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

Closed NF and HEDGE

EDIT: DUMPED HEDGE ALSO. Going to sleep and dont want to keep this open. What makes me feel bad about this trade is that the futures buy was almost a perfect entry yesterday but the trade got messed up due to the hedge..I learnt a lesson but will share more over weekend.

Overall a bad trade. Oh well still a good week. The hedges were not properly done on this trade. I know why now but will post this and more thoughts over the weekend. Going flat for the weekend...We will see more next week.... 

Sheet also updated above. Have a good weekend all...

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

Close Nifty Futures at 2755. Hedge(PUTS) are still open. The way I hedged this was all wrong..Even though the trade entry was really good, the hedge was too large to make the trade effective. I will try to rebalance this trade today....Watch here for updates.

Later tomorrow I will write more on the hedge and what went wrong. I am also learning and experimenting in this.

Best.

Trade Updates

Closed short from 2963 at 2704

Close Hedge from 102 at 31

Opened Long at 2706

Opened Hedge at 102

All positions updated in sheet above.

This 'long' trade is a short term trade. Please avoid if risk averse!

Edit: The reason being I am not very confident on this trade since daily trend is firmly down.

Cheers.

Market Updates

Well got the bounce...On quite weak volumes...But globals are in deep red now...So looks like we can retest the lows and maybe slightly lower. If so, I will likely take profits on short positions and go flat. And look to reshort higher. Will update positions if I do this.

Chart and comments below.

Dont miss the couple of posts below this explaining the new position update feature on the blog.

Best.

Trade Methodology

Got some questions on the trades so thought I will outline some stuff here...

First of all the PE option mentioned above was actually CE being a hedge. I have fixed that - It was my mistake. I have also updated all the figures with latest values. I will do this every end of day or if I do take a new position.

Now about the positions - I am not the kind of trader who trades daily. Only positional. Now I might 'manage' the position and the hedges some days but mostly will let them be. Coming to above positions, it was a double short position before but I covered half of it at 2740 which is what you can see above the open trades - did this since I was expecting a nice bounce which we did get. The other half is still running - I will decide when to close this based on market moves. Whenever I do this, I will update the sheet and also post a blog entry mentioning the exit. Once this is done, overall profit figure will be updated and the trade will move to closed trades.

Then regarding the hedge, why do I have double the futures position? Well most of the time, I try to make it delta neutral especially if I am not fully confident and then I will manage the hedge positions depending on my assessment of the risk in the trade. See the simple idea is that futures will move much faster than options...So if I profit, I am cutting down on profit with the hedge but it will be a profit...On the other hand, if position moves against me, I have protection against account blowup. I have written a good deal on this a few posts below this one - And why exactly I follow this method of risk management vs. hard stops.

Now coming to following these trades. Since these are already open, I would not recommend trading them. If I do new ones, you can try but remember its totally your decision and your risk..In fact, I would feel much more comfortable if people inclined to trade this first paper trade and then follow if at all you need to...Best always is to trade using your own analysis and use mine for confirmation!

I will post market thoughts and updates a little later today.

Best.

Some Updates

Well faithful readers on this blog....You would have noticed that I have added a spreadsheet on top which essentially shows my trade performance since the beginning of this year...

Some notes: 

- The detail on the left shows details on the actual trades I have taken. I think the tabs are self explanatory.

- On the right hand side, you can see the details of the profits/losses which I booked so far and the positions still open and unrealized P&L. It also shows the performance record till date since beginning of year.

Some thoughts here:

- Why am I doing this? - 2 reasons. One is to act as a trading journal for me. I was already doing this - Now its public for all to see...Thats all.

2nd reason...Well this one is a bit more entrepreneurial in nature in that I want my performance to be recorded in case I ever become a money manager...Now I must confess..This is one of my ambitions...Well whether it comes true or not...I want to do this...

Okay...So how can you use this?...Well whenever I trade, I have already made clear before, I take hedges to protect myself...You can see this for yourself in above trades. Be very careful IF you try to follow my trades...usual disclaimers apply.

I would like to hear comments on my new venture and ideas..So dont be shy...let the comments flow...I am willing to consider any changes if valid and needed.

And also, if any one of you have ideas on what it will take to be a money/fund manager, please let me know or get in contact with me at my email id. 

EDIT:

Now you can see all the details on the sheet..I have adjusted a bit..Please do note that options are just a hedge for my main position... Also dont take any positions until I take new positions..I will update when I do this and also do a blog update.

If you want to, you can click on the right hand side icon of the spreadsheet to open in a new window and see everything in detail.

Again I stress..Do not take positions based off this just like that. Follow strict money management rules as I do...And as always disclaimers apply.

Best.

Position Update

No charts. Just a quick update on trades and the market. 

Some bounce is possible to relieve the oversold levels...So I took off some more of my short positions but still holding core position with hedges. If market rallies to 2900-2950 area, I will add back to shorts and also close my hedges - we will see when we get there. The caveat is that the daily trend is now firmly down...So any rallies might be weak...Which is exactly why I am not playing this long but keeping core short position. 

As always its a game of odds. Trade Safe.

Best.

Update - Some charts and quick thoughts

Charts on top...Some market thoughts and comments below all charts. Also comments added in each chart.

SENSEX WEEKLY WITH COMMENTS

NIFTY WEEKLY WITH COMMENTS
NIFTY DAILY WITH COMMENTS
NIFTY FRACTAL UPDATE

Some things here...When you trade, what determines your success above all is some sort of money and risk management. This you will need to develop on your own...I have explained my method already above...It can be stops, it can be hedges..can be a combination of this and position sizing management...

This past trade I am in now was in my opinion a very bad trade because of the area I started adding shorts from...The only reason my account did not blow up was due to proper risk management. 

Trade Update...I covered 30% of my shorts yesterday at 2800-2830 area and holding the rest. I also hedged the shorts at 2840 with 2900 calls...If market bounces next week/or crashes below 2800, I will likely close them off. But need to reevaluate that. Either way my thoughts and preferred paths are outlined in charts and posts above.

Probably no update for some time until I see some change in the scenario.

Have a good weekend all! Cheers :)

Best.

India's Enron

Thats what CNBC is calling this whole debacle and a very apt name too. Well not much of a surprise to me and I stand vindicated on my positions in the market. Not to thump my chest or anything like that...And I truly feel sad and sorry that this is what the corporate world has become. But it was only a matter of time in my opinion.

First we will look at charts and then I will write some other thoughts mostly in answer to some of the questions in earlier comments. I admit this was one of the toughest trading positions I have held getting whipsawed in different directions...But still held on and it paid off...I will touch on some of my thoughts and ideas after we go through the charts.

First the sensex setup chart I have been posting in the past few posts...You can see my comments on the chart. Setup still very much valid.

Next the Nifty daily...Comments on the chart. Nothing more to say except it looks to me we are going to new lows...within 5-7 weeks....Below or around 2000 and I will start looking at longer term cash positions again - IF we do get there.

This was the post I made a while back calling for a fractal move...It would be a good idea to go through this again and refresh :)

http://theindianmarketblog.blogspot.com/2008/12/range-and-some-very-interesting-charts.html

The Nifty weekly...Again comments on chart.

Now coming to actual trading. I understand and agree that this was one of the toughest trades ever if anyone did stay through. I am very sure all the weak hands in the market were first wiped out by the end of day short covering rallies...And once all the shorts are out, the market goes down...

I got questions on how to avoid this...Or how to even trade this...Well there is no easy answer but I feel there are 2 rough ways to actually trade this...For example the recent move up....we know 3080 was the ideal postion to cover shorts...or should have been a good stop loss for any short positions. So once price went above this, we should have covered and then shorted again when price broke 3080 again yesterday. I think looking at yesterdays price action, it was not too difficult to actually do this...Why was 3080 important? Well see the nifty daily chart above and you can see why. Charts are the only way to trade like this...Identify support and resistance points and trade accordingly...Now the caveat here is that to trade like this, you need to be IN the market...closely monitoring all the time....In other words it should be your full time job...If not, forget about it....

The 2nd way...What I do...This is probably not as efficient but I do this because I cannot be IN the market all the time....I am hardly there for 3 hrs of actual market time and that too sacrificing on some of my sleep...So what I do is enter a position and take a hedge in the opposite direction...What this does is I never blow up my account...And also sleep fine :)

Some experience in needed in this also to determine how much to hedge...Which strike to use...etc  etc...For example...Short Nifty 3000...And Long Nifty Calls strike 3100...Now the ratio of the call options should be higher compared to the futures...Then only will it be efficient...As options will not move like futures...

The advantage of this kind of trading is...It give more leeway to me...And I can use my exit plans and I can trade over a larger timeframe...Which brings us to another important point...Timeframe...What is the timeframe you trade?...Decide that...A day trader cannot trade off the weekly charts...I use the weekly to trade...And dailys to fine tune and the hourlies to do even more finer tuning....So I trade positions on a weekly scale...bigger stops...bigger targets and much more leeway...Also it suits my style and the amount of time I can spend in the markets..

Trading is a tough business...Agreed...Experience is the most important thing that we should build in the market...Dont feel bad if you missed out on a move...More moves will come...Markets will still be around...Protection of capital should be the focus of any trader. Profits will follow.

One site you can look at for good support and resistance levels is Ilango's blog :

http://tradeinniftyonly.blogspot.com/

Also I would recommend reading this again - A post I made early last year on my thoughts on TA and trading and what is actually important to a trader. A good read for all traders...Dont miss it.

http://theindianmarketblog.blogspot.com/2008/05/how-important-is-ta-in-your-trading-or.html

Next Possible Moves & Trade Setup

Coming to the market and the next trade setup...I think we will continue down for some more time...And a bounce should hopefully materialize from 2800-2850 area....If we get this bounce from here into 2920-2960-3000, then a good short trade can be done with stop as earlier high...Again watch the lines in the nifty daily and enter accordingly. 

Best.

The Setup - Followup

Main setup I am watching now...Chart is same as posted before...Watch next 2 days closely...Short with tight stops or hedged with calls looks like a good risk-reward play..

Market did not go down as far as 2650 but still the direction of this fractal remains the same as outlined in earlier posts...But we are very close to invalidating this...So a close watch looks to be prudent.

Best.

2008 - What A Year!

Its the end of the year and looking back on this year, I am sure that no one would have expected what played out. Not to this extent. I expected some kind of top at 5800 and sold out on all my long positions and went flat....Market continued upward without me but I was content since we can never expect to catch the last 10% of any big move...Not unless you are very nimble. 

The end of the bull run was marked by the famous Reliance Power IPO...Retail went crazy at the time this one came out and even though I warned all my friends not to put any money in this they still went ahead...loosing most of their money in the process. The day the IPO came out marked the bull market top and never looked back. Has retail learned their lesson? I think not. They still listen to the CNBC clowns - even now. Folks its not a bottom. Their is no such thing as a V bottom. It will take time.

So what do I expect 2009 to bring? It will be bittersweet for sure. The first half is bound to be bad..I expect we shall see new lows...Then after this one super bear market rally. Again pundits will come out calling a new bull market....Will it be? Maybe...But lets take it one step at a time...We will surely go through a basing process over the next 12-18 months...Ups and downs...But there will be super rallies to play...Lets be a trader for some more time and try to catch these big moves before turning on our investment mentality again. 2010-2011 may be the time another bull market starts. Now this is all speculation...But this is my expectation.

Okay enough of raving...Lets go the charts and more closer stuff...Chart with comments attached below. In the post below this one, I mentioned it was good to short at those levels since we were close to the upper area of the channel. Its in good profits right now...What next? My expectations and comments are on the chart. Enjoy.

Once we set this important low in Feb-Mar 2009 timeframe, I expect we shall get a huge rally from the lows...which may be around 1800-2000 on Nifty...this rally should happen into late 2009...maybe a 100% rally also...But let us see that when we get there.

Best and Wish you all a very Happy and Prosperous New Year!

Range and some very interesting charts

Well folks...I got some free time now...so did some analysis and am putting up some charts here with comments...This is very interesting stuff...Dont miss to go through the comments and the studies...If this call plays out, it will be quite an amazing move...!

First the sensex chart I posted in earlier post updated now.

Nifty log...Is this a wedge? Not clear enough to call.

Now the main chart...All comments here...Study closely and leave comments if you like it! :)

Cheers and All the Best!