January 2011 Summary

The year has started off on a pretty good note for me. Though there were no very hugely profitable trades, there were a lot of things to be learnt.
This line from a Pink Floyd song comes into my mind, "Steps taken forwards but sleep walking back again."
There were numerous trades in which I got a slightly later entry. On day one or two of entering the trade, I used to have pretty good profits. But the very next day, the stock would recover taking out my SLO, and leaving me with very small profits in the end.

The Nifty opened somewhere in 6100 levels, and as on Friday, 30th  Jan, has managed to close at 5512, down nearly 10%. Thanks to the FITs(Foreign Institutional Traders), the selloff was severe, rapid and unchallenged. Technically we are now into a bear market (below the 200 DMA line), with more and more of stocks waiting to be pulled down into bear territory. Need to wait and see how it all progress for the next few days.

When I look at the charts of Nifty, I get this strong feeling that Support and Resistance levels don't have much of a relevance when FITs are trading. They can break through any resistance and break down any support at will.

As an investor, I'm slightly worried about the nature of my long term investments. But, as a trader, I don't really care, as long as the markets don't get caught in a trading range.

Anyway, here are some things that I learnt, which can be useful for others.

1. I was usually getting stuck on the wrong side of the trend, or getting into a trade when the trend was already weak. I found INDIAVIX to be very useful in identifying the possible future trend. An article on Using VIX proved really useful in knowing how to use VIX to your advantage.

2. A real tight entry and exit can be got using the charts in 5 min and 30 min time frames. I found that 200 EMA line is a place for frequent reversals. So once I get a result from a scan, I try to take an entry based on the 200 EMA line in 5 min view. And keep my SLOs just higher than the 200 EMA line in the 5 min view.

3. Using scans and sticking to the results for trading is a good thing to do. Just forcing trades is definitely  not a good idea.

I guess that's it from me for now. Happy trading.

Bulls, Bears and the Nifty

The year seems to have started on an ominous note. A colleague of mine remarked the other day,"In 2008, there was a fall of 100 points in the Nifty on January 11th. A week later there was a big fall of more than 250 points. And then, the rest is history".

Is history repeating itself? We'll have to wait and see. But the signs look very ominous. Look at the graphic below.

Ok, this doesn't show a good picture of the Nifty constituents. Nearly half of the stocks have gone into the bear territory. And some of them are perilously close to being pulled down by the bears.
The index heavyweights, the likes of Reliance, LT, SBI, HDFC Bank are already deep down in bear territory. The other heavyweights, the likes of Infosys, Tata Motors, ICICI are also showing a negative bias off late.
Unless something drastic happens, its just a matter of time that we're into a bear market.

So now what's bull territory and bear territory ?
If any stock or composite(Nifty, Bank Nifty) is above the 200 DMA line, its in bull territory. Else, its in the bear territory.

Who are the bulls and bears?
In the animal farm called stock market, there are 4 types of animals.
1. Bulls : traders who are positive about a stock, push the prices higher by buying aggressively.
2. Bears: traders who are negative about a stock, push the prices lower by selling aggressively.
3. Chickens: traders who always live in fear, make small profits. And follow either the bulls or bears, depending on the market situation.
4. Pigs: traders who buy or sell without making any kind of research.

The bulls make money. The bears make money. The chickens also make some money. But its always the pigs who are getting slaughtered.

You know you are in a bull market when :
1. You can see more and more interviews of legendary bullish traders on business TV channels.
2. You have Diwali specials where Bollywood actresses are discussing stock market investments with these legendary traders on TV.

You know the bull market nearing an end when:
1. A big hyped IPO tanks on debut, sucking out all the liquidity from the markets.
2. A housing loan scam or some other scam of that sort erupts.
3. Indian markets tank 3% in 1 hour, because North Korea fires a few missiles into South Korea.

You know you are in a bear market when:
1. You can see more and more interviews of legendary bearish traders on the same business channels.
2. The pretty presenters on TV no more have a smile on their face.
3. The technical analysts coming on TV seem to look very serious and tense. Maybe their technical buy calls have been used as a short selling opportunity by professionals.
4. You no more get calls from your broker telling you to buy a stock.

But if you were a technical trader, you kind of know what's next when you see the charts. The picture says it all. Here, SBI is just an example. There are many stocks which have fared much worse.

Well, one can see the severity of the bearish phase.The uptrend was slow and gradual. But the downtrend has been quick, but very sharp, with heavy volumes.

And this kind of pattern can be seen on most index stocks already in the bear territory. More so with the banking stocks.






Now, for the bigger picture. Nifty itself is at the edge of the bull bear territory. Another 2% lower on a closing basis, and we're in a bear market technically.

Some things to look out for.
1. Brokerage firms desperately giving dubious research calls. Saying some company will give you 30%  returns within next 3 months.
2. Stock picks in leading newspapers giving vague technical jargon and giving a Buy call on some stocks.
3. Hearing analysts and market 'experts' say, "Sensex down due to profit booking" OR "Markets down due to RBI rate hike fears"

I'm not an expert. But I have learnt one thing in the last few months, "You can invest or trade only on the basis of price. Look at the charts before you buy or sell."

December 2010 Summary

December 2010 was an eventful month for the markets. Nifty reached a low twice in the 5700 levels, and somehow recovered well to close at 6100 levels on the last day of the year.

On the personal front,I celebrated my 30th birthday, which was an eventful non-event in itself.

My trading account nearly remained the same, as the profits of the month, more or less got nullified by the mistakes that I committed. It was not that there weren't opportunities, but  it's just that I got caught on the wrong side of the trend, or lacked in discipline.
The massive selloff by the FIIs before they went on their Christmas holidays, presented a lot of quick money making opportunities on the short side. But I missed them all, as I had got my strategy terribly wrong.

On the positive side, there are a lot of learnings that I hope to take forward in the months and years to come. I also spent some time reading from other people's blogs, which provided me with a lot of interesting thoughts.

Here's a list that I could think of. For future reference.

1. Trade with the trend, but not with the crowd. The crowd always piles in late, but the trend is always defined by professionals. And the professionals always profit from the people arriving late.

2. Discipline is a must. Keep SLOs even when the trade is going in your favor. A decently profitable trade turned out to be a moderately loss making one, for me and my friends as we had all not kept SLOs.

3. I feels it's not a good idea to talk much about my ongoing trades or give stock picks.
Why not take or give stock picks? explains just that.
This puts me in a dilemma," should I post my completed trades on this blog in future or not?"

3. A good stock scanner software is a must. This ensures focus, eliminates unwanted distractions and saves time that would have been lost in manually scanning for stocks.
After I installed one, I've been spending a lot less time in scanning for opportunities, and spending more time in analyzing the results thrown up by the scans.
One word of caution here, scans only give results based on the scan criteria that you select. Choosing the best  amongst them is your responsibility.
Swing trading stock scans gives a very good stock scanning algorithm. You might have to write the actual scans a lot more differently in the software that you use.

4. Trade only in the consistently well traded stocks. I had 2 bad experiences where I had to take a loss. In the first, the stock didn't move up or down for a long time, even though the charts suggested that it was heading for a fall. In the second, the stock just defied gravity, even when it was up against a very strong resistance around the 200 DMA line.

5. Avoid initiating new trades in the week of  F&O expiry. If you look at the 5 minute charts of almost all index stocks in the last half hour of trading in Google finance for expiry day(last Thursday of the month), of the last 3 months, you will know why.
If you have any open trades from the past week, manage them with utmost care.

6. In trading, there is a golden rule, "Cut your losses, but let your winners run". This is something that comes out of discipline and out of experience.
So far, I have been able to cut my losses, but I need to learn to be unemotional, and let my winners run. Trailing stop mechanism is a good way to take out all the emotions out of trading.

7. Coming to emotions, a great trader had once said,"All the candlesticks that you see on a chart are formed as a result of hope, fear, greed and despair". I think I displayed all of these in this month, with pretty bad consequences.

8. Time your entry into a particular stock. Too early, you get stopped out if a reversal doesn't occur before your SLO is hit. Too late, and you get stopped out in the pullback wave. This is true even if all your analysis is 100% right.

9. Use a checklist before you enter any trade. By the time you come to the last point on the checklist, you might have second thoughts on whether to really enter the trade or stay in cash.
I missed using one for some of my trades, and as a result ended up forcing a trade.

10. This is one point that I read in a blog and also observed in some of the trades that  I took up.
If you are selling, sell early in the day. If you are buying, buy late in the afternoon.
That's because amateurs control the opening, while the professionals control the closing.
But when there's a lot of activity in a particular stock due to some news, then this statement might not hold good. In such cases, stay away from the crowd. Don't buy/sell the breakout. Wait for a pullback.

Hope to get some good trades for the next month. That's all for now.

Wish you all a very happy and prosperous new year 2011. And happy trading!

November Summary

Well, this was my first month as a serious trader on the new demat account. I traded mostly in Futures and Options. I had a lesser liking towards options, main reason being the low liquidity in options of the stocks which I wished to trade.
Maybe I need to look at trading Nifty Options. Its a good idea to do trade in options, when there aren't good stocks to pick for trading- both on the long and short side.

I had a few hits - LT, IDFC, Titan(short), Syn Bank(short).
I had quite a few misses too - Infy, Axis Bank, ABB (short) and SBI.

Infy and Axis Bank - bad analysis and bad entry points. Instances where I tried to force a trade.
ABB - analysis was right, but entry was wrong. Another instance of trying to force a trade.
SBI - pattern gone wrong, or my understanding of Bullish haraami pattern was wrong.

In all these cases, I had a 1:3 risk to reward ratio, i.e. for every 3 rupees that I was prepared to earn, I was prepared to lose only 1 rupee. I ensured that I kept strict SLOs(stop loss orders). So the profits outweighed the losses at the end of the month.

I also suggested some trades to my friends and my wife. They got good profits in Shree Renuka Sugars, Sydicate Bank(both on long and short side) and Tata Steel.

In this month, Nifty  has touched a high of 6338(Diwali time) and a low of 5780(today - 25th Nov). I'm happy that I am still surviving this market correction, and my trading account is in green for this month.

Some great trader has said, "Its not important in what direction the markets are going. What's important is a trader's response to it."

Syndicate Bank

Scrip: SynBank(NSE)




Shorted one lot in Futures.
Pattern: Shooting star on a Tall Building with heavy volumes.
Wave: end of 5th.
William %R: Overbought.
Support: 142 - wick of long white candle
Entry Price: 154.25 (155 in futures)
Resistance: 158.5
Planned exit point : 138.5 (140 in futures) - target achieved






Well, this one was another easy short trade to take up. I happened to see Syndicate Bank rally around 8%, and I even got a call from my broker to buy Syndicate Bank. I waited for 2 days, and then shorted the same.
Reason: I saw a shooting star falling from the sky onto the big white building. This was at the end of the 5th wave and in overbought condition.
The outcome: the white building got burnt.

In this trade, I tried to keep my emotions in control, something which had made me lose a golden chance in Titan (Titan sold off a further 300 rupees from where I closed the trade).

I had kept the 50% fibonacci retracement point as my target. Once achieved, I just closed the trade.

But then, the news of a housing scam broke out, which led to a further selloff in most of the banking stocks.
Though it was target achieved in this case, maybe I should have just held on to my shorts :).

Btw, this was a very profitable trade. And for the first time me, my wife (she had bought a 150 PUT OPTION) and my friend Manju made money on the same stock.

Titan

Scrip: Titan (NSE)




Short Sell in Futures
Pattern: Shooting star after a strong upmove.
Wave: 5th.
William %R: overbought
Support: 3822 - lower edge of long candlestick
Entry Date: 12-11-2010
Exit Date: 15-11-2010
Entry Price: 4120 in futures.
Exit Price: 3940 in futures.






This was my first short sell trade. The markets were weak in the last week. But Titan rallied a good 10% in 1 session. The very next day, there was a nice shooting star, in the overbought condition.
The trade lasted just 2 sessions,I imagined this black hammer kind of thing that suggested selling might have stopped.
But it still gave me more profits than any of my previous trades. That's because
1. Fear is a more powerful emotion than greed.
2. It might take a million shares to be traded for the prices to go up. But it takes only a tenth for it to push it down.
3. Gravity pulls down almost any stock. Even if its Titan.

IDFC

Scrip : IDFC (NSE)

Pattern: Swing (Bear) trap.

Wave: Wave C completed. Wave 1 to start.
William %R: Nearing -80. Very close to oversold region.
Support: around 196.

Resistance: 205 

Entry Date: 1-11-2010.
Entry Price: entered at 206 in futures.
Exit Date: 4-11-2010.

Exit Price: 210.

For some reason, I like this stock a lot. And I got a chance to trade this again. 

While looking for new trades, I chanced upon a nice swing trap completed in IDFC. I was skeptical trading this, as the quarterly results were to be announced in a week from the day of my entry into trade. This played on my mind. Though I had got a good entry point, I bungled on the exit. Had I closed my position in the afternoon instead of in the morning, my Diwali bonus would have been even better.

Well, though I didn't  make a lot of money in this, trade. 

I wanted to show 2 things in this.

1. A good pattern in Swing trap(or bear trap or ABC pattern) - though it didnt occur in between the 10 EMA and 30 EMAs.

2. Lesson that one should play it safe and exit the position atleast a day before the results are announced. One can see how the stock sold off in the next few sessions.

L&T

Scrip : LT(NSE) - Larsen and Toubro






Pattern - T-30. Long tail of hammer. Heavy volumes seen.
Results : much better than market expectations.
Wave - Wave 1.
Williams %R - 95 on the day before entry.
Support -  1928 : tail of hammer.
Entry Date: 19-10-2010 and 25/10/2010 in futures. 
Entry Price: 2040.
Exit Price: 2200.
Exit Date : 4/11/2010

This was a tricky stock to trade.  I had to have a lot of patience on this one. I closed my position in cash and entered a position in Futures, as futures trading got enabled on my new account. But I had to do some running around to do that.
I also had a major scare when there was a risk of getting stopped out, as some big time players decided to go in for a vertical selloff on a late Thursday afternoon on the day of Futures Expiry.
Once that was through, it was all smooth sailing.

The final outcome, a nice Diwali bonus. From my old company. L&T ki Jai :).

Tata Global Beverages

Scrip: Tata Global Beverages(NSE)
Earlier this was known as Tata Tea.

Trade Enter Date : 4/10/2010
Trade Exit Date : 7/10/2010
Options : Call
Strike Price : 130
Bought 1 Lot.


Pattern : Swing Trap Pattern
This is more famously known as ABC wave (Elliot Wave Theory).
On seeing the hammer in the marked area, a lot of traders are deceived to feel that selling has stopped.
But this is a swing trap. This wave doesn't go as high as the previous one.
And now when it falls again, a lot of traders have to take a loss. The black hammer in the focused region just shows all the stop loss orders that might have got triggered before buyers pushed prices back to near the day's open.

Now that all the sellers are gone, this stock can rally. And boy, did it rally.

I entered this trade a bit later for many reasons.
1. The liquidity in Options was not very high just after the black hammer day.
2. The sellers were all quoting very high prices, since the time value of the option was high (beginning of the month) .

Ideally, since this was the breakout wave, I could have held on my position a bit longer. But since Options contracts lose value in time, I just took the profit taking decision, and took pretty decent profits on this one.

But there is still money to be made in this stock for now, as its still in the breakout wave. Watch the stock for a pullback, and see if this can be a profitable trade.

Update : I planned to re enter again in the third wave. But got stopped out as the pattern broke down from there. The quarterly results that were announced also didn't give enough trigger for a major rally.

IOB

Scrip Name : IOB(NSE)

Trade Enter Date : 29/09/2010

Trade Exit Date :7/10/2010.

Buy Price : Rs.132.5

Pattern : Spinning Top seen after a strong downtrend.

Oversold condition confirmed by William%R.

Entered trade in anticipation of a trend reversal.


Profit taking:
   a. Sold some at Rs.140.56 on 4/10/2010.

   b. Exited at Rs.148 on 7/10/2010.

Looking at the volumes and the short time in which IOB has gained more than 10%, it looks like a breakout wave. I guess there is more opportunity to make money in this stock once a pullback occurs.

I would want to hold this position a bit longer, but had some other money management activities lined up. So closed the position.

IDFC

Scrip Name: IDFC(NSE)

Trade Enter Date : 30/09/2010

Trade Exit Date : 4/10/2010

Pattern : Bought at the end of pullback after rally. Spinning Top seen.

Bought Call Option.

Lot Size: 2000.
Strike Price: 210.

Since it was entering into the last motive wave, the upward move didn't look strong. So I decided to close the position and took a decent profit.

Had I traded it a week or 10 days earlier, it would have been a far more profitable trade.
Still learning the tricks of the trade you see!

My First Swing Trade

Scrip: Yes Bank(NSE)

Trade Enter Date : 13/09/2010
Trade Exit Date : 4/10/2010

Pattern : T-30.
Since Yes Bank had retraced more than 50% in its corrective phase, this was a slow trade.

Initial buy price :Rs. 324
Profit Taking:
a. Sold Some at 335
b. Sold some at 343
c. Exited at 357

This trade was so slow that it began to test my patience. Finally, I decided to exit with a decent profit.