temporary pleasure, occasional profit

Since market are up 85% of the time it is basically all about buying, buying at the right time, the right amount. Selling gives only momentary, temporary pleasure, occasional profit.

--

Never average shorts on rises of bulk runs, always average longs in falls of bull runs.

Once your direction is fixed, timing and size is all that's left to decide.

Trends never end soon after starting. So never hurry in taking or unwinding positions in a jiffy. You'll get plenty of time. Wait for confirmations. That's why they are called trends

If there is no trend your position anyways can't be wrong except a bit and temporarily

And if you choose the trend wrong you can see it loud and clear and turn around

Over excitement is poison for traders...Enthusiasm is ok

how difficult is shorting?

contrary to a widespread myth, it is always easier to short than to long in a bull run

lemme give my logic

correction in a bull run generally takes place after the prices have overshot the equilibrium "fair price" by a good margin

in other words, when operators/bulls have bitten "more than they can chew" and have pumped the price a little too far from the level of fundamentals back.....

"falling back" of inflated prices is perhaps the only surest guarantee while there is no surety of the price of a good stock rising except being spotted by the value buyers and insiders. shorting of stocks from unrealistic unsustainable heights is a necessary evil for every stake holder in the market.

no fluctuation can ever take place if prices were not to correct. no accumulation will be possible. and no distribution profit booking by the accumulators.

nobody shorts or throws away a stock below or even at fair value lest some unwanted buyers buy it. discounting is a myth!

what we call dumping of stocks from tops is actually not dumping but "drama awakening of the sinners!!!"

it is unfortunate that the retail traders/investors consider the peak "fair value" and are "surprised" and hence panic-stricken at the fall......

genuine shorting (i.e. the one that isn't warranted by the fundamental shift of any stock) is the safest thing in the market.

the martial art of catching a falling knife

"never try to catch a falling knife"
has become a cliche'.

it has seemingly become
such an old fashioned statement
that
actually catching a falling knife
has now become a fashion statement.

only that everytime
this daring catwalk turns out to be
a robe malfunction!

the knives that fall by mistake
or because of some serious misunderstanding
are the ones that do rise back.

but such accidents are rare.

rarely do the knives fall
for no reason!

either there is some earthquake outside
or some butcher inside
the trading house.

and till that reason is there

they will keep falling

while dodging on the way!

knives of butchers (read operators)
move up and down;
in which case
both rising as well as falling knives
can be deadly.

still,
a knife is a knife.

always better to be picked
from the table.

if, however, you are a samurai
there is
one safe way to catch a falling knife -

and that is
to move your hand down
equal to the speed of its fall.

i.e. buying the crashing stock
expecting it to keep falling
and hence be mentally, spiritually and physically
ready to let it go
if it doesn't seem to be stopping.
and repeating the process
again and again
till its handle
is firmly in your grip!

trading is the only martial art
where a loose grip is a must! 

understanding short selling, again

here is another example

to understand short selling!

a rich man

puts his 100 abc shares

in the locker

locks it

gives the keys to his servant

and takes the next flight

to germany

for a vacation of 1 month.



while he is away

his servant

who had fair bit of knowledge

of shares

realised from his chart reading

that the abc share

is going to drop

from current 2,000

to 1,000

in 1month!



he has the key

and has the guts!



he picks the key

opens the locker

picks the 100 abc shares

sells them for 100x2,000=2,00,000

keeps the account

waits for 1 month

sees the share price

drop from 2,000 to 1,000

then buys back

100 shares

for 100 x 1,000=1,00,000 bucks out of 2,00,000 he is having

puts them back in the locker

hands over the keys

to his master who returns the next morning.



the master is happy to find the 100 shares intact!

and the servant has made cool 1,00,000

by using the

stagnant shares

for encashing an opportunity!

that's short selling or shorting!

--

now, lets see the other side of the trade!

this time

the rich man

doesn't have abc shares

but cash!

he puts in

1,00,000 bucks

in the locker

locks it

gives the keys to his servant

and takes the next flight

to germany

for a vacation of 1 month.



while he is away

his servant

realises from his chart reading

that the abc share

is going to rise

from current 1,000

to 2,000

in 1month!



he has the key

and has the guts!



he picks the key

opens the locker

picks 1,00,000 bucks

buys 1,00,000/1,000 = 100 shares of abc

waits for 1 month

sees the share price

rise from 1,000 to 2,000

then sells back

100 shares

for 100 x 2,000=2,00,000 bucks

keeps 1,00,000 for himself

and puts the 1,00,000

back in the locker

hands over the keys

to his master who returns the next morning.


the master is happy to find 1,00,000 bucks intact!

and the servant has made cool 1,00,000

by using the

stagnant money

for encashing an opportunity!

--

in the above example

it is assumed

that the servant had the master's permission

to use his valuables

with the sole condition

that the servant will return

the money or the shares

when the master asks for it

or

on the date of his return

whichever is earlier

irrespective

of whether

the servant is making money or losing money

by that time!

overcoming fear of shorting

my friend

madhu

shared with me his

discomfort with shorting!

--

i had heard this dilemma

numerous times before

besides experiencing it myself!

--

because of sheer habit

everyone is used to

only buying

and not selling!

you might have bought

100000 things in your lifetime

and sold only a few!

so selling, obviously,

is out of your comfort zone!

so,

when i heard him utter those words

it was natural

that something in me

wanted to help!

--

given below are two tricks

that i shared with him

which should help

rather anyone

to strike peace

with shorting!

--

1) trade in options -

that way

you need to only buy

even when

you think the price is going to go down!

when bullish, buy call option

when bearish, buy put option!

(see, no selling)

--

2) turn the vertical graph by 90 degrees

to horizontal!

this way

there is no up and down

only

left or right!

so, there is no pschological fear of shorting!

--

here is a bonus method

which didn't strike me

when i was talking to madhu!


i recalled this

when i was pondering later

as to how i had managed to overcome

my fear of shorting!


i overcame my fear of

going short

by learning the indicators

deep and thorough!


broad movement of the market

is logic

not magic!


when the markets fall

they are not going nuts!

they are just flowing

like the river

trying to find further path of movement!


light

of technical knowledge

just dispels

the dark shadows

of fear of shorting!

back hand of trading!

20 years ago

i and my childhood friend ashish dewett

used to go to our colony's sports club

every evening

to play chess and table tennis!

while chess was our soul

t.t. was also close to our heart!

we would enter the t.t. room

switched on the sodium lamps hanging from the ceiling on top of the table...

those were the only lights we turned on in the closed big room that allowed zero wind!

we used to start with a warm up game

in pin drop silence

and without talking to each other!

we felt as if we were playing in Asian Games!

then the real games started...

we would play a set of 5 games.

forehand and placement were my weapons

while service and smashes were that of Ashish's!

by the end of the first game

we would be feeling warm

even in winters!

by the end of second game

we would have to remove our sweaters!

third and fourth games were real battles

while fifth one used to be a cliff hanger

when friends turned

table foes!!!

but

after the set

we would hug each other and discuss every game and move threadbare!

i was quite good player

but usually lost the set

because of one critical weakness

which dewett exploited mercilessly

without any regards to our friendship

....my backhand!

my back hand was not weak

it was non-existent!!!

i simply couldn't play the back-hand shot...

even when ball came to my extreme left

i would move myself even further left than the ball

with the speed of bruce lee

to pick the ball

with my

forehand!!!

though this made me more agile than 'akd' (i used to call him thus)

but the quality of my return was severely compromised

because of this handicap.

akd would reward 90% of these returns

with hammer smashes!

admittedly,

i had never learnt or practiced the back-hand stroke...

had i realised the importance of the same earlier

i would definitely have!

--

but i am really thankful

to myself and god

for giving me the good sense

to understand

the importance of back hand stroke

in trading...

"going short"!

--

now i no longer fear it

like my backhand in trading!

now i can play

both sides of the trade

with ease

and profit from both sides!

market can't exploit this side of the

trading table!!!

--

Tandoor and the Knife!

'Never catch a falling knife' they said!

But they never warned against hastily putting hand inside the Tandoor (Indian clay oven fired with charcoal)

Long after the chapattis (North Indian bread) have been baked in the tandoor

long after the fresh fuel is abandoned

the Tandoor remains hot inside!

Red hot!

Simmering smokeless ambers deceptively cold but fully alive inside!

Just like a Tandoor can maintain high cooking temperature for long periods, a bull run can remain simmering for extended periods!

A Tandoor, traditionally, is left to cool-off overnight before the ash is removed.

A bull trend should be allowed to cool-off before putting hands into it!

Business on a rainy day!

"How can I sell the stock when I don't have any?"

asked one of my friends, reacting to the concept of Short Selling (or Shorting).

The same was my reaction when I first came to know about this concept!

It was confusing and difficult to digest.

It was easy to understand buying and then selling something

but selling something which you don't have and then buying it back later was perplexing!

This seemed like a wonder in stock trading to me!

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

Let us understand short selling with the following example...

Assume that you sell umbrellas in your shop.

Also, assume that one fine day you run out of stock of umbrellas.

Unfortunately, it starts raining that morning!

"I would have made decent profit today had I got umbrellas in my stock!" you would have regretted!

"The 100 bucks umbrella would have sold for neat 150 bucks when it is raining like this!"

Pure demand and supply equation!

"Even if I place an emergency order on the umbrella supplier, the supply will not come till the evening!

If it stops raining by then, which it is likely to, demand and hence price of umbrellas will drop to 100 again!

Who knows even less than 100!"

Just then, you come across an idea.

You go to the neighbouring shop and ask for 2 dozen umbrellas on credit with a promise that you will return those in the evening!

You bring those umbrellas and sell them at 150 bucks each.

By the evening, the rain stops and the demand and hence the price of the umbrella falls to 100 per piece!

You buy 2 dozen umbrellas (same colour, brand and model) for 100 bucks each and return them to your neighbouring shop-owner!

This way you made a cool 50 buck on each of the 2 dozen umbrellas you never had in the first place!

You were "short" on supply and you still "sold" them!

You just "short-sold" them!

Similar thing happens in stock market when

expecting the stock price to fall

we place an order on our broker to short-sell x number of shares!

The broker borrows those stocks (from "someone" who has the stock but is unlikely to sell them for some time)

and sells them!

In the evening or whenever you ask your broker to cover your short positions,

the broker buys back the stock (hopefully at lower rate)

and returns them to the actual owner!

In this process, you earn the difference between the selling price of stock and its buy-back price

while your broker earns the brokerage!

RSI-SMA Doubletrap technique (II)

1) Buy when priceline cuts the SMA 34 line from below after bullish divergence between RSI 14/30min and priceline on 1 month chart (Bullish divergence = When price is going down and rsi going up).

Hold till priceline cuts SMA 34 line from above.

2) Short when priceline cuts the SMA 34 line from above after there is bearish divergence between RSI 14/30min and priceline on 1 month chart. (Bearish Divergence = when price is going up and rsi is going down).

Hold till priceline cuts SMA 34 line from below.

A pin for the balloon (When to short?)

Shorting is profitable but highly risky & nerve wrecking game!

Often timing of shorting blows in our face!

Like shorting bank nifty as on last week!

So, what is the best and the safest point to short a stock or index futures?

The answer lies in the nature!

When do volcanoes erupt?

When do Earthquakes come?

When does an Avalanche start?

When does a cloud burst?

When does the pendulum reverse?

When does the tide turn?

When does a war break out?

....

All of these happen when two conditions are satisfied

1. Excess over a limit

2. A trigger to start it all

Excess of everything is bad, including a rally.

Every rally extends into the "excess" zone.

Smart money sets the ball in motion.

Dumb money follows in heaps and herds and doesn't know when to stop.

Smart money enters on logic. Dumb money keeps coming on frenzy!

Sentiments take over and they don't know when to stop!

After all, the late enterants also want to make money.

The people who buy from the late comers want to make money too!

This chain reaction (called distribution) reaches too far till everyone left feels like a fool except the part of smart money which is still their in some corner!

The funny part is that nobody is willing to admit the folly even now.

They close their eyes to the deep fall below and hope against the hope!

They all wait for the frist one to fall!

Even then they keep living in the fools paradise, ignore the first signs and buy some more!

Heights!!!

This causes the lower high on the graph!

That is the time the Avalanche starts to gather momentum!

That is the time to go short!

Stampede is about to start!!!

Everything will start falling under its own weight!

Everything will crumble down like a pack of cards!!

Latest examples of this

Sugar & Metal stocks' mad bull run followed by the crash

So, if yours is the smart money, don't worry about the crash amidst the rally

keep riding

till the two conditions are met

- excess over the limit

- the trigger punctuated by a lower high.

Till then, let the ridiculous distribution game continue

Let the excess happen!

As someone said "A pin is waiting for every inflated balloon!"

Is shorting unethical?

price can be realistic only when both sellers and buyers are forceful. look at what is happening to sugar price. Shorters of sugar futures could have brought the prices down...Shorters are necessary. They look like villain but they are not. Rather they are savers. Look at steel/commodity stock prices...somebody needs to short it....Japanese are bit relieved as people started shorting yen against dollar......shorting is critical to maintain balance.....u don't know what one sided bulls can do to our lives....harshad's and ketan's.........