Fear of Regret

1:00PM Update - Dont know...I dont see much reason for me to cover the shorts I have left. I can be wrong. As I said before, you can cover and try to reshort higher if you can but I am sitting tight...If we rally into 2740 range tomorrow, I will add back the shorts I covered yesterday...Maybe the last update for today. :)
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11:45AM Update - Well we got that first obligatory bounce to 2680 and decline back. Now we might be setting up a good bounce here into the 2740-2750 area. So risk averse folks close shorts and try to short higher. I might just sit tight. Wait and watch whats going on. 2740-2760 if we get there should be a good short for those not already short.
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I will start first with a section from the 'Zurich Axioms'

The Second Major Axiom
ON GREED
"Always take your profit too soon"

Amateurs on Wall Street do it. Amateurs in poker games do it. Amateurs everywhere do it. They stay too long and lose. What makes them do it is greed, and that is what the Second Axiom is about. If you can conquer greed, that one act of self-control will make you a better speculator than 99 percent of other men and women who are crambling after wealth.

Always take your profit too soon, the Second Axiom says. Why "too soon"? What does that puzzling little phrase mean? It refers to the need to cash out before a set of winning events has reached its peak. Don't ever try to squeeze the last possible dollar from a set. It seldom works. Don't worry about the possibility that the set still has a long way to go -- the possibility of regret. Don't fear regret. Since you can't see the peak, you must assume it is close rather than far. Take your profit and get out. It is like climbing a mountain on a black, foggy night. The visibility is zero. Up above you and ahead of you somewhere is the peak, and on the other side is a sheer drop to disaster. You want to climb as high as you can. Ideally, you would like to reach the peak and stop exactly there. But you know "ideally" doesn't happen often in real life, and you aren't naive enough to think it is going to happen now. So the only sensible course is to stop climbing when you have reached what you consider a good height. Stop short of the peak. Stop too soon. Sure, when the fog clears and the sun comes up, you may find you're less than halfway to the top. You could have climbed a lot farther. But don't nurse this regret. You aren't all the way up, but you are up. You've made a solid gain. What's more, you've made it and kept it. You are a good deal better off than all the blunderers who scrambled blindly to the peak and toppled over the other side.

This happened to a lot of stock market speculators in our Indian markets also recently!

Carrying out the precept of the Second Axiom seems to be extraordinarily difficult for some. The main difficulty may be the fear of regret.

The fear is particularly common and particularly intense around the stock market.

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Okay the market - Well the triangle is now officially broken. I am not going to post a chart of this today. Most blogs on the net already have this so you can look that up elsewhere.

So what next. This break gives a target of around 2250-2000 odd on the Nifty. Does not have to happen but thats what this breakdown is targeting. It will not happen immediately or in a straight line - Expect sharp rallies in between. BUT its not time to be bullish yet...Not yet...As I have been saying for long, bottom will be in March last week or April mid to end.

We can target 2525-2550 area first and maybe then have a bounce to the downtrend
line of the triangle...Or back to test the breakdown point of the triangle before collapsing again. Again this too will not happen easy - It will be a slow and tortuous ride.

I am not sure yet what to do with the rest of my shorts. I will wait and watch the markets today before making a decision. Maybe do nothing at all.

Why did I post the excerpt/axiom above? Well just wanted to say its okay to take profits early as a follow up to my earlier post. I used to regret doing this a lot..GREED is a very strong emotion just like FEAR(the 2 primal emotions that drive the stock market)...But nowadays, I tell myself - Its just another trade! Believe me - having this attitude in your trading will improve you as a trader by a lot.

I will post intraday updates later today.

Best.

Round and Round - Part Deux

1:00PM Update - Covering around 50-60% of my shorts here..Mostly the puts and some of NF shorts...Reasons because I want to go to sleep and dont want to watch the market here - its like watching PAINT DRY! :P AND ofcourse profits are always profits!

Next thing is looks like 2660 is holding for now...so covering and watching seems good and prudent...

Lastly I dont like this action...We could be basing for a quick move upward. Not sure anymore..SO when in doubt, be safe..We shall see tomorrow what to do with the rest of the shorts..This relative strength in our markets has me skeptical for now..But not fighting with the market..Lets see if we are setting up an important buy very soon. 2500 area obviously remains important medium term. Still holding few NF shorts.

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11:10AM Update - Okay market is hovering around the 2700-2690 mark so far. I am not convinced this is the low of the day. I think we see more downside today itself. Be careful with bottom picking. Either way I want to cover some of my shorts today. I will wait and watch for some more time before taking a decision.

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Okay next our markets for today. Might be pretty bad with the US futures also looking down. I will post intraday updates in this thread itself.

The triangle structure spanning the past 4 months has been lending support to nifty so far. Today might be the day it finally fails - A close below the line will confirm it. You can see how they stick saved the market past 4 sessions to avoid a meltdown. A daily close below 2730 will have me interested AND intraday move below 2650 will bring about a big move.

A gap down is also almost surely assured today. I think the selling climax I was looking for so long might finally be here :)

Position updates if any - I will state them in the intraday updates here itself.

Chart for now -

NIFTY DAILY


Nifty Weekly Comments - Stochastics on a FIRM sell. I trust this indicator a lot - people who used to visit my blog from the beginning would remember more on how I used to use this for trading.

We might be close to a selling climax. Not going to try to pick bottoms until I see some bullish confirmations or unless we get close to 2200-2000 NIFTY levels..

One other thing - One bullish looking stock that I think looks interesting is CAIRN. Nice volumes and a possible triangle breakout. After a long time, I am looking at a stock with a bullish perspective. Keep an eye on it. Not sure if its a good idea to start scaling into it now itself or wait a bit more...I am also bullish on OIL..So CAIRN is a good proxy play.

Intraday comments later.

Best.

Round and round we go....

"And those who were seen to be dancing were thought to be insane by those who could not hear the music...."

-- Friedrich Nietzsche

Well folks, finally what I was expecting to happen for some time has happened. We have broken and closed below the Nov lows on the SPX and on the DOW..On the DOW by a big margin.

Chart -



Why our market is still showing resilience is still a mystery to me. Manipulation? Or just a delayed effect? Either case, my gut is saying we touch 2525 soon.

The other side of the coin is the low which I expect will come sometime in March or worst case early April may just be the BUY of a lifetime. Its coming but not yet.

We shall see.

Have a good weekend...Ciao! :)

Best.

PS: Any ideas on how the RIL-RPL merger might affect markets on Monday? To me something smells fishy...But I'd appreciate thoughts from others...

Interesting Juncture

12:45 PM Update - Okay again lulling us back to sleep. Be alert for a quick move. 2730 on upside and 2710 on downside...Break of 2710 and we can move quick to 2660. Maybe thats it for today. Be careful out there. Consolidation at the lows in this kind of flag pattern is never good for bulls. I did not do any trades today. Still holding to positional shorts from 2780 odd. Last update from my side today. Goodnight!
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11:30 AM Update - Well well what do you know...2740 is broken...Interesting...Next support is ofcourse 2660. Break this 2660-2600 range and I think thats it for the bulls. This is typical market maker tactics...play the bullish side...or just let the volatility die down for a long time...lull everyone to sleep and then trigger move in one direction - This makes sure that very few players are on the bus for the move...And we all miss the move...This is why we need to be very alert in this market. :)

ALSO the inverse HnS I talked about before is also invalidated now.
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We are at a very interesting point in the markets...I cant believe that US market is so close to breaking the November lows and we are no where near it. I think this can get resolved very very fast - knowing our markets. VIX is down for now but things can change very fast. We are looking at a big move soon. I still vote for down...

Okay now coming to the levels. 2740-2720 is important support. 2800 is resistance. Above 2800, we can run quick to 2860, 2880 and 2920 areas. There is a very big intraday inverse HnS developing which projects to 2900 odd. So thats a danger point for shorts. But I am holding to my futures shorts and some puts I entered yesterday. The timing was bad on the puts but the futures shorts are looking good.

As I said before a move above 2920 means market is turning more bullish and I think the short strategy will have to be abandoned.

I see a lot of confusion in the markets now. And the market makers are using this to move the markets. Yesterday was a classic example.

I will post some more a little later if I see something important developing.

Also charts will follow later.

Best,
Lee

Expiry Fun

Yeah...2800...Someone wise told me never to trade on expiry days :) What a move in the end...Someone seemed desperate to get it close to 2800. Well tomorrow is another day - lets see if we get follow through.

The intraday inverse HNS has almost completed target BUT there seems to be another bigger one developing that could target 2880-2900. Danger for shorts. But let me look at some more data and charts before posting again later.

Cheers,
Lee

Building Cause - Intraday Updates

Okay last I promise :) ... We look to be resolving oversold condition intraday right now by going mostly sidewise..I wish I could stay up to see what happens but going to sleep..Good night!

Okay one final EDIT - I am dipping into some 2700 March PUTs right here. Very few. Scaling in. Will add more tomorrow.

EDIT: 11:20 AM IST : Hmmnn...Interesting position...Looks like we are back at 2740...Now we can take this on upside and never look back with a good rally or totally fail here..Its basically a toss up right now. I dont think I am going to do any trades today. Sitting with my shorts from 2780 odd yesterday. Goodnight All.
I intend to continue this tomorrow. So expecting more comments from everyone! :)

EDIT: 10:30 AM IST : Okay it looks like 2740 area is providing support for now. See chart below which shows why and the confluence of support in this area. For downmove to continue, we need to break this and then ofcourse break 2680-2660 as is clearly visible below in the chart. I expect we can try to move a bit more higher as long we as we hold 2740. I might add a few puts if we do manage to go higher - so far, I have done nothing today.



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I am starting something a bit new here. I.E a thread each and every day for intraday updates. I will post thoughts every few hours but ONLY if I see something worth posting. And ofcourse until I go to sleep. :)

So if you are a faithful reader of this blog, please visit during market hours also as I will post updates whenever I see something worth posting.

Another thing - I note there are many regular readers here. If you like this blog and the material posted here, please tell your friends also. Also if you think of any way I can improve this blog - new material you would like to see - or anything else for that matter, please let me know. If it is infact feasible, I will get it done.

Okay..One more thing..Earlier post, I know it was boring..Macroeconomics and all that..I know most of you guys are focussed on what will make you money today...BUT understand that all this macro views are important to us all..And simple fact of the matter is - It will help you make decisions on your short term trades also.

A simple example. 2 months back, I used to try the long/bullish side for positional trading..even though I fully knew that the situation is bad...And what happened? I lost on most of those tries. Bearish positions on the other hand continued to win big...What I learned in this is..Never trade against the BIG PICTURE. To do that, you need to understand WHAT that is..And I am sure most people do not know!

Now dont get me wrong..I still scalp on the long side..I dont post that here..Or its just a 1 day trade like I did a day back with good profits...But I dont do that unless 1) I can get out quickly 2) I know odds favour me 3) Risk vs Reward is good.

Okay coming to market today...The inverse HNS pattern I talked about yesterday targets 2800-2820 odd...So I expect we shall tag this area...I started shorting yesterday...Might do some more today via March PUTs...2860 above means I am wrong above this short term and we can go above to around 2920..Unlikely but something we should be aware of when trading in these conditions...

Either way I think we are building cause for the downside.

More thoughts later...I might add EDIT thoughts into this post itself a little later.

Best,
Lee

Counter

Now this is going to be a funda post...So if anyone wants to skip go ahead - But I would recommend to read it very carefully since its something that will affect our actual lives also...Not just trading.

In earlier post - Sajal(Long.Short) raised some very clear thought out and important points...I am pasting this in here as I think everyone should be able to see the counter points to my earlier post.

1.What I have understood from your explanation that you are trying to establish a theory where--i) US will suffer a depression in the coming years ;ii)while India and China will shine.I don't know if I understood correctly but at least that I got from your undertone.

Just here lies my problem. If your first premise is true then your second assumption should be wrong.
Rather it seems like the stupid "decoupling theory" that cropped up Nov -- early Jan last year in our market which was ultimately shattered by just 2 back-to-back down circuit in Jan.
My point is --
a) In 1944,Bretton-Wood accord established the US$ supremacy in exchange-rate world over.It is the US economy which creates and circulates US $.

b)Politically US is the super-power and I am not seeing any country who can dethrone US in near terms. So, Bretton-Wood will continue.

c)If US recovers then a mojor contribution will come from this US$ supremacy by Bretton-Wood.I mean other economies will help US to recover by forgoing their own growth.

d)What earnings you are looking today of the Indian Incs, can change dramatically within a quarter or two.So we should not give much importance to the present marksheet of them.

Lastly,in short,my point is If US suffers nobody in the rest of world can avoid sluggishness(at least).Once a French President said beautifully... tying with US is like sharing a life-boat with an elephant.

Now I totally agree with most of these points...Dont get me wrong...I like to see the 2 sides of the coin...And most of these things, I have already thought about a lot...I will try to outline my thoughts in order - But remember one thing...Economics is really a very very grey area - No one knows what can happen..Its more of speculation at a different level which is why I prefer to stick to TA - Atleast we have that to guide our trading...BUT its always good to have an idea of the BIG PICTURE...It will help in our trading - Always.

My thoughts - Sure USA is the major power now...And logically we must conclude that IF USA goes into a depression, the whole world will. Now this might be true in the beginning of the slow period but eventually others will step up to the plate is what my view is.

In every major economic cycle, we see one major economy crumbling, and another one stepping up to take its place. These are not 1 or 2 year events but a big process. For example, before the last great depression, England was the super power...Now its just a shadow of its original form. Same as for the Roman, Persian and Greek empires. The rise and fall - roughly will span around 200-300 years. I think the fall of the USA has started. And the rise of some other powers have also started. I feel for sure that China will be one of them. India on the other hand, not so sure but I do think we will also come close.

Now, HOW is the big question? Where will demand or growth come from? Well it has to come from within..Simple..No other way. This is one thing which I feel pained about - India is a service oriented economy - The way it is now - We will not be able to survive for long. We need to start building from within - Thats the only way demand and growth gets going. In the first part of the 20th century, there was a massive wave of infrastructure growth in USA - this is what fed the growth cycle. Same needs to happen elsewhere. China is on the right path - Recent plans show that. I am disappointed with the so called stimulus plans India has now..We need to stimulate growth from within...Period.

Okay enough of my rant.. :)

Now I can be totally totally wrong here. Its just a debate. Economists are probably more than often wrong - Else we would have seen this crisis coming. So what can we do?...Just trudge along trading these markets until we see some light. I will remain very long term bullish until that multiyear bull channel is taken out on the sensex. If this happens, well, I dont want to think about the state of the system then. Lets keep our fingers crossed that this does not happen.

Okay I know I bored you guys...Here is something more before I stop. See the image below.



It’s a geographic representation of the impact this financial crisis will exert across various nations as projected by a recent LEAP report -

LINK

LEAP/E2020 has studied the situation for the main countries and regions of the world along seven precise criteria enabling to measure their degree of immunity to the financial detonator.

CRITERIA:
Share of the economy dedicated to the financial sector
Share of the economy dedicated to services
Level of household debt
Quality of financial system and household assets
Relative amount of public debt (municipalities and social systems included)
Relative amount of external debt (trade and payment)
Share of capital-based pensions on overall pension fund system.

Based on these criteria, [the] team was able to identify 6 major groups of countries hardly related geographically but with similar profiles.

The report goes with a projection of approximately how long each of these regions will be affected and also elaborates on main challenges in overcoming this systemic crisis. Great stuff to say the least.

Now you can see, the US and UK will be the worst off...Africa - well nothing will happen to them because of this crisis. China and India will be in a recession period for 2-3 years (US will be in a depression spanning around 5-10 yrs by contrast)
[Different language on the image but you can see what they are saying here]

Now I stress again...All this is speculation. Makes for good debate but not much use in our trading - But it always helps to understand the BIG picture.

Thanks to Sajal for all the valid counter arguments.

Best,
Lee

Lull before the Storm?

EDIT: Wednesday morning after market open...Got out of my calls from yesterday...Thats it for me on the LONG side...Now slowly scaling into shorts...Dont getting me wrong...I will short slowly up to 2860...Cheers to all!
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Well how was my timing yesterday? :)
I for one was very happy with it...Covered shorts near the low and took some very low risk longs in calls...In a notional profit right now. I will likely look to cover it very soon - even before expiry - I am obviously not very comfortable holding longs at this juncture...Markets can reverse back down at any point of time...2850 would be the most aggressive target.

Now why did I cover? Below chart explains it...And I did point this out yesterday also...And we got a doji...Seems to be playing out according to plan...We should also get a big up day very soon if its playing according to the plan.



The other interesting thing - If you pull up the intraday chart from yesterday, we seem to have formed an intraday inverse H&S which projects a target to 2800 if we move above yesterdays highs...So worth watching. (pull up a yahoo 5 day chart and see what I am referring to)

Okay so thats my short term outlook and my trading plan...

Now coming to the bigger picture...MVP asked a very interesting and important question in the chat box...Something I have also been wondering for some time...Simply put...why is there a disconnect b/w our markets and the dow or spx...We have broken the lows in DOW or SPX and nifty is still strong...Why? Well I do not have answers but I can speculate...

Something else worthy of note here is that Nasdaq has not broken the lows and looks more strong...It looks more like Nifty so we can compare ourselves to that index...

But...coming to the discrepancy...There are 2 possibilities...

1. If you remember in Oct of 2007, US already started the bear..Much earlier than us...We waited till January to put in the big move down...Market might be held up right now and stealth distribution might be going on...Before the final capitulation move to a bottom...This is one possibility.

2. The second one is a more fundamental one...I.E India is more stronger and is preparing itself for the next bull market...Hence the relative strength.

I think its a mix of above 2. I expect we will tag the bottom of this chart eventually as I have been calling for a while. It may happen sometime within the March-April timeframe. Sensex Monthly attached below.



And I think this will be a very important bottom for our markets...And we might not breach this in the coming months...You can see we have been in a structural long term bull market...Recent bear market non-withstanding...A tag of 6400 on sensex and moving up from there will have me very bullish. We can expect several tests of the channel bottom before the next bull market begins...Ofcourse all this will take a lot of time...Its not a 1 or 2 day event.

But during this time SPX might might just form another term bottom at 650-600 odd and then mount another rally only to break it later...India on the other hand will become more stronger as time goes by...And as the fundamentals regain strength.

This is my longer term view and should be taken with large fists full of salt :)

Earnings wise, I am here in US, I see it, its bad...SPX might have negative earnings very soon...Do you see that for India? No...Sure we are in a slowdown...even recession...But we will recover within 2 yrs or so...US on the other hand if lucky will recover in 5-6 yrs...If NOT, worst case US of A is going into a depression.

Speaking more on the fundamentals, I am appalled at the way policy is moving here right now...Its not good...US of A is moving more toward socialism when we are trying to move more to capitalism...They are worsening the situation with every new policy step they take...If they had done nothing, market and economy might have recovered sooner...This is why I think USA has peaked...New Policy is making it worse...Sure it will stabilize somewhere but I think the boom here in US of A is over...

The next few decades belong to China and India.

Comments welcome.

Best.

Some more thoughts

ONE MORE EDIT: I took a gamble on some 2750 FEB CALLS...Pure gamble...If I lose it, I lose just the premium... :) Worth the risk here in my opinion.
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EDIT: A little after the market open...Out of my shorts...Flat for now...Now the market can crash without me...LOL :)
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We seem to be close to an inflection point right here. I would think that we are very close to a bounce point. Could come from the 2660 area...But if this fails, we could have a quick trip down to 2525-2550. So its a risky area for sure. Either case I am considering taking all my shorts off today and just going flat. I dont want to go long here because of the 'crash' possibility..And believe me, after the US market today, its a very strong possibility. We got to bounce right here on the SPX and DOW, else its crash time. But gotta take that risk I think as a trader..So I will take my shorts off and wait for a bounce to reshort again. Dont want to risk any longs in this market.

Chart below.



Comments welcome.

Best,
Lee

Week Ahead - Quick Post

EDIT: Well looks like today was a holiday that I was not aware of until a few minutes back....LOL...Well it happens...Anyways nothing changes in views...We shall see more detail tomorrow sometime....I promise a more detailed and indepth look at things and how I see the next few weeks - intermediate timeframe - playing out...Short term, well a bounce is on the cards...Not that it matters much for the intermediate/medium term.

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Meant to do a much more detailed post over the weekend...But a friend of mine visited and right now watching the Oscars....So no cigar...Still a few words and a chart...A more detailed update will follow tomorrow.

Right now, we are at a bounce point...Which is why I reduced shorts on Friday as you could see from my earlier post. I intended to reduce more today but the US futures has screwed up this for me...Now let me clear...I wanted to cut some shorts and then add it back after a bounce...Not that I am turning bullish...

Levels...2730 was obviously very important as I said before...below this 2660 is most important. So from here a bounce into 2820-2860 area was expected...Which is why my plan of cutting and adding came into the picture...Sometimes we have to think on the run...And adjust our plans...More thoughts later...After this bounce, downmove should continue. Chart with important lines and points below - Its self explanatory.



Best.

Covered Few

I covered few shorts near lows today....Just taking profits...No change in outlook.
I think some bounces are possible...But I dont think it can sustain the gains.

Cheers,
Lee

Outlook

Unfortunately did not get time to make a more detailed post...But a few words on my outlook. I still think there is ATLEAST one more significant down wave no matter what the count is...

So if you look at the triangle we have been in for past several weeks, yesterday we tagged the bottom of it and bounced back....2730 odd....so for the bearish case to gain strength, we do need to break that and close below that...For the bullish case we obviously need to hold above that as much as possible...

Now you already know my bias. I dont like to post 2 sides of the coin...Very clearly, I expect we shall break 2730 soon and go on to test 2660, breaking which we shall touch 2550-2525 where I think I will cover my shorts for this round. All this should happen very soon as the down waves look impulsive to me...

2860 on upside is key for da bulls...And above 2920, I would say bearish case is dead for now.

This is my outlook. Should not be construed as investment advice and usual disclaimers apply :)

Best.

THE JINX

Yeah I know I know....I promised I wouldnt post for a while :)

But when the bear finally wakes up, shouldnt I be there for it? :)

Anyways all jokes aside...I am wondering if we are finally getting the big move. Or atleast the start of it...The move that has been so elusive for so damn long. Even shook me out of a few of my short positions. Yeah I have to say its not been easy being a bear for the past few weeks. Maybe the tide is turning?

Charts with comments below.






Hope I dont JINX it this time also :)

Best.

Walk the line!

Not going to talk about the markets here even though I have commented in the previous post...If you missed that, please read since there are a lot of valuable insights in there from different people.

I watched a movie...Walk the line...A few days back...And I loved this movie. Amazing stuff...The movie story line is a bit sad to say the least but overall a wonderful movie..More than anything the actors performances are superb and should not be missed..Since I loved the movie so much specially the songs, I thought I'd try the title song...An attempt below...

Now this song really needs 2 guitars with a lead for sure, I am not very happy with it but well it is what it is....He sings the whole thing so low..almost rock bottom base...But anyways, heres my take on it...enjoy :)



Best,
Lee

Sabbatical

Okay guys...its been a tough week...very tough for me...One day the bear case presents itself and the next day, the bull case presents itself...We are in a range...Period. And I have been wearing myself out trying to trade it positionally instead of scalping.

The fractal called for a down day yesterday which we did not get. Maybe because of the last minute stick save in the US markets but whatever it is, we did not get it....I thinned down a lot on my option positions yesterday only because the time decay was killing and ofcourse took a loss in them. Going to avoid option trading from now on...

Overall a disappointing week for me...We may have topped as I said before but as each day goes by, I am becoming more and more skeptical...Maybe we just stay in a range for some more time....Just frustrating everyone...The budget next week might provide more direction...Maybe.

I am still holding my core short position but I will likely bail if market makes more of a push higher...And again maybe try at higher levels.

Overall not happy with my trading over past couple of weeks...I see that some emotion also entered in lately.. So I am taking a break from blogging...
Definitely for a few days...Maybe even a bit longer.

In the meantime, best of trading to everyone.

Wishing everyone and good weekend and happy valentine's. :)

Cheers

Round and Round we GO

Update to the same fractal call I been posting here for a while.

EDIT: Damn - 'I AM' on the chart should read 'AM I' :)
Man last minute stick save on the US markets...Can you believe it..lolz



If this is right, Friday should also be a decent down day.

Cheers.

The Playing Field

EDIT: Forgot to mention something. See how they killed all the bears yesterday. See how they closed the gap - Exactly what I said might happen in previous post. Now what this achieved - bullish sentiment is stronger now...I find this very interesting. I think we are building CAUSE here. But I still have to say bottom line is we have to get out of the triangle below..

Simple and self explanatory chart. Thats the field...How high up will we go? Not sure at this point. But whenever we break 2850, it will be game over for bulls.



Notice also above how stochastics is close to tipping point.

2960 is a potential topping point...Above that it will be 3050 and above this 3120. Quite unlikely we run that far. I will be looking forward to adding more shorts today/tomorrow depending on the levels - whatever I had thinned down few days back.

Best.

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.

Best.

Damn! Somebody Woke HIM and HE aint happy :)

See this is what you get for taunting bears! :D (refer post below this)

All in jest of course - Just having some light fun....While the bear case
has been strengthened today by the US market action, its too early to
say if we can have one more marginal high - But less chance.

Thanks to all who commented in earlier post. I have posted my thoughts
and conclusion also there in case anyone wants to read it.

A more serious update later today.

Best.

There he sleeps...Somebody please wake him!! :)

:)

EDIT - WOW looks like the US Bear just woke up...be looking for a fakeout/trap :-|
Someone please wake the Indian Bear too :)

On a different note - Would you prefer my usual written updates or the videos? I noted that not many people download the video compared to those that visit here.

Markets - The beat goes on. 20day swing SL taken out. Now its on a buy...Likely this will also fail - stop is at 2660 odd I think. We are in the RANGE from HELL for now.

I still believe we are setting an important top right here. My beliefs should ofcourse be taken for entertainment purposes only! :)

Will post a more serious update later.

Cheers

Video Update - Feb 9th 2009

Latest Video update from my side...Video quality is good...But could only put the full file on another server...Go and download from there to watch -

LINK

Best.

Important Week Ahead

Meant to put out another video today...Unfortunately did not get time but still want to do this quick update since I think this week is a very important week.



The most important chart development I think is that the SL for the 20d swing has come down to 2930 - meaning that shorts should exit if market closes above 2930 any of these days. Will it happen? Well let the market tell us. I am going to review market action for next few days to decide how to manage my trades.

Something I have noticed recently is that few readers are turning aggressive, downright critical, mostly senseless comments that I cant even understand what they are trying to say. Come'on guys if you want to offer counter points, I welcome that since I can see the other side of the coin...But aggressive and taunting posts will get you nowhere. If it continues, I will be forced to take some additional steps like no comments allowed at all...Or even take this blog private so you can read by invite only....But we shall see. I dont like it when people come out taunting esp when I take a lot of effort to this analysis and updates...Its very frustrating to say the least.

The good thing though is that whenever these guys come out like this, market flips in my favour. So we shall see.

Okay enough of my rant.

Some interesting things I see on public sentiment also. Suddenly forums, news, blogs etc have turned bullish - They were bearish till Thursday. For me this is damn interesting. Market has not done much in this period to warrant this much bullishness...Is it the news? The stimulus plans? Well we all know how the last few stimulating plans helped the markets :D
Bottom line is this market should be allowed to heal by itself...sure it will be slow..but it is the only way. The more money you throw at it, you are only worsening the process.

There are a few things I am watching and also some cycles that say we are going to put in a real top within Monday-Wednesday timeframe this week. Whether this will happen or not I do not know but I am watching this week closely. I admit time is fast running out for the bearish case and the earlier fractal we were following can fail if the bullishness continues this week. I will be looking for an important top this week beginning.

I will post the video update tomorrow.

Best.

Reflexivity and Inverse Reflexivity

I meant to post earlier today but some work came up....Still here are my thoughts as promised...No charts today...Just typing some random thoughts and ideas.

Now the topic -
For those who don’t know about this concept, its very useful -

Reflexivity basically equals ‘a self forefilling prophecy’ - traders expect a gap and big decline, so they sell causing a big decline. This is actually a pretty widely followed concept. You can google for more information.

Inverse Reflexivity is a different idea - its an ‘unforefilling prophecy’ - its the contrarian flip side, where in this example, if too many traders go short anticipating the decline, the market makers aka operators can’t resist picking their pocket - coz believe me my friends, they know two very important things -

1. They can see how many short positions are out there and where hard stops are.

2. They know all the methodologies we use, what triggers setups, what triggers stops

If this is the case here, then likely it will roll over again down once the shorts are cleared, maybe by the close today or maybe by Monday.

Now above is what I think of the market now...As I said before I am just a trader...I am not a market GOD...You need to make your own decisions....I dont want you to lose money and then come back and post over here as that ANONYMOUS LOSER...I am sure that big loser lost so much money and he is totally pissed off at the world. Well my friend, no one but you is responsible for your own losses....Same thing I have to say to all....

Having said that, I thinned on some of my shorts yesterday...Still heavy so was looking to thin down some more today...If I get a good setup...But overall planning to hold shorts into next week. If you are risk averse, do not simulate my positions or my views :P

A wise guy once said about TRADING - The HARDEST WORK in TRADING is the WAITING ;)

Best.

Chill Out!

Another attempt...This time Bryan Adam's 'Back to you'

Comments appreciated.

One More Thought - EDIT*

EDIT: Sorry I had to delete earlier post and repost here...One idiota loser who probably has not even made a single cent in the market in his life has started posting anonymous comments that I will soon fail and commit suicide...LOLZ. I feel for you my friend - I think you have lost a lot in this bear and are just venting your frustration out...I guess you are also the same guy who commented a while back that 2250 is not the short term bottom but it would be 1860...Hows that working out for you?

Sorry could not resist...

I have changed settings...No more anonymous comments...

So that the latest post and comments do not get lost, I have pasted them below.

Latest read on markets - Well I dont know...I am still seeing possibility of a big down day...Or even cumulative down...Either way I have to start seeing sub 2700 in next 2-3 days. Else have to start thinning down on shorts....Already I managed a few, took profits on some and so on....But probably will think about really cutting them down soon.

Cheers.


OLDER POST AND COMMENTS
=======================
I have a pretty good feeling that we can have a very big down day today or on Friday. Be very careful out there if you are trying to bottom pick. For the down day to trigger, 2750 should break first..Then 2700. If so, then I think the goose is cooked and we head to 2525 first stop.

I will put up a new analysis video over the weekend.

Cheers!


COMMENTS
========

Yoda said...
Something about this fall isn't right. Can't put my finger on it.

Most stocks by this point are uniformly poised to drop - that syncing hasn't happened yet.

I'd advice caution since yesterday's fall was so controlled.

February 4, 2009 6:36 PM


Lee said...
Yoda, I agree with you to some extent...Something is not in sync...I can feel it also...Which is why if you see my last 2 posts, I am advocating lots of caution in case the whole premise is wrong...lol...I cant put a finger on it either but STILL...I have to play the odds...And short still seems the way to go...If we dont drop in next 3-4 days, I have to rethink this whole fractal...

Cheers

Thoughts

Hope you all enjoyed the video in the post before...The quality in the video posted in the post was really bad which is why I uploaded the video in full quality. If you download those, you will be able to see it in full resolution. The blog embedded one sucks...

If anyone has a more effective solution on how to put the video IN the post itself, I would really appreciate it...Suggestions welcome.

Some folks had problems with actually playing the downloaded file. If you are having problems...Go to this link -
http://www.videolan.org/vlc/download-windows.html

Download VLC media player...Superb player and will play pretty much every video file under the sun..Few it will not but thats fine...

Do this, and I am sure your problems with actually playing the file will be solved...

Regd the earlier posted poll, majority was bearish..But I think this is because you guys are reading my views and are influenced by it. Mainstream as I see is not so bearish...Sure there are bears but there seem to be a lot of baby bulls. Scary.
The other thing I feel is this...We are probably in the terminal end of this decline phase..So this means lots of people are bearish...But still the decline will come to wipe out the last smidge of bullishness so that the new baby bull market can start.
This is my feeling and interpretation. I can be wrong also. :)

Okay now coming to the markets...

So far, the market has been driving both bulls and bears crazy...Rangebound moves...And very volatile both ways and taking out both bulls and bears. I expect we will continue to be in a wide range of maybe 2500-2900 for atleast few more weeks...And the interesting part is we might test BOTH ends of THIS RANGE very soon. Get ready for some fireworks! :)

Be careful though playing in these conditions. What we have in some serious volatility compression...And we are building cause for a move in a certain direction. I am still looking for down as per my fractal map but still will be playing things cautiously...For example day before, I got out of some of my puts which I will likely enter today...Only thing I am not sure is whether to go for Reliance or Nifty but will see...Either case, I believe in next 4-5 days we have to start the big move down...2525-2600 first stop.

Charts and Commentary below -

NIFTY


RELIANCE


SENSEX


Okay...now something important...Even though I am raving bearish here and I am sure many of my readers are...Its important to play safe...We never know what can happen in these environments..SO...Play Safe!

Best.

Market Analysis and Views - New medium :)

Video I made with my latest analysis...Just trying something new. Enjoy...and comments welcome!

EDIT: Sorry guys I know the quality is bad..But I tried so many things and couldnt fix it...most free services do not maintain that quality of the initial file...So I am putting links for the direct files...Anyone who does not like the quality below, can download the files...Split into 2...

PART 1

PART 2

Poll..Please VOTE based on what you think..But also dont miss important post below!

Market Outlook Do you think market has bottomed or where do you think market will bottom? Bottom is in...BIG rally comin! Maybe little down but bottom is in or very close to in..I am buying dips No way..I am selling rallies big time!!! In trading range for long time Markets? I dont give a damn! View Result free web polls

pay sites

The Setup

Those who dont know about fractals or if you missed my earlier call on the same, please go and read the fractal call I made in September before the big plunge -> GO

Okay now coming to situation now...I have posted the chart with the fractal outline below. Its self explanatory and it should be fairly easy to see if the moves are playing out as forecasted. Till date I was looking at the fractal but still the moves were not clear enough but with recent price action, I think we are close. 

 

The other thing I find worth to mention here is when we hit the recent bottom last week, I would have covered but I was looking for lower since the fractal suggested the same...Unfortunately market always acts the way that is least expected. So shorts are now squeezed and retail and TV analysts seem to have gotten bullish again. I think we are very close to another short term top right here. I will be watching today's and tomorrow's action closely.

The Bottom Line - Until we go above 3150, I will remain bearish.

Best.

Amateur Guitar!

:-) 

Here is a song by Green Day...Good Riddance...Played by Moi...

I am a beginner so bear with me!

Comments welcome.

Best.

Introspection

When I started this performance and trade tracking business a couple of weeks back, I said it was going to be more of an experiment than anything else...And I also mentioned my intentions with this...i.e...not to start any kind of stupid trading calls service...But instead to serve as a performance tracker in case I do eventually get to do my dream job - be a fund manager.

Now after 2 weeks in this, I have to say, this thing is affecting my judgement, leading to unwanted stress and overall is hampering my performance. I say this comparing recent performance to that from a few months back. I think more than anything ego and stress is coming into play and these are things that should be avoided for sure in trading...

I know of several people who did something similar to this over here in the US..And I saw similar things happen to them also...They were outstanding at first but then just tapered off as more people began to follow them...Granted its too early to say for sure for me...But I think it is wise for me as a trader to make a call to shut this thing down.

I have had this nagging thought in the back of my mind for long...I have also thought about this for a long time yesterday and today....And have made my decision.

Trade sheet is updated with all the latest...I will leave this here for a day before taking it down.

Overall since I started, booked shows 11% and unbooked+booked will show around 6% profit.

For records purpose, let it be 6% and assume that all positions are closed and I am flat when I take this down.

I am sorry guys...to those who liked this new thing....but I have to think of my trades, my performance...and in the end, if my performance is getting affected, then what is the point?

Regd the market, I still think we are in a topping process and retail seems to be bulled up again...I think all rallies should be shorted from now on...FWIW.

Best.

More Adjustments

Okay here is what I did...Closed 3000 Calls(hedge) at approx 50.5

Entered 2900 Calls(as a hedge) size 2000 at approx 85...

Enter 2700 Puts size 1000 at approx 98...

As always all updated in sheet above..I saw some Qs asking about the trades..I dont see what is

so difficult to understand here..Whatever trades I take goes to 'open' and whatever I close, goes to 'closed'...Whats so difficult to understand? Comeon guys do some research on your own.

I know I know..Their is a good chance this trade will be a loser eventually..But as always I have to play the odds...I have to play my system and my gut feel..

Best.

20/20

No not a cricket match :) ... I am talking about hindsight here...Its funny how that works...Hindsight is always 20/20...What does that mean? It means looking back, we always know the exact points in time where we should have done something...And looking back now, I realize I should have covered shorts and probably sat out this current upmove.

Some of you readers might think I am a fool for letting this profit go by...But again the hindsight thing comes into mind...

I do not have much concern over here as I think this is just an oversold bounce in a very badly damaged market. In the bigger scheme of things, its not a big deal. I know I was in decent profits last Friday and after today's close overall position is in a small loss...I admit this is psychologically draining to see what was a profit go into a loss...But I follow the Jesse Livermore maxim...Sometimes in a trade, you just have to sit tight and wait for the BIG ONE...And that is what I am waiting for here...Might have to take some more pain but the payoff could be big.

The other thing I am feeling now is...after starting this new position updates thing on the blog, it has increased the pressure on me several times over...The pressure to not get into bad trades...The pressure to keep on winning...I guess this is why almost no one will do something like this...I am however going to tough it out and see how it goes...If I feel my performance is getting impacted, I will decide to stop the same...After all that is more important to me. Right now its quite too early to say for sure...But I am keeping a close eye on it.

Coming to the markets...Ok we got a good rally...Next area is 2805-2860 resistance bundle or wall...It would be very tough for the market to go over this...But if it does, we will challenge 2920-2950 range....As of now I dont have a clear plan on this trade if this happens...But I will see when we get there...Break 2720 on the downside and I think the downmove will continue in earnest to 2500 odd. Right now its a toss up and cant say for sure what the short term move will be...Intermediate term..i.e over next 2-3 months, I am very confident we shall see 2200 area and lower again. In the meantime, some pain is bound to be there.

If I get some time later, I will post charts with the counts I think we are in now.

Comments welcome.

Best.

Took OFF some of the Hedge

Just repositioning...You can see the details above.

Best.

Weekly Update - Chop Chop

My thoughts for the week...It will be short as there is nothing much to report. Expect the chop to continue...I think we shall get a good chance to cover shorts someday this week. Based on global markets, it looks like we bounce today...Shorting at around 2860 might be a good strategy.

See below chart...red and blue lines show possibilities short term. I think we are still finishing off wave 4 before wave 5 opens down.

Very simply speaking, we should see 2525-2550 area first (after going up today)...Then we should see around 2860-2960 range....Then the final move down. I will post these counts later...

For today I might do nothing in my trades...Short term taking some pain but we will see how it plays out.

Best.

10000 Hours

Funny title? Well that is the amount of time it takes anyone to become a master in any particular thing...Be it trading....or be it singing..or be it playing the guitar...Thats what it takes to be an expert in any field.

I read a blog article a few days back and cant find a link anymore but basically what it says is...For anyone to become a master in something, he or she needs to spend 10000hrs in that particular thing...

So lets look at trading...lets say you spend on average 5 hrs a day....so it will take you approximately 2000 days or 6-8 years to become a professional...This is assuming ofcourse you are fully dedicated and do spend 5 hrs a day...

Now statistics say that out of all traders maybe only 3-5% at a best guesstimate actually make profits consistently and over the long run...Why? Because most people give up after a year or 2...They either get frustrated or disillusioned or the market kicks them out...the great bear market of 2008 would have done that to a lot of people...If you remember, I once wrote about this...How I started out with few of my friends in this business and in the end only I am left...Not that I am very successful..Only that I do realize that I need to put in effort and lots of effort...I realize there is no free lunch...And we need to work for it..Now more than ever..Which is why I find it laughable that people tune in for tips and free calls...

I occasionally dab a little bit in guitar and music...Maybe I would have spent around 1000 hrs on and off...I can play a bit but I got fed up in between and stopped...Now I started this up again...I think I shall persist this time until I can play good enough...Maybe I will post some of my songs here some day..But my point again is that NO PAIN...NO GAIN...

Do your due diligence folks...Work toward those 10000 hrs...

Will post some thoughts for the week a little later.

Best.

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