alternate trading

(in reply to a query)

http://www.mudraa.com/singlepost.php?messid=152809

dear chandrasekaranji,

very valid points. thanks for sharing.

i have given a lot of attention to these considerations in recent times. that is why i say that retail traders are playing on technical level and getting beaten at tactical level. 

i do not rely too much on technicals these days. 

one of my friend in a south indian city has a friend in a european stock exchange and is a top notch software professional. his job is to program and test and improve and manage the software for the top FIIs/ Banks which invest globally. his is quite a "secret" and "sensitive" job. he once told my friend that he comes to know whenever those big fat honchos are about to buy or sell en'mass. he told that they have all the info globally before hand. he told him that big men know it beforehand and make it happen for rest of the world. no amount of technical study can predict what those "doers" are going to do.

technicals are boys toys to self amuse. they do work but not sufficiently.

therefore, i have been working for the last several months to find ways to know DIRECTLY what the "operators" are going to do rather than "INDIRECTLY" trying to guess thru technicals what they are likely to do. 

i don't think that there can be more "scientific" way to do homework for trading! 

and trust me finding the shadow or fingerprints of operators is not impossible if you go all out with that focus. have found 2-3 and working to develop the details. 

regards

operator truths every trader should know

- in day trading or short-term trading 1-2% people make the other 98% play.

- they know things beforehand....amazing....but not for them...call it insider information or whatever.....they bloody know all the crucial info....in toto...!!!

- they have got super powerful computers, software and networks (highly guarded with access denied to outside the coterie). they have links and access inside not only one or two but all the principal companies of all sectors across countries across continents. afterall, the money is one only....you can trace the roots of almost all the money to a handful of banks and entities.

- they have got practically unlimited money at almost zero interest! (how about that facility)? actually, they are the insiders, everyone else on the planet is the outsider!

- they don't worry about developments and news. they know the developments and news beforehand. many of them, they shape themselves. those which they don't know or can't influence don't effect them much. do you think governments anywhere can take any decision which is contra to their interests?

- businesses are as much as for the profit from the manipulation of stocks than from the profit from the primary production and distribution.

- operators don't buy options, they only sell (write) them.

- they don't choose which options to sell. they sell any option and as many of them which retail traders are willing to buy. only thing they control is the premium. they put much higher premium in the direction they don't want to go. this way they control the volumes in a particular direction.

- operators don't decide on the time of squaring the option. that is decided by the retail operators who bought it. they square the option and as many of them which the retail operators wish to square off. again, the only thing operators control is the premium at the time of squaring off. they put higher premium on the side which gives less benefit to the retail operator.

- the money is made by the operator not at the end of the series but continuously and non-stop at every second of the trading day in every single trade....they keep making money drop by drop, second by second....it is a myth that operators make a killing in big shots.....they don't....they keep making money by bleeding non stop without much ado....just like rivers are formed by drop by drop melting of snow over vast stretches of glaciers.

- operators are there because retail traders are there and in that proportion. otherwise, operators would have been forced to work only as VCs (venture capitalists).

- operators control/move market in 4 ways
a) actively buying
b) actively selling
c) refusing to support buying
d) refusing to support selling

- when they want you to participate, they don't move the market fast. and when they don't want people to get on board and still want to change the levels/altitudes of the market, they move it very swiftly by controlling bid prices and accepted prices......obedient army of computer networks do that.

- it is extremely difficult and impractical for a retail trader to trader after considering all factors at play. they can't. even otherwise they will go mad doing that. they have to find a tactical and smart and clever indirect way.

- operators don't like smart, clever, stable, silent traders.

- never panic....fear switches off the mind which alone can take on the mighty operators.

- if you don't have your own knife and fork to trade, don't sit at the table.

news and effect

technicals don't worry about news. 

any "news" is inbuilt in the technicals. 

as they say "charts know that the news is coming."

what actually happens is 

that if the operators and big pockets are willing 

small news is magnified big time, 

and if they are less interested even big news fizzles out.

small news, small need = small or no effect

small news, big need = decent effect

big news, small need = small effect

big news, big need = big big effect

don't play their game

it is true that the trading challenge is very difficult indeed.

almost impossible but not impossible.

while "Trade with the operator robot not against him" sounds right i beg to differ.

working against or with the "robot" are actually similar things.

(i didn't say same but similar).

the "robots" (read operators) don't let anyone guess what they are going to do, how, how much and when.

at times, they themselves don't know.

their algorithms decide that on realtime info.

so, if you knew what they are going to do only then you can be "with" them.

but herein lies the paradox.

if you couldn't know how you went "against" them, how could you go "with" them?

or

if you can go "with" them, why did you not spot their game and avoid going "against" them.

whatever you do the robot will catch you on the wrong foot. 

fortunately, there is a silver lining (there always has to be)!

instead of worrying about being "with" or "against" them, just ensure one thing - 'don't play their game'

in other words - trade as if they were not there!

trade without reacting to them.

play "with" law of probability, law of averages.

don't let the market fluctuations dictate and skew your trading decisions.

stick to one or two or few principles, hold the hand of probability, go ahead and trade.

who can scare the trader who refuses to look in the eyes of the bully?

are you trading against a robo?

whether you know it or not
whether you see or feel or experience or spot it or not
you are!
you are mostly trading against a robo!
an algorithm
a super-software!!!


welcome to algorithmic trading!


also known as algo trading or blackbox trading or robo trading or automated trading.


what is this?


simple......a super software, a highly intelligent superfast calculative algorithm does trading for you
while you sip coffee, play golf or take a nap or just watch the screen.


almost totally automatic trading.


all trading decisions as to what to trade, when, how much, at what rate........everything is decided by the computer, the algorithm, the software.....without any human intervention!!!


just like "deep blue" or "deep thought" super computers played chess against Garry Kasparov.


the only difference.....chances are that you are not Garry!!!


rather, in this case, the Garrys have teamed up with Deep Blues + Deep Thoughts to play against...........


.......well you guessed it right......poor you!!!


major fii's, pension, mutual and hedge funds and others don't trade......they algo trade!!!


they sneak in or out big elephant or dinosaur orders in slices with computer precision and stealth.


this they do to manage and manipulate the market and leave almost no footprint by making sure big entries and withdrawals are almost unnoticed.


algo trading makes sure that you see minimu spikes and dips in volumes while mammoth trading takes place.


these algorithms are so powerful that they are programmed to calculate a hundred things and manage "the game" in such a way that they always win!


these algorithms are designed to initiate lightening fast action on dumping on buying shares on the basis of news received electronically.


e.g. before even before human bank management comes to know of an aberration in the liquidity, these algorithms see it coming (courtesy their computational power backed by the intelligent programs) and trigger the action.....even before others come to know of it and understand it!


this is known as 'high frequency trading' (HFT) and has dramatically changed the world of trading from inside!


couple this the astronaumical advantage with money power these giants have!


according to a top consultancy firm, 73% of all US equity trading volume is algo trading!!!


in some other markets, the % trade volume taken care of by algo trading is even higher!


some of the recent crashes and abnormal moves are alleged to be caused by algo trading......rare chances when the secret gets spilled out!


and we haven't yet talked about algo bugs - intended or accidental!!!


welcome to the world of algo trading! 


the robo is always waiting for you. he can't see you.....but he can definitely feel you


when you get squeezed gently by him!!!

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.

in search of stockmarket lie detector

i was just surfing for apps for my android.

and i came across

"lie detector".

i checked for the details

and before i could press my grey cells,

i read that this was an app for prank only

and not a real lie detector.

well, well.....

but there are real lie detector gadgets and machines......

(ones they put to great use such as "sach ka saamna" etc.)

---

i wish they had a lie detector

to catch the bluffs and lies

of nifty moves

forced by operators.

---

while no such reliable lie detector has been invented as yet for the markets, i presume

(though some may be around for prank purpose)

for the time being

till one such is invented

it is suffice to assume

that there are some, if not many, and if not all

moves that are not just lies

but white lies!!!

---

just because we don't yet have a lie detector test for the markets

doesn't and shouldn't mean

that there are no lies floating around!

---

and if there ARE lies

why distrust our skills and sensitivities

at the time of 

stoploss triggers?

whats happening on the top floor?

one of the automobiles showroom in himachal
is 5 storeys high.
or should i say
5 storeys low!

the top floor is at the level of the road
while the all others are below road head.

this showroom is a masterpiece of sort
considering the topography it is located in.
amazingly, all floors are drive-in.

top two floors are showrooms
and bottom three are for service, repair etc.

when this was built
the architect had clearly told
not to park more than 8 SUVs
on the top floor.

each SUV has the weight of a monster
and the bottom pillars were designed to withstand
as much weight.

any more SUV on the top floor
could put the entire building at the risk.

but i noticed it many times
that due to space constraints
especially during festival seasons
safety norms were often thrown to winds
and much more monsters were accomodated on the top floor
than the stipulated limit.

the people on the four floors below the top floor
usually remained unaware of the dangerous situations.

they never ever had the hint
often that they were so close to a mishap.

they never had even a slight hint
that their safety had been often put at stake!

all the time
everyone on the lower floors
remained oblivious of the always lurking threat to their life.

since the pillars never gave way
and since festival seasons came and went away
and since nothing ever happened
the innocent guys down under
still don't know
what all threatened to happen but didn't.

for them life continues
ignorant of the real undercurrents!

--

same thing happens in stock markets.

stock market universe
is multi storeyed.

while policy makers, promotors, trading houses, brokerages etc. occupy the second from the top floors,

there is no doubt who occupies the top floor!

obviously, the fii's and the deep pockets.

also, there is no doubt about who occupies the bottom floor!
the poor retail traders!!!

the poor chaps never know
how their safety and financial life
is threatened day in and day out
by those on the top floor.

they never knew,
they don't still,
and will, probably never ever know
what financial burden is being put on the economy pillars they are standing
by those at the top.

the poor chaps will either never come to know
or will find themselves buried under collapse.

what they will never come to know is
that those on the top floor
ran out of the building
just before the collapse.

importance of volume in trading - I

many traders give a lot of importance to volume.

i always paid minimal attention to volume.

my attitude towards this important parameter got a shot in the arm when i heard an interview of a veteran successful trader who too, like me, didn't give importance to volume.

still, hearts of hearts, i was not comfortable avoiding looking in the eyes of
"volume"

today, i finally decided to bite the bullet.
i spent some good hours studying the phenomenon called
"volume"

and here is the synopsis of what all i read or thought or discussed with my core circle.

--

if price is rising and you simultanousy see rise in volume

it doesn't mean that buyers are more than the sellers.

rather, for 10 trades, there have to be exactly 10 buyers and 10 sellers....always!

infact, as you know, rise in price means that the desperate buyers have found reluctant sellers......resulting in rise in price.

and rise in volume means that more buyers were bitten by the desperation at that price point.

as martin pring says, volume and price are two independent entities.

price can move with or without rise in volume.

lets take an example.

these days bananas cost 40 rupee a dozen in shimla.

not too long ago, they cost 20 rupees a dozen.

if today 2500 dozen bananas got transacted in the fruit market when price was 40/- a dozen

what would trade volume you expect the next day if the price falls to 35? 30? (assuming other factors remaining constant and desperation of banana comsumers remaining the same.)

well, obviously, you will expect more banana fans to be interested in buying at lesser rate.

what if the rate tomorrow falls to 25? 20?

well, the volume will shoot up!

it might shoot up to the same trade level as it was when the price was 20 a few days back!

afterall, 20 rupee was the latest "support" price of banana.

so, does this rise in price really indicate that the bottom fishing is taking place and the price of banana will rise from hereon?

not really, in my opinion.

trade volumes of banana rose at 20 because 20 rupee per dozen was the latest support price for the fruit.

in other words, the volume of desperate banana lovers just shot up at a perceived bargain price!

price can still fall and fall big!

having said that, volume still signifies some crucial things

1. the price-value perception of public.

2. expected behaviour of buyers at support and resistance

does volume shoot up indicate fii/dii/big player position change?

yes and no.

yes, because generally fii's/dii's trade big volumes.

no, because fii's are known to accumulate or distribute, not "buy" or "Sell".

the difference being the manner in which they sell or buy....the stealth!

the sudden spike may just be a big deal which had reached a "target" price.

fii's buy when it doesn't show.

fii's sell when it doesn't show.

the best time to sell or buy may be when the volume is low......





(to be continued in part 2)

never trade without having lunch

when i learnt to play chess seriously around 20 yrs ago

one of the first things i learnt was

that a chess game can be broadly divided into three phases

1. opening game

= opening game generally lasts around 15-20 moves. as the name suggests, this is the opening phase when positions are taken and army is deployed. the first move previlege lies with the white camp. the black camp just responds to the opening moves of the white pieces. the white camp is the decider and attacker, black camp is the responder and defender. how the middle game will proceed, what colour the war will take depends on what shape the opening battle takes. since there are dozens (if not hundreds) of opening moves possible, there can be so many number of opening scenarios. the white camp tries to create a battlefield scenario of its choice. the purpose is to lure and trap the enemy in a situation decided by the first mover! it is rare to see the white to attack the black camp in the opening game or vice versa. particularly if the opponent is not a walkover. even kasparov didn't dare that (except rarely) against karpov. any attack without porperly unfolding and readying the defense can be suicidal especially against a strong opponent. so, all in all, opening game is to open and deploy the defence as well as offence.

2. middle game

= middle game takes over from opening game. it typically last for 20-30 moves after the opening game. once the army is deployed and the specific position-for-the-day has been taken, the real battle starts! all tactics, strategems and killings are made in this part. the real loss or gain or manoeuvring happens here. how well, the opponents had read each other and prepared in the opening game shows up here.

3. end game

= the game is all but over by the end of the middle game. though one opponent would have did a collateral damage to the other in the middle game, the game still needs to be won comprehensively. no battle is over till the king is captured or killed or check-mated. some smart warrior kings escape daringly even even from seemingly hopeless positions! an end game generally lasts 10-20 moves but much lesser time.

--

day-trading setup is also like a chess game.

one prominent difference = retail traders always play with black and can only react and respond to what the white camp, the operators do.

another difference = retail traders start attacking the white camp, the operators right in the opening game.

third difference = here the kasparovs or the karpovs or the anands play against novices!

a trading day can be divided into three phases

1. opening phase

=  opening phase is the one when the operators set the battlefield for the day. everyday, they come up with a different trap. everyday, the setting and situation is different. in the opening phase, operators butcher the retail traders who come charging without waiting.....just swept in the rush of blood. opening game is the phase which is often deceptively contra to the trend. this is the time when dreams are sold by the operators. mirages and expectations and desires of retail traders are treachorously fanned and fuelled by the white camp. and when the trapping is complete, the middle game is a one sided affair. when the operators just trap the early blind moths desperate to enter the fire!  

this opening phase of trading typically lasts till the midpoint of the session - the lunch time!

2. middle phase

= once the drama, the bluff, the trap, the volatility, the contra-dream, the lure is over in the morning session, the operators are left with no option but to do what sanity and trend and fundamentals allow. they swifty start doing what they should be doing.

3. end phase

= like a chess game, the trading end game is just a small tail.....more of a formality......sometimes to dress the wounds of the loser....sometimes to kill him decisively. mostly it happens after in the last half hour or so.

--

big moves happen mostly in the afternoon. what happens in the forenoon session are not big moves but bluffs and whipsaws.

you will rarely see direction changing (except once at most) in the afternoon session.

you will always see big move after lunch whereas you will notice that forenoons are mostly dull or indecisive or rangebound.

--

amateurs mostly trade in the opening phase, professionals mostly trade in the middle phase.

--

whipsaws are aplenty before lunch and rare after lunch.

avoid trading without lunch, before lunch.

opponent from a different dimension

90% of the technical traders
lose in the market.

pity
that they take their defeat, failure and loss
itself as an indicator
of some deficiency
in their knowledge and application of indicators and technicals.

result?

they get back to
burning themselves
as well as the midnight oil
to learn more of technicals and indicators.

poor souls!
little do they know
that they are losing the trading battle
less on the technical front
and more on the tactical front.

they are trying to catch the market
with technicals
while the market is dodging them
in another dimension....
tactics,

beating the traders in three ways
- whipsaws
- directional dodge
- unpredictable behaviour

no technicals can make a net
that can catch the liquid fish.

need to catch the flow
from its weakness
....the flow
the irresistible urge
and compulsion to flow
the bad habit to dodge!

(niftyshots.blogspot.com)

earthquakes don't kill

long ago
i had read a sentence that hit me hard and stuck inside me
deep.

"earthquakes don't kill, falling structures do."

i remember it was an ad about earthquake resistant structures.

i recalled this super sentence a few days back
while studying how market movements kill retail traders.

so i translated the above line
inline with what happens in the markets.

"price movements don't kill, whipsaws do."

yes, that's true.

if price movements in a particular direction killed,
atleast half the traders who were in the opposite direction trade
would make money
while the those who were in the wrong direction
would quickly change theirs.

but curiously,
traders in both direction lose.
rather steamrolled!

why?

whipsaws!!!

rapid, unpredictable and trapping whipsaws!!!

if you draw a number of horizontal lines across different heights on a intraday price chart
you will see

- that this horizontal line cuts price many times during the day.
- that farther the line from the centre of the price movement of the day, lesser times it cuts the price and hence lesser the number of the whipsaws.

but it is not clear in advance where the centre of the price movement of the day will lie!

all these months and years i had been focusing my attention in trying to predict the next move of the price.

but after the above realisation, i have changed the pressure and focus of my technical force towards anticipating not the price move but towards anticipating the line of minimum whipsaws.

the great tamasha!

a madaari was amusing the non-traders
by making the captive monkey
dance to his tunes.

he was shaking the dugdugi of technicals with one hand
and beating the stick of fundamentals on the ground.

all the while
the poor simian
was being held from the neck
by the long rope of his own money
held firmly
under the foot of the madaari!

the non-trader public
instead of getting amused at the dance of the monkey
stood shocked to see him amused
at his own plight!

the fellow monkeys at some distance
see their buddy dancing.

they also see bunches of bananas
in the madaari's bag.

they too are dying to come
dance
eat the bananas
and join the party!

(niftyshots.blogspot)

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!