Hurst Cycles Trading Software - Accurately Forecast Nifty and Stock Cycles

Tuesday, February 10, 2009

Whats New?

Before I start, here is a GYAN -

What is the definition of insanity?
Doing the same thing over and over and expecting different outcomes! :)

A very smart guy...genius in fact said this...not not me :D....Yeah Albert Einstein.

My last 2 posts were just in jest in case you did not realize...Still some amount of seriousness is there lol...

Okay pure market views. Looks like we get gapper down today...And the usual attempts to fill that gap. It seems to me like we are being conditioned to a Pavlovian Dog instinct. One day a gap will come which will not fill...That day we will see real panic and maybe a bottom..Today is not that day.

Charts with comments.

Points to watch are 2860-50 on downside. I am not saying that the bull case is dead until a close below this point. In fact I think we shall close the gap the today or atleast try to. So its not like all is clear for the bear. Its just one more chip in our favour.

Even though I was mostly joking in last 2 posts, do not miss them since there is matter in them as well as the comments.



shaq said...

hi Lee...few basic qs ...on Open Interest...OI is defined as number of outstanding contracts at the end of the day...Now in todays NSE stats ...for Feb Nifty Future
No of contracts traded -- >696285
OI --> 30967800
Now OI keeps changing on daily basis as contracts are opened/closed.Why is the OI so high (almost 3crore) .Does this mean there were 3crore or prob more (since OI can be higher tom or yest)number of Feb Nifty Future contracts issued .how doe we relate the number of contracts traded and OI in a day??
Interpreting the OI is the confusing part...I understand that OI shld be read along with price behaviour to get some sense out of it.
Let me take OI to volume ratio itself.Does higher OI/Volume ratios (in Calls) indicate the accumulation of more calls and prob rise in price of security.

Btw ..just curious to know what is you full time job..Are you a fund manager/banker in US?Which company u work for..(ignore if u dont wish to answer)

Lee said...

Shaq, here is a writeup on what you asked...I dont follow OI too much....I wish there was an easier way to track it in graph format...I dont have any idea on how to do this now....Anyone else out there knows?

I am a software engineer here in the US...Not fund manager even though thats what I want to do...

Interpreting Volume using Open Interest
Open interest is the measurement of those participants in the futures market with outstanding trades. Open interest is the net value of all open positions in one market or contract and portrays the depth of volume that is possible in that market. A market with a low number of contracts per day but also a large open interest tells the trader that there are many participants who will enter the market only when the price is right.

New interest in a market brings new buyers or sellers, which increases the value of open interest. When the open interest increases with a correspondingly quick rise in prices, more traders are likely entering long positions. That said, for every new buyer of a futures contract there must be a new seller, but the seller is likely to be looking to hold a position for a few hours or days, hoping to profit from the ups and downs of price movement. The open interest is attributed to the position trader, but such a trader is willing to hold the long position for a much longer period of time. If the prices keep rising, the longs will have the ability to hold their position for a greater period of time while the shorts are more likely to be forced out of their positions.

Some rules of thumb for interpreting changes in volume and open interest in futures market are as follows:

A rising volume and a rising open interest are confirmation of a trend.
A rising volume and a falling open interest suggest position liquidation.
A falling volume and a rising open interest point to a period of slow accumulation.
A falling volume and a falling open interest depict a congestion phase.
Volume and open interest can be used in a practical sense to guide one's trades as follows:

Open interest increases during a period of an exhibited trend.
During the accumulation phase, volume may decline while open interest builds, but volume occasionally spikes.
Rising prices and a declining volume or open interest indicate a pending change of direction.
These rules, however, have exceptions, especially on days or at times when volume is expected to differ from the "norm". For example, volume is usually lighter on the first day of the week, on the day before a holiday, and during the entire summer period. Also volume may actually be heavier on Fridays and Mondays during a trending market. Liquidation of positions often occurs before the weekend, with positions being re-entered on the first day of the week. Finally, volume is heavier on a triple witching day, when stock-index futures, stock-index options and stock options all expire on the same day.

Volume and open interest are integral measures to guide one's trading decision on the futures markets, but as always, these indicators should be considered in relation to extraneous market events.