Come into the Trader's Den

AW10

I would like to differ a little on the subject. I feel this distinction of novice trading against the professional should be confined to the books. It has very little practical use while trading live. Most small traders are looking for say 40 points on the Nifty in a day. Else they are looking for 2-3% on a intraday trade. It is almost immaterial whom they are trading against. It is also difficult to find out in a live trade what professional money is doing.

Another assumption that I would question is that professional money always makes profits. There are so many instances of professional money going bust. When we buy say 10 lots of Nifty in a day is it important to know if we are buying from a professional or a novice? Can you ever make that out? What if the professional money comes in after you have entered the trade? How do you make it out?

Only at EOD when the NSE publishes the figures we know that professional money has done for the day. Again it is wrong to think that all professional money acts in concert. The EOD figures only tell us the net position. Again there is something like 2000cr buying and 2500 cr selling in a day with the net being 500cr of selling. The professional money at least some of it has bought while some professional money has sold. When you entered the trade if could have been the professional money buying or selling, there is no way to know.

IMO it is more important to have a system and trade the system. If the system is robust it will win against the novice as well as the professional. In trading the markets the adversary is not outside. He is inside us.

Hy

Pros can take away money from beginners by selling some software which shows where to buy and where to sell. I guess we cleared that now.

This is one way.

If I buy an options over my broker or over the net, what is going to happen next ?

Which person takes my order and why are I am maybe filled or not ?

If I would be a beginner today in option trading, I would be most interested in that questions.

Why ? If I not even understand what happens with my orders and which person is my counterpart, I am unsure what happens with my money.

This person then takes my order and what is he doing then ?

DO YOU KNOW WHAT A MARKET MAKER IS MAKING WITH MY ORDER ?

DanPickUp

Hi,

Firstly thanks to AW10 for starting this wonderful thread, where we can discus on anything related to trading. While all the threads started by AW10 are educational, this one is thought provoking.

We talk about technical analysis most of the times, and about fundamental analysis sometimes.

But we rarely we talk about statistical analysis. By Statistical analysis, I mean study of sectors / groups and normalization of all parameters before comparison. Examples of normalization are % change instead of Price and Turnover instead of Volume.

As everybody knows, stock behavior is affected by reasons quite often common to many stocks of a similar nature.

While the market index like Nifty or Sensex indicates to a very fair extent the general market sentiment, the sector / industry / group indices come next in the hierarchy and the actual stocks come as the third. (We can see very good correlation among all realty stocks, all sugar stocks etc.)

The sectoral indices of BSE is the first step to study the group behaviour of stocks. Of course NSE also started making the similar exercise now.

As for me, I am interested in observing the market behavior, the sector / industry behavior and the stock behavior before selecting a stock. TA of sectors is a good tool to select the sector before selecting a stock in a particular industry.

I wish, we have a brain storming on this subject.

Thanks for your time, I look forward to views of all.

Here is the link to how Nifty Futures moved from Expiry minus three days to expiry in the last fifteen months. Hope it gives you a historical perspective of the expiry week moves.

http://www.traderji.com/futures/38083-nifty-key-levels-day-traders-51.html#post430046

Thanks TT for sharing your views. Even if you have different views from mine, it is fine. We don't have to think alike always. Just would like to share my views on your reply.

I don't think so TT that it is difficult to find out professionals foot print on chart. If we adopt some points from VSA analysis, Market profile approach, etc then we might be able to see the background picture of the bar. It is infact lot easy to see in orderflow.. for eg - on a support, we see 10000 nifty qty on buy side in 1 order.. and 11050 qty in 35 buy orders ? Not just once, but repeatedly as price jumps around support level or makes double bottom.. or even crosses the pivot low there. Is it so difficult to figure out which set of buy order is from novice and which is from Pros. If we observe it closely, then we get develop our 6th sense of whether a particular level will hold or break.

I think, to understand this domain, we need to go beyond the obvious of chart / candlestick/ TA/ indicators and develop different approach by combining multiple factors.

I agree with you here. There are dumb money in big money /professional money as well. I think, more appropriate term will be Consistently Profitably Trader v/s Consistently Loosing Trader (CPT v/s CLT .. i think i shd patent these new names)

Certainly, it is not easy to find out in black and white about who was on the other side. But lets say, if someone is consistently buying at resistance zone, can he be profitable in long run. If he uses Stoploss and has good strategy then maybe yes.. As majority of CLT's trading decision is based on emotions.. hence it is higher chance that they are buying here after seeing the rise of price. Maybe by this time, all lagging indicators are also giving entry signals. Hence it is higher probability to meet CLT buyer in resistance zone. and vice versa for CLT Seller in support zone.
Most of the time, CLT are first one to jump at the breakout/breakdown from a level.. cause that's the tip provider / media tells - nifty buy signal above 3354 / sell below 5278. A CPT, who understand risk mgmt, who searches for low risk entry, demonstrates patience will not jump at first breakout..but will wait for price to retest this price level. And when they see old resistance become support, they jump in.
i.e they are buying at support.. when it has become support.. rather then jumping at resistance predicting that it is going to become support now.
This is how I try to interpret the chart action.. and read something about my opponent.

To me, in isolation, this FII/DII is one of most useless data in the current form as hyped by media. To make any sense out of it, we have to assimilate and crunch it little more before using it in our trading. eg. if we don't know what is the usual trading volume of FII.. then 500 Cr selling is of no use. But If we know that their net number is 50Cr to 100 cr. generally but it has jumped to 500 Cr today then it gives meaningful info. Else it is just another random number. This info may still be useful for swing/position trading..but not for day-trading, IMO.

Absolutely correct. Agree with you here. I would add, the system that is made to trade against CLT's action, has higher reliability of success and longer life.. Cause 90% people in the market belong to this camp. Otherwise, system that is working today may not work in different market condition. And market conditions do change. This one of the selection criteria that I use in picking up a system to trade.
There are 100s of system out there that are profitable.. but are they worth spending my time, if they are going to fail in high volatility of May and Oct month..or of 2008.

Just sharing some of my thoughts. Hope it makes you think and look at trading from different perspective.

Happy trading

Thankyoy AW10 for your educative post as always
Wish to learn more from you.
Very true murthymsr
One blog of our TJ member SS is very informative and educative in this respect which I do read always is
The Indian Market Moniter
Do read it for more statistical analysis
Regards

You had given a new way to think as a prof trader but can you elaborate as to what is your way to find out this?
As AW10 said VSA,Market Profile could be the ways to search prof foot prints.
Of course experience and self analysis for improving is helping to develop that sixth sense but advice from experience traders like AW10,Dan and all others not mentioned, help us to be on right track and saves our time and energy

Regards,

Hy

If you are interested in how a market maker works, here it goes :

https://optionvue.webex.com/optionv...19578647&DAK=E5CBC769302188473FFF722C89974E3F

Java must be enabled.

You will see a part, where the guy explains in a nut shell how he worked with the orders and how he reduced his risk.

It is important to understand the option greeks.

DanPickUp

Thanks Murthy for raising the topic of using Statistical Analysis (SA) to trade randomness in market. IMO, basic foundation of SA is that market gets irrational from time to time but comes back to normal predictable behaviour in long run.. People use the knowledge of Statistics to trade it. Some of the most popular Technical indicator are already using it. Different types of Averages are just an example.
Bollinger Band is another great example of statistics based indicator. Stats is one of the key input for Options trader.

But the example that u have given about strong sector is altogather different topic . What u are refering to is - Relative Strength. (not to confuse it with RSI). Basic premise of stock selction is to
1) know the broader market direction
2) Find strong sector in that direction
3) Find strong stock in the strong sector
4) Find right entry point on strong stock and take the trade.
From risk mgmt perspective or for bears... they try to find weakest sector in the direction of market and find weakest stock in that that sector..and trade contrarian on this stock.
Their approach is that when mkt reverses, weakest sector and the weakest stock in that, is going to fall the fastest. IMO, this is the strongest part of TA but very few people use it.

You can read more on Relative strength on net. All TA package have capability to do relative strength.. analysis on selected instruments.
I must agree that this needs some planning to really structure your approach to relative strength analysis. You might find some info about % gain in different sectors on various timeframe.
But IMO, that is not enough. atleast for me. I am more comfortable in seeing the continuous graph of this variation.. not just friday to friday delta. Hence I depend on MS-Excel for this.

If you want shortcut to finding strong sector then follow the media.. more or less all fund mangers who come on CNBC talk about same sectors as strong sector to be in.
Problem with this approach is that it is lagging info. They won't tell u when sector is weakening and another sector is getting stronger. If they have come out of a strong sector, then they will still tag it as strong sector so that they find buyers for their sell order. Once they have move into new sector in a months time, they will start tagging new sector as strong.
Active investors will always use this Relative Strength, if they have to beat the market.
Non-Traditional Statistical analysis can give you additional confirmation signals when traditional lagging indicators will still showing old trend.

Hope this make you all think on new lines.
Looking forward for more discussion on this.
Happy trading

That was a nice video Dan. Those guys seem like absolute pro's. They were full of confidence and hardly hesitated while explaining things. Thanks for sharing the link.

A lot of things have been said about Professional Money v/s Not So Professional Money. IMO Professional Money is not always smart money but when the opportunity is created they become Ruthless Professional Money.

The only way price of financial assets move in and out of trading ranges is because of willingness and participation of Professional Money. This basically means that for markets to trend some strong hands have to initiate activity which means either absorbing Supply when a Bullish Campaign is conducted and create temporary demand and dispose inventory when the intention is Bearish. However it is the general consensus of professional activity which changes the trend and sometimes these strong lads will be against some of their own counterparts.

What VSA and MP do is help in identifying these footprints. However whose footprint is that we are looking at ? Is it just a couple of Professional Syndicate Traders or the Composite Man (a term which Richard D Wyckoff used to describe the general consensus of professional money). So caution should be exercised along with immense practice if an individual decides to use VSA (a derivative of Richard D Wyckoff's techniques).

Cheers And Happy Trading