why traders struggle - III

if you can't see blood

don't be a doctor.

if you can't see a temporary loss

don't be a trader!

minor corrections are part of a trade. that's the only way price moves. majority trades experience low blood pressure and abnormal pulse rate at the sight of an adverse price movement. those who are not sure of their trade and those who can't see temporary loss can't hang on.

(caution : don't lose more (blood) than is warranted)

why traders struggle - II

they

DON'T TRUST THE TREND.

majority traders are insecure fearful adament rebels

who take premature unwarranted prolonged reverse positions!

why traders struggle - I

the trouble with struggling traders is not that they don't take risk

the trouble is that they take wrong type of risk.

they take risk with losing trades

but avoid risk with winning trades!!!

niftyshots

dear friends,

i am starting a new dedicated blog to share my trades


www.niftyshots.blogspot.com


in this blog, i will be sharing (on retrospect basis), my short term trades in nifty.

i will share my self talk, lessons, learnings, discoveries, ideas etc.

i will be sharing these trades in real time thru email to the paid subscribers.

i will be sharing 8-12 nifty trades per series in futures and options per month


of a few hours duration


targeting an average of 30-60 nifty points per successful trade.


for details regarding subscription

send your email to

jagmohanshan@gmail.com


0 9418037474

expecting solution to the european crisis?

dear venkat, solving the european crisis is like treating a chronic drinker.

if u abruptly take him off the alcohol (easy money supply, poor fiscal discipline, weak economy)
he is likely to show symptoms of alcohol withdrawal
which can be silent or life-threatening!

some of these symptoms are

increased pulse rate
increased blood pressure
increased temperature
restlessness
disturbed sleep
anxiety
nausea and vomiting
headache
irritability
tremor
hallucinations
seizures
and coma.

many of these symptoms are already there in the european union.

withdrawal symptoms last longer in older persons (economies)

withdrawal can complicate other illnesses (political, social, geogrpahical)

--

patients (like india) who are infrequent or moderate drinkers are less likely to suffer withdrawal symptoms.

--

gradually reducing alcohol consumption results in lesser withdrawal effects.

and such a course needs time, will power and luck!

--

if the world is a family
some countries in the european union
are not the only ones needing this daredevil de-addiction rescue.

there is a chronic patient on the other side of the atlantic.

as a member of such a family of chronic alcoholics
india has to bear with sleepless nights!

why operators hold the game at stretched positions

- the longer the operators hold the price in the stretched zone, more the traders deepout of money lose by way of time decay.

- the profit to operators by going towards profitable zone has to be substantially more than the effort of making the necessary moves.

- they want time for distribution.

- the amount of premium operators stand to gain by time dacay by not allowing bank nifty to slip is 2 times their potential loss by letting it slip. as the expiry approaches operators get torn between which profit to take. the one by swinging the price or the one by letting premium decay.

how to interpret trend from gap opening

attempted gap filling in the first 45 minutes or so
- trend likely to continue

no attempt towards gap filling in the first 45 minutes or so
- (if at the advanced stage of an existing trend) = trend about to reverse
- (if opposite to the existing trend) = new trend has started

i know what you did yesterday

http://www.mudraa.com/trading/105539/0/i-know-what-you-did-yesterday-js.html

an incomplete trading method

any trading method

which is too accurate

to leave any room for operator's surprises

is

incomplete

and faulty

and will, therefore, be itself comprehensively surprised!!!

who sold when everyone bought in the morning?

today's gap up (courtesy global factors)

resulted in the early morning scenario

where a lot of people were lined up to buy.

then who was selling?

obviously, there must be somebody willing to sell a lot for this mass buying.

it is prudent to assume that those who were long won't sell especially when their stand gets vindicated due to gap up!

so who's selling?

operators.

but.....but....

at a premium.

they always do this. they are the happy sellers when people are mad to buy and happy buyers when people are dying to sell!

so, this morning too, the operators shorted what people bought.

operators did that to make the short term money. they were expected to buy back those short positions at lower price.

if they expect higher levels, they would have been a decent dip after gap opening, giving chance to operators to book intraday profit and then start accumulating for higher levels.

so far the operators have not bought back, seemingly.

so when are they planning to?

what's cooking?

since last three and a half hours, the markets are flat as high jump bar.

if the operators are buying, why isn't it going up?

if the operators are selling, why isn't it going down?

in reality, operators are actually trading.

they must be buying as well as selling.

which side is larger needs to be seen.

but then, why isn't the market breaking range in the net direction of the operators?

well, let's attempt an answer.

apparently, the operators are doing it slowly, without making much noise.

why?

because if they reveal their position, there will be a mad rush.

why are they fearing the mad rush?

well, therein lies the game.

if they are about to go short, and accumulating shorts, the copy cat masses will start selling, the price will plummet - spoiling their game by disturbing the least favourable price!

and if they are about to go long, and accumulating, the mass panic will result in mass buying, thus spoiling the most favourable buying price!

finally, the million dollar question

are they planning to go short or long? how to know?

look at the charts.

outer trend in outer chart, and inner trend in inner chart.

if, for example, the trend on the outer chart is long and that on the inner chart is short,

then any short position may be considered temporary

while any long position may be considered sustainable.

.......vice versa!

in other words, operators don't do anything new.

they just can't go against the fundamentals.

they will do the obvious in the least obvious way.

least obvious way - because they want to trap you.

where is the sky?

one of my trader friends has asked me the following

" dear js, yesterday the market was 80 points down and today the market is 80 points up.
in this case, how can a retail trader like us can judge the trend?
yesterday when the market was down 80 points, we were feeling that the trend is down!
suddenly, today, when the market is 80 points up we feel that the trend is up!!
how the trend is changing overnight?!!!"

--

i am sure this must be the dilemma of many others.

i have a few things to say regarding this

1. the very first thing that came to my mind when i read this sms on my cell was
"this thing will keep on happening with the retail trader till he or she learns to understand the operator"

2. when we say trend, what is the period of the trend we have in mind?

do we mean trend of the day or trend of the week or trend of the month or trend of the semester or year?

all these trends can be different!
there are trend inside trends inside bigger trends......
if a "trend" seems to change in 12 hours should we take it is as the change of the monthly trend?
i leave the answer to you.

3. volatility and fluctutations are as important in teh market as are the revolutions for a wheel.
no fluctuation, no market. period.

as part of our mental seasoning and toughness and training, a trader has to go thru and get used to these things.

this is just like the somersalts and turns a figther pilot goes thruwhile flying at mach speeds. during these somersaults, sometimes the sky is above the pilot's head, sometimes below, sometimes to left, sometimes to right........

but a trained pilot always knows the reality.

whatever be the volatility or flucutation, a trader should have some holding point, some method, some indicators etc. to understand where is the sky!

the trouble is that many traders get into trading without mastering a method and other essentials.

trading is the easiest business in the world - both to lose money as well as to gain money....depending upon

whether you are flying the aircraft or the aircraft is flying you!

trading options without worrying about time decay!

options are blessings for the traders who want to trade with controlled risk.
unlike futures, options have limited risk.

but they have a serious problem
- time decay!

their premium value decays as expiry comes closer!

i always wondered if there was any way to bypass this severe limitation.

hedging a bought option with writing another was, somehow,
not a very lucrative and convincing way.

but recently i came out with a simple but effective way
to over this disadvantage.

i noticed
that 80% of the price movement
happens in 20% of the time.

the operators use the rest of time
to accumulate or distribute
within a range
thus "wasting precious time of traders"!

how about if could take a position in options
just when the price "aeroplane" is about to take off?

why take the seat while it may keep standing
at the tarmac for a few hours or even days?

this way one can use options till the last day of expiry!!!

with this idea under my belt
all i had to do was
search for probable signals
when the price is about to move big
besides the signals
when the meat of the price movement has happened
and it may enter the phase of consolidation.

i did it with rsi and william%r.
one can do this
with any indicators of choice.

what do we do for the rest of the time?

well,
we remain in the departure lounge
watch tv, read magazine, eat popcorn and sip a cola
imported from the nation of the operators!

what do rsi and william%r say?

i regularly post my views on nifty as well as bank nifty on the basis of rsi and william%r in the following link

http://www.mudraa.com/trading/103696/0/what-do-rsi-and-williamr-say-js.html

what the smart money may be planning

i regularly post my views on nifty as well as bank nifty on the basis of options data in the following link

http://www.mudraa.com/trading/102662/0/what-the-smart-money-may-be-planning-js.html

money in, health out!

recently i was sitting with two of my trader buddies
whom i had met after a long time.
--
one of them
who had not been trading for some time now
said
"sitting in front of the terminal
for 6 hours a day
days after days
months after months
took a big toll on my health.
i have realised
that we can make money here but are losing our health!"
-
the third musketeer
who was listening all this quitely
quickly added
"but where is the money?
we are not getting that too!!!"

good batsmen can be good traders

yes,
a good batsman can be a good trader.
lets see how....


a good batsman tries to read the bowler's hand while he releases the ball
= a good trader needs to read the hands of the operators


a good batsman knows the field setting
= a good trade knows the chart setting


a good batsman doesn't fiddle with a ball too much out of stump and leaving him
= a good trader doesn't fiddle with an "inviting opportunity" too much "out of stump and leaving him"


a good batsman doesn't hesitate to use his feet once he has seen the ball well
= a good trader doesn't hesitate to take the trade once he has seen it well


a good batsman respects every good ball by the bowler
= a good trader respects every good trick by the operator


a good batsman knows that every ball can't be hit for a six
= a good trader knows that every price movement can't be traded for a "six"


a good batsman knows that a ball can't be hit as demanded by the spectators
= a good trader doesn't get carried away by the hooting of the "spectators of fear,greed and excitement" inside his head


a good batsman knows that he needs to settle down, read the pitch and read the wicket before giving a charge
= a good trader knows that he must understand the market situation, trend and stage of the trend before entering the trade


a good batsman knows the importance of singles and running between the wickets
= a good trader knows the importance of booking every profit that may vanish. he knows the importance of scalping.


a good batsman knows the importance of partnerships, staying at the wicket.
= a good trader knows the importance of holding the nerve and staying in a winning trade


a good batsman knows that he must face the pace to score
= a good trader knows that he must face the fury of volatility


a good batsman knows that more the pace of the ball easier it is to score by just sweet timing.
= a good trader knows that more the volatility and tricks used by the operators, easier it is to make money by just sweet timing.


a good batsman knows that at times he needs to see off the new ball, see off a fierce spell....
= a good trader knows that at times he needs to just pass-off and see-off the fierce spell of uncertainty, volatility et al.


a good batsman knows that getting out at duck is part of the game
= a good trader knows that loss, hard luck and wrong decisions are part of the trade.


a good batsman knows that every new innings is new and different
= a good trader knows that every new trade is new and different


---


be "the wall", "mr.dependable", "the colonel", "the hurricane".............

types of trading

there are only two types of trading
(i am talking of trading and not investing)
- day trading, and
- night trading.

and since the stock markets are closed during the night
even night trading is not there.

so this leaves us with only one type of trading
- day trading!

rest everything else
is only a derivative of day trading!

a 6 day swing or positional trade
is nothing but the 6 times multiple
of day trading.

the only difference being
that in swing or positional trading
a trader accepts
that he or she will not mind day-to-day and intraday fluctuations
including gap openings.

whatever technical rules apply to day trading
on 2 minute or 5 minute tick charts
apply exactly to swing or positional trading
on 30minute or 1 day tick charts

as i had said earlier also
day trading is miniature swing trading
and swing trading is enlarged day trading!

essence of day trading

like millions of others
i have been
and am
the fan of mike tyson
former undisputed heavyweight world champion.

he won his first 19 professional bouts by knockout
12 before the end of the first round.
in 1988, he knocked out michael spinks in the 91 seconds.

but when the fight lasted 10 rounds
in a fight with james "buster" douglas in 1990
mike himself got knocked out.

--

a fight worth a few million dollars
lasting a few seconds
makes every second quite pricey!!!

--

now here is the beautiful question -
should the bout be short or long?

well,
from the audience and tv channels and sponsorers point of view
it should last quite a few rounds.

from tyson's point of view
it should be over as fast as possible.
the more time it takes
the harder it may get to beat the opponent.

after all,
a career and hell lot of money is at stakes.

longer fights have more entertainment value
but increase risk of losing!

--

now lets extend the scope of this question
to trading!

should the day trade "bout" be short or long?

while longer trades have high "entertainment" value
they don't necessarily have higher "prize" value for the trader!

rather it is often the opposite.
the longer it takes to be profitable in a day trade after getting into the trade
the lesser the chance of making profit
and more the chance of one being in the wrong trade.

as art simpson said in his famous "phantom of the pits" rules
- if a trader waits for the markets to prove his trading position wrong
it might be too late! it is wiser to assume oneself wrong if not proven right in reasonable time!

coming back to the question
'should the day trading bout be short or long?'

-

every day trader starts the day with a dream of making 50 points from nifty!

what a paradox that he/she misses out a simple mathematics option.
there are a few alternative ways to make those 50 points
- make 50 point in one lot!
- make 25 points in 2 lots!!
- making 17 points in 3 lots!!!

how many 50 point movements are there in a week?
and how many 25 or 17 point moves?

you know the answer....
while 50 point intraday moves generally happen 3-4 days in a week
25 point moves happen 2-3 times a day
while 17-point moves happen once every 30minutes or an hour!!!

getting a trade right has nothing to do with the number of points that trade may give.
so success ratio of getting the trade right is same
for a small or medium or large ride.

so, why don't day traders go for multiple lot - short rides?

what a paradox
that traders fear double or triple or multiple lots
but do not fear single lot for a 50-point ride which comes so rarely
(assuming they actually recognize, catch and ride it full!)

- no wonder the failure rate in day trading so high.

the reason is not far to be found.

traders feel less pain in bleeding to death
than facing the fear of a fast fight.

but herein lies the second and bigger paradox
- if you are not so sure of your method
and want to trade single or small lot
why even lose that??

and if you are reasonably sure of your method
and ready to put one lot at stake
why not trade with two?

it is a mindset issue
a habit trap.

a 17point high volume trade
has high probability of success.

all you need is
a reliable method
strong risk management
and a fighter-pilot mind.

never trade to an audience.

day trading is a guerilla warfare -
wait behind the bush for the opportunity
pounce on one
and get lost with the booty!!!

the longer you stay in sight
more the chances that "they" will get you down.

discussion on "diamond rule of booking profit"

thank u all for the healthy and enriched discussion (http://www.mudraa.com/trading/104685/0/diamond-rule-of-booking-profit-js.html) which sometimes i desperately miss despite knowing that we have a lot of sharp, experienced and fiercely talented minds in mudraa

==========

i would like to share my views one by one on what has been opined here

dear mr.arora,
u said


"Dear JS
I have tried this method several times.It does not work well.What if the market is struck in a range for next few days or reverses.Suppose you square a call at 200 with a put at 100 and in next few days both become half,your profit will shrink to half as mostly happens.You cannot decide optimum point at which you will book your call as Nifty has its own ways.
suppose your call at 200 becomes 150 next day and languishes there for a long time ,as sson as it touches 180 you would be tempted to book and curtail your loss,and lo it would soon touch 250 leaving you repentful."
---

dear mr.arora,
u r right
but i think i need to clarify a few things about this rule.
1. if the market gets stuck in a range after we "book profit" the way i shared above? = well, if you see the rally pausing, why not square off totally!
"don't catch a falling knife" we say during bear runs or sell-offs.
similarly, we can say "don't catch a rising spike"
but what if the knife has stopped falling and the spike stopped rising?
there is no harm in that case.
as u said, if the market enters range after we take reverse option position, then who stops us from winding up everything especially when we are sure that the rally has stopped or ended or paused for the time being and that we will not lose potential profit by squaring-off prematurely!
2. if the market reverses, the reverse option position will soon gain as much as u will lose - the only condition being that u buy at-the-money or in-the-money option and not out-of-money option. i have noticed that majority of the opinions shared in this thread are based on fears caused by "out-of-money" positions.
3. as far as judging the appropriate time to "book-profit" is concerned, i beg to state that while it may not be possible to exactly pinpoint the moment, it will be suffice to judge it approximately. this rule is actually a strategy which can take care of the gaps in timing. no timing is better than rough timing.

==========


dear hvm
u said

"I feel if the underlying secuirty is volatile than these strategy would work.
Further, taking JS example, when gain from Call value exceeds the Put premium than one sell off the Call Option and wait for Put option to sell when Bank nifty comes down."

--

hvm, u r right, this rule helps when the rocket is still moving but we have fear or indication of it falling.
but i somehow don't agree ur second line (or i have not got u) = e.g. during upmoves, when the call still keeps moving up and the benefit from its rise exceeds the loss from the put's decline (with which we "booked profit"), even then don't square-off the call. this rule applied then also. this is a multiple stage rule. who knows it may be a big big rally and may continue to go. at that time we should again buy a at-the-money put of new cmp.
i think everyone still remembers the rally of may 2010 when the nifty went 1000+ points in a single rally. had we known this rule we could have minted money.


===========

alkaji
u said
"sir insted of buying an option...can we short sell option.... consider... if i bought 4900ce when nifty was trading at 4925 n when it came to 5000..insted of buying 5000pe ..wouldn't be it better to write 5000ce insted... coz if mkt remain range bound..  value of option will become less day by day.....hence we will gain anyway.... 
also u mention that operators do short sell but with proper hedging...... just my view... plz gide!!"

--

alkaji, i don't agree that we should short sell option.....................the reason = if the rally continues further, we would lose in the short sell. the beauty of the reverse option is that if the rally continues, the reverse options evaporates soon.
we can counter the fear of losing premium in case of range-bound market by actually winding up everything (as i said while replying to mr.arora)

===========

dear sv
u said"Future of this month long and next month short/ this month short and next month long?
Can also be used as hedging straregy.
Comments please."

--

dear sv,
hedging future with future is a "rahul dravid" patience strategy and one is likely to get it wrong many times. also, it is recommended only during down runs.
otherwise, hedging future with future is like writing ur own cheque in your name. we want others' cheques in our name.
future against future is a safe game but it goes nowhere......it is too safe. why not square-off actually if we are to do this.
if at all u do that u need to pitch a different future (stock or index) against original future........but it is complicated and slippery."

===========

dear sim,
u saidthis rule I tried, but in reverse order, when my SL Hit I hedge it with another one at the money,,,,  BUT now the Loss is fixed and the profit on one can be booked at the swing"what we end up is we book the profit leg and wait for opportunity on the loss leg holding it,, we should have a mind set to close both together!"

--

dear sim,
in reverse, an "ON" will become "NO". this rule is only for "booking profit" but not for "booking loss". may be i will chalk out one for that condition.
when u book loss with a reverse option, ur original option is already in-the-money. in that case, if things still go in the same direction, ur profit with new option will be less than ur loss with the original one.
if u see this rule with opposite lens, it will give opposite inference.

===========

diamond rule of booking profit

never book profit by squaring off

book profit by taking reverse at-the-money option.

whether your decision turns right or wrong, you will profit.




let me give an example which is the reason behind my coming out with this rule
i bought 9000call of bank nifty.
bank nifty came to 9330 and as indicated my my trading method, i booked profit by squaring off the call.
had i waited i would have profited as the bank nifty went to 9500.
but instead of squaring off the call had i taken an at-the-money put option (9300 put) and held on to 9000call, i would have lost 50 points in 9300put and got 140+ points more in 9000call - a clean profit of 90+ points.
i have figured out the reverse scenario as well.
i am thrilled with this rule, this rule is my take-away for the day. it has costed my just 1250 per lot.
this rule has many applications with profound practical implications.

10 trades

to kick in some thrill, in this experimental thread, i shall share my next 10 short-term trades (1-2 days, 100-200 points) in bank nifty (options). i will be numbering these trades and monitor the results. i expect this series of 10 trades to be over in next 25 trading sessions. these may not be one per day.......these can be lesser or more depending upon exact indications as per my method. 


i will be using my most trusted indicators for the trades.


(these are not recommendations. just open sharing of my trades to push me harder into the discipline of trading........ if i lose, i pay with my ego...........pl don't follow blindly, pl use ur own discretion before trading.)


this is also to share that since some weeks i am focusing totally on bank nifty. i take multiple lot positions but have divided the capital in three parts. and i use 3 different logics to engage all these. the method behind this thread is one of those three independent logics.


this thread is over once 10 trades are over.


what i mean by 3 different logics for 3 parts is = that i engage each part on separate logic. so, when one logic gives green signal one lot goes in the trade. second lot goes in only when the second logic gives permission....similarly the third one. i never enter all lots in one go. all logics can't be wrong simultaneously. also, all these three trades are of different durations and run concurrently. it is like 3 traders trading simultaneously as per their respective head.

===================pl use the following url to reach the thread

http://www.mudraa.com/singlepost.php?newp=1&messid=104515

godfathers

one of my
highly creative
trader friends from mumbai
sandesh
has asked me the following question

"as there are a number of retail traders in the market
with each one having different view on the market,
is it the same case with operators also?

do all operators like big fund managers think same while making their strategy
or is their any chance that some of them are bullish while others are bearish?

do operators trap only retail traders or even each other?
is there any conflict or competition among them?"

questions like these really push me hard to think and search for answers.
questions like this take the discussion to an altogether higher level.

let me share my views.

1. there are only a handful of "real" operators in the world. ones like "lic of india" are quite big but unfortunately too docile to be an "operator". truly mammoth and deadly operators are just a handful. it is not difficult to get their names. they are the ones that have "access to mountains of ridiculously cheap money". (the "desi operators" behind indian stocks are of the size of dogs amongst dinosaurs. they run away when they sense the thump of approaching dino's)

2. after that much of money all they need is - information. but herein lies the biggest paradox. does money buy information? or is it that the information gets created because of the money! the latter is the reality, the former is a myth.
e.g. everyone thinks that the rbi policy announcement shakes the market, the reality is that it is the reaction of the money monsters that creates or suppresses the ripple. money uses the news. the news is only as important as the reaction of the money. if the money doesn't react, nothing happens.

3. do these operators differ in their opinion? well, doesn't matter. these operators are like mafia, they "own" well-defined but separate areas of operations divided and controlled among themselves. markets of different countries are under the control of different groups. all groups have foreign "stake holders". there is a broad consensus among all big "players" but even where there is a difference of opinion, that doesn't matter since the areas of operations are different. would u be surprised if i say that many indian banks get big big loans from foreign banks! in that case, don't you think there would be info sharing and permission seeking between the donor and donee? all banks and fii's and operators are connected and inter-dependent. there is little scope for new operators to get a foothold in any corner of the financial world without the permission or consent of the existing players.

big real operators know everything that matters. rather, they influence the news in a big way. it will be naive to think that governments decide anything without bothering about their patrons. big operators are the big brothers of small operators. small and tiny operators have a phase difference between what their big brothers do. they might not know the reason absolutely but they do follow suite!

operators are wise enough to keep their hands and feet off fellow operators and their domains!

diagram of a trader's journey

john fisher's classic diagram of
the process of transition
that wonderfully explains the journey to success or failure of every trading apprentice
http://www.businessballs.com/processofchange.pdf

a bad day at trading?

http://www.youtube.com/watch?v=gH476CxJxfg
Where is the moment we needed the most ?
You kick up the leaves and the magic is lost
You tell me your blue skies fade to grey
You tell me your passion's gone away and I don't need no carryin' on
You stand in the line just to hit a new low
You're faking a smile with the coffee to go
You tell me your life's been way off line
You're falling to pieces everytime and I don't need no carryin' on

Because you had a bad day, you're taking one down
You sing a sad song just to turn it around
You say you don't know, you tell me don't lie
You work at a smile and you go for a ride
You had a bad day, the camera don't lie
You're coming back down and you really don't mind
You had a bad day, you had a bad day

Well, you need a blue sky holiday
The point is they laugh at what you say
And I don't need no carryin' on

You had a bad day, you're taking one down
You sing a sad song just to turn it around
You say you don't know, you tell me don't lie
You work at a smile and you go for a ride
You had a bad day, the camera don't lie
You're coming back down and you really don't mind
You had a bad day, oh... Holiday...

Sometimes the system goes on the blink
And the whole thing turns out wrong
You might not make it back and you know
That you could be well oh that strong and I'm not wrong, ahhh...

So where is the passion when you need it the most ?
Oh, you and I, you kick up the leaves and the magic is lost

'Cause you had a bad day, you're taking one down
You sing a sad song just to turn it around
You say you don't know, you tell me don't lie
You work at a smile and you go for a ride
You had a bad day, you've seen what you like
And how does it feel for one more time
You had a bad day, you had a bad day

(Oh, yeah, yeaaah, yeah) Had a bad day
(Oh, had a bad day) Had a bad day
(Oh, yeah, yeah, yeeeeah) Had a bad day
(Oh, had a bad day) Had a bad day, had a bad day...
- Daniel Powter

trading strrategy for lifelong profit

sell sorrow on every rise! 

buy laughter on every dip!!

clarification on 'instant day trading rules' - II

dear bipin, pramanik,
u have got point 1 right
point 2 was something different :
let's take today's example (i will use today's eod data of nifty to explain)
top selling option = 4800pe (no. of contracts sold = 321181)
runner up (only opposite option) = 5000ce (no. of contracts sold = 297354)
here, since top selling option is a put, i would interpret it as an indication of "upward bias" and hence find points to buy. i will by and large, try to find opportunities to buy on dips.
and since the number of contracts sold of the runner-up enemy option (in this case 5000CE is runner up by not-too-small margin i will consider the upward bias interpretation of mine as reasonably ok.
had this difference in the number of contracts traded been more, the upward bias would have been stronger.
but please note that this is a crude (though logical and reliable) method to day trade. i used to use this but not now ( i have other guns to trigger). please don't use blindly. recently one of my friends shared a similar idea and this reminded me of all this. i thought of sharing with everyone.
picking the right entry point is critical after having got the direction of the wind.
also, pl keep in mind that since the data is only for the day (http://www.nifty50options.blogspot.com/ , http://www.nseindia.com/content/fo/MostActiveContractsOPTIDXBANKNIFTY.htm) the interpretation would be for that very day only.

clarification on 'instant day trading rules' - I

dear mitul, i have already shared the logic in another post.

i am sharing it here as well.

retail traders buy options and big pockets / operators sell/write options (overwhelming majority).

if there is a mad rush amongst retail traders to buy options (whether they are doing that voluntarily or are being coerced and trapped by the operators to do so is an altogether different and interesting matter) it is obvious that they will not have their way. they are unlikely to be allowed so - by the operators.

operators are no santa claus and christmas is always a trading holiday.

operators are not there to lose money.

what they do should be taken as right and others should be taken as wrong.

trading is not about what is wrong and what is right. trading is about who is wrong and who is right and being with the right. 

who's the writer - II

dear aditya,

the cheap and easy thing is done by retail traders = buying options

the costly and difficult thing is done by operators = selling / writing options

in the end cheap and easy turn out to be costly and easy

while costly and difficult turn out to be cheap and easy.

less than 3% retail traders write/sell options, the number is negligible.

besides, not all retail traders who write options do it right.

many don't have a strategy.

the way operators sell/write options is an amazing clockwork.

what they do leaves no room for error.

sample size

yes, siva u r right - more the volume and data, better the analyses.
bank nifty options volume is much lesser than that of nifty.
i have lesser trouble in analysing nifty than BN.
even in BN stocks, pnb is traded so shallow in options that it is virtually impossible to analyse.
cnx it options has almost no volume.
having said that, it would be suffice to say
that the sample size we have for BN is enough to judge to tolerable accuracy.
for nifty, the sample size for analyses is perfect.
one more thing that needs to be kept in mind is
that only creamy layer of retail traders know the head or tail of options.
so even if the BN volume is less (not ridulously less though)
it represents fair picture of bank nifty.
a 10 megapixel camera gives a much sharper picture than a 1.3 or 2 megapixel camera but you can still recognize who's there in the picture and what he or she is upto. though if you want to zoom the picture and check out the details, you will have difficulty.
but even in this case, there are software to enhance a low pixel picture just like we have technicals to digitally enhance the option picture.
remember one thing, option data spread gives insight into operators minds which futures spread (there is hardly any spread there) can't even think of.
excellent question!

the smile

"why don't you do what you are planning to do?"
i asked the operator.

the operator smiled
and said
"what's the hurry?"

"well, don't you want the money?"
i asked.

the operator again smiled
and said
"what's the hurry?"

the answer was so statesman-like
but the smile wasn't.

"what's that you are hiding behind?"
i asked
leaning to one side.

the operator pressed the alarm button.
his men came in
held me
and dragged me out!

more than the mood, dammit!

enron's rating remained at investment grade four days before the company went bankrupt, despite the fact that credit rating agencies had been aware of the company's problems for months.

moody's gave freddie mac preferred stock the top rating until warren buffett talked about freddie on cnbc and on the next day moody's downgraded freddie to one tick above junk bonds

(source : http://en.wikipedia.org/wiki/Credit_rating_agency)

facts are facts

5oct, 02.15pm

dear sim

you have asked whether i still stand by my options data analysis (as of now) especially seeing the stretched scary continuing fall.

350 years ago, galileo was summoned by the catholic church and taken to task for having said that it was the earth which revolved around the sun and not the reverse.

galileo was coerced to change his statement into "the sun revolves around the earth".

when he came out, his students and admires were angry with him

"why did u change ur statement?" they asked
to which he had famously replied
"the sun will not start revolving the earth just because i changed my statement!"

so, how can i say that nifty will give way

especially since the options data as of now clears shows MASSIVE out-of-money put buying.

there is an army of retail traders waiting down the lane for nifty to fall and rain money on them. as i said in the morning, operators will loose much more on downside than upside. upside they stand to gain. of course it is also true that they can't wind up the act without a trigger.

the fact still remains that fundamentals effect equity, equity effect futures, futures effects options, and options is what reveals the game of operators.

the very fact that you and others are so much in panic shows that operators are being successful in what they are trying to do.

i don't mind the operators crashing the nifty, but there has to be supporting data.

even i am now eagerly waiting to see what happens next.

i want to see how operators clean up the mess they have created without burning their own fingers.

how and when operators drop their options?

abhijithji,
you have asked

(how operators squareoff their position?
will they squareoff daily or hold till expiry?)

this is a million dollar question.

in my opinion,
operators never square-off their positions.

they just respond to the square-off offers (or requests or begs) from retail traders.

more aptly put,
they just create circumstances for retail traders
to surrender their calls and puts
at loss or at premiums.

when operators are happy to see the request, they charge premium
when they are not happy, they charge hefty premium.

rest of the time
they let out-of money options expire and fall in their mouth like grapes.

instant day trading rules

rule 1. always go opposite to the direction of the top selling option for the day.


rule 2. the closer the runner up anti-option to this top selling option, slower the trend.


rule 3. buy at higher low and sell at lower high. 


rule 4. note down the sequence of options (of different strike prices) in decreasing order of number of lots sold. e.g. call, put, put, call, call, put. keep an eye on the change in the sequence. it indicates the shifting techtonic plates below the trading earth.


http://www.nifty50options.blogspot.com/


http://www.nseindia.com/content/fo/MostActiveContractsOPTIDXBANKNIFTY.htm

what the smart money may be planning!

dear friends,

recently i have been working hard to find and understand some reliable methods to know what the smart money is doing, what the "deep pocket" operators' next move is expected to be.

i have been fortunate enough to crack one of their code using put call data for all strike prices.

in this thread, i will be sharing my open notes regarding my analyses of "smart money" plans for immediate future based on my new method. i will try to update this daily (time permitting).

(please note that this method needs further work and my analyses must not be based for blind trading by anyone. please treat this thread as pure sharing of my notes. please do your own research before trading. also, pl note that as put call data changes everyday, fresh analyses is required everyday. in case i fail to update this thread daily, pl take this caution in consideration)

Js

=======


pl follow the link below for the updates and discussion.

http://www.mudraa.com/singlepost.php?messid=102662

what do rsi and willaim%r say?

one of my pride learnings have been rsi and william%r.

in this thread i will be sharing the outlook for nifty as well as bank nifty etc. on the basis of these two super indicators.

i wanted to keep this thread different from the one based on options data for 2 reasons

1. options data is an altogether different language

2. options data can tell you reasonably accurately for the next 1-2-3 days whereas indicators can help you see a few days or weeks or months in advance.

(please treat this thread as pure sharing of my notes. please do your own research before trading.)

 Jagmohan



http://www.mudraa.com/trading/103696/0/what-do-rsi-and-williamr-say-js.html

break free!

(pardon me for the language below.
i carry so strong emtions about the topic
that this was the only way i could communicate)
====
have you ever taken your pant off in front of anyone?
obviously not!
then why do you allow someone else to bring down yours
in front of everyone
everyday
with your permission?!!!
i am talking about those
who are employed
with a lean mean heartless and bully employer!
country got free decades ago
but the feudalistic mindset of
some old age masters
hasn't changed a bit.
this was one of the reasons
that pushed me into stock trading seriously
three years ago.
this was one of the reasons
why i started sharing everything i explored and experienced
assuming there must be hundreds and thousands and lacs
like me
who somehow are stuck into jobs
they face embarrasing moments everyday!
i considered this the best business in the world
and thus got the name of my blog.
i ventured in this inviting but ruthless market
with a dream
of one day becoming financially free.
i wanted
and want to see every tortured soul
financially and mentally and physically and spiritually free.
i was forced to write all this
when today i saw the owner of a book store
treat his intelligent and sincere employee
like a dog.
--
as robert kiosaki said in his legendary classic
"rich dad, poor dad" and its priceless sequels,
if you are employed
see if you can be self-employed.
and once that happens
see if you can employ others
and graduate to a businessman.
and once that is done
try becoming an investor into businesses.
what a good luck we people have
having landed in stock business
with an opportunity to become a businessman trader
as well as investor
straight-away!
if you are employed with an enterpreneur who treats you with honour and fairly
and if you have golden future there
stay put.
otherwise, wake the hell up
and do something
for
your freedom!
one more thing.
once you acquire your freedom
don't trample on that of others.

from shankar, thru me, to mr.ahluwalia, with love

shankar is homeless.
but he doesn't need money to sleep at the pavement
on the shimla bus-stand.
every morning
he doesn't brush his teeth
because he can't afford it.
but he does spend 5 rupees every dawn
to go to the shulabh facility every morning
in the bus stand complex.
then he buys a bread for rupees 15
and a glass of tea for rupees 5.
the bread keeps the flame of hunger under check
for rest of the day
but he needs two more glasses of tea
worth rupees 5 each
at noon
and at night respectively
to swallow the bread.
all these luxuries eat up 35 rupees
that he had begged the previous day,
already 3 more than
the limit permitted by
the honourable and learned
planning commission
to be an honourable poor.
he has no money left
to buy a soap
to wash the only shirt and pyjama he is wearing since days
he has no money left
to buy
a tablet of paracetamol
to cool down
his hot forehead
engraved with the "not-poor" lines of destiny.
he has no money
to go home
to face his children and wife again.
fortunately
he doesn't need money to drink water from the municipal tap
neither does he need money to breathe the city air.
he would need money for his coffin
but that may not be too soon.
for the time being
he is happy
for not being "poor".

manipulations at gap openings

when the overnight conditions are bullish
everyone expects gap up opening.
the operators sense these prevailing sentiments
and oblige
......by jacking up the price further!!!
vice-cersa for down side.
a gap opening is always overstretched.
thereafter, they start the distribution
or play games to further extend the accumulation.

--

how fast the gap gets filled
indicates what games the operators are upto-

1. filling of gap up during bull phase or gap down during bear phase
= means operators are not supporting buying after gulping down profit at the gap opening
to will start accumulating more and more at more attractive price without making noise.

2. filling of gap up during bear phase or gap down during bull phase
= means operators are distributing after encashing the temporary euphoria.

3. sustaining of gap up during bull phase and gap down during bear phase
= means operators are scaring the retail traders, enticing them to take reversal positions and thus accumulating before resuming the trend.

4. sustaining of gap down during bull phase and sustaining of gap up during bear phase
= means operators are trapping the retail traders by misleading them that the reaspective phase is over and thus accumulating more at cheap price by extending the euphoria.

games operators play - II

table tennis

= when the operators know that the market can neither go up nor down for some time, they play table tennis from left to right to left between a boundary.

-----

sumo wrestling

= while still in a range, when the operators foresee the market shifting in a particular direction, they turn sumo wrestlers and drag the trade out of the range using mental tricks and sheer money power.

-----

rugby

= when the operators see a gap in the positions taken by mass traders, they pick "the trade" and run!

-----

equestrian

= when the operators see an opportunity in a particular direction, but notice a hurdle, they turn jockeys and play equestrian.

-----

chess

= when nothing is happening, they play chess and offer their rooks or even the queen as bait to checkmate.