trend check?

one of the most popular, most important and least understood and confusing aspect in trading is.....trend.

"trend is your friend!" it is said. but just as in normal world, it is difficult to know who is your true friend, it is equally if not more difficult to know what is the underlying, undercurrent, true trend of the market as of now.

trading without knowing the underlying trend is like para-gliding without knowing the direction and speed of the wind.

as i said in one of previous articles, if you are pro-trend even your blunders are likely to be pardoned. even if a new trader knows nothing about the market, he or she is almost sure to make money if only he or she takes pro-trend trades, sticks to it and doesn't vibrate too much (which market tries hard to make you to).

while a pro-trend ill-timed casual trade is likely to give profit (or atleast little or no loss), a well-timed studied pro-trend trade can give snowball profits washing away all self-doubts.

trend is decided by the market forces endorsed by the operators who know almost all.

and many a times, the trend is not obvious, by choice. market fluctuates a lot making the retail trader believe that either there is no trend or trapping the poor fellow take the wrong trend as the trend.

how is trend decided? 

i pondered over this question for many many months and came out with different answers. i knew that the key to trading success lies in the lock of "trend". over the time, i shortlisted and devised some methods to know the real trend.

the three top shortlisted tools for knowing the real underlined undercurrent trend are:

- moving average

- rsi

- options premium data analyses

but curiously, but not so surprisingly (after you read the game plan of the operators putlined below), all three parameters above are not awake at the same time at any time. i guess this is deliberate, to confuse and trap the prey.

while there are many other ways to know the trend, these are among the best. for these tools are effcient in knowing a hidden, camouflaged or subtle trend as well.

and the good thing is that all three of these are technically and genetically different and hence independent and without influence from each other. 

in my blog www.niftyshots.blogspot.com, i will henceforth, try and share regularly trend for the current nifty series based on my study of the above parameters. since trend changes max 2-3 times a month, don't be surprised if the updation about it in the blog is not daily. so, when i share the trend direction, it indicates the trend on that day / during those days of that series. it may change after a few days as and if market decides for the same.

also, note that i call the trend - underlying trend, because many a times, a trend is either not obvious or not visible. for major portion of the time, operators will not like to let the trend be known. after all, operators are against the majority. and they want the minority to be as small as possible. they will try every trick of the trade to not let you know what the trend is going to be before the explosive breakout or breakdown. or, they will not like you to know that they are accumulating or distributing. accumulation and distribution phases happen before the trend is actually visible. 

what this means is that a trend is there even before it appears on the screen. also, a trend may be there even when there is no movement on the graph. just like a snake which is alive and waiting with held breath, even when it is motionless. not only that, a trend may be up even when the market may move 50-100 points down in one or few days.....vice verse is also true. 

operators do whatever is possible to keep everyone confused. they want you to take wrong sides. and once having done that they tend to move the market so fast that everyone is left stranded behind high and dry.

having said that, i want to end by saying that while operators do a lot of things to confuse and trick retail traders, they leave a few clear, inevitable and shameless clues that reveal the trend for the keen silent emotionless motionless eye.

happy "trading"

how and from where i learnt options

( in answer to a question)

see, i just studied options in a simple way. 

i learnt the basics from various websites thrown up by googl e.  first i learnt the basics from there and then i tried to learn strangle, straddle etc. but soon i realized that those advanced combinations are for deep pocket fii/dii/hni's....besides being complicated and risky.......and foolhardy. 

then i realized that even plain options are very powerful if only one's fundamental method is strong and well developed. so, i just focused on and learnt the basics of options thoroughly. i learnt their behaviour by continuously monitoring them in different situations. 

i realized that learning a tool very very thoroughly revealed powers of it which are much potent than the complicated combinations of the same. 

complicated strategies are only an alibi for lack of a sound basic method.

....and all this i learnt using my own head....with a lot of trial and error and hell lot of practice using just the fundamentals of the idea/concept behind "options".

and while i was on this grand exciting journey or reinventing the wheel of options, i came up with some original and powerful new ideas, tactics, strategies and insights.

fundamentals of anything has the seed of all advanced greenshoots. 

i tried many websites and a few ebooks on options but all seemed to confuse me beyond the basics. just like you can catch the truth behind a person from his body language, you can see thru a book from its word-language.......and these books were definitely lacking "self-confidence" and conviction about what they were preaching. and all were the same as far as the basics were concerned.

best wishes

option screw drivers to suite the need

when market was @ 5445spot today, 5400pe was @ 19
when the market slipped t0 5395 (50points), 5400pe rose from 19 to 33 (14points)

when the market was @ 5405spot, 5300ce was @ 121
when the market was @ 5415spot, 5300ce was @ 135
(14points)

14points in both
but total movement in the first was 50points
and in the later 15points.

same result, different effort.

in the first case, i was less sure of the move,
so i bought cheaper slow moving option.

in the second case, i was more sure of the move,
so i bought costlier fast moving "overdrive gear" option.

that's the beauty of options!

flexibility......
different screw drivers as per the need!!!

how many lots?

Dear all,

This is to emphasize that when I buy cheaper at-the-money or out-of-money options I don't buy more lots than I would have bought had I bought costlier in-the-money options.

I buy cheaper options when I expect comparative uncertainty or volatility, or when the situation is less clear.

By buying cheaper options I put lesser money at risk.

I buy a lot of cheap option lots only when I want to gamble big time with controlled risk, like I did when I bought 5100 pe lots for less than 9rs on expiry day on 26 July which rose to 61rs.

just because i was ready to deploy larger amount in costlier options doesn't mean that i buy more lots of cheaper options just to deploy all that amount.

Best wishes

why i prefer to trade in options instead of futures

* safety (especially large unforeseen sudden moves)...and hence peace of mind. you thereafter never trade with "scared money".

* more leverage of capital

* adverse movement is lesser than the pro-movement for the same movement of spot.

*  more effective stop loss.

* lot of flexibility viz. a viz. which option to buy 

* deeper in-the-money options have much less premium and move as much as futures.


* options have inbuilt stoploss.

----

all i have to guard against is the time decay.

fact of the matter is......

+600

+200

-300

-0

-600

+0

+300

-200

-0

+100

-100

-600

-100

+400

-400

-200

+500

+100

-100

-100

-300

+300 = june

given above are the net series-end to series-end nifty spot change values in last 22 months

few points worth noting

1. average net change in nifty=250

2. more than 400=6 times

3. zero to 100=9 times

4. 200-300=7 times

5. more than 600=none

6. options buyer don't have a chance. the small movement is enough to make any option premium unrecoverable except by writing. that too is risky and needs a precision strategy.

7. you can't predict the direction. by the time you know, it changes

8. you can't predict the extent of change, by the time you know, it ends.

9. the "game" is made for option writers and not for option buyers. in fact, only those option writers have a chance who have unlimited funding and smart auto-software.

10. you move, market kills you. only chance you have : you stay still, let market move.

11. if you make 33% of the 100% move of the market, you are a genious.

12. level of a genious is inversely proportional to the complexity of the strategy.

13. there are 9 of 22 times (41% approx) chance that you will not get any chance to make money (encashing the chance is another question altogether)

14. all big moves are unpredictable and hence uncatchable. doubt will freeze you or checkmate you.

15. options and futures are tools of the operators......bait to hook the fish.

all (non-operator) traders are playing on technical and fundamental levels

and getting beaten on tactical level.

is averaging an option good or bad?

in my opinion, averaging the option is neither good nor bad.

lets assume you buy xx00 call.
it drops from 40 to 10.
you were either wrong in judging the situation or unexpected unforeseen was forced by operators.

you study the situation again
and now find that it is much better time to buy again.

should you buy xx00 call now? again?

well, yes - if you know what went wrong in first trade.
no-if you don't know what's happening.

the first trade might just be a case of right judgement of a move but wrong timing.

i have seen that non-trending markets turn often and decent.

have seen options drop from 100 to 50 and again go up to 225 (example).

if one doesn't know what's hapening, what happened, averaging is bad.
if one knows what happened, averaging is good.

ofcourse, need for averaging shouldn't have occured in first place. correct averaging helps in recovering a loss with lesser difficulty. also, risk of averaging at low price is low.

understanding "options" again

an option is the bet, the premium, the "black" that a particular level "will come".

just like betting in on a particular team in cricket (though illegal)

e.g. cuurent market price (cmp) for nifty =5278

5200put is available for 28

what this means is people are willing to pay 28 rupees as a bet that 5200 will come.

similarly the bet amount (can also call it premium) for 5100.5000.4900 puts is 13/-, 7/-, 3/- respectively.

also, the 5200 call march series is available for 122/-

but 5200 has already "come"

we are already 78 points above 5200. so 122minus78=44 is the premium people are willing to pay to buy the asset named 5200call. now if, at expiry, market is at 5700, all traders who are holding the "tickets" of 5200 call would be eligible to get 5700minus5200=500points. not bad if you paid just 122 for buying that ticket.

if the expiry were to take place at 5278 itself, the 5200call ticket holder will be entitled to 5278minus5200=78. only the premium, the "black money" paid to buy the ticket will be the loss.

when you buy a call below the cmp, it is called "out of money" as you pay only the premium, the bet, the black

when you buy a call below the cmp, it is called "in the money" as it has already come and you have to pay both the parts = 1. the amount by which it has already crossed the current market price, and, 2.the "black"

reverse is the case with "put".

"call" is the name of the ticket when you bet that market will go up. (call up)

"put" is the name of the ticket when you bet that the market will come down. (put down)

how to remember = "CALL UP and PUT the phone DOWN"

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.

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 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

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.

===========

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!

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