my market philosophies

- market doesn't know whether you are long or short. so, rest assured, the market is not after you. since it can't see you (the individual), it is not thirsty for your blood and money. you are yourself running scared and coming in the way of the speeding trolla like a street dog. remain cool and perch atop the moving beast.

- market will either go up or down, it has no third way. so, there is always 50% chance of winning. all we have to do thereafter is to try and improve that percent.

- we are playing on technical level and getting beaten on the tactical front.

and how i am fighting back with them

this is a sequel to my earlier article

"how market beat my best tools"

http://thebestbusinessintheworld.blogspot.in/2012/07/1.html
http://www.mudraa.com/trading/139606/0/how-market-beat-my-best-tools-js.html

the limitations of the tools as discussed by me in the above mentioned articles are not deathknell.

they are real and necessary evils which i accept.

and have resolved to use as contours of a strategy.

1. rsi / william
= i stop following them at the first sign of "bermuda triangle" effect. for rest of the occasions i continue to trust them.
in fact, by not behaving in the copybook fashion, rsi and william tell me silently and indirectly what i should know.

2. options data spread
= don't look at it for first 7 days. thereafter, the sting is generally out.

3. 8-34 sma
= using this to segregate between up and down trends and rangings
and hence take btst stbt and pro-trend intraday shots
also, using this as a confirmation tool.

4. elliot wave
= use as a guide and confirmatory tool to double-check trend and thus take better shots.

5. intraday options data
= i don't use it at the start of trends (range breakouts and sma 34 crossovers)
for rest of the times it works ok especially if i resist the temptation of anti-trend bait by it.

6. yesterday range breakout
= they are less but that is not their fault. just can't say no to those. take it as per availability.

7. btst
= take these and increase the number of profitable trade beyond the "yesterday range breakout" ones

8. call/put options strategies
= just buy plain vanilla options for intraday and btst stbt. risk is limited to give sound sleep and time decay is minimal.

how market beat my best tools

1. rsi / william

= this is one deadly combination.....my pride.
it speaks to me. it tells me a lot of crucial info.
but after prolonged use and going thru quite a few seasons
i found that operators can bull doze these!
operators create extended periods of time when this combo becomes ineffective
like the bermuda triangle where compasses and altimeters and other instruments are reported to stop working or go mad!
when market comes out of its "bermuda triangle" this combo starts working perfectly as if nothing ever happened.
but when do the operators take the market plane in and out of the triangle makes it highly stressful and unprofitable.
following the instruments when you don't know that the readings in them are faulty can and will crash you!

2. options data spread

= i have cracked a code in this and love it.
just like rsia nd william combo above, many a times i found that operators bulldoze what options data spread say.
however, the probability of this happening in the first half of a monthly series is much higher than in the second half
when the operators dare not get caught in their own net they have woven in the first.

3. 8-34 sma

= this is one simple and hell of an effective tool in my armoury.
it works perfectly well in trending markets but is prone to the "bermuda triangle" effect during ranges!
however, its bermuda triangle is different from those in the universe of rsi and options data spread.
so this seems to work where others fail and struggles where others work.
this is one of the best tools but has a serious shortcoming - you can't leave the terminal!
you can't be a swing or positional trader with this and have the luxury of switch off the terminal and go shopping!
you have to keep glued to the screen and keep revising the trailing stop loss or SAR order (stop and reverse - but always in the trade). also, this method has a success ratio of around 40% with rest 60% being whipsaws. but as a consolation, 40% yields large profits and 60% throw less loss resulting in handsome returns. all you have to do it.....follow without head.....just keep following what it does.....even when (inevitably) it frustrates you and generates giants waves of self-doubt during whipsaws. consistency and mental toughness is the key with this simple but powerful tool.

4. elliot wave

= this is a very fascinating tool.
it seems to work most of the time. and when it works nothing feels better in the world. but the trouble is....when it doesn't, it
shatters all the confidence you have gained till then. doubt is always there. still, when it seems to be not working, if you convince yourself that the markets are trying to make a bigger and outer wave, you may be damn right and continue to love this tool. but still, i have seen many instances when this tool is bulldozed and silenced by the operators for some days or weeks. and that is what does the damage...tot he confidence of the trader and his or her bank balance.

5. intraday options data

= this one is a simple and promising tool for intraday but i have seen this failing during start or resumption of the rallies. its
success ratio, therefore has been around 40-45% (which is enough to put you off). still, i use it as an advisor tool.....like a
superstition you know may not work but gives confidence.....more of a habit!

6. yesterday/today range breakout

= yesterday range breakout is reasonably accurate but happens only 5-6 times a month. even then, the move may not be that big. so can't depend on it too much. can't make it the central theme.

7. btst

= i base my btst stbt decisions on four factors. 1)william% r movement on 5min chart, 2) pro-trend, 3) rsi-wlliam combo reading, 4) false sma crosover.
this is the least stressful game. however, clear signals of chances of a decent move are 6-8 per month. still, that is not bad and
this makes this better than others.

8. call/put options strategies

= these are complicated and work only if you have guessed the weather of the day rightly. e.g. different combinations are required in case of range bound movements than in sharp unexpected moves. also, chosing the right boundaries of options you select is crucial. options arena is designed and heavily tilted towards options writers/sellers and that too professionals which have practically unlimited money and sophisticated softwares to manage it all.

which chart timeline to see and when

there are generally the following timescales in charts i see
- 5 year chart with 1week least count (tick size)
- 1 year chart with 1day tick
- 1 month chart with 30minute tick
- 5 day chart with 5min tick
- 1 day chart with 2min tick

5 year chart is for overall general viewpoint and not of very much practical value except for investors.

1 year chart is very good for positional traders who take monthly positions

1 month chart is best for swing traders who take positions for a few days

5 day chart is best for intraday or 1-2 days only

1 day chart is only for finding the exact timing for intraday.

just like the maxim "boss is always right"
if the smaller timeframe chart doesn't work
look at the outer timeframe chart fort he answer.


these array of chart timelines are just like the optical zoom in your SLR.

2x, 4x, 8x, 16x, 32x, 64x, 128x zoom
the more closely you want to see.....zoom in
and farther and broader you want to see......zoom out


never follow any son chart blindly without crosschecking the permission of the daddy chart.

don't have indicator boats? ride elliot waves!!!

if u r not a friend of indicators but still want to conquer the trading fort
try elliot waves.
one of the simple explanations can be downloaded from
http://www.acrotec.com/ebooks/elliottwave_en.pdf

gtalk

JP :
Banta Singh went to an eye specialist to get his eyes tested and asked "Doctor, will I be able to read after wearing glasses?"
Yes of course, said the doctor, why not!
"Oh How nice it would be I have been illiterate for so long" replied Banta with joy.
Me:
Ha ha....same thing happens when people enter stock market, wear technical glasses and expect to read profit without getting literate about trading psychology \
SA:
sir i am not active trader
guide me where can i learn technical analysis?
Me:
let me give u a different advise. don't learn technical analysis. observe price movement for many days and ur own methods will pop in ur head.

SA: ok
you mean i have to observe after trading hours?
Me:
observe before during and after trading hours, gradually ur trading gut will get subconsciously programmed. just like some of the best auto mechanics in my town are illiterates but are most educated by their experience and observation
SA:
ok sir
sure
thank you very much for your guidance
observing NIFY only enough right?

Me:
u r welcome!
yes observation is the best education. killer training!
=============================================
u can gtalk with me @ jagmohanshan@ g mail.com
for my view on nifty keep track of my updates in mudraa.com
for my nifty views and links to articles in mudraa send ur cell no. to 09418037474
Js (niftyshots.blogspot)

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 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

trading bicycle!

sometimes (if not always)
if u have power in your pocket
you are tempted to use it.
in stock markets
those with money
have the power to take a trade.
amateur traders
succumb to the lure of using this power
almost everytime!
they are "instigated" to use them!
-
i too have been through this phase.
i just couldn't say no
to chocolates, icecream and indicator signals.
overwhelming majority of signals from the indicators and methods and tricks i learnt
turned out to be right.
but i was still not making money
atleast not considerable amount.
much less than what was possible!
i always wondered what was the reason
till i realised
that 80% of these "signalled" trades yielded
just 20% of the profit
but 80% of the trading costs!
besides, these 80% calls caused 100% of the stress!!!
i realised
that i had to reduce my number of trades.
i realised
that i had to find a way
to spot the hollow (though right) signals!
this seemed more difficult
than learning trading!
acquiring power is easy.
taming mind not to use it at the drop of the hat
is difficult.
-
and then, one fine day
the solution was right in front of me.
i recalled, remembered
(this fact is the easiest to notice
but the most difficult to follow)
that
prices move in cycles.
i am not talking about seasons
though they are included herein,
i am not just talking about macro-economic cycles
though they too are included here
neither do i mean only bull and bear cycles
although they are also included
i am talking much smaller cycles.
the weekly / fornightly cycles.....
-
i spent some days
just re-watching all charts
from this point of view.
i marked points on the charts (5min tick, 30min tick, 1day tick etc)
which according to me
were the turning points
of a cycle!
all crest and troughs....
amazingly, all these turning points were superbly marked by indicators also.
also, every cycle was part of a bigger cycle. in other words, there are cycles in cycles in cycles...the smallest cycle being the intraday (2 min tick cycle).
it was an amazing realisation.
the secret was in front of me.
all i needed now
was to adopt this in my trading.
i had to ignore all the signals after and before the turning points.
the signals for the turning points had to be different and distinct from the "in-between" signals.
-
to reduce the stress while i experimented
i used options for these "cyclic" trades.
since the signals i use are generated using a combination of two indicators,
i findly call this type of trading style
as riding the trading bicycle.
-
riding this bicycle
my number of trades are dramatically down
and bottomline is dramatically up!

language of stock trading

ecg is the language of the heartbeat.
richter scale is the language of the earthquakes.
and a chart
is the language of the stock.
-
while priceline is stock's analog language
the indicators are its digital language.
the clarity, range and depth of the digital language is far better.
though a language can't claim to reveal all that is there in the heart of the sayer
coupled with the "body language" of the sayer
it can reveal quite a bit.
-
those trained and experienced to read the chart
can tell what the market or stock movement is trying to say.
you don't have to be a science or engineering student
to be able to master the language of the chart.
since this is a language
any arts student
or a person with sensitive and watchful eyes and head
can learn and master it!
-
as i mentioned in my earlier post,
random behaviour of a sufficiently large group
becomes a pattern!
everything around us (including markets)
exhibits patterns!
even change happens in a pattern
(afterall, we have change, rate of change, rate of change of rate of change......and so on!
but it will always become a pattern.)
even brownian motion has a pattern of randomness! you can expect randomness and apply probability theory!!!
-
the beauty of watching and watching and keep watching
stock price movements is
that soon you start seeing and hearing and feeling and understanding
the hidden pattern, the message, the signal!
no need to be good at statistics or maths....
no need to have the memory of a chess player.....
just need to be relaxed
and in love with the market.
love has a unique language...
it teaches u everything.....including trading!!!
-
going a step further
just recall
the sign language of the speech-challenged people.
do they communicate with just one hand?
or do they use two?
mostly, it is with two hands!
i used this hint
to learn the language of charts.
i studied rsi to a fine extent,
but still i found that it bluffed many a times.
i just added the "second hand"
- william % r
......results were enough to make me
roll and roll and roll with laughter!!!

is trading magic for mass traders?

the stock market world
is full of experts
and their clients.

those not lucky enough
to have a "god father analyst"
are half experts themselves.

rest all
are either devotees of powerful gods
or lucky guys.

when all are out there to win
who will lose?

and since trading is an almost zero sum game
the absence of losers
or the presence of difficult losers
will create a stalemate.

somebody has to lose
for somebody to be a winner!

a stalemate is deathwish for the market.

and since the market is not only alive
but kicking
and kicking hard
the losers have to be there.

and fortunately
there are losers
enough of them to make trading worth
for the pro-winners!

going by the statistics available
the number of losers are atleast 20 times
the number of winners.

this is a big skew
in the favour of winners
in the world full of experts and difficult losers!

how does this happen?

simple,
the minority winners
have money and tricks
to beat everyone else.

what if the losers too join hands
and come up with money and tricks?

there will be an underground invisible fight.

the habitual, compulsive and smart winners
will again come out with
amazingly cunning ways
to beat the losers again!

the ways of the professional winners
are magical.

and like magic
pro-winners don't let the audience have even a clue
of what really is happening.

as clarke's third law says
"any sufficiently advanced technology is indistinguishable from magic."

the trading game has always been won by magicians
and will always be.

no amount of technical knowledge can make you a winner
if you are not on the side of the winner.

11 laws of averaging declining stocks

1. average only the fundamentally strong stocks. never average the weak.

2. time the averaging on the basis of technical indicators.

3. never average blindly the losers. all losers are not worth averaging. fundamentally weak should be handled as per the law 4.

4. average the fundamentally strong losers by selling the fundamentally weak losers.

5. averaging is not bad. rather, it is an opportunity. you get an opportunity to accumulate more of the good stock at even lower price.

6. never average if you want quick results. don't average for the short term.

7. don't average if you can't digest the stock slipping further.

8. never average in one go. average in steps.

9. don't hesitate to average the fundamentally strong stocks even in bear markets.

10. there is no end to the number of times you can keep averaging a fundamentally strong stock. provided, ofcourse, your judgement of the fundamental strength of the stock is correct.

11. never average in f&o. average only in delivery.

technical patterns are probability edges not certainties

"at the most fundamental level
the market is simply a series of
up and down tics that form patterns.

using technical analysis
you can begin to define these patterns as edges.

any pattern defined as an edge
is simply an indication that there is a high probability
that the market will move in one direction or another.

the repeating patterns imply consistency
but the reality is that each pattern is unique.

the underlying force behind each pattern is traders,
and traders that contribute to the current pattern
are different from the traders that formed any previous pattern."

- trading in the zone
mark douglas

should technical traders be bothered about fundamentals?

yes and no.

yes, because you come to know which tantrum of indicator to react to

and which to ignore.

you know the broader logic and winds.

--

no, because the fundamentals

(including the perception of the fundamental

and the unknown, unrevealed, hidden causes)

are priced in the chart.

any further weighing in of the fundamentals

over and above what the indicators are saying

can cause

overemphasis

and hence

over-reaction.

--

technical traders should trade

purely on the basis of the technicals

read under the light of broader fundamental currents.

fundamental sense will help you identify

which indicator indications to ignore.

--

in the words of

lawrence livingstone

in

Reminiscences of a Stock Operator



"there is always a reason for fluctuations,

but the tape does not concern

itself with the why and wherefore.

It doesn't go into explanations.

I didn't ask the tape why when I was fourteen, and

I don't ask it today, at forty.

The reason for what a certain stock does today

may not be known for two or three days,

or weeks, or months.

But what the dickens does that matter?

Your business with the tape is now -- not tomorrow.

The reason can wait.

But you must act instantly or be left.

Time and again I see this happen.

You'll remember that Hollow Tube went down

three points the other day

while the rest of the market rallied sharply.

That was the fact.

On the following Monday you saw that the directors passed the dividend.

That was the reason.

They knew what they were going to do,

and even if they didn't sell the stock themselves they at least didn't buy it.

There was no inside buying;

no reason why it should not break. "

why technical indicators are not enough

if you are a medium term (swing or positional) trader
you have decent chance to make money
after learning and practicing the basics
1. money management
2. method
3. mind management

but if you are
a day trader or a very short term trader
even the above three
may not be enough

you may find it difficult to make profit

and you may find it extremely difficult
to preserve the profits
assuming you had got some!

reason?

simple!

operators don't want you to be profitbale.

why?

because if you are profitable

then they won't be!

so what do they do?

...dodge you, trick you, confuse you, bulldoze you

......trap you, checkmate you

how do they do that?

simply, by doing

what you don't expect to happen

the way you don't expect that to happen.

unpredictability is the only predictable thing in the market!

and what do we learn?

'predicting with indicators!'

'anticipating the trends and change of trends!'

and this is where you get beaten

hands down!!!

--

so?

what to do?

my learning is

that you can't beat the market with indicators

and trained gut alone!

YOU CAN'T BEAT THE MARKET

WITHOUT TACTICS.

you need to find ways

which land you in a win-win situation!

you need to find

'casual' moments of the market

- situations and moments

when the market's bluffs lie exposed!

where the operators can't play traicks on you

at least that easily!

you need to find ways

to be with the minority that is on the side of the operators.


here are some examples

- btst is a corner
where operators can't trick you.

- similarly, hedging is a way
where operators can't befool you.
(hedging is always done between unequal objects)

- likewise, using the one sided power of options
is a great way to take safe calls.

- one more weak spot of the operators
is the fact that operators can't change directions
at the drop of the hat.
there are time intervals between such turns.

- another possible idea for tactics is
the fact that mass public trades on
predictions of indicators
and sentiments.
so you can be sure
what the "herd" is going to do
and hence
what the operators might do

- yet another tactic
is to expect the unexpected
at every expectation point.

---

i just shared a few ideas with you.
i am developing my method
on the basis of one of these.
you may choose yours.
but the core / central message is

- indicators without tactics
are boomerangs.

- tactics with indicators
make the real defensive and offensive trading systems!

a psychological indicator

do your technical analyses

listen to the tips

do whatever

but before you take that trade

ask your head

should i enter the trade?

if it says
"yes"
don't go for it.

if it says
"are you nuts?"
go for it!

--

is this nonsense!
may seem like
but it isn't.

what the masses are thinking
generally doesn't happen.
rather the opposite happens
though stealthily.

also, generally the trade
which is difficult to take
opposite to the human psychology
full of fear
out of comfort zone
....is the profitable trade!

try this
with token money
and check for yourself!

the analyst in the air, the trader in the car!

two qualities are essential
to succeed in stock market-

ability to analyse the situation
so as to
"expect"
"anticipate"
"predict"
a "high-likelihood" price movement.

please note that i didn't say
"high probability".

i said
"high-likelihood"

since majority of people can
sense "high probability"
it is not profitable
for the operators
to let it happen.

hence, the importance of
"high-likelihood".

likelihood is high
when perceived probability
of the event
is low.

so coming back to what i was saying

two qualities are essential
to succeed in stock market-

first
ability to analyse the situation
so as to "sense"
a "high-likelihood" happening

and "get ready" accordingly.

second
to trade what's actually happening!

if you don't have a reasonably trained
and experienced analyst in you
but have decent trading skills
you will be like a skillful warrior
airdropped in
an unknown enemy territory
without a map/gps/compass....
panicking
much more than required!
highly stressed
vulnerable
and susceptible to traps
and mental burnout!

and if you are a good analyst
rather, an overwhelmed one
than you are likely to find yourself
analyzing forever!
even when you should stop thinking
and just follow what is in front of your eyes!

the analyst in you
feels good when his analysis
proves right
and the trader in you
feels good
if he makes money
irrespective of the anaylsis.

both seem to be so opposite
to each other.

one is so sensitive
the other is thick-skinned.

one is a thinker
the other is a doer

one is a white-collar executive
the other is a blue-collar workman

both appear to be so different

but in reality
both are complimentary
to each other....

both are meant
to maximize the profit
and minimize the threat!

both are severely handicapped
without each other....

so
what should one be?

both....

turn by turn?

no...
simultaneously!

who's the boss?
none....
both are team-mate commandos

the analyst and trader in you
are like
a team of
a cop in a car
and a cop in a helicopter
both chasing a criminal
as in "the most amazing videos"!

the cop in the helicopter
radios the cop in the car
about the location
of the fugitive on the run.
(the fugitive is free
to change his direction
as per his will!)

thereafter it is the job of
the cop in the car
to complete the task!

the job of the cop in the air
is not finished
till the cop in the car is in the street!

the analyst in the helicopter
and the trader in the car
have well defined roles!

it will be disastrous
if the trader is in the air
and the analyst is in the car!

the instant technical indicator

if the ratio of
the turnover of
the top traded 2 put-options for the day
to
the turnover of
the top traded 2 call-options for the day
is between 0.80 to 0.99
or more than 1.30
the market is likely to remain buoyant!

if this ratio
is below 0.8
or between 1.00 to 1.30
the market is likely to slip!

(where to get live nifty call put values
http://nifty50options.blogspot.com/

to get call put values
http://nseindia.com/content/fo/foquote.htm

whereever turnover data is not available
u can use no. of traded contracts)

labels on the jars!

many years ago
when i first learnt cooking
to help my working wife
one of the initial difficulties was
identifying different ingredients
in the jars!
--
i often mistook one ingredient
with an identical one
like "besan" (gram flour) with "makki aata" (maize flour)
or sugar powder with baking soda
...and so on!
--
my wife
determined to teach me the art
helped me
by labeling all the jars!
--
all went right for some days
till one day
a terrible mistake happened!

that day
my daughter
had replenished
the empty jars
with fresh supplies
but accidentally filled some jars
without looking at the labels!

that evening
in my hurry to quickly complete
my bit of responsibility
i prepared the two dishes
using the "labelled" ingredients!

it is anybody's guess
as to what happened
at the dining table!

--

that day
i got a lesson
which helped me
in the cooking
as well as
stock trading...

"labels on the jars
are just to indicate.
smell or taste the ingredient
before putting in the dish!"

and

"indicators below the charts
are just to indicate.
smell or taste the trend
before putting in the money!"

mini winters and mini summers

winters are winters

they are cold.

summers are summers

they are hot.

--

simple fact.

nothing important in it, right!

well, not really

till you look at it

a bit closely

and differently.

--

every winter day

also has a hot afternoon

which is as good as experiencing summer warmth

and can make you forget about the winter chill

for some time!

--

similarly

every blistering summer day

has cool breezy morning,evening and night

which can make anyone

forget about the harsh summer reality!

--

this is what exactly happens in stock markets too!

within a span of one month

you can see

price going from

succession of

winter bear phases

and summer bull phases

each ranging from 1-5 days

within the larger

bull or bear runs

of a few weeks!

--

and in-between these

"cusp"

mini seasons

lie small periods

(1 or 2 days)

of rangebound movements.

--

and mercifully

these small periods

are like much needed

sundays in-between hectic working days

or

like breaks or time-outs

during successive fast paced tennis games.

here

the trend either pauses

or changes!

--

also these are the times

when

indicators indicate accurately!

--

if you missed the trend

you can catch it now!

or if you missed the last trend

you can ride the next one from beginning

from here!

--

this "cusp" mini season

is so crucial!

--

how to identify these "islands"?

--

just open one month chart

plot sma 34

and sma 100 lines

simultaneously.

the "eye"

in-between the crossovers of both sma's

is "it"!

--

read the movement of price w.r.t.

this "eye"

alongwith rsi and william%r

and you will see magic!