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[Satyen]

Some time I wonder why market moves in trends at all , Technical analysis Assumes Market moves in trend , but my doubt is Why this assumption ??
is it due to we observed the many years of past data and saw market moves in trend or is there any logic behind Trends ?? And what is the guarantee that we will have trends in comming next 10/15 years ??

Or is this a basic characterstic of crowd behaviour ?? if so is this crowd behaviour confined to finacial markets only or we can see Trend in different form where there is crowd involve other than financial crowd also ??

If above is true then as long as market is there obviously crowd will be there and we will not worry about trends , economy etc etc ??

Confused !!!!!!!!!!!

 

[rkkarnani]

Maintain a Trading Log also. Update it daily.
Record :
Your trades i.e Trigger level (helps you to realise the quantum of slippage in your trades) , Buy level and actual entry level, SL level and actual exit level AND also
a.Why you entered a trade : There was a buy signal... or just felt it is going up, broker suggested...etc.
b.Why you exited a trade : Profit target achieved, SL triggered, Paniced due to sudden drop in Index exited b4 SL was hit, Exited before profit target lost patience...etc.
c.What would be the outcome if you had followed the trading "plan"!!
d....
e....

 

[trader.trends]

Markets moving in trends is not an assumption. It is the only way markets can move. When we mean a trend, we mean that if we had a positive close today and positive close for the next three days, the mkt is having an upper trend and the opp for down trend. Obviously in an uptrend we have higher highs and in a down trend the lower lows. When we say a trend we mean that the positive days will be bunched together and the negative days will be bunched together. In a year if we have 200 trading days, there may not be a statistically significant difference in the positive days and negative days. In all likelihood we may have 120 positive days and 80 negative days. But the positive and negative days are not scattered evenly throughout the year. They are always bunched together. This is what creates the trend.

Without the trend the market would be stagnant. That is what we call range bound market. This is true in all time frames. When the market is in a positive mood, more positive news will emerge, adding to the buoyancy of the market. Plus the small negative news that comes in is ignored. The opp happens in the negative market.

For most parts of the year the mkt is range bound and in between we get the trending days. These islands of trending days amidst the ocean of random movement days is what gives us the opportunity to trade.

It is the nature of mkt to have trends. It is also Nature's nature to have trends. Rainy days will be followed by rainy days, sunny days by sunny days. News of one plane falling into the sea will be followed by similar accidents. Fire in buildings will erupt across cities at the same time( to take two recent examples).

IMO we do not have to worry about trends disappearing. When that happens the economy will stagnate until a trend re-emerges.

 

[rkkarnani]

Some time I wonder why market moves in trends at all , Technical analysis Assumes Market moves in trend , but my doubt is Why this assumption ??
is it due to we observed the many years of past data and saw market moves in trend or is there any logic behind Trends ?? And what is the guarantee that we will have trends in comming next 10/15 years ??

Or is this a basic characterstic of crowd behaviour ?? if so is this crowd behaviour confined to finacial markets only or we can see Trend in different form where there is crowd involve other than financial crowd also ??

If above is true then as long as market is there obviously crowd will be there and we will not worry about trends , economy etc etc ??

Confused !!!!!!!!!!!

Satya, Seems there is some mismatch in our understanding of Technical analysis! Or maybe I have not understood what you are trying to say. I dont think TA assumes that market moves in a "Trend" always!!! We probably would have much less loosing trades had that been the case. There are 'sideways' periods which eat away our profits!!!
In fact Trend is a 'tricky' word as there can be trend, and a trend within a trend. Weekly trend up, daily trend up, hourly trend down, 5 minutes TF Up... Now consider why price moves, irrespective of the direction whether up or down...it is because of the difference in perception of the valuation... at X price i feel it is expensive and at that level you think it is cheap, I sell you buy. Now this X cannot be constant, the next trade maybe at X+ or X- and again there after at X++ or X-- thus creating a trend, when the move is one way itis trend and when it coninues to trade at X+ or X- for some time it is sideways in near term and may be uptrend or down trend in short term.
This just my $0.02!! Seems so odd explaining this to Satya!!

 

[Satyen]

Satya, Seems there is some mismatch in our understanding of Technical analysis! Or maybe I have not understood what you are trying to say. I dont think TA assumes that market moves in a "Trend" always!!! We probably would have much less loosing trades had that been the case. There are 'sideways' periods which eat away our profits!!!
In fact Trend is a 'tricky' word as there can be trend, and a trend within a trend. Weekly trend up, daily trend up, hourly trend down, 5 minutes TF Up... Now consider why price moves, irrespective of the direction whether up or down...it is because of the difference in perception of the valuation... at X price i feel it is expensive and at that level you think it is cheap, I sell you buy. Now this X cannot be constant, the next trade maybe at X+ or X- and again there after at X++ or X-- thus creating a trend, when the move is one way itis trend and when it coninues to trade at X+ or X- for some time it is sideways in near term and may be uptrend or down trend in short term.
This just my $0.02!! Seems so odd explaining this to Satya!!

Thanks dear Rkk for your reply ...... Yes we know why market moves , yes we know market never moves in trends always , but when moves why in a perticular ordeer why a nice trend , why it moves in a higher high higher low manner when it moves upward , why not randomly upward ??......is it natures nature like said by t.t

I think its due to the crowd associated with market and due to supply demand theory we have trends in market ..........

 

[AW10]

Satya, I also wonder why does it happen that mkt continues to trend when all our analysis is showing something else.

I guess, it has nothing to do with TA i.e. whether TA is always right or wrong. I am sure, in TA we will still find reason, if want to justify that mkt has more steam left to go further up.. At the same time, majority of TA that we know and use is making us wonder why is this trend not ending.

Taking the similarity from our own behaviour. Don't we behave like crazy / irrationally with our friend/spouse sometime.. And they also wonder, why are we behaving like this.
They generally don't give too much to weight to it or try to decipher it and accept us as friend / spouse and move on.
That's what I do when I feel that I am not able to read mkt with my limited knowledg and tools. Accept that it is irrational at times.. and move on.

Best part is that the phase doesn't last long and soon we/mkt comes to our normal behaviour.

Ofcouse, while staying aside, we might miss few nice opportunity.. but that should not bother us, cause even with active trading, we miss many opportunities every day. We catch 1% at one place and happy with it.. just to find that next stock moved by 6%.

My personal observation is when you don't see a reason why mkt is going up/down without any reason, then probably it is the typical end of bull/ bear phase. All such turning points are supported by irrational behaviour.

Just my views on this topic..
Have enjoyable trading.

 

[AW10]

1) I mostly use RSI divergence on daily & 15 min charts to get buy/sell futures, the problem with it is how to find out the entry signal using Divergences???

Thanks Phanindra for your compliment.
Hope you have seen this beautiful thread by Smart_trade on trading Stoch divergence. I think u can extend the concept to RSI as well.

http://www.traderji.com/day-trading/30182-how-trade-oscillator.html

I always suggest to maintain the differnece between SETUP and ENTRY.
Most of the time, traders assume setup as entry point.
RSI divergence is a good setup... But personally, I don't think that gives good enough entry/exit points to trade and put your real money. Divergence reading is bit subjective in that way.. e.g. will u call 0.5 difference in RSI as divergence of you will wait for 5 points in RSI to call real divergence.

You will have to define some other condition to make those exact entry/exit.
For example - Say once u have seen RSI divergence, then u enter the trade on the break of Pivot high/low.. and keep stop at prev PH/PL. And then trailing based on each new PH/PL.

2) I just want to know how to find out which strategies have the Positive expectancy?? I mean if we have a system in mind, i am finding it difficulty to write AFL to back test the strategies. How to overcome this kind of problems.,

Chk out the excel sheet that I have posted in this post..
http://www.traderji.com/advanced-trading-strategies/29825-trading-nr7-setup.html#post323039

You can use it to backtest and log your trades. It will calculate some basic statistics and give u better understanding of your system before you risk money on it. It is not exhaustive, but more then good enough. Not knowing AFL is no more execuse for Phanindra (I know you are not giving excuse here). There are always workaround possible as long as you have the will to take the challenge and not give up easily.

hope this helps
Happy Trading

 

[AW10]

Suppose i select two scrips,and decide to go with one,the trade turns into loss,and the one which i leave turns into profit.

arti, That happens to all of us.
We can't expect all our trades to be winner. That is not practical in trading. So we got to accept loosing trade as just another trade and move on to next trade without taking its luggage with us.

Later, at the end of the day, end of week, end of month, whenever you sit to analyse your trading, then look at this trade and see if it was trade as per your rules ? Were you under the influence of emotions while taking this trade or not ? Did you risk too much on it ? etc. We can only learn from our loosing trade.. But we got to accept them with open arms.

I count my loosing trade as GOOD trade, if I had done everything as I am supposed to do. And not to mention, a winner trade where I broke my rules gets my negative rating.

Hope this helps

 

[rajputz]

wonderfull thread aw sir....hats off....

 

[AW10]

Satya, RKK, TT and others,
Just came across a nice article about what we were discussing above.. here is the extract

The first crucial observation is that high risk market conditions like we observe at present come with an "unpleasant skew." [U]If you look at overvalued, overbought, overbullish, hostile yield conditions of the past[/U], you'll find that the most likely market outcome, in terms of raw probability, is a [B]continued tendency for the market to achieve successive but slight marginal new highs[/B]. While this movement tends to be fairly muted in terms of overall progress, it can be somewhat excruciating for investors in a defensive position, because the market tends to pull back by a only a few percent, followed by bursts that recover that lost ground and achieve minor but widely celebrated new highs. That is the "unpleasant" part. 

The "skew" part is that although the raw probability tends to favor slight successive new highs, the [U]remaining probability tends to feature nearly vertical drops[/U], typically [B]well over 10% over a period of weeks[/B]. Frankly, I thought we had begun that process in the decline from the January highs, but much like we observed in early 2007, that initial decline was quickly recovered and followed by a restoration of overvalued, overbought, overbullish, hostile yield conditions. Eventually, of course, the outcome for investors was very bad, but that in no way rescued us from discomfort as the market approached its final peak in 2007. I suspect something similar is at work at present, but we will take our evidence as it comes.

Here is the link to original article for more reading..
http://www.hussmanfunds.com/wmc/wmc100405.htm

In short, mkt can remain OVER for extended period of time, though there is chances of steep drop. I guees, after steep drop, if next PH is lower then previous, then only we will be able to say something about trend reversal. We exprienced a drop in Jan/Feb from 5300 level.. but the bounce took us back to New Higher PH now. Lets see what comes next..

If you are tracking the Overbought Stochastic trading strategy of Smart_trade, where he says that if Stoch is in OB/OS zone for > 5 bars, then next fall just gives us opportunity for new high. Stoch sell signals are dangerous there.. On daily chart we are in that kind of situation. So be with the current flow of wave.. but keep an eye on the weather forecast.

Happy Trading