Weekend group discussion

Murli Chainani: Dear JS, You trade in nifty only or in stocks also?

Js: Only nifty Murliji

Js: Some reasons for this....

: 1.stocks don't obey technicals as much as indices do.....not difficult to understand why...because indices are average of the stocks and hence vibrate less

: 2.high liquidity

: 3.you don't have to study fundamentals of so many stocks....just macro

: 4. Premium is not bloated like that of stocks

: 5.stocks can crash like sky fall (Satyam etc), much more than index

: my technicals fail on stocks.....accuracy drops dramatically....

: earlier i used to blame my skills....but when same method worked beautifully in nifty, i got suspicious and checked deep.....only to discover that stocks are like single cylinder enfield bullet engine that vibrates a lot while nifty is an 8 cylinder coupe engine with all vibrations smoothened....

Rajan: Beautifully explained

Js: nifty can't sleep for more than a few hours....stocks can remain sleeping for years

JP: Just joined....interesting discussiona

Js: that is, perhaps, the reason why they say trade the stock which has started moving....otherwise leave it till then

: good stocks are seeds which should be acquired and planted in one's backyard before they start shooting into trees.....or, in other words, before they start growing even bigger....much bigger

JP: Great stuff..

Js: so, stocks are great for investing.....

: but for trading, only those stocks should be touched which have said good morning....

JP: Veer ji. I wish to be your student...

Murli Chainani: Nurturing explanation

Js: everyone is a teacher of something....everyone is a student of something😀

JP: Amazing..

Js: for day trading in stocks, algo trading is the only sensible profitable repeatable way....

JP: But every one can't access algo..

Js: true....

JP: For non tech savvy ...what is the way out..

Js: if u r determined enough, u can still do it....but won't be a match for equally determined rajans

: for non-tech savvy traders like me, sticking to one day trading tactic and sticking to one or two stocks or just nifty or bank nifty is enough

JP: Yes... Its easier that way

Js: one of the unbeatable advantage of algo trading is that it can throw up a just-awakened stock out of a lot of hundreds and thousands of stocks.....

: since manually u can't match that, it is better to stick to ur favourite naughty stocks

: which almost never sleep...

: it is like asking someone to reproduce a thousand replicas of a handcrafted gun......

JP: 👌

Js: a handcrafted trade will be a masterpiece even before the algo assembly line

: and a millionaire like u jp can always hire a techie to inject ur trading secrets into an empty algo

: i, for that reason, am a craftsman....only nifty, only one trade at a time....unlike the henry "rajan" ford assembly line

: but one day, i'm afraid, we artists will be extinct making way for the rajan robots....who will rule the world.....

: we will be cleaning them after every trading session and earning our livelihoods....

: one day, trading will change beyond imagination......

: we will miss the trading we don now....

Loganathanmoorthy: Very appreciable

Js: like those pit traders of the last century who have tears in their eyes recalling their pasts

Loganathanmoorthy: Trading never dies

Js: enjoy ur every trade....enjoy your every day in the terminal pit....enjoy your every win....celebrate ur every loss....

Loganathanmoorthy: May i know how to get algo p

Js: there are many skeletons available in the market.....buy one and program it with ur method....or get someone do it......

: if u google, u will come across them....i forgot the one rajanji is using....

Loganathanmoorthy: Are you using rajanji algo

Js: i am old fashioned illiterate craftsman trader using free google charts and half empty head...i don't have access to any algo.....it is like urdu to me...rajanji ke paas jaata hoon to chai biscuit ke baad vaapis bhej dete hain...

Arun Singla: 😄😄😄😄😄😄

Js: but someday i will hire a about-to-be-dead software programmer to code my method just before dying without making copies of that program

Arun Singla: 😄😄😄

Loganathanmoorthy: Good, very nice

Js: i still belong to the school of thought that believes that human mind can beat computers in mischief and counter mischieves be it trading or anything.....

Arun Singla: Tajmahal banwa ke haath katwa diye shehan shaah ne...aap bhi aisa hi sochte ho kya 😄😄

Js: yes....fortunately...

: not because i am that greedy or selfish....but because

: the day i openly reveal my method (as if that is a khajaanaa...anyhow) if it is of any worth it will become ineffective as the operators will change the setup...

: operators are like smart bacterium which quickly adapt to the over used antibiotic and change into a newer strain

: a close whatsapp group is harmless

: incubator of ideas...

: my friends as my  guinea pigs😜

Js: just joking.....i know my buddies have a terrific sense of humour

Arun Singla: I m not agree with ur algos suggestion....

Reason:
If trading can be done so easily by modifying algos, all technical experts or programmers from IIT would be millionaire..

It requires patience, discipline, money management and skills to make money..

Algos dont have such qualities, only it can calculate on pre fitted assumptioms we fixed their...🙇

Js: successful trading requires a child's mind....

: a child is a great gamer....

: successful trading is nothing but great gaming.....

: i always say that as long as we are trading we will keep getting beaten....

: don't trade it....play it...like a game....

Rupinder S Raina: Indeed

Js: we are playing on technical or fundamental level and getting beaten up on tactical level....

: a child can beat us all hand down...

: u and me stand no chance....

: the only thing is that that child doesn't know the jargon and is still a child....but given a chance children and make us run for covers in trading.....

: till of course, they continue playing the trades and don't start trading....

: this is the reason why engineers and physicians and ph.d.'s and ias and iit'ians and scientists etc are all losing miserably till operators make them forget who they are....

: i think a chess or kho-kho player or any sportsman can be a great trader...

: any thief or scamster can be a great trader...

: we have had many in history....i don't want to name them

Loganathanmoorthy: Great......

Js: do u think that it is a coincidence that all the top business dons are actually not ph.d. or iit'ians or doctors!!!

: operators play.....u can survive and thrive only by playing....simple

Arun Singla: No they hire for themselves people around all the corners.

Js: they decide the program....they get techie goondas to code the algo and run it

Arun Singla: 😄😄..not techie goondas...the top 10 programmers around the world at their mouth fill salaries..

Js: i recently read "freakonomics" by steven d.levitt wherein he has elaborated how the top dons exploit the poor down-the-ladder poorly paid bonded-labour-goondas

: not that techie techie.....only software is not tech...how to run a mafia operation is also tech

: i was talking of those techies....

: though u qualify for both buddie....

: i know u have great sense of humour too...

self talks

.....whether the market is at 8000 or 6000 or 4000.....only thing imp for  trader is that it should keep vibrating, keep moving.....profit comes from movement unless u r premium eater nd prefer dead movement


....if u can potentially hold a long forever, u never have to book a loss.ur every trade will be profitable. and imagine....u always have more to put in at every dip!!!....this is what Deep Pockets do....

...a sufficiently advanced automode algorithm attached to ur bank account will be like an automatic tap of money....

....swing positional trading is very boring if ur mind runs fast.....but it is most exciting if ur mind's least count is quite large and u tune it down accordingly...

trade stock or nifty?

dear Shankarji,
u have asked

"Majority of people are trading different stocks at one time and losing complete focus and concentration. Will you please give your views and the importance on concentrating Nifty or any stock exclusively"

--

well, i feel in stock market world, there are several totally different mini-worlds.
- stock investing
- day trading in index futures
- day trading in stock futures
- swing/positional trading in index options
- swing/positional trading in stock options
- scalping
- hedging
- arbitrage etc etc

all of these, i reapeat, all of these look similar but are a universe apart...

all of these require different training, different temperament and carry different risk/reward scenario.

different funds / entities specialize and focus on different categories from the above.

i am often utterly surprised to recall how i used to hop between day trading to swing trading to investing to scalping etc etc, just like fugitive who, when wanted by one state's police runs across the border to another trading territory.....only to be decimated wherever he goes.....

grass and trade on the other side always looks greener!

--

coming specifically to what u have asked shankarji,

stock trading is very very different from index trading.

since index is the average of top stocks (floating weighted mean of market cap) it's behaviour is totally different from the behaviour of individual stocks. it is less volatile and more predictable. it's response to technicals is more "true". in other words, index futures responds more accurately to technicals than individual stocks. also, stocks need different indicators to tame than indices.

contrary to a myth, to trade a stock u do need to have a tab on the fundamentals of that stock too besides understanding the macro exconomical factors which can effect them. otherwise, one misstep will take away much more than u have gained in many small favourable moves.

also, since the liquidity of nifty futures is much more than that of stocks, the premiums and market rates of nifty futures are much more "genuine" and much less "inflated" or "distorted". slippages are also quite less.

even among bank nifty and cnxit and nifty, there is heel of difference in scenario!

--

stocks are wild horses while nifty is a disciplined trained well bred stallion.
u decide which one to ride depending upon whether u r a tarzan or a professional jockey!

swing trading thumb rule - I

take the position in-line with the trend at the start of the 2nd week of the series and ride without fear till the end of 3rd week of the series.

is it advisable to trade on expiry days?

dear vadiji

you asked  - "is it advisable to trade on expiry days ?

day trading near expiry is a tough game due to unpredictable, sharp and sudden, often illogical moves.

but such wild movements are only within a band / range which is not difficult to guess from options data spread of nifty.

but if you are looking for swing/positional trading opportunities, these intraday fluctuations don't matter.

outer charts remain largely uneffected. 

expiry volatility is just like air turbulence. if you are reasonably sure where the flight is headed don't worry about the time of the flight. 

digital trading

analog technology was good
but had a lot of limitations
and had to go.
it did, except for traces.

digital techcnology took over.

strangely,
in trading
majority traders are still trading
the analog way.

and not so surprisingly
the operators and big players
are into digital trading.

no,
i am not talking about the trading terminals
or software....

i am talking about the method of trading.

analog style of trading
is trading by tracking the exact path of the market movement
and basing every trading decision
including entering, exiting etc.
on the basis of this.

on the contrary
digital style of trading
is trading without tracking the exact path of market movement
and instead trading from point to point.
it is a simple case of on or off,
all you are interested in is
'has the price reached the target?'

e.g. consider a situation
where the market forces and fundamental factors
are sure to take the market higher from current point A to higher point B
it is no longer a question of whether the market will go to point B
the only questions are
when and how?

if you are trading the analog way
and following every twist and turn and drama of the priceline
caused by operators
like a snake follows the pipe of snake charmer,
emotional roller coaster ride
will cause you to get in out as dictated by the operators.
this is the mother of all trading mistakes
and trading traps.

on the other hand
if you are trading the digital way
and have taken a position near point A
and are not bothered to know and see
which timetable and route the price follow
to reach point B
as long as it does hit point B
you are sure to remain relatively stressfree
and handsomely profitable.

all you need to do before that is

1. get the eyes to know the likely move.
2. change your mindset and habit from analog to digital.

remember, operators trade digital
and make sure that you keep trading analog.

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!

eyepiece, trigger,shoulder and head - II

every morning, late afternoon, evening

and every half an hour in-between

i keep checking

the high-probability turning points

on the 1-month and 6-day chart,

get ready

and wait for

the "trigger" indication

on the 1-day chart.

if the final "execution" signal comes

i pull the trigger

otherwise

i let my photo memory

of what i saw in the "eyepiece"

of medium-term charts

fade away!

eyepiece, trigger, shoulder and head

"use eyepiece on the gun to aim

use the trigger to shoot

stabilize the gun with your shoulder

keep your head cool and calm"

the shooting trainer told the cadets!

--

the above message

after translation

is equally valid

for a trading cadet

"use 1-month chart to aim

use 1-day chart to shoot

stabilize the trade with the shoulder of method

keep your head cool and calm"

how to use the operators!

indicators

and fundamentals

are good

but

only in the waters

where there are no operator crocodiles to rock the boat!

--

since there are no such waters

abandon your plans

to trade blindly with indicators

and

trading all the time!

--

stop trading proactively

and learn to trade

reactively!

--

prepare

to trade

on the basis of

the moves of the operators!

--

will you get any chances this way?

you bet!!!

operators can't stay out of the market!

nor can they desist from bluffing!

because that is the only way they can dodge the small traders

and take their money!

..........this is the exact oppotunity you should wait for!

--

always remember,

any bluff move of the operator is unsustainable!

it has to reverse

in the direction of the fundamentals

sooner or later

depending upon the fuel in the tank of the operator's bulldozer!

--

while the bluff move of the operators

is difficult to be answered

within the tight boundary

of day trading

it is definitely possible to do that

in a space of a few days or more

when bluffs are easily visible

and there is sufficient time for you to take position!

--

so

instead of predicting the market

on the basis of fundamentals or technicals

wait for the unnatural aberration moves

the bluff moves of the operators.

--

while

you can't catch their bluff

before the bluff!

you can definitely catch the bluff

after the bluff!

--

how to identify a bluff?

how to spot the operator's hand?

well,

any anti-logic unexplained move

any overdone move

any unexpected move

any anti-indicator anti-fundamental move

any unobvious move

any news driven sharp move

has a clear hint

of the hand in the glove!

--

but when you spot it

don't make a noise!

just keep your mouth shut

and eyes wide open

and

wait for the excess limit to be touched!

--

this way

while you will never be able to hunt the operators

you will definitely not become their prey

and instead profit

from their efforts!

the best place to call a bluff !

if you hide a small bluff in a small place

others will obviously catch it.

so, there is little incentive in that.

if you hide a small bluff in big place

it is likely to go unnoticed!

besides, why tell a small bluff when you can bluff big?

--

you surely can't hide a big bluff in small place

but you can definitely hide a big bluff in big place!

--

though it is likely to get noticed

it still makes a big trading sense

especially when you are an operator

and the scared

and un-resourceful small traders

are failing to notice

even the big bluff

in the big place!

--

let's come to the point.

operators love day-trading setup

because their bluff is big

while the place

(the time limit for the small traders to catch and respond to it)

is too small

thereby allowing the operators to make a killing.

this is the reason

why day trading is not a safe ground for small traders.

--

but operators are also very fond of bluffing big on big places

they defy fundamentals to dodge the swing players

on the time scale of a week to months!

--

fortunately

this larger playground

also gives sufficient maneuvering space

to the experienced and trained trader

and hence

is strategically the best bet for him!

--

3 ways stocks and indices can move

stock or indices

can move in the following three ways only

1. gap opening (overnight movement) only

2. intraday movement only

3. gap opening + intraday movement

the second type can be managed by the ways mentioned in my post

"high probability entry/exit points"

the first type is slightly difficult to catch except with btst/stbt

positions (not easy to predict - trying to crack the code and will

share with you)

another way to catch the first type of movement is thru swing trading

the third type of movement can be further divided into 4 sub-types

a) small gap opening, big intraday movement

b) small gap opening, small intraday movement

c) big gap openinig, big intraday movement

d) big gap opening, small intraday movement

can't do much about b) and d)

c) is rare but profitable

a) can be most profitable

how

with the ways mentioned in

"high probability entry/exit points"

remember 80% of the gain happens from 20% of the opportunities

meaning thereby,

that we should not trade like a salaried trader

but like a businessman trader

and trade only opportunity.

we have no boss to answer except

ourselves

and wife!

happy trading!

high probability entry exit points in day & swing trading

support-resistance breakout/down and reflect-back

change of direction of price zig-zag

step-up step-down support base points

fibonacci points (stop loss hook support)

trend resume points at extreme william%r

(extended outer) spikes

first pullback

how to judge a trend?

many of my mudraa friends keep asking me how to judge a trend.
many share with me that one of the main reason behind their loss is that they fail to judge the
trend.
so i thought i should post a separate reply for this.
while there are many ways to judge a trend
let me share with you just one or two
the easiest ones!
but before that
let me say share a fundamental mistake traders make
when they are looking for trends!
--
they look for the broader trend
and react on the sub-trend!
your losses may decline sharply by just this one change
- try to judge the trend of the day
and not the trend of "these days"!
--
we lose in a day and blame the week!!
--
there are trends in trends.
the smallest identifiable and tradable
trend is the trend of a few hours.
as mentioned by me in my recent posts,
a stock or nifty can have upto 3 trends in a day!
so, practically speaking you can be wrong in trend picking upto 3 times a day!
so, where is the question of knowing the trend of "these days"?
--
majority of traders take positional trades
which, on an average, lasts for 5 days or so.
at the rate of 3 trends per day
we are talking about 15 sub-trends in one trade!
so, as i was saying
traders take positional trade
expecting one broad trend
on the way
they get a big hit by one big move of the 15 sub-trends
and quit
licking their wounds
and cursing their skills!
--
it is surprising that
these swing or positional traders
are mostly
sitting in front of the terminal
for hours!
(they have taken very big trade bites
and so can't help looking at the terminal every now and then)
--
so if you are available in front of the screen
why not keep checking the sub-trends
and take timely intraday action
to protect your profits and/or investments!
--
now
lets talk about the trend spotting ways!
--
simple,
if the price is below sma 34
the trend can be broadly taken as down
and if it is above sma 34
the trend can be broadly taken as up!
during down trend
you will occasionally see price rising from below and trying to touch sma
and, at times, even piercing it thru!
similarly, during up trend
you will occasionally see price sliding from above and trying to touch sma
and, at times, even piercing it thru!
both these situations don't indicate
change of trend
unless
the price stays well on the other side of sma34
for good time!
--
generally
during uptrend
the feet of the price zig zag
stays above sma34!
and
during downtrend
the price wave hangs from the sma34 line above
like wet clothes hanging with clips from a wire!
--
i find this simple way
enough in most of situations!
both for intraday
as well as positional trades!
i use google finance charts.
(http://www.google.com/finance?q=NSE:.NSEI)
on 1 month chart
sma 34 setting automatically takes 30min tick size
on 5 day chart
sma 34 setting automatically takes 5min or 2min tick size
on 1 day chart
sma 34 setting automatically takes 2 min tick size!
different software take different tick size
and it makes hell of difference!
if the sma34 setting is ok
you will be able to judge the trend reasonably accurately and timely!
--
another way to estimate a trend is
to join the top and bottom points in a zig zag price movement!
if both are falling
the trend is down.
if both are rising
the trend is up.
if both are in opposite direction
then the trend is more or less rangebound
with a bias towards the line which has more sharp angle w.r.t. horizontal.
--
majority trend reading errors happen
because we assume that
price moves in straight line!
this is fundamentally
and totally wrong!
price movements happen
in zig zag movements
just like the movement of a snake
on sand of desert!
we see just one arm in the zig zag movement
and take the fatal decision!
--
trend is a friend
and it pays to recognize one correctly!

swing trading vs day trading

(day trading + btst) x 5 days = swing trading

if you take a long position for swing trading

and market falls

will you intervene?

if you don't

(saying it is swing trading and not day trading)

your account bleeds!

and if you intervene

you are not swing trading

you are day trading.

moral of the story

= there is nothing called swing trading in strict sense

every trading is a superset or subset of day trading.

otherwise it is just a fell-good excuse

for not monitoring

or not being able to monitor

market regularly!

tomorrow never comes

a labourer won

"creator of the year" award

by the stock traders' society

for building

a 100-storey sky scraper!

--

during the award ceremony

a journalist asked

"how did u make such a huge sky scraper?"

he looked around

and replied

"brick by brick!"

--

the entire auditorium

erupted with a big round of thunderous applause!

--

before the applause died

a business tv reporter asked"

is this sky scraper

an outcome of investing

or positional trading

or swing trading?"

--

the labourer

again thought for a few seconds

and honestly replied

"day trading!

i don't know any other form of trading.

my grandfather had told me that none other exists!

he told me that everything else is a multiple of day trading

and an excuse to take a holiday

or to justify bearing loss!!

the builders never give me more than one day at a time

to build a building.

i have just one day at my disposal.

they don't even give me a tomorrow or even day-after-tomorrow!

if things go wrong

i safegaurd and repair it same day

irrespective of how long

the building is going to take

or how long i intend to be in the trade!

if things are going ok

they still not allow me to work more than a day at a time!

day is all i have got

and day is all i take care of and worry about!

the week

and thereafter

the month

and the year

take care of themselves!"

day trading dilemma

chandigarh is on the left of my office.

petrol pump is to the right.

many times,

when someone from the office has to go chandigarh (i.e. left side) goes to the right

every onlooker gets surprised to see the vehicle go in the wrong direction!

but those who know that the vehicle has gone to the right for petrol

and would be coming back to go to left direction

is not bothered about the vehicle going in wrong direction for some time!

similarly,

day traders should go with the car where ever it goes

while swing traders and investors should not bother about these small trips in wrong direction

till the final destination is not changed!

Don't overpay!

One of the best nifty options to buy is

the option which is 200 points (3-4%) "out-of-money"

in the direction suggested by the rsi!

But what should you pay for it?

From my experience, I feel that 15 is a good price to buy!

If it is much more, it is costly.

If it is cheaper, it is a steal!

e.g. the spot (underlying) nifty price after today's close is 5988.

RSI is suggesting imminent upmove.

6200 CE (around 200 out-of-money) is available at 12.

This is a mouth-watering bargain.

Any trader buying this is likely to double, tripple or quadruple (even more) his investment in a few sessions.

Only two cautions:

1. the option you buy should be favourable to rsi's stance.

2. expiry should be atleast 5 days away.

Are you a rebel?

Are you a rebel by nature?

Do you mostly take a contrarian stand in any forum?

Are your views often different from the crowd?

Are you a non-traditionalist?

Are you a loner?

Are you "different" from the crowd?

Do you feel uncomfortable when amongst a herd of people?

Are you more of a leader and less of a follower?

Are you the one who doesn't take things on their face value, but stand up and question?

Do you feel uncomfortable with the status-quo and challenge the state-of-affairs?

Are you a believer of reversal of fortune during bad times?

Are you a believer of change?

Have you been a struggler in your life who believes that good times don't last long?

Are you a suspecting person?

Are you one who doesn't believe things before eyes easily?

Do you get fed up fast with bad times?

Do you also fear excess good fortune due to the pain associated with the ending of good times?

----------

If the above statements are true for you

then

you are probably having difficult time in trading

which is primarily

go-with-the-broader-trend game

where the majority is right even when they are wrong!

and it pays not to be a loner!

it pays not to suspect the trend before the eyes

not to fear the excess good fortune

not to be a rebel

not to take a contrarian stand

not to bother about your views till you know the view of the crowd

---------

where it pays to be one out of the crowd

to be comfortable only when amongst a herd of people

to be more of a follower than a leader

to not to question too much till others don't!

feel comfortable with the status-quo!

believe in the maxim that too much of a good thing is great!!!

"Holy Gambling"

I met Rishant after a long time. (Those who read my earlier posts might remember him as the one who had perfected the art of BTST!)

He came to my office in a gleaming brand new Ford Icon!

And after the initial exchange of pleasantries I was struck with awe to know that he had just bought this car in cash (no loan) from the returns entirely from the "holy gambling"!

"Holy gambling" is the code word we had given to "gambling" he used to do with options once every month.

Once every month he used to buy "deep out of money" 2-3 months away call or put options of a stock which his technical analysis predicted was set for drastically shooting up or down!

He typically used to put at stake 2500 bucks per game per month.

This money he used to "spare and forget" out of his monthly fat salary.

"I assume that I have blown this much less or saved this much extra during the month!" he used to share with me.

"This gives me tremendous entertainment besides often resulting in 5 to 20 times returns in a month depending upon market conditions and my technical extrapolation."

"This is not gambling in real sense. it is the ultimate testing of my technical abilities. Calling it Holy Gambling is just a fun way of branding this low-risk high-returns trade."