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"

a view from the 15th floor

imagine you are standing on the 15th floor
of a skyscapper
in the heart of the city.

you are standing in the balcony
with a cup of coffee in you hand
looking at everything below.

you see a few people going from right to left.
and then you see one man going from left to right.
nothing special about it.
then you see 12 more going from right to left.
followed by 27, again going from right to left.
gradually the number increases
groups of 50, 65, 47 move like a swamp of bees
from right to left.
gradually the number starts dropping
29,17,9,7,4,2....

you keep standing there.
perplexed!

you call your friend
whom you are visiting
and whose flat it is
and share what you just saw.

he laughs
and tells you
that the 11am movie show has just started
that gaussian wave of people was nothing
but the flow of audience for the show!

"when the show will be over
you will see all of them returning in the reverse direction
but not in the same increasing-peaking-decreasing fashion
but big rush initially followed by a tail of laggards.
end of a rally is faster than the start of the rally!"
your trader friend tells you.

"o i see!" you say.

next morning you are standing in the gallery again
but at 9am.

suddenly you see a group of over 200 people
running from right to left!

you rush inside
drag your friend out
and ask
"has the movie show advanced?
or is this mad rush for the "dirty picture"?

"no, no! something is wrong
movie show is 2 hours away
and i heard that it is all sold out!"

both of you wait
and then you know the cause
when you hear the sirens of firebrigade trucks
rushing from right to left.

you keep standing for an hour
and notice the fire trucks returning after dousing the fire
followed by the same group of 200 idle onlookers
returning from left to right.

your trader friend smiles
and says

"a panic sell-off or hoax rallies happen and end like that only!"

--

you return home the next day
and resume your trading
without indicators....

just watching the number of people going right to left
and left to right
and the speed and size of the group.

for a change
you stop losing money
and make 3 consistent profitable trades
first time in 2 years!









(niftyshots.blogspot.com)

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

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.

simplest way to determine change of trend

the best way (so far) that i have found to determine the change in trend is as follows (i am still waiting since months to see it fail) :

if the line joining the base/feet of waves makes an angle equal to more than zero degree with horizontal, the up trend has not changed.

if the line joining the tops/ heads of waves makes an angle equal to or less than zero degree with horizontal, the down trend has not changed.

check the result in outer time charts to confirm.

e.g. if 2minute chart says, trend has changed

check in 5 minute chart and then in 30mintue and then in 1day-tick chart.

outer charts tell you the reality and extent of the trend change.

 

opening and closing ceremonies

the olympics

start with a opening ceremony

and

end with a closing ceremony.



but bull runs

and bear runs

don't start or end

with any such ceremonies.



in the words of jesse livermore



"market does not culminate

in one grand blaze of glory.

neither does it end

with a sudden reversal of form.

a market can and does often cease to be a bull market

long before prices generally begin to break."



why does this happen?



this particularly suits the oeprators.

any sharp start

or end

would rob them of the opportunity

to distribute and accumulate.

trader hallucinations

abraham maslow said

"if all you have is a hammer, everything looks like a nail"

in stock market

if continuation triangle is all you've got

every price formation will tend to be forming one.

if rsi is what you've worked hard at

every dot on the paper seems like a failure swing point.

--

how many times does it happen

that we try to force see a price pattern

which is "not there"!

how many times does it happen

that we jump to a conclusion

or decode "what the pattern is trying to tell us"

only to be left looking like a fool!

we see what is not there.

we see what we want to see

we want to see what we know.

we don't want to see what we don't recognize!

--

in the words of livermore

"it is never wise for a speculator to fit his facts to his theories."

instead of fitting the facts to theories

or extracting new theories out of facts

it is better to ask just one thing

whether the undercurrent is

up or down or sideways?

if it is sideways

remain on the sidelines.

otherwise, go with the flow.

--

in the words of livermore

".......determine the speculative line of least resistance.....
prices, like everything else, move along the line of least resistance. they will do whatever comes easiest, therefore they will go up if
there is less resistance to an advance than to a decline; and
vice versa."

are contra calls dangerous?

contrarian calls are called 'contra' in short



are contra calls dangerous?

are they that bad?

well, that depends upon

what kind of contra they are?



if they are contra to the trend

they may be dangerous

because picking the turning point of the trend

is easier only for the operators



but if the contra calls are contra to the street sentiment

they can be very good indeed!

street sentiments

are often driven by

greed and fear

expectations and prayers.

and hence erroneous.

dale carnegie's advice for traders

in his all-time bestseller
masterpiece
"how to win friends and influence people"
legendary
dale carnegie
had given four simple but deadly effective suggestions

never criticize
never condemn
never complain
never argue

it never serves the purpose!

same brilliantly applies to stock market as well.

never criticize market movement
never condemn, complain about what's happening
and most importantly
never try to argue with the market....

if you can
i repeat
if you can
try to go with it.

if you can't
step out and step aside.


but never ever criticise, condemn or complain about it

because if you do

your adrenalin will push you to argue with it

and that will result in the loss of a friend - the market.

if you can't befriend the market
atleast don't make it an enemy

it can be costly...

phantom trading!

life of a budding trader is full of troubles:

trouble 1: did not have a method, so kept losing.

trouble 2: had a method but did not follow it, so kept losing

trouble 3: followed the method but interpreted situation wrongly

trouble 4: interpreted situation right, but trade still went the wrong way!

--

trouble 1 is a training issue.

trouble 2 is a discipline issue

trouble 3 is a practice issue

trouble 4 is not your problem. it is an operator issue which you can do nothing about!

majority traders on the way to immortality think
that if they learn and practice enough
soon there will be a time when they will be expert enough
to be able to interpret any chart absolutely correctly!

this doesn't happen
and will never happen
till the market waters have crocodiles called
operators!

(and the day there are no operators, there will be no market!)


this means
that trouble 4 will always be there!

so, how do we safeguard against this one?

stop loss?

not a bad option!

but when the stoploss bell rings
it is not musical at all!

and sometimes
the adverse movement is so fast and big
that by the time loss is stopped
it is already big enough to hurt!

is there a better option?

fortunately there is one!

i recently came across this while surfing net
and it is amusingly (but aptly called)

"phantom rules"

by art simpson

there are two phantom rules

rule 1 :

WE ARE WRONG UNTIL PROVEN CORRECT!

what this means in simple words is

= if your trade doesn't go your way within a few hours, square-off!
keep a position for three hours unless they have proven to be correct by that time. otherwise, something is happening underground which you don't know or have not taken into account! put in yet another way, assume to be wrong if you are not proven right "soon enough". don't ever let the market tell you you're wrong. because by the time market proves you wrong, it might be quite costly!

this way, you may be missing out on some trades where things went your way albeit late, but you will always bleed negligibly when things did go wrong! besides, who stops u from re-entering once the position is prove right again?

according to art simpson
".....trading is a loser's game. he who loses best will win in the end!"

keep your losses quick and small.

in trading, i have experienced that possibilities are high when probabilities are low. indicators tell us probabilities and hence act as the unintentional agents of the operators.

in art simpson's words

"the correct way to control positions is to only hold them once they prove to be correct. most trader do the opposite of what is correct by removing positions only when proven wrong................in rule 1 it is important to understand we are saying the one criteria for removing a position is because it has not been proven correct. if the market does not prove the position correct, it is still possible that the market has not proven the position wrong. if you wait until the market proves the position wrong you are wasting time, money and effort in continuing to hope it is correct when it isn't. so, remove the position early if it doesn't prove correct. By waiting until a position is proved wrong you are asking for more slippage...............you don't go buy clothes, take them home and wear them until they prove to be wrong for you. instead you try them on and make sure the have a proper fit and look before you buy them...........we must remove the emotional elements, fear and greed, as quickly as possible in trading. If you can do it before you put a position on, you have a good start.

and here is the rule 2:

PRESS YOUR WINNERS CORRECTLY WITHOUT EXCEPTION.

in art simpson's words

".......without a correct method to press your correct positions you will never recover much beyond your losses. you need rule two to ensure you have a larger position when you are correct. you always want a larger position when you get a great move or trending market than when your position isn't correct..................rule 2 does not mean just because you have a position in your favor that you must now add to that position. you must have a qualified plan of adding to your position once a trend has established itself."

i have found one such way : whether 5min chart or 30min chart, once a trend (whether small or big) is established, the best time to add to the position is when william%r touches "opposite" extreme while rsi hasn't.

and these positions can be carried till price cuts sma 34 from above or till rsi failure-swing-point, etc.

being in the right trade is important, but equally important is staying in the right trade for sufficient duration.

in simpson's words

"trend traders will get larger when they are correct but day traders will start larger and get smaller when they are wrong. day traders can be large when they are wrong but trend traders will never be large when they are wrong. this is due to the nature of a loser's game for day traders.........rule 2 must be used if you expect to make money in the long run........"



(for further understanding
http://www.webtrading.com/phantom/preface.htm)

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!

4 ways a market can move!

traders want market to move

so they leap at every move of market

including the traps!

--

a market can move in 4 ways

* sharp move with low volumes

= unsustainable trend likely to be reversed

* sharp move with high volumes

= start of a trend

* normal move with low volumes

= just an insignificant drift

* normal move with high volumes

= big trend wave on the move!

4 seasons of stock market

market goes thru the following 4 seasons

(though not necessarily in a fixed order)

1. summer

(non-volatile, trending)

= indicators don't work; just go with the trend

2. winter

(non-volatile, non-trending)

= non-tradeable, holidays, stay away

3. autumn

(volatile, non-trending)

= technicals work best

4. spring

(volatile, trending)

= technicals work reasonably ok but not best; stressful times

--

it is dangerous and stressful to maintain same attitude and approach at all the times.

while it is not fixed which season will come when

but if traders are aware that different "seasons" exist, they will be flexible and adaptive

resulting into less stress and better results.

--

seasons may last from a few days to a few months or more!

not just that

the amazing thing is that

every trading season behaves like an independent mini-season

within the broader-outer season!!

catch the dodge

in cricket
can you pre-decide
how much you are going to score
in the next delivery?
can you pre-judge
whether the next ball is going to be
on the off-side?
or on-side?
or straight?
or a yorker?
or a bouncer?
or good-length?
or short-pitched?

if you swing the bat
according to your
pre-decision
you are in for trouble!

similarly
in football
if you are a goalkeeper
facing a penalty kick,
can you pre-decide
which way
the penalty taker
is going to kick the ball?
left top corner?
left bottom corner?
right top?
right bottom?
straight up?
straight down?
slow?
fast?

if you dive
on the basis of your pre-decision
you are going to look
not-so-good
in the tv replays!

if you think
the batsman can read the bowler
and pre-decide

and if you think
the goalee
can read the body language of the penalty taker

then please remember
the bowler is also seeing the batsman moving
and the penalty taker is also seeing the goalee shuffle!

same in stock market!
pre-judge
but don't bet too much on it.

make sure you see the reality
and catch the dodge
ride the trend
hit a six
and save the goal!

the 4th option!

a horse

is grazing

in the woods.

suddenly he notices a lion at a distance!

horse keeps grazing

but with heightened awareness,

while simultaneously keeping a watch on

and interpreting signals from

lion's behaviour.

finally he sees that the threat is real!

his stress response gets activated.

now

his head will

either ask him to fight

or fly away

to safety!

this is known as the fight-or-flight response

a third dimension is also there

the horse may neither fight

nor "fly away"

but freeze out of fear!

the fight-or-flight response now becomes

the fight-or-flight-or-freeze response!

this interesting phenomenon was first recognised and explained

by the american physiologist walter bradford cannon.

when faced with danger

the prey experiences

accelerated heartbeat, erect hair, pupil dilation, etc.

all typical signs

noticed in traders

when a trade goes wrong!

but even walter cannon would have agreed

that stock market is a place

where

neither fight, nor flight nor freeze works!

when you fight

you are against the trend

and are dragged mercilessly!

when you fly away

you have already booked the loss!

when you freeze

your account melts!

almost always

and inevitably

during trading

a trader's fight-or-flight-or freeze response system gets triggered!

to be a successful trader

one must learn to switch it off immediately

by force!

and opt instead

for

follow-response!

it is never too late!

it is never too late

to say "sorry"

--

it is never to late

to return home

--

it is never too late

to learn

--

it is never too late

to start living

--

it is never too late

to take care of health

--

it is never too late

to admit your mistake

--

it is never too late

to befriend an enemy

--

it is never too late

to join a rally

--



if things still don't work

you always have the option

of

"stop loss"

--

this act of

unilateral courage

will be the one

u will never regret!



besides giving u a consolation

that atleast u tried!



and who knows.......



all great achievements

including your birth

were once

a grave risk!!!

who became rich by trading?

the fearing didn't

the unmethodical couldn't

the gambler wouldn't

the broker shouldn't

--

the honour

went

to an underdog

'the obedient'

who just followed

the trend!

come, let's have some ice-cream!

i am hungry

i have decided to eat my favourite ice-cream

i have opened the fridge

i have taken out the full ice-cream brick

i have started eating the ice-cream

it is so tasty and yummy!

--

the scoops are getting bigger

and more frequent

the technicals are clearly saying

that the size of the brick

is falling fast

and i am likely to slow down and stop!

--

but i am enjoying it.

the more i am eating it

the more i want to eat it!

--

my granny has seen me eating the ice-cream

she knows that i have a sensitive throat

so she asks me to eat only one cup.

"you have eaten enough, child!"

she says.

i look angrily at the informer (technical indicators)

they are clearly screaming that i have overeaten it!

but it is so hard to put it down!

i ignore granny's message

cold-shoulder the technicals

and continue licking and gulping

my tasty creamy ice-cream!

--

15 minutes have passed by now,

i have eaten

much more than i initially intended to eat,

the technicals have picked up the placards shouting

"severely overeaten!!!"

my stomach is satisfied

but my tongue is not,

neither are my intentions!

so, i continue to enjoy!!

--

it is half an hour since the party began!

the brick is more inside me

than left on the plate!

the technicals are red in their face.

so is the granny!

--

i pause

put down the plate

have a walk till the verandah

come back

look at the inviting plate

and pounce on it!

--

granny starts laughing

and goes!

technicals start looking the other way!

--

i fail to understand

why the technicals were predicting

the end of the trend

of the grand party?!

i am still feeling

as if i have just started!!!

who says i have over-eaten?

i am sure they don't know my capacity!

--

a full hour has passed by now.

i have finished the entire brick.

granny has thrown out the brick wrapper

wrapped around the technicals!

==============================






moral of the story:

while trading or eating ice-cream

forget about technicals

and logic

.......just follow the mood of the moment!

zig-zag-zoom!

dip your shoes in blue ink

and walk 20 steps

in one direction

on a red carpet!

--

now remove your shoes

come back bare foot

and join (with a marker pen)

every left footprint

with the next right footprint

and further join

this right footprint

with its next left footprint!

--

what do you get?

a line joining the footprints

in a zig zag pattern

left-right-left-right-left......

but still moving

in a definite direction!

--

same thing happens in stock market!

market moves on its two feet

of "high" and "low"

in a zig zag way

but always in a particular direction!

--

traders confuse the zig and zag

as the change in direction!

they focus on direction of zig AND direction of zag

and not on the direction of zig-zag!!

--

consequently, the fear takes the better of them

and they chicken out!

--

those who are well-versed with the market's wavered walk

ignore both the zig as well as the zag!

instead, they just keep an eye on the net direction of the zig-zag!

--

with practice

they can tell

when the zig-zag changes its direction

and hence the trend!

and with it, they change the direction of their trade as well!!!

--

zig zag is the last dodging tactic of the market.

the trader

who can see through this tactic

has got the ultimate master key to riches!!!

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!