he would take large stock or commodity positions.

Livermore lived as he traded - full steam ahead.

“ All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis.” - Jesse Livermore in 'How To Trade In Stocks'

“ The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” — Jesse Livermore in 'How To Trade In Stocks'

Testing the Dog's mood!

I noticed a peculiar habit of one of my friends.

Recently I went to a Govt official's house with him.

Our host had a fierce dog as pet.

My friend, on seeing the hound behind the closed gate stopped, took out an eclair and threw at the animal.

"Do you think dogs eat eclairs?" I asked him.

"I know he may not like eclair. But I am just testing the dog's mood" my friend replied.

"I just want to know whether the dog is in excited mood. whether he is in the mood to attack or not."

"I want to test him on the eclair before offering my leg"

I was amused to hear all this.

Why don't we enter a stock in risky situations like these in two steps.

Step 1: Offer an eclair!

Step 2: Offer our leg!!

I am pained to see my friends straight-away offering not just their leg but their neck to risky trade hounds.

By entering a swing or positional trade in steps, you not only are much safer but also if things go wrong in second or third step, you already have some profit from the first step to cover your loss.

Sun Tzu & the art of trading

Sun Tzu was an ancient Chinese military general and strategist, serving under King Hel├╝ of Wu, who lived c. 544—496 BC.

He was brilliant and great trainer as well.

The following legend related to him is a fine example.

The king of Wu tested Sun Tzu's skills by commanding him to train a harem of 180 concubines into soldiers.

Sun Tzu divided them into two companies, appointing the two concubines most favored by the king as the company commanders.

When Sun Tzu first ordered the concubines to face right, they giggled. He reiterated the command, and again the concubines giggled.

Sun Tzu then ordered the execution of the king's two favored concubines.

After both concubines were killed, new officers were chosen to replace them.

Afterwards, both companies performed their maneuvers flawlessly.

He wrote 'The Art of War' based on his tested expertise.

====================================

Given below are 11 of his finest quotes which are deadly effective and applicable in stock trading.

* All war is based on deception.

* He who knows when he can fight and when he cannot, will be victorious.

* Invincibility lies in the defence; the possibility of victory in the attack.

* Opportunities multiply as they are seized.

* Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

* The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand.

* The good fighters first put themselves beyond the possibility of defeat, and then wait for an opportunity of defeating the enemy.

* The opportunity to secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.

* There is no instance of a nation benefitting from prolonged warfare.

* To see victory only when it is within the ken of the common herd is not the acme of excellence.

* Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.

===========================

“There are five dangerous faults which may affect a general:


(1) Recklessness, which leads to destruction;

(2) cowardice, which leads to capture;

(3) a hasty temper, which can be provoked by insults;

(4) over-confidence in self being invincible;

(5) over-solicitude (anxiety) for his men, which exposes him to worry and trouble.


These are the five besetting sins of a general, ruinous to the conduct of war."


-Sun Tzu

Tuesday, March 16, 2010

Signs of Amateur and Professional Traders

When fall

Amateur = Doesn't stand up early, keeps licking wounds, keeps criticising market and operators

Pro = Stands up, takes a note of what and why, sees gaps in method-application-discipline

===========================

Get Thrill

Amateur= from wining trades

Pro= from winning strategies and method

===========================

Work motto

Amateur= Bleed during trading hours, Rest during non-trading hours

Pro= Sweat during non-trading hours

===========================

Indiscipline

Amateur= is forgettable

Pro= is unforgiveable

===========================

Control

Amateur= is boring

Pro= is survival kit

===========================

Entry and Exit

Amateur= decided by emotions and gut feel

Pro= decided by method / signals

===========================

Amount of bet

Amateur= decided by pocket

Pro= decided by clarity and confidence in trading opportunity

===========================

Weakness in trading

Amateur= try to cure it

Pro= don't trade in weakness areas

===========================

Risk

Amateur= Blind Gamble

Pro= Calculated risk

===========================

Patience

Amateur= only while losing

Pro= when profiting (till exit signal)

===========================

Trading Style

Amateur=complex and flashy

Pro=simple and dull

===========================

Trading as

Amateur=a hobby and pass-time

Pro=a business

===========================

Aim

Amateur=to become rich

Pro=to remain rich

Candles with a single wick never lie (Understanding Candlesticks-III)

A Candlestick may have 0 or 1 or 2 wicks.

Photobucket

The candle with just 1 wick never lies. The one with 0 or 2 wicks needs help to reveal the truth.

Hammer (white candle with only lower wick) signals a bullish pattern after small pullback. A hammer resembles 'higher low' formation.

Shooting star (white candle with only upper wick) signals a bullish pressure. A shooting star also resembles 'higher low' formation.

Hanging man (Dark candle with only lower wick) signals a bearish pressure. A Hanging man resembles 'lower high' formation.

Inverted hammer (Dark candle with only upper wick) sugnals a bearish pressure after small pullup. An inverted hammer also resembles a 'lower high' formation.

Also, a double wick candle (like Spinning Tops, Longlegged Doji etc.) can indicate any of the bearish or bullish movement depending upon whether the closing price was approached from up or from down.

You can check this from the price graph. If the closing price was touched from below, it can be a bearish signal. If the closing price was touched from above, it can be a bullish signal.

Dragonfly and Gravestone Doji indicate trend reversals.

Also, A Morubozu (a candlestick with no wick) can indicate one of the following 4 situations:-

1)Kick starting a new trend

2)Strong resumption of the trend after consolidation

3)Sudden momentum gain in the trend

4)Overdoing at extremes

Check out to understand the next event!

You can take 5 minute interval for Day Trading and 1-day interval for Swing Trading.

A 5-minute candle can "throw light" atleast for the next 2 minutes!

A 1-day candle can "throw light" alteast for the next 1-3 hours!

A 1-week candle can "throw light" atleast for the next 1-3 days!

Trade confidently with candles. But keep your eyes open for the next candle.

A 1-week candle can make the day comfortable.

A 1-day candle can make the hour comfortable.

A 1-hour candle can make the minutes comfortable.

You can get candle charts on many sites including google finance site where near live feeds are there.

Also, even if you don't get a candle chart, you can draw one yourself. It is the only indicator which is so easy to make.

I myself make candle chart for last 5-days to anticipate the entire next trading day and 1-day candle to anticipate the first 1-2 hours of the next trading day. I don't day trade. But I do BTST with Candlestick estimation and it works!!!

Monday, March 15, 2010

Start, Pause, Stop (Understanding Candlesticks-II)

How is the start or pause or end of a trend communicated in candlestick charts?

A long candle is seen!

Photobucket

When the candle appears at rsi extremes, it generally signals the end or start,

When it appears near mid of rsi, it signals the pause.

(Keep duration as '2 minutes' for Day Trading and 'Daily' for Swing/Positional Trading.)

Sunday, March 14, 2010

U already know all about Options! (Understanding Options-III)

U already know all about Options!

How much did you pay for 3-Idiots on first day?

How much will you pay for the next Himesh Reshammia movie on its first day?

On its 10th day?

That is all about Options!

You know it all!!

Still doubtful!

Ok, let me ask some questions.

Assume you are a Halwaii (Sweet maker).

Assume today is 13th March.

Also, assume that today's cost of one sack of sugar (1000 kg) is Rs.5150/-

How much booking premium will you pay for one sack of sugar which you intend to buy on the 25th

March ?

It all depends on whether you expect the price of sugar to go up or down in the next 12 days.

If you think the price is going to go up, you will be happy to pay the premium and lock the price today.

If your understanding is that the price is going to go down, why will you pay the premium?

Now, lets assume that you think the price is going to go up to Rs.5300/- per sack from the current price of Rs.5150/-, up by 150/-.

Will you pay Rs.150/- premium?

Why should you pay that much now when you expect the same price on 25th?

So, obviously you will pay lesser premium.

Would you pay Rs.50/- premium?

I think you will not mind that!

But, would you be surprised if I told you that the actual premium in the sugar market for 5300/- rate for sugar sack (25March) was just Rs.14/- !

Surprised!!!

Well, the reason is not difficult to understand.

While you think the price on 25th is likely to be 5300/- not everyone in the market shares your estimate.

There is a broad consensus of the bullish traders that the price will increase but not as much as 5300/-.

So, the average premium rate people are willing to pay is 14/-.

But assume there is a news after one hour that the Govt is working on a policy that will increase the cost of sugarcane, people will be willing to pay much more premium for 5300/-

And what if there is a news that Govt is considering to import 100 shiploads of sugar?

Well, I told you, you know it all.

Also, any ideas what premium will you be willing to pay to a gentleman who bought a sack sometimes in the past at 4800/- and wants to sell it on 25th Mar.

Would you be surprised if the actual market premium for that sack was 358 (5150-4800+Premium).

The premium of Rs.8 is close to the premium of 14/- being paid above.

Now you know,the premium depends on
- Expectations whether the price is going to go up or down
- How many people share your expectation
- The reality

The first two are highly influenced by sentiments, rumours, liquidity and perceptions.

The third is core fundamentals.

Now what premium will you pay for the first day first show of the next Amitabh movie?

Remember, 20 years ago people used to pay in gold for that chance!

What premium will you pay for meeting him in person?

(Also, replace "sugar" in the above discussion with "nifty")

Happy Options!!!

$implicit¥ (Understanding Options-II)

Options are a blessing for the traders.

They are powerful, safe and economical.

Yet, people burn their fingers in options.

Reasons are not difficult to find.

Simple theory complicated...

Myth that complexity is the real thing...

Myth that "Options" is "different" and it can compensate for the shortcomings in basic understanding of the market...

A flood of option "strategies" of "spreads" and "hedges"...

Myth that those losing in Delivery and Futures trading can be winner here....no doubt losers in

Options finally quit trading...

Myth of "limited loss and unlimited profit"

Myth of "out-of-money" strike calls available at "pea-nuts"

Wonder whether this web of mis-information & half-truths is traders' creation or the creation of those who depend on traders!

================================

I am sharing my set of rules for Options trading:-

* Don't Day-trade with options. Use it for swing or positional trade only.

* Don't sell options!
(It is dangerous. you have safer and better ways)

* Don't buy put!
(It is another name for shorting. Shorting is dangerous, unpredictable and can result into endless wait!)

* Don't Hedge!
(Hedging is a sign of lack of confidence and lack of ideas. Trades can be safe even without hedging. Hedging eats up profit.)

* Buy only Calls!

* Buy calls for the current month in the first 3 weeks, and that of the next month in the last week of the current month!

* Prefer 'In-the-Money' strike rates especially 1 or 2 notches away from the spot price.
These move proportionately to the movement in the spot price.
They may appear costly but prove to be cheaper and more profitable. 'Out-of-Money' strike rates move much slower than the movement in the spot price.

* Buy the Call only when you would have bought in Cash-N-carry / Delivery.
In other words, don't buy the call till the entry-signal is clear and loud.
(It is assumed that you have got the basic training in stock trading)
(Is is assumed that u have finalised a method and will stick to it)
(It is assumed that u have done your homework before arriving at the buy decision.)
Just because 'Options' is a glamorous tool doesn't mean that foolish and complex trades will result in profit!
Treat options as a varient of Futures with much lesser margin and cap on the disaster loss.
(Every other definition is a farce and only good for self-amusement.)

* Buy @higher low, Buy @support
Buying at the right price is half the battle!

* Once u have bought the call, keep holding, keep rolling-over till it is raining money!
A Call buyer can never lose money if he buys at the right price and wait!
All taken premium will be returned.
Buying call at the right price is the safest and most profitable strategy on earth!

* Don't square-off the long Call till exit signal appears.

==========================

Remember, Complexity thrills, but Kills!

Saturday, March 13, 2010

Long live the experts!

The amusing and UNBEATABLE expert opinions of experts on

1)Falling stock

"The stock has support at #@#. If it stops there it will not fall further"

-How intelligent!

2)Rising stock

"The stock has resistance at #$#. If it stops there it will not rise further."

-Amazing!

3)Volatility

"The markets are choppy. They are expected to remain so till they get any direction."

-How logical!

4)Direction of Indian markets

"The Indian markets are likely to follow the global cues."

-The global cues cannot be known locally!

5)Ranging Markets

"Markets are likely to remain range bound till there is a decisive breakout or breakdown!"

-Thank you Mr.Expert. We never knew that!

6)Trend

"This trend is likely to continue till the liquidity is there!"

-How surprising!

7)What next

"I think the markets may consolidate and look for a direction!"

-Very smart!!!

8)Why it happened

"It was on the cards."

....and we believe you

9)Why it didn't happen

"It was too premature"

-who made it so?

10)Disclosure

"I don't personally hold any position. My clients might hold a position in it"

-Poor clients....what a position!!!

Mr.Morubozu and his family of Talking Candles

Photobucket

This is the family photo of Mr & Morubozu.

One day they went for a picnic to the stock exchange.

When they came back they all wrote their version of what they saw in the exchange!

Here is a spy's account of what each one of them wrote in his/her diary.

Mrs. Morubozu (Tall, Fair and Beautiful)

What she wrote " There was a considerable reason for the price to go up during the day."

Mr. Morubozu (Tall, Dark and Handsome)

"There was a considerable reason for the price to go down during the day."

Mr. Hammer (Eldest Son)

"There was Strong buying at lower levels, Sell-off was not sustainable, Mood is optimistic."

Mr. Hanging Man (Second Son)

"There was Buying at lower levels, but the mood is the one of doubt."

Mr. Inverted Hammer (Third Son)

" Saw selling at higher levels, mood was not so good."

Mr. Shooting Star (Youngest Son)

"Saw profit booking at higher levels, but the mood is good."

Ms. Long legged Doji (Eldest Daughter)

"Saw equal fight between Bulls & Bears which ended in a draw after ups & downs, both are injured but Bulls are tired as well"

Ms. Dragonfly Doji (Second Daughter)

"Bulls in no mood to surrender. They beat the charging Bears. But Bulls are badly injured"

Ms. Gravestone Doji (Youngest Daughter)

"Bears in no mood to surrender. They beat the charging Bulls. But Bears are badly injured"

Spinning Top (Fair) (First Servant)

Spinning Top (Dark) (Second Servant)

Both of the servants were clueless.

They wrote

"All izz not well. Nobody won. Tomorrow will decide!"

3 ways to shop for a stock (Understanding Options-I)

Suzlon's closing spot price on NSE on 12 Mar'10 is 75.70

Lets assume your analyses (and not gut feeling, pl) says that it is likely to go up from here.

Also, lets assume you have Rs.2,00,000/- with you for this trade.

You can trade in it in following ways:-

1) You buy 2600 shares in Cash-N-Carry / Delivery (some money will be left after broherage)
Total holding = Rs.1,97,000/- approx.

A 5% swing will get you a profit of Rs. 9850/- approx.

2) Suppose you are sure about the movement of the stock and would have loved to take a bigger position (say 12000 shares and not 2600) if you had more funds.

For this you use Futures of Suzlon.

You can buy 12000 shares of Suzlon (4 futures lots of 3000 each @margin 44,000/- per lot) for Rs.1,76,000/-. margin

Total holding = Rs.9,08,000/-

A 5% swing in your favour will get you a profit of 45,400/- approx.

A 10% swing will result in a profit of 90,000/- plus (a 50% return on your margin!!)

But a negative 5% swing will result in 45,400/-,a 10% negative swing will result in over 90,000/- debit to your account!

3) Again, lets assume a situation when you want to buy 12000 shares of suzlon but don't have
1,76,000/- as margin to keep. Lets assume you have just 32,000/-

Or, even if you have the funds, you are not willing to sleep with a risk mentioned above. You don't trust automatic Stop loss and want to control your maximum loss in some sureshot manner.

For this you have the option of "options".

Here you can buy 4 Calls of strike price 75/- of March series (equivalent to 12000 shares @ 7800 margin per call as per rates on 13/3 closing). Total Margin Rs. 31,200/-.

Here maximum you can lose is 31,200/- even if (God forbid) the sky was to fall and the profit is unlimited!!!

How to shop for your stock is now your choice!!!

When wishes became options!

An innocent trader after a streak of losses went to a place of worship and started complaining to God.

"O My Greatest Grandpaa!

Your world is so full of injustice.

Even stock trading is not fair!

I have three complaints.

1. You created 'futures' but kept the margin so high that we small but talented traders can't even think of participating!

2. You showed us unlimited profit opportunities in 'futures' but also created the dungeons of unlimited losses!

3. You should have permitted only the downtrodden and exploited people like me to trade big in stock market to take the sweet revenge from the haughty rich, but you have done the exact opposite! You have made it easier for them and difficult for us!"

The God appeared and said

"My Dear not-so-innocent son,

Thank you for your feedback.

Though I don't agree with you but since you are my favourite son I will help you.

But since others are also my sons, I will not grant you wishes

I, hereby, grant you "options"! "

So, that day the God created a committee

that created "Options"

wherein

The small "innocent" trader was allowed three benefits

1) he was allowed to trade big with less money

2) he was allowed access to unlimited (?) profit but limited (?) loss

3) Options were made complicated so to make it difficult for the haughty rich to understand it.

The first was exploited. The "innocent" trader started gambling!

The second turned out to be a trap!!

The third one turned out to be the other way round!!!

Friday, March 12, 2010

20 Non-Optional laws of Options

1) Ranges kill both Puts and Calls!

2) Trends feed only one of them (Put or Call as the case may be)!
(So, trade options only in trends and never in ranges)

3) Participation determine the premium, Uncertainty kills Participation!

4) Options love the frugal & lazy trader.

5) Pluck the ripe fruit before it sours!

6) In the long run, Calls kill less traders than Puts

7) Strike price too near or too away from spot price are not the best option.

8) Options move ahead or behind the underline price, seldom along! Beware!

9) Options were designed for Swinging and Futures are designed for Scalping & Day trading.

10) Smart option strategy is not alternative to basic market understanding. It is complementary.

11) Options reward the fore-sighted and punish the short-sighted

12) The less you vibrate in options, the more you profit!

13) It hasn't expired till it has!

14) Options respect fundamentals.

15) All taken premium will be returned to the patient trader!

16) A Put or a Call is a seed. Give it time to sprout and become a plant.

17) The early bird catches the premium, too early dies of hunger!!

18) Options move in cycles, bouts of ups and downs!

19) Options hate being alone! Use Hedge!!

20) "Limited Loss, Unlimited Profit" is a trap!!!

Wednesday, March 10, 2010

Where to put stop loss in day trading?

I recently went to Hoshiarpur in Punjab (my in-laws).

A beautiful sleepy countryside paradise called Bachchauri.

In front of my in-laws house there is the house of a rich, educated and witty farmer who is very fond of discussing stock market with me whenever I go there.

This time we were discussing "stop loss".

We were standing near a neat and clean shed of 12 Buffaloes, all gleaming black like Cadillacs in a showroom!

All of these buffaloes had sharp horns!

Fortunately they were tied to pillars with ropes around 2-3 meters long!

"What would be the stop loss for you while in front of a Buffalo?" my farmer buddy asked me, tongue in cheek!

I looked in his eyes.

"What kind of question is this?" I asked with a smile.

"Come on, tell me!" he insisted.

"First tell me, what can act as a stop loss for a charging buffalo?" I asked.

"When I shout the buffalo's name to her she dare not move an inch thereafter" declared my friend. "Now, tell me, what would be the stop loss for you while in front of a Buffalo?"

"Ok, in that case, I can take this hypothetical case" I retorted.

"Look, my stop loss will be placed at a distance of X meters from the pillar from which the buffalo is tied up"

"What will be that distance?" he again quipped.

"It will be the length of buffalo + the length of the rope in her neck + length of her horns" I replied.

"What if the rope breaks?" he challenged!

I was not expecting this!

"What do you mean 'the rope breaks'" I asked.

"I mean where will you place the stop loss if the rope breaks?" he asked again. "Will you wait to trigger the stop loss expecting the buffalo to behave logically or will you trigger the stop loss?"

Both of us laughed our heart out!

He had conveyed the message he wanted to.

"When you don't know what is happening and the things have crossed your expectation limit, trigger the stop loss, for heavens sake!!!"

This season catch the cold!

Winter is on its way out, even in Shimla.

During the day, you don't need a pull-over though evenings and early mornings are still cold.

You are most vulnerable to catch a cold if you don't take care in these days of season changeover!

In stock markets also, seasons keep on changing.

Besides two main seasons of Bull Summer and Bear winter, there are some smaller but very intense seasons.

They don't have any fixed sequence of when they come. They come almost randomly.

All seasons don't come together.

They come one by one.

Two such recent severe seasons were Sugar season and Metal season.

Around 6 months ago both these sectors started to rise.

Initially, very few people gave these a serious glance!

But by the time people noticed the rise in sugar stocks because of sugar shortage and that in metal stocks due to dollar decline, the season (rally) had already left the platform by miles.

Closely following these season was seasons of Auto and Aviation.

Everyone thought they were late in all these seasons.

But all were wrong. They were still early!

The stocks in both the sectors rose...

and rose...!

and rose...!!

and rose...!!!

Many have made a kill in these four seasons, especially in the first two seasons of Sugar and Metals.

Both seasons are about to end in near future.

We are, many a times, so much focused on nifty that there is a strong risk of missing a new season dawning!

While nifty is the average of many seasons, there are always some who are shooting up while others are cooling off their heels.

Just look at Oil and Gas sector these days. It is sleeping!

Just look at Telecom sector. It is sick!

Just look at Power sector. The power is switched off!

Just look at I.T. sector. The computers seem to have hanged!

Just look at Realty sector. People seem be living in tents!

Just look at the Banking sector. It is neither up nor down....

So, what next season is coming?

It is definitely not going to be metals or sugar or aviation. not even auto.

So, will it be Oil & Gas ?

or Telecom?

or Realty?

or Banking?

or Fertiliser & Chemicals?

I.T.? Power? Infra?

Engg? Cement? Consumer Durables?

But once they come they come big and long!

Don't miss them at any cost!

Your maximum funds should be parked there (just like your maximum funds should have been in metals, sugar,autos and aviation in last 6 months)!

How do you know when the new season has come?

Changing seasons generally cause cold.

Catch it early! Keep yourself exposed fully!!

Trade the Cheetahs, avoid the Elephants

As a trader I respect big,good and stable companies like L&T, SBI, Infosys, Maruti, Bharti, etc...

I call these Elephants.

They are big, solid, stable, reliable and profitable!

You can be sure of your investments in them!

But, as a trader

who knows what he is doing and is not an amateur,

I look for more than stability, strength and size!

I want excellent returns in the same time without sacrificing the respect of elephants!

I want "speed"!

So, I avoid the elephants and prefer the Gazelles and Cheetahs!

(surely I don't want unreliable and unpredictable monkeys!)

A Cheetah can move at speeds as high as 112 kmph!!!

A great hunter, fit and fierce!

Highly respected!!

So, how to look for Cheetah stocks?

I did a simple exercise.

I calculated the percentage rise of 52-week high value over the 52-week low value (as on 10th March 2010)

of 200+ select stocks

(including elephants, horses, giraffes,...and ofcourse cheetah stocks).

(Mind you, in this same period, nifty rose 108%.)

The results were surprising!

I have got my Cheetahs identified!!

Have a look at the scores below:-

=================================================================

=================================================================

DR.REDDY'S L 5

Adani Power Limited 25

D.B.Corp Ltd 35

JAIPRAKASH POWER... 35

NTPC LTD 44

GEOJIT BNP PARIBAS... 45

HINDUSTAN UNILEVER LTD. 45

POWER GRID CORP. LTD. 51

AKRUTI CITY LTD INR10 52

KOUTONS RETAIL (I) LTD 67

INDO TECH TRANSFORM LTD. 71

SUN PHARMA- DEPO SETT 71

ITC LTD 74

RELIGARE ENTER. LTD. 74

STERLING BIOTECH LTD 78

GTL INFRA.LTD 80

HINDUSTAN PETROLEUM CORP 80

EIH LIMITED 82

AMBUJA CEMENTS LTD 83

INDIAN OIL CORP LTD 84

GTL LTD 86

CIPLA LTD 87

BHARTI AIRTEL LIMITED 92

CAIRN INDIA LIMITED 93

OIL AND NATURAL GAS... 94

INDIA CEMENTS LTD 96

ACC LIMITED 96

GATI LIMITED 99

BHARAT PETROLEUM CORP... 100

BHEL 100

HANG SENG INDEX 104

DABUR INDIA LTD 107

S&P CNX NIFTY 108

MAHANAGAR TELEPHONE... 108

HERO HONDA MOTORS LTD 109

IDEA CELLULAR LIMITED 110

TATA TEA LTD 112

Mahindra & Mahindra... 115

GRASIM INDUSTRIES LTD 115

APOLLO HOSPITALS ENTER... 116

MARICO LIMITED 122

RELIANCE INDUSTRIES LTD 123

CHAMBAL FERT - DEPO... 123

GAIL (INDIA) LTD 123

INFOSYS TECHNOLOGIES LTD 127

ELDER PHARMACEUTICALS... 127

Great Eastern Shipping... 130

Glenmark Pharmaceuticals... 132

RELIANCE POWER LTD. 135

HDFC BANK LTD 135

GRINDWELL NORTON LIMITED 138

TATA COMMUNICATIONS LTD 138

Edelweiss Capital... 139

HDFC LTD 139

CONTAINER CORP OF IND... 140

Gujarat Gas Company... 148

ULTRATECH CEMENT LIMITED 150

ABB LTD. 151

Zenith Infotech Ltd. 151

TATA POWER LTD-DEP SETT 152

UNION BANK OF INDIA 153

Gujarat Narmada Valley... 158

Dish TV partly pd up 159

UNITED PHOSPHOROUS LTD 159

The Shipping Corp. of... 160

MAX INDIA LTD 162

NDTV LTD 162

TATA TELESERV(MAHARASTRA... 164

Neyveli Lignite Corp... 164

BANK OF INDIA 165

UNITED SPIRITS LIMITED 165

PRAJ INDUSTRIES LTD 166

Garden Silk Mills... 166

PETRONET LNG LIMITED 169

MARUTI SUZUKI INDIA LTD. 171

GMR INFRASTRUCTURE LTD. 172

Rei Agro Limited 173

GODREJ CONSUMER PRODUCTS 174

RELIANCE COMMUNICATIONS... 176

GREAT OFFSHORE LTD 178

INDIABULLS FIN. SER... 178

Moser Baer India Limited 179

STATE BANK OF INDIA 180

FORTIS HEALTHCARE LTD 182

EVEREST KANTO CYLINDERLT... 184

GUJARAT AMBUJA EXPORTS... 184

TITAN INDUSTRIES LTD 185

ASIAN PAINTS LIMITED 190

BANK NIFTY 191

Gujarat Alkalies &... 192

UCO BANK 193

GRUH FINANCE LTD. 199

CANARA BANK 206

CNX IT 207

INDIAN BANK 208

GVK POW. & INFRA LTD. 208

WOCKHARDT LIMITED 209

JAIN IRRIGATION SYSTEMS 210

LARSEN & TOUBRO LTD. 211

INDO RAMA SYNTHETICS LTD 211

SUN TV NETWORK LIMITED 212

ADITYA BIRLA NUVO... 213

ISPAT INDUSTRIES LIMITED 214

Television Eighteen... 216

BAJAJ HOLDINGS & INVS... 217

CORPORATION BANK 219

The Indian Hotels Co... 222

RELIANCE INFRASTRUCTURE... 223

REL. NAT. RESOURCES LTD. 224

ANDHRA BANK 224

Gujarat State Petronet... 229

ORIENTAL BANK OF... 229

GUJARAT STATE PETRO LTD 231

Gujarat Industries... 233

VIDEOCON INDUSTRIES... 233

PUNJAB NATIONAL BANK 236

EID PARRY INDIA LTD 238

SATYAM COMPUTER SERVICES 238

OMAXE LIMITED 241

BIOCON LIMITED. 242

Gujarat State Fertilizer... 244

ZEE ENTERTAINMENT ENT... 244

GEOJIT FIN. SERV. LTD. 247

HONDA SIEL POWER... 250

Rural Electrification... 250

EMAMI LIMITED 253

DCM SHRIRAM CONSOLIDATED 253

OPTO CIRCUITS (I) LTD. 254

FUTURE CAP HOLDING LTD. 257

TATA CHEMICALS LTD 259

INDIABULLS REAL EST. LTD 260

Blue Star Infotech Ltd. 260

TATA CONSULTANCY SERV LT 261

ASHOK LEYLAND LTD 262

STEEL AUTHORITY OF INDIA 264

BANK OF BARODA 266

HERCULES HOI. LTD. 267

IRB INFRA DEV LTD. 267

WIPRO LTD 270

Gujarat Fluorochemicals... 271

EXIDE INDUSTRIES LTD 274

INDIAN OVERSEAS BANK 276

DIVI'S LABORATORIES LTD 279

ICICI BANK LTD. 280

Mahindra & Mahindra... 282

Hindustan Zinc Limited 283

DLF LIMITED 284

STERLITE INDS (IND) LTD 285

RELIANCE CAPITAL LTD 290

IFCI LTD 291

IVRCL INFRAST & PROJ... 291

TORRENT PHARMACEUTICALS... 294

DREDGING CORP OF INDIA 294

FINANCIAL TECHNO (I) LTD 295

BALRAMPUR CHINI MILLS... 297

ALLAHABAD BANK 298

Siemens Limited 300

KOTAK MAHINDRA BANK LTD 302

DCM LTD 303

Bajaj Auto Limited 304

RANBAXY LABS LTD 305

Mahindra Forgings... 311

3i Infotech Ltd 312

JAIPRAKASH ASSOCIATES... 313

BHARAT FORGE CO LTD 318

HMT Limited 318

HONEYWELL AUTOMATION IND 321

SINTEX INDUSTRIES LTD 323

AXIS BANK LIMITED 323

JAIPRAKASH HYDROPOW LTD. 327

INDIA INFOLINE LIMITED 329

JUBILANT ORGANOSYS LTD. 332

PANTALOON RETAIL (I) LTD 336

ADANI ENTERPRISES... 337

PUNJ LLOYD LIMITED 337

TATA STEEL LIMITED 338

HEG LTD 339

SUZLON ENERGY LIMITED 341

GARWARE OFFSHORE SER... 341

APTECH LIMITED 350

Gujarat Apollo Industrie... 352

GODREJ INDUSTRIES LTD 353

MPHASIS LIMITED 354

JINDAL STEEL & POWER LTD 354

ESSAR SHIPPING LTD. 355

GOKALDAS EXPORTS LTD. 357

THERMAX LTD 359

CROMPTON GREAVES LTD 362

TECH MAHINDRA LIMITED 366

UNITECH LTD 374

DCM Shriram Industries... 376

HT MEDIA LIMITED 381

Hindalco Industries... 383

PARSVNATH DEVELOPER LTD 389

NIIT TECHNOLOGIES LTD 392

LIC HOUSING FINANCE LTD 396

MAHINDRA LIFESPACE... 408

Mahindra Lifespace... 409

ROLTA INDIA LTD 415

ELECTROTHERM (I) LTD. 418

ABG Shipyard Limited 420

JET AIRWAYS (INDIA) LTD. 426

InfoTech Enterprises... 443

NIIT LIMITED 458

HINDUSTAN CONSTRUCTION... 463

POLARIS SOFTWARE LAB LTD 465

CENTRAL BANK OF INDIA 474

Gujarat NRE Coke Ltd. 483

GANESH HOUSING CORP LTD 489

NATIONAL FERT. LTD 492

GREAVES COTTON LTD. 505

Gujarat Mineral... 505

HAVELLS INDIA LIMITED 507

TORRENT POWER LTD 513

BAJAJ HINDUSTAN LTD 520

HTMT Global Solutions... 536

SESA GOA LTD 550

HOUSING DEV & INFRA LTD 556

WELSPUN GUJ ST. RO. LTD. 558

YES BANK LIMITED 609

ABAN OFFSHORE LTD. 660

JSW STEEL LIMITED 669

Hindustan Copper Ltd. 688

BHARATI SHIPYARD LTD. 692

Hindustan Oil Exploratio... 806

GREENPLY INDUSTRIES LTD 1018

LANCO INFRATECH LTD. 1396

EDUCOMP SOLUTIONS LTD 1477

=================================================================

=================================================================

There are many more cheetahs out there!

Find yours'!

3 'S' to enter, 4'S' to exit!

I have revised and finalised my trading method.

I am openly sharing this below for my dear trading friends.

1) I will buy a stock on the basis of the 3 'S' signals below:-

"Step" (Higher Low)

"Support"

"Sleeping Volcano"

2) I will sell off the stock on the basis of the 4 'S' signals below:-

"SMA 34/8"

"Spike"

"Step-up Step-down" theory

"Stop Loss"

3) I will prefer trading high beta stocks of sound companies.

4) I will not short.

5) I will not leverage beyond my safe limit of ability to absorb 30% shock!

6) I will not day trade but swing or position trade.

Any discussion is most welcome.


Note:-

--------------------

"Step" (Higher Low)

Discussed in my post "Trading Brahmaastra"

--------------------

"Support"

Sharp support for the baseline after a correction rally

--------------------

"Sleeping Volcano"

Discussed in my post "Volcanos of stock market"

--------------------

"SMA 34/8"

Discussed in my post "Deadly combination of 34/8"

--------------------

"Spike"

Discussed in my post "Spike, Climb and Shift"

--------------------

"Step-up Step-down" theory

Discussed in my post "Trading Brahmaastra" as baseline/top line

--------------------

"Stop Loss"

Discussed in my posts "You can't be a winner..." and "Climbing mountain..." and "Guerilla..."

--------------------

Tuesday, March 9, 2010

"Don't trade, if you need to make money"

I came across this enigmatic phrase while surfing the net.

I was really intrigued to read it!

At first, it seemed paradoxical and incorrect!

But when I applied my mind seriously to it, I saw the real hidden message...
and what a message it turned out to be!

Actually,

when do we trade?

when we need money.

The pressure of "needing" money thru trading overshadows the need to learn "how to make money thru trading"

This pressure gets in the way of the discipline required to implement and stick to the lessons learnt.

Result - Loss!

Not just 'loss' but repeated 'losses'!

'Needing money' means your focus is on 'money' and not on 'method of money'. There is an element of desperation - whether we admit or not, whether we are conscious of this fact or not!

We simply can't focus on training.

We simply can't focus on the method, the practice, the experience...

We just can't tolerate even small loss.

We "need" money.

And our mind is not willing to listen to anything else.

But what happens when we need money but don't "need" it!

Meaning???

What happens when our focus is on 'learning' and 'experiencing' and 'developing method instead of "need money"?

The pressure is gone!!!

We start learning and eventually get the formula, the secret of a successful trade!

Money comes but the "need" is gone!

Because now we know that 'money' is there for the asking, there for the grabs!!!

So, rectify the approach.

"Don't trade, if you need to make money"

"Trade when you need the secret"

Money will come!

Don't be adamant...

When the market has reason to go up, it goes up. Obvious and logical.

When the market has reason to go down, it goes down. Again, obvious and logical.

But when the market in bull phase remains range bound for an extended period of time and doesn't have reason to go down or up from there, it starts going down!

After a while, real reasons are discovered on the way!

This is what happened in mid Dec'09 and mid-Jan'10 with Nifty!

Similarly, when the market in bear phase remains range bound for an extended period of time and doesn't have reason to go up or down from there, it starts going up!

After a while, real reasons are discovered on the way!

This is what happened before the ultimate rise after March'09 and again this has happened after budget'2010.

The reasons are simple.

There is always restless money waiting to come in,

There is nervous money ready to move out!

and then, there are professionals itching to make money! And they know they can't make money if markets are not moving!!

If market is stuck in one direction, then it better move in other direction.

The deep pockets have the ability to trigger that opposite movement!

So, avoid being adamant

1) to stay short when markets aren't going down, and

2) to stay long when the markets aren't going up.

Monday, March 8, 2010

Dow Theory

This theory is the foundation of Stock Markets.

It is something all traders should be aware of.

The theory was derived from Wall Street Journal editorials written by Charles H. Dow

It has 6 pillars:-

I. The market has three movements
- Major Trend, Medium Swing, Short Swing

II. Market trends have three phases
- Accumulation phase = Informed and sharp investors start actively buying (or selling, as the
case may be)
- Public Participation phase = Public participation starts, price change accelerates...
- Distribution phase = Rampant speculation starts, sharp investors start distributing the stocks at a killing!

III. The stock market discounts all news.

IV. Stock market averages must confirm each other e.g. increase in housing unit sales should be confirmed by the increase in cement offtake, otherwise the divergence is a warning!

V. Trends are confirmed by volume

VI. Trends exist until proved otherwise.
- Trends exist despite temporary disturbances and breaks. After a while, trends tend to resume.
Don't get trapped on the wrong foot.

Awareness of these postulates can be very confidence boosting in foggy times!

Do u feel bored in trading! Congratulations!

Many newcomers enter the field of stock trading attracted by its "glamour" and "excitement"

and very soon are disappointed to find that there is neither of these in there!

Atleast not in the sense it is thought to be by the new entrants!

Gambling is exciting, Trading is boring!

It is boring because you are not allowed to experiment after you have reached a particular level of training!!

You are required to have a trading method and keep on following it like a machine,

without emotions,

strict rule of when to enter,

strict rule of when to exit,

strict stop loss.

You are not allowed to enter till the signal appears.

You are not allowed to exit till the signal appears.

It is almost automatic and mechanical.

No doubt, it is boring.

But that is precisely why and when it is profitable!!!

Quantity of trades is not important, quality of trades is!

Remember, you make 80% of your profits from just 20% of your trades!

Rest just add to cost and are the root cause of the losses!

Don't fall for the glamorous ads of trading terminals!

Many trading platforms are designed to encourage you to execute more trades.

Let’s not forget how brokers make their money.

The trouble is the new trader thinks that 'being busy' is 'being a businessman'!

The trouble is the new trader mistakes 'action' as 'profit'

He listens to stories all around him about "big profits" and "overnight riches" from futures and options and is easily swayed by them!

One story of extraordinary profits overshadows hundreds of stories of bankruptcy!

Trading is a business.

You are in business to make a profit, not get a cheap thrill.

Sure it is fun and stimulating but the actual act of trading is and should be boring.

If you are bored while trading, you are on the right path.

You have a method and are following it, sans emotions!

If you feel bored, congratulations, you have mastered your emotions and are trading like a pro!

Sunday, March 7, 2010

Climbing the mountain with Support Hooks (Chart Practice)

Photobucket

This is a price graph for Aarti Drugs Ltd. of last 8 months.

Lets assume we enter just after 'OO' point becuase it has just made a clear higher low.

We will put SL at 'OO'

It makes a high at 'A' (we are already sitting at decent profit)

Just when it started to fall after 'A' we would be tempted to book profit.

But since this breakout came after a higher low at 'OO', it is possible that after consolidation and after making another higher low the price may continue to rise.

Be ready to sacrifice half of profit (OO to A).

Hold on with SL equal to half of OO-A.

Fortunately the price turns at B. hold on.

It again turns at C.

Now put SL at the level of B.

Unfortunately, it slips below C and we trigger the SL and book profit I.

The price turns at D but we wait as it has made a lower low.

After a while it turns at F which is slightly higher than D and we buy with strict SL of F.

The second major higher low is formed.

The continuation of the breakout is confirmed.

(Pl remember, it may not be possible to enter at exact points if there is gap up/down opening. Also, 100 EMA on intraday chart or EoD values can be taken as the point to enter or exit.)

The price shoots up and continues till G and then starts to correct.

Immediately set the SL at half of F-G.

Fortunately, it turns at H.

This may be a true or false turn. so wait with SL of half of F-G till the upmove is resumed for sure.

Turns again at I. Keep SL tight.

It starts to correct and crosses the bumb at J. Keep SL strict at half of F-G.

Fortunately it takes support at K (slightly above our SL, otherwise SL would have to be opted for)

Now my SL is at K-level.

Price inches up with a combination of small steps at L,M,N and O.

After O, the rocket is fired and the highly controlled and skillful patience is rewarded. Third major higher low is formed.

Just after the price starts moving up from O, the SL is revised to O-level.

Photobucket

It continues to climb.

It is a very sharp and long spike. Wait for the bump very alertly.

The bump comes at P.

Now a good consolidation and correction is expected because the price has run up very high in very short time.

It is likely to take a breather. There may be some profit booking bout.

Either book profit or Fix SL at 25% of O-P jump.

The SL is triggered and we book Profit II.

The sharp profit booking starts.

But again the price rebounds from Q.

Buy the stock when it just starts moving up from Q with SL at Q.

This is a small gamble. such risks may pay-off.

This time it does go your way and the price goes till R (stop loss at Q)

It turns from R and we revise the SL at half of Q-R climb.

Fortunately it takes support at S, but we keel the SL at half of Q-R.

It starts moving up from S and we revise the stop loss at S.

It turns at T and we revise the SL at half of S-T spike.

Fortunately it again turns at U before sL is hit,

and starts to shoot again. Now revise the SL at U.

It climbs till V, and threatens to fall.

we revise SL to 25% of U-V spike.

After a brief drama at W and X, the SL is hit and we book profit III.

The price starts falling but we are out with the booty.

The swing trading would have doubled your wealth in around 2 months. I am sure Day Trading couldn't have achieve this here.

The tortoise would have beaten the hare. Because there is a tortoise under the hare's skin and a hare under the tortoise' skin!

The mountain was climbed beautifully with the help of SL hooks continuosly revised upwards!

Pl practice it beyond Y till Z.

Photobucket

Photobucket

Photobucket

The Stop Loss of Trader Mountaineers

Photobucket

Did U see any mountaineer climb without a stop loss!

(see the rope, it is tied with a security hook embedded in the mountain wall crack/gap)

Saturday, March 6, 2010

Don't mix the two...

Majority of us are Technical Traders.

We read graphs along with technical indicators and try to estimate the price movement!

The small trouble comes when our analyses is faulty.

But the big trouble comes when we start following the fundamentals as well.

Initially we defend this by saying that we were only verifying the results of our technical analyses.

But we are wrong.

I have seen a lot of amateur traders glued to TV business channels during trading hours...

They keep on listening to news and views and facts and figures and opinions and calls and super commentaries...

All a part of Fundamental Analyses....

All this combined with the Technical Analyses...

The highly surcharged atmosphere of business channels adds the third dimension of "highly influenced psychological state of the trader" in addition to the Technical and Fundamental analyses!

This cocktail of Technical and Fundamental and Psychological bombardment results into panic or ill-placed euphoria resulting into a wrong trade!

We are trained in TA and not in Fundamental Analyses.

Both are vast fields and even an entire life is not enough to master even one of them!

So, while we may be good in TA, we are not competent to do fundamental analyses.

Fundamental analyses is far more research oriented than TA, that is why very few people delve in it!

What we call our fundamental research is only has little research in it and almost no fundamental!

When Technical Analysts start poking their nose in Fundamentals, their subconscious mind picks up only those facts which tally with the results of their TA, everything else gets ignored!

This results in distorted picture or a false double push!

Also, results and advise of fundamental analyses is not specific and hence not tradeable but investable!

Stock price movements are known to disobey fundamentals for some time or an extended period of time!

Moreover, fundamental analyses doesn't take into account the volumes, trader psychology, herd behaviour and the influence of big pockets!

I have seen many great technical traders who just trade by looking live graphs on their PC and keep their TVs switched off.

Some even go to the extent of not listening to End of Day (EoD) news analyses so as not to get influenced by fundamentals.

Someday I am sure I will find a crazy but highly successful technical trader who makes it a point to not to listen to TV news or read a newspaper and just concentrate on Technical charts.

"Everything is discounted in the price" it is generally said!

In the words of TOM BIEROVIC, one of the great technical traders in the world,

“All the fundamentals are summarized perfectly in the current price of the market,”

“Technical analysis is applied social psychology. It's just crowd behavior-hope, fear and greed,” he said.

Bierovic is strictly a technical trader.

In fact, he “makes a deliberate effort to not know anything about fundamentals” !

So, moral of the story is, either follow the fundamentals or the technicals!

Never mix the two.

This cocktail, like the combination of Antidepressants and Painkillers - can be dangerous, even fatal!

How to use Trailing Stop loss?

A trailing stoploss is a stoploss order which keeps on moving up (in case of an upmove) or down (in case of a downmove) behind the stock price like a trailing pet which keeps on following his master.

All you have to do is set the percentage by which it should stay behind his master (price).

When to put Trailing Stop Loss?

When the stock has achieved your target, it wise to give it opportunity to move some more.

In such a case, trailing stop loss is advisable.

------------------------------

When NOT to put Trailing Stop Loss?

When the stock has not achieved your target, it may correct several times on its way up.

This correction is perfectly normal and healthy.

Without correction the stability or sustainability of an increase in price is fragile!

Also, at times, this intermediate correction may be small.

In such a case, a trailing stop loss can get wrongly triggered when the stock was to undergo only a minor correction followed by the continuation of the sharp up-move.

This way you can miss the sharp upmove with a trailing stop loss.

So, in such cases, don't put trailing stop loss and opt for a normal stop loss.

Honorary BA (Stock Trading)

International University of Self-made Stock Traders, USA*

has invited applications for the awarding of

Honorary Bachelor's Degree in Arts (Stock Trading)**

to the elgible candidates.

The eligibility criteria:-

Basic Criterea:-

* The applicant should be alive and kicking (but not being kicked by the stock markets)

* Age = Youthful

* Religion = Trading

* Caste = Winner

* Gender = Dominating (Docile traders not eligible)

* Nationality = Any country having atleast one stock exchange

* Colour of skin = Green (colour of profit)

* Language = Graphs

* Experience = All kinds of stupid mistakes big and small (compulsary)(so that there is little sscope for newer ones)

* Donation = Emotions (none should be left behind in you)


Advanced Criterea:-

* Trades less, Profits more

* Knows many Technical Indicators but uses only favourite 1 or 2 (max 3) to deadly effect.

* Doesn't Day Trade (except for fun and learning), primarily swings!

* Is married to a Mrs.Method and is absolutely faithful to her!

* No smart and flashy strategies but only dull and boring and repetitive but highly profitable trading rules!

* Doesn't need tips. Treats unwanted tips and calls as a request to give his/her opinion!

* Has forgotten how to panic.

* Has the audacity and shamelessness to smile at the crashes and wink at the corrections!

* Doesn't short (except for fun and learning)

* Isn't a Doctor (but a permanent patient - the one who has a unlimited patience)

* Is the best waiter in the town (can wait endlessly if required)

* Doesn't leverage except to a wise limit

* Has attended all the lectures on "the magic of the compunding effect!"

* Is not a spendthrift, believes in simple, frugal but impressive life!

* Graph scanning is his hobby

* Diversifies but not too much

* Doesn't watch the stock every day

* No trader terminal, no flashy software

* Know how to play with "white" as well as "black" pieces

* Doesn't have a paycheque mentality

* Bows before God every morning and then after Mr.Stop Loss"

* Has deep Emotions "for" Trading but no emotins "in" Trading.

* Has excellent imagination (Can imagine the bull "rain" during peak bear "drought")

* Has money discipline

Friday, March 5, 2010

To swing or not to swing? (Dilemma of a younger brother)

I have an elder brother who is into business.

He is famous in the family for being very lazy!

I am not a lazy person by any standards!

The brother is also into stock market as part time but has decent knowledge of the markets.

Being "lazy" he is more of a swing trader than a day trader!

On 11th Feb 2010, he bought two lots of nifty futures @ 4760 when he saw the confirmation of formation of a higher low!

Thereafter he left for Bangalore for some business trip.

He kept checking the nifty levels every evening when he got time and held on!

He just called me this morning after returning and told me that he has squared-off his trade @ 5110.

I just took out my calculator and found that bro had made a cool 350 points (Rs.35000/-) in flat 20 days!!!

....at an average of 23 points everyday (without fail)!

....with zero stress!!

....and a brokerage of just Rs.750/-!!!

"What about you?" he asked me....

Mercifully, he got a visitor and got busy before I could share the results of my daily adventures...

Here is my scorecard for the last 20 sessions (in terms of points earned)

5,32,51,4,17,8,4,-24,34,8,0,-17,6,26,12,-29,10,4,-10,18 = total 159 points (Rs. 15,900/-)

at what cost?

a brokerage of Rs.3,500/-

and highly stressful 120 hours!

My dilemma now?

To swing like a swing trader or jump like a day trader?

Thursday, March 4, 2010

Trading blunder!

How will you explain the failure of a test-cricketer in one-day version?
How will you explain the failure of a one-day player in test version?

Layman thinks that the only difference is in the time limit!
What a mis-conception!
Both seem to be cricket, yet both are technically very very different!!!

Limited overs v/s Unlimited overs
Field restrictions v/s No restrictions
Skill v/s Technique
Consistency v/s Experimentation
Speed v/s Stamina
Mental approach for both are poles apart.

It won't be wrong to say that both are practically different games!

That is why, those who try to play both versions in the same manner fail miserably.

Similarly,

How will you explain the failure of a Day-Trader in Positional-Trading? and
How will you explain the failure of a Positional-Trader in Day-Trading?

Layman thinks that the only difference is in the time limit!
What a mis-conception!
Both seem to be trading, yet both are technically very very different!!!

Swing trading is the art of imagining the unimaginable, thinking the unthinkable!
Day trading is exactly the opposite.
Day Trading is the art of keeping imagination chained, keeping thoughts paused!

Satyam fell from 226 to 126 to 60 to 6;
day traders were mauled to bankruptcy;
when everyone was writing its obituary, the positional trader
imagined the unimagineable,
dared to think the unthinkable
bought it at 6,
recently it touched 126!
That's swing trading!

Recently, Suzlon fell from 132 to 55.
Everyone seemed to have surrendered when the positional trader
bought it at 55 and it zoomed to 100 in a few sessions!

Only a great Swing trader could have
took entry when sensex was at 7000 expecting it to touch 18000 in little over an year!

Only a great Swing trader could have
bought Tata motors at 111 expecting 777 in 1 year!

So, Swing trading is the art of imagining the unimaginable, thinking the unthinkable!

But the same strategy would be suicidal to in Day-Trading!

Imagination brings thoughts
Thoughts bring emotions
They all bring expectations
Expectations hypnotise
And a hypnotised trader is slapped!

In day-trading all you need to do is
just pick the trend, and keep blindly following it!

No imagination,
No thoughts of greed,
No thoughts of fear,
No thoughts of doubt,
No thoughts at all!

Just keep following!

Complete surrender to the music being played!

Both are opposite.

In one you imagine!
In the other you don't!

"Tips are for waiters"

Please don't feel offended. These are not my words.

Moreover, neither you nor me depend on 'tips'.

These words were spoken by Larry Livingston, one of the world's greatest stock traders!

He was a strong opponent of acting on tips to buy or sell a particular stock.

He even pointed out on a number of occasions how trading opposite of tips can be the best way to make money!

- the "tip" provider may have his own motive behind it

- the "tip" provider may have himself got the tip from somewhere

- the "tip" provider may not be competent

- the "tip" may have "conditions apply" clause not disclosed

- if thousands and lacs are getting the same "tip" it is a sitting duck for the punters

- the "tip" may be a rumour

- a "tip" generally doesn't come with a Stop Loss, Target and Time frame

- a "tip" will never give you confidence

- a "tip" will always keep you dependent

- since you rarely know the reason behind the "tip" it is dangerous!

- the "tip" may no longer be valid!

- the "tip" which has reached you after changing many a hands is as deadly as the chinese whisper!

- the "tip" may be an orphan (nobody knowing who started it)

A "tip" however is different from a "call" from an expert who has got the credentials, a reputation and a stake!

So, tick off the "tip", take the "call".

And better still, do the "own thing"!

Wednesday, March 3, 2010

The best trading software in the world

I want to share a great trading software I have come across.

But, first, why have a trading software?

- it automatically tells u what to buy

- when to buy or short

- when to square off

- it helps u to trade without emotions

- it helps u in having patience till the entry or exit signal appears

- it helps u identify and ignore false signals

- it reduces ur brain work.

- it saves expenses of subscribing to tips

- no more dependency on others for tips

The software I am sharing with you has all these advantages besides the following bonus benefits:-

1) Being the best trading software in the world, it guarantees that there is no forecasting inaccuracy and vulnerability in case of sudden news (as is the case with other trading software).

A normal trading software cannot predict sudden fluctuations caused by sudden news.

Lots of people tend to lose money as the prices suddenly try to get away from their expectations. Not any more with this software.

2) Generally, the forecasting system inaccuracy is due to the obsolete information preserved in the software.

In order to overcome this, normal trading software need to be upgraded frequently. But not this software I am talking about.

3) Unlike other software, it doesn't depend on the past data but also future possibilities!

4) Unlike other software it keeps self improving with more and more trades carried thru it!

5) Unlike other software available in the market, it doesn't give you rediculous trade calls which are easily befooled by the manipulation of human traders.

What's really amazing about this software is that you are given the full and absolute rights of ownership for life time. you own the copyright.

If you don't know English, you need not worry, this software is available in all languages of the world. You may opt for your mother tongue also.

Besides, it comes with a free trial.

If you successfully go thru the trial offer, it comes free!!

However, It doesn't come in CD. It has no manual.

Also, when you order for this software, it is delivered right into your....
brain!!!

The name of this best software of the world is : "IMeMyself"

Developed by : "You, Inc!"

The user name is : selfconfidence

Password : practice3