Just like every car has "crumple zone"
- a criss-cross webcage of joints and steel members
which bend and absorb the energy generated by the impact in case of an accident
stock market charts too have crumple zones in the form of
supports and resistances.
Whenever there is an accidental or incidental fall or rise
the tremendous energy generated is absorbed by at these
support and resistance points
as a result of which a free fall or free rise is prevented.
This acts as a safety system for those who are caught on the wrong foot.
Whenever there are no support or resistance levels between two points
expect destructive energy to land on the traders caught in-between!
So, those who have nightmares about "circuits"
can take some heart from these crumple safety zones in the stock market.
But, remember, when you see yourself saved by the crumple zone in front of your nose, treat it as time given to you to eject. Crumple zone chain reaction may finally stop only after you!
Check your stock or index for these today!
Showing posts with label Sell-off. Show all posts
Showing posts with label Sell-off. Show all posts
Sunday, October 10, 2010
Sunday, September 19, 2010
A crash course in Day Trading!
A young farmer went to city to learn futures trading in wheat.
But there, he saw everyone day trading.
"Who knows what will happen overnight? Day trading is better." he heard.
"One bird in hand (intraday profits) is worth two, even 10 in the bush (swing trading or investing)" someone said.
"Only day trading can ensure sound sleep at the night irrespective of what is happening in Europe or US in the meantime!" he overheard.
"If all of them are doing day trading it must be the better thing!" he thought.
So he decided to learn day trading instead of futures swing trading his father had asked him to.
"I will surprise my father when I go back. He will be pleased." he thought!
For the next 5 days he learnt the "smart tactics" from the pit traders in the fish market terminal room.
On Saturday he went home with his neck held high!
"My entire village should be proud of me" he was sure!
When he reached home he found that his father had gone to his relatives in adjacent village for 2 days!
"I have 2 days to show results!" he thought.
Next morning he went to his fields.
Small wheat shoots had come out of the seeds planted a few weeks back.
The sun was shining and the sky was clear!
A good crop was on the cards.
He then went to his friend's house and had a nice time for the rest of the day.
Next morning when he woke up, he saw the sky overcast....
Dark thick clouds everywhere.
He checked weather forecast on TV.
"Severe Thunderstorms!!!" they announced.
He went to his fields.
It started to drizzle.
Clouds roared in the sky above.
Lightening flashed.
It was all too scary!
"Bearish signal!" his trained trader mind whispered!
"This is going to destroy the crop"
"I must prematurely book whatsoever crop profit I am getting. Greed of any more profit may leave our family with nothing."
He went to the garage, took out his combine harvester and razed the half baked crop in just half an hour.
He was happy at his trading skills!
"Now I am assured of good night's sleep despite whatever happens in US or Europe overnight!" he proudly said to himself.
"...a bird in hand is worth 10 in the bush!" he was reminded!
He went home and found that his dad had returned home as well.
He proudly narrated his "achievement"!
"I am proud of you my son!" his dad said.
"With your day trading skills, you have surely harvested enough food for our cattle for the rest of the season! Now take me to the city tomorrow morning to learn day trading. For I have no other way left to feed my family after your achievement!"
The son was shocked!!!
He remained silent for what seemed like ages!
He realised his foolhardiness!
He went out and saw the clouds receding!
The lightening had stopped flashing.
The drizzling had stopped.
"My son! Never worry about Clouds whether in market or fields. Never worry about lightening. There will be many every other day! Never worry about thuderstorms. Never worry about what they predict in the forecast on TV. If you have faith in the crop, wait patiently! The sky is not falling and neither is the world going to end tonight whether here in India or Europe or US! This is what I learn from my father - your grandfather, and this is what he had learnt from his father!"
But there, he saw everyone day trading.
"Who knows what will happen overnight? Day trading is better." he heard.
"One bird in hand (intraday profits) is worth two, even 10 in the bush (swing trading or investing)" someone said.
"Only day trading can ensure sound sleep at the night irrespective of what is happening in Europe or US in the meantime!" he overheard.
"If all of them are doing day trading it must be the better thing!" he thought.
So he decided to learn day trading instead of futures swing trading his father had asked him to.
"I will surprise my father when I go back. He will be pleased." he thought!
For the next 5 days he learnt the "smart tactics" from the pit traders in the fish market terminal room.
On Saturday he went home with his neck held high!
"My entire village should be proud of me" he was sure!
When he reached home he found that his father had gone to his relatives in adjacent village for 2 days!
"I have 2 days to show results!" he thought.
Next morning he went to his fields.
Small wheat shoots had come out of the seeds planted a few weeks back.
The sun was shining and the sky was clear!
A good crop was on the cards.
He then went to his friend's house and had a nice time for the rest of the day.
Next morning when he woke up, he saw the sky overcast....
Dark thick clouds everywhere.
He checked weather forecast on TV.
"Severe Thunderstorms!!!" they announced.
He went to his fields.
It started to drizzle.
Clouds roared in the sky above.
Lightening flashed.
It was all too scary!
"Bearish signal!" his trained trader mind whispered!
"This is going to destroy the crop"
"I must prematurely book whatsoever crop profit I am getting. Greed of any more profit may leave our family with nothing."
He went to the garage, took out his combine harvester and razed the half baked crop in just half an hour.
He was happy at his trading skills!
"Now I am assured of good night's sleep despite whatever happens in US or Europe overnight!" he proudly said to himself.
"...a bird in hand is worth 10 in the bush!" he was reminded!
He went home and found that his dad had returned home as well.
He proudly narrated his "achievement"!
"I am proud of you my son!" his dad said.
"With your day trading skills, you have surely harvested enough food for our cattle for the rest of the season! Now take me to the city tomorrow morning to learn day trading. For I have no other way left to feed my family after your achievement!"
The son was shocked!!!
He remained silent for what seemed like ages!
He realised his foolhardiness!
He went out and saw the clouds receding!
The lightening had stopped flashing.
The drizzling had stopped.
"My son! Never worry about Clouds whether in market or fields. Never worry about lightening. There will be many every other day! Never worry about thuderstorms. Never worry about what they predict in the forecast on TV. If you have faith in the crop, wait patiently! The sky is not falling and neither is the world going to end tonight whether here in India or Europe or US! This is what I learn from my father - your grandfather, and this is what he had learnt from his father!"
Saturday, August 21, 2010
Doing a SAR with RSI and William%R
See the peak on the left of A?
That was the peak when rsi 14/30min on 1 month chart was at the upper extreme.
Should U have squared-off at that time?
I suggest you don't. nobody knows whether Nifty rally will be stretched to more height.
In such cases, always sell on the lower high.
In this case peak A is the lower high after the peak rsi.
This is the clear hint that nifty is going to correct.
So at this point square off the longs and take fresh short position.
========
At point B, rsi has reached the lower extreme. Should you cover your shorts at this point?
Had it been a sell-off, u should have squared the shorts here.
But this has been a small rally.
What's the difference between a rally and a sell-off?
Sell-off is generally straight line, rally is a stepped fall or rise.
since this fall has been a rally (though small), u r likely to see a divergence between rsi and nifty before the rise starts again.
so, hold your shorts till that point.
That point comes at C when rsi is rising and nifty is falling (divergence).
Cover shorts here (profit of 70 points) and initiate fresh long position.
========
At X, rsi touches the higher extreme.
Should we square off long here?
But, as mentioned in case of point A, we are not sure whether the nifty may rally further.
so, here again we will square-off at the lower high during retreat (rsi already having touched the upper extreme).
Our "hold" decision proves good when we see the rsi falling but the nifty holding on.
This is a clear signal that rsi is making space for nifty ot climb further.
Then the nifty climbs to D.
So should we now unwind longs at D?
Again, we don't know whether nifty will rally even further.
(Although there is clear divergence between rsi and nifty. rsi has fallen, nifty has climbed)
However, we wait.
But the nifty falls and we unwind longs at Y (lower high) and go short.
(profit in this 2nd leg = 100 points, total profit so far in around 15 days = 170)
=================
We get some anxious moments when nifty climbs to Z after the william%r gives buy signal at J.
We hold the shorts with stop loss equal to height of D (anticipating double top).
Fortunately, nifty starts falling after Z all the way to E.
Notice that this fall is straight and not stepped, meaning thereby that this is a sell-off and not a rally.
This means that divergence is unlikely to happen between rsi adn nifty (as i mentioned earlier, divergence happens after rally and not sell-off)
So we cover shorts at E (profit in this 3rd leg=100 points, total profit so far in around 3 weeks= 270) and initiate fresh longs.
Notice that we have been always in the market, just like SAR.
We have been going long immediately when we cover shorts
and go short immediately when we unwind longs!
This milks the market to max!
=================
At F, rsi reaches near upper extreme and we unwind our longs as this is not a rally but a sharp buy-in (as the rise is straight and not stepped).
We unwind our longs and intiate fresh short.
Profit in this 4th leg = 60 points. total profit till now = 330 points.
=================
Nifty then falls to G when rsi reaches lower extreme.
Notice that william%R is always confirming the right points of buying and selling.
We cover shorts at G and initiate fresh longs.
Profit in this 5th leg = 50. Total profits so far in around 20 days = 380.
=================
From here rsi rises till nifty reaches H.
Since this has not been a straight rise but a stepped one, we should be expecting divergence to appear between rsi and nifty.
so we hold the longs.
Profit so far in this 6th leg =120 points.
total profit in 1 month since start of this analyses = 500.
For one lot this would have given Rs.25000/-.
=================
We have milked the market fluctuation to the max while always being in the market, using rsi supported by william%r.
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