Adding some more

Adding a little bit more...Now I am in full position...

500 NF added at 2685

2000 NF full position avg of 2777

EDIT: Setup I am watching says there is a good chance we break the 2680 support and start a waterfall decline....We can tag lower support area of 2540-2600 range and start an upward rally from there :) 

However its all speculation and usual disclaimers apply...we shall see how it turns out..I am remaining short for now.

Best.

Status Quo

After watching the tape for the past 1hr or so, I am making a decision here not to do anything on the positions. I still think we shall bounce but still there are times when a trader has to make a decision on a position on whether to take profits on a position or let it run in the hope of getting a bigger profit...In other words letting profits run...Ofcourse downside here is that a decent profit can turn to a small profit..or worse a small loss...But thats the game....

If you are a risk averse trader, take profits now and try to reshort higher...I remain short for now.

If we go higher over next few days, I will increase short allocation and reduce the calls allocation.

We shall see. As always its a game of odds and I need to trust my instincts.

Best.

Possibilities Possibilities....

So US market finally makes a spectacular rally from a very oversold condition. In the bigger scheme of things, I see this as a bounce or short term rally....short covering rally or scorch...as I call them...So what happens to us?

I think we shall maybe whip around a bit today, form a base and also do a rally attempt for next few days. 

So whats my plan? Likely I will cover today at best prices I can get...And go flat...Not going long for this swing...My mind is saying not to... :) Let it rally...I shall short higher if situation is right.

A Note here - A warning to all late to the party bears - be careful...scorches like what we had here in US markets can happen in India too...I saw comments and questions on late shorts..let me say...timing is damn important...My thought process and entry points are all chronicled in this blog on a real time basis...Please dont ask me for more information on trades or when you can take trades etc etc...I am not an advisor...I dont want that on my head...If you simply follow my trades, thats up to you...However I am sorry...I cannot and will not offer any person specific advice on trading positions..(let me give an example - lee, can i short at 2720....or lee, i shorted at 2700 level, when should i cover...)..It is just too stressful and dangerous for me to offer any advice of this kind and I will not do so...If you see my position and deem it wise to do something, then go ahead...You are on your own...Sorry to be harsh...But I have to say this before things get out of hand.

However - If you need any help on technicals, fundamentals or anything else related to the market( or anything else! :) ), let me know as always...I will be glad to help as I have been helping others over past weeks and months...

Cheers 

Adding....

...to shorts here...Feb NF 500 more at 2756

Hedge Options Feb 2900 Calls....1000 at 103

I am not very confident on this one...But trying it out...

Increasing hedge ratio, as bounce possibility is higher over next few days.

I will update the trade sheet above shortly.

Trade safe.

Cheers,

Lee

Tough Call

Tough call on the market direction next. I see different possibilities out there but lets take it one day at a time. See the reliance chart below with comments. You can see my thought process on this one.

Broader market...Well...2750 and then 2700 area remain most important on downside and 2860 on upside. There are so many other resistances on upside...it will be tough for market to move up...I want to see a wash out in the market but I am not seeing that...They still continue to buy the dips! Amazing is what I call it...Give up already...Well I just see more pain ahead but enough of my rant...Lets see how it plays out...There is a significant rally coming soon but from which level is the big big question? .. So well..lets just play it as we see it.

Trade update - My positions and latest prices are updated above as usual. Yesterday I had an urge to close and reshort higher...also to add more shorts at a higher level...but in the end just decided to maintain status quo. The reliance chart posted above should be studied closely. Its looks very important to me. 

Best

Lee

Zurich Axioms

Here is a link for another book I think every trader should read - GO

Its a fantastic book for any trader....Rules...Understanding risk etc...Enjoy!

I will post something on market views a little later.

Best,

Lee

Who were the Turtles?

In mid-1983 famous commodities trader Richard Dennis was having an ongoing dispute with his long-time friend Bill Eckhardt about whether great traders were born or made. Dennis believed that he could teach people to become great traders. Eckhardt thought genetics were the determining factor.

In order to settle the matter, Dennis suggested that they recruit and train some traders and give them actual accounts to trade to see which one of them was correct.

They took out a large ad advertising positions for trading apprentices in Barron's, the Wall Street Journal and the New York Times. The ad stated that after a brief training session, the trainees would be supplied with an account to trade.

This group was invited to Chicago and trained for two weeks at the end of December, 1983. They began trading small accounts at the beginning of January. After they proved themselves, Dennis funded most of the trainees with $1 million in February.

"The students were called the 'Turtles.' (Mr. Dennis, who says he had just returned from Asia when he started the program, explains that he described it to someone by saying, 'We are going to grow traders just like they grow turtles in Singapore.')" - Stanley W. Angrist, Wall Street Journal 09/05/1989

The Turtles became the most famous experiment in trading history because over the next four years, they earned an aggregate sum of over $100 million dollars.

Richard Dennis proved that with a simple set of rules, he could take people with little or no trading experience and make them excellent traders.

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

To download and read this book go here - Link

Kpls 20day swing is a variation of the Turtles base system. Worth a study.

Best.

Short NF 2833

Shorting NF(Feb) 2833...Size 1000...Starting position. Will add later.

Hedge with 3000 Calls(Feb)...Size 1500...

As I said before, if market goes up, I will roll up the options to 

higher strikes and also add onto shorts. We shall see how 

much energy this market has and decide accordingly.

EDIT - Let me just say here, even in the bearish case, there is a 

very good possibility for Nifty to rally upto the 2960-3040 area

and still remain bearish. For me, if this happens, I will continue

to add shorts. So far so good.

The 20day swing will be reversed only above 3150..So as you

can see, its quite a tough trade but lets not overthink this

and trade each day as it comes.

-> Short term is bullish but can turn very quickly.

-> Medium term and long term are bearish.

Best.

The Coming Week and My Thoughts

Dont miss my earlier post on the past week and the trades I did...What went wrong and what went right...Will be a good read for all traders novices and experts alike.... :)

In this post, I will touch upon the week ahead, we will look at some charts, try to find some possible setups and also try to formulate a trading plan.

First coming to the sensex weekly. Comments on chart.

 

Nifty Daily. Agains comments on the chart.

Those who want to read more on Kpls 20d swing - Go to these links:

http://www.vfmdirect.com/forums/show.cgi?topicid=1231450596

http://vfmdirect.com/kplswing/

Its a very simple yet very elegant and effective trade system. I dont think many traders will have the mental fortitude(guts) and patience to use this system.  But it is something worth paying attention to. Its a variation of the Turtle Trading System...I will touch upon this in some other post in the future.

Okay coming back to market, either case I am inclined to start shorting...From Monday with hedges and then see how it goes...I will likely add up all the way to 3050 area provided we get there...And while I am adding I will keep rolling the hedge strike higher up. Its a plan but we shall see how I execute it tonight. I think there is good chance market will continue upward for next 5-7 trading days but eventual resolution should be down. So we are at 2828 now...2860 is resistance. And above this the 2920-2960 band is strong resistance. 3040-3080 even stronger resistance. I will be surprised if market goes that high...But then market always has a tendency to surprise us...So we shall see...I will update trades and entries if I do any today.

Again - Dont miss the post below this! :)

Comments and thoughts welcome.

Cheers.

Trades and the Week that passed - Post Mortem

I promised a post looking into the week that just passed us by and the trades that I did..What went right and what went wrong...

First the trade - Going into the week, I was short...From approx 2920 area and covered almost perfectly at the 2700 area. Watched for a bit and went long - It was almost a near to perfect entry and sure the market went on to rally 130 points from there...But still the trade turned out to be a dud. Why? Because the trade was over hedged. 

Now dont get me wrong..I had an inkling this might happen but still I allowed myself to be over hedged...Why? Because I was scared to take the long - And so in the end what COULD have been a nice short term trade bombed. I realized my mistake early in the day on Friday and wanted to get out...I tried to time it so that I could minimize the loss and VOILA market throws me a curveball..All minor corrections started running upward :D And to add insult to injury, my stupid trading platform went down...haha...all in all a frustrating trading day...Not really because the trades went wrong but because it was my own mentality that caused it...And ofcourse Murphys Law came true for me then...What CAN go WRONG...WILL go WRONG :)

All in all...I learnt some lessons...

- First thing...Never overhedge...If not confident, dont take the trade. Better setups will come.

- For a short term scalp, its better to keep the hedges very small.

- Watch the IV closely when taking the hedge. Also the discount vs. premium on the futures. Overall 3 reasons played against me...Overall it resulted in a bad trade. But still just small loss.

- Heavy hedges come into play only if its a trade lasting 2-3 weeks where the power to roll over to a higher strike comes into play. Its tricky figuring this out but well as I said before, I am also learning this...So bear with me!

Now, next, why did I cover at 2706 and go long. First, this area was tested 2 times and held, so it looked to me like a good place to get long....Second, daily and hourly was terribly oversold...So some sort of bounce was expected. Third, fade the gap...Its a profitable strategy more than often. Last and not least my any means, Sentiment...I could see on message boards, CNBS(cn bc is the correct term...cnbs coz its just bs(bullsh*t)) that everyone had turned bearish...Operators love turning these kind of situations into SCORCHES(=short covering rally). Simply said, odds were in favour of a good rally.

Now looking at the comment I got from Prashant in the earlier post...Where he really hit the nail on the head and my comment after that -

 Prashanth said...

Consider the following,

Your Delta (for Hedge) was 1.10 (which means you over-hedged)

IV was around 57 at time of initiation which dropped down yesterday.

Yesterday, we also saw discount btw Futures and Spot getting reduced.

I feel that for extreme short term, market is still up. If you had held onto position, loss may have been minimized since your Delta for hedge was not 0.70 and a 50 move on Nifty may have given you break-even or small profit.

TI :)

January 16, 2009 7:36 PM

 Lee said...

Hey Prashanth...

You are 100% correct!(Almost 3 different reasons played against me at the same time..I saw it happening realtime and just wanted to cut and run on my trades)...I realized this early yesterday even though I did not quantify it as you have over here...And in an effort to correct the mistake, I made some other small mistakes and probably worsened the situation(but small mistakes and so small fees - we gotta pay our dues to MISS MARKET lol)..but again I am not too worried about that...maybe 2 yrs back I would have been very upset...but in the effort to become more professional, I have tried to distance myself from the trades...hmmnn..donno if thats good or bad thing...lol...but you would know more about that! :)

Okay, I do intend to do some post mortem of the markets and mainly my trades over weekend...but in meantime if you have some links I can maybe read on the hedging dilemma(to HEDGE or NOT to HEDGE?) and Deltas, I would really appreciate it..I do know the idea and basic concept from my trading and experience..but I do not know the theory if you know what I mean...

Thanks Prashanth for you comments and time..I appreciate it.

Others also, I would appreciate it if you can offer comments on similar situations you might have faced..or any thoughts at all...

More thoughts and debates tomorrow.

Cheers and have a good weekend all!
Lee

So there you have it..For those who dont know...Prashant is a very astute and clear headed trader/analyst from the Technical Investor Yahoo group...

Next post will be for the coming week and my trade plan.

Cheers All

Lee