Market Cycle Dates

[Contra]

Part (A) - Nifty Futures Intraday Trading Idea (13 May 2016)

Nice and quick trade today for 15 points (target based on decrease in ATR compared to yesterday).

Nifty first tested the support at 7830 so the trading bias for today was to go short.

Following a pullup, I went short at 7832 and exited at 7817 for 15 points profit.

Only SL1 came into play today (again underscoring the ineffectiveness of "traditional" stop losses) but since we don't exit simply based on that, we hold trade till target, which was soon reached.

The trade was over-and-out by 12.15-12.20 pm.


Part (B) - Bank Nifty Intraday Trading Idea (13 May 2016)

The principle of rejection and momentum worked again today on BNF.

As you can see from the chart above, there was clear rejection of 'Buy' momentum, so we go short at 16812 and exit at 16752 for 60 points profit.

Carefully note one thing -- Today's shorting range is almost exactly similar to the shorting range 2 days ago, on 11 May.


Part (C) - Nifty Spot Market Recap

Today's fall shouldn't have come as a surprise since the chart and post for the same was already put up on May 9.

I'm re-posting the chart here with added emphasis.

Look at the stacked-up resistance through which Nifty had to trudge upwards. Was it really going to go through that? How high through that did it actually go? And which one looks like the path of least resistance? There's your answer.

To summarize -- It's not that hard to see this coming if you zoom out and look at the big picture. As an intraday trader, we are wired to look at the 1 min, 5 min, 15 min and maybe 1 hr TF. These TFs are good for trading but not for analysis. Look at the daily, weekly and monthly charts (both spot & futures). Look at India Vix. Look at PMI data. A lot of the stuff that "surprises and shocks" traders (to use that annoying TV dialogue) is already visible in advance on the larger TFs.


Part (D) - First Impressions of Market Cycle Day & Week

Today was the end of the market cycle week in relation to the main dates on May 10 & 11. I can definitely see a transition, so I'm comparing the effects of the same on the movement on Nifty & Bank Nifty.

Of course, I require more data and live testing to validate the following but, for now, these are my first impressions:

1. Nifty trading during a market cycle date or week can become a little challenging. Even though I'm net positive for the week on Nifty, the only reason for that is because I followed the pre-trade rules. Were it not for them, there would have been equity erosion. So, the rules stay.
   
2. Bank Nifty tends to spike on a market cycle date or week. It's almost like it gets riled up to go one way or another. So for that reason, I feel that trading Bank Nifty on a market cycle date or week can be more profitable than trading Nifty, as long as you can handle the volatility and understand the nature of rejection and momentum I posted yesterday.

Part (E) - Wisdom from Rambo's Mentor (Off Topic)

Those who grew up in the 1980s would be aware of the Rambo series of movies. In particular Rambo III from 1988. There's a scene in that movie where Col Sam Trautman is trying to convince a reclusive and reluctant John Rambo to join him on his mission. He narrates the following:

"Let me tell you a story, John. There was a sculptor. He found this stone, a special stone. He dragged it home and he worked on it for months until he finally finished it. When he was ready he showed it to his friends. They said he had created a great masterpiece, but the sculptor said he hadn't created anything. The statue was always there, he just chipped away the rough edges. You're always going to be tearing away at yourself until you come to terms with who you are. Until you come full circle."​

This little story has a connection to trading as well.

Becoming a better trader has very little to do with your age, background, history, education or even experience. But it has everything to do with chipping away the rough edges and coming full circle.

 

[Contra]

No trade on 16 & 17 May since the pre-trade rules were not met. Good thing too since the levels weren't falling into place, or pullbacks/pullups were happening in the afternoon rather than in the morning, as is required.

On days like these, you're tempted to break the rules or take some random trades on stocks just to keep that ledger book going.

Don't do that. It's a bad habit and it rarely ends well.

I'm net positive for the month and I have zero interest in trading adventurism or venturing into areas of unwanted risk. As they say, no one went broke by not taking a trade he doesn't need. The market will try to tempt (and test) you with good-looking setups that quickly turn into horrible nightmares. Your job is to not take the bait.

So stick to the rules and if you find yourself getting bored by untradable, volatile or confusing market conditions then it's time to find another hobby.

On to today's business.

Part (A) - Nifty Futures Intraday Trading Idea (18 May 2016)

Nifty first tested the resistance at 7830 before pulling back within the anticipated time frame. Pre-trade rules were met so the bias was to go Long.

Once it reversed and moved up, I went Long at 7832. Idea was to exit at 7848 but prices reversed soon after entry so I went into trade management mode.

SL1 was at 7824 (mental SL, not for exit)
SL2 was at 7814 (mental SL, not for exit)
No other SL level came into the picture.

After reversing from entry, Nifty promptly hit SL1. This was expected, ans since we don't exit simply based on this, we hold trade, give it room to breathe and come back to our Long entry point.

Prices went down even more but stayed a few points above SL2 at all times. So this gives a manageable drawdown of 17 points vs a target of 16 points (which is close to 1:1 risk-reward ratio). Since we know what we know, we run with the trade and know that a reversal is likely.

When this reversal happened, we were in the afternoon session. So the rally was expected to be more definite and clear. Prices soon rallied to revisit our entry point, and the trade itself was over before 12.40 pm for a profit of 16 points.


Part (B) - Nifty Spot Market Level (18 May 2016)

Here's the weekly TF of Nifty over the past 5 weeks including this week. It was rendered in the early part of today.

I was drawing support & resistance lines and noticed something. The levels were stacking up from both the sides. They sort of look like armies facing and slowly advancing towards each other.

Bullish Resistance Stack = 7914 - 7884 - 7857 - 7853 - 7849
Bearish Support Stack = 7718 - 7737 - 7745 - 7795 - 7821

What do you notice in this picture?

The bullish resistance levels are moving downwards while the bearish resistance levels are moving upwards. Also, some of the bullish resistances at the lower level are stacked "too close" like a bunch of lines that look like they're going to merge.

In effect, prices are being squeezed from both sides.

Two things can happen in this scenario:

• Prices will keep ranging even as the range keeps getting squeezed, or
• A big breakout in either direction can happen.

Part (C) - Trades for the Rest of May

I won't be trading tomorrow (19 May) because of the state election results. You never know what kind of surprises it will put up and how the markets will react. Also, I'll be wrapping up trading for this month by 23 May because of F&O expiry. Things tend to get wonky during expiry week so I prefer to stop trading 2-3 days before expiry.

To add to that, there's a market cycle date on May 25. If the big breakout or big move that I said above materializes, it could happen in that week or before the end of the month.

So this leaves me with 2 more trading days in May (20 & 23 May). If the pre-trade rules are met then I'll be trading on these last two days. If not, then this is it for May 2016.

 

[gemat]

tom is going to be a bullish day. state election results will be out tom. BJP is confident that they will win Assam election and if they are able to win some seats in west bengal n kerala but little hope in TN. n this will be the first time bjp forming a govt in north-eastern state. it is going to be a positive market sentiment.

 

[Contra]

tom is going to be a bullish day. state election results will be out tom. BJP is confident that they will win Assam election and if they are able to win some seats in west bengal n kerala but little hope in TN. n this will be the first time bjp forming a govt in north-eastern state. it is going to be a positive market sentiment.

BJP won Assam but the market tanked on negative sentiment. There were very few bullish cues going into the market today.

For BJP, the win in Assam has strategic and miitary significance rather than economic one. More important from an economic perspective were the states of West Bengal and Tamil Nadu. Even though BJP got "something" in the other 4 states, the regional parties (TMC and AIADMK) in the economically important states got a lot more. Actually, a LOT more than originally expected.

Plus they were both ruling parties, in power for the past 5 years, so they were able to convincingly trump some serious opposition single-handedly. Also, they got a clear majority which means they don't have to mess with coalition dharma or other kinds of inter-party appeasement. It puts them in a dominant position with huge bargaining power over the central government.

Everyone knows that both the chief ministers of WB and TN are tough negotiators and can be demanding when it comes to political give-and-take. This has significance in the broader political, social and economic picture specially considering the fact that Modi government just completed 2 years in power.

It is this whole thought process that the mainstream media doesn't emphasize much, but the the market processes in depth.

The market is always right. That's why it tanked today instead of rising on the back of election news.

Then there are global storms brewing too, but that's another story.

 

[gemat]

yes, very true. didn't move as expected.
the main issue NDA is facing is passing the GST bill in RS. Now BJP has high expectation of passing it with support from mamata, but not from jayalaitha. and BJP may soon be majority in RS.
yesterday's fall has something to do with US fed rate hike in June, most markets were down.
bearish trend may continue.

 

[Contra]

Mean level for Nifty is now at 7796

If prices rally and revert to that level, then there's a major resistance at 7825 that can stall or reverse this rally.

On the downside, the clearest and closest support level is at 7735. In fact, there's a support range between 7735 and 7726 from which prices can bounce back up.

If, however, that range fails then there's a downside possibility of 7696 or even 7678

So basically, there's a bullish consolidation range between 7796 and 7825 on the upside, and a bearish consolidation range between 7735 and 7726 on the downside.

 

[Contra]

I've traced today's Nifty movement (OHLC) on the chart posted on Friday (20 May). Notice the proximity of all those values to the posted levels.

As you can see, Nifty's open confirmed mean reversion. It reverted back to the mean, and that too at the open of the day. However, it reversed from there on account of the resistance at 7825, after making a high of 7820.60

Notice two things:

• Today's Open and High are both within the bullish consolidation range between 7796 and 7825
• Today's close is right within the bearish consolidation range between 7735 and 7726

 

[Contra]

Nifty Spot Market Monthly View (24 May 2016)

Despite all the volatility in the past couple of months, if we zoom out and look at the bigger picture then the upward trend on the monthly chart of Nifty looks intact. Even Stochastics show an upward bias (for now) moving up from an oversold region. Still, it is below the 50 level, so Nifty isn't out of the woods yet.

However, there's a downside story and that is, Nifty's momentum has been in steady decline for about 14 straight months now. So there are both bullish and bearish pressures keeping the market in an indecisive range.

For this story to go either way, two numbers matter:

• 7879 on the upside
• 7581 on the downside

For the bulls to convincingly take over, a break above 7879 is essential. However, if Nifty falls below 7581 then the bears will have won.

Till one of these two significant numbers are breached, the market will continue ranging between extreme levels.

(These are my views as on 24 May 2016)

 

[Contra]

Two points:

1. Today was a market cycle day (dates posted on 28 Apr)
2. The expected big breakout that I talked about on 18 May (under Part B), happened today with bullish rallies on both Nifty and Sensex

As posted yesterday

For this story to go either way, two numbers matter:

• 7879 on the upside
• 7581 on the downside

Nifty today went past 7879 by opening gap up and moving aggressively to a high of 7941. This was a decisive "big move" meant to break it out of a rut. But it is also contingent on follow-through.

If you look at the above daily chart of Nifty going back to, say, December 2015, we notice two things:

• Whenever prices go beyond 7879, they tend to reverse (they seem to have difficulty sustaining above that level for long)
• Whenever prices fall below 7581 (specially on rejection), they tend to fall faster. They also rise faster when they rally up above 7581.

In the big picture, it is now important to see how prices have behaved between the range of 7581 and 7879 over the past couple months.

This will give a hint of what's likely to happen, specially when seen in the context of follow through from this point on.

 

[Contra]

June 2016 Monthly Summary (Nifty Futures / Nifty Spot)
There were barely any trades this month but the original rules continued to work. Since I look for high probability setups based on just 1 trade a day, there were multiple "no-trade" days in succession that resulted in me staying out of the market for the major part of this month.

To sum up, on a quarterly basis, it has been net positive with 60 pts in April, 102 pts in May but just 43 pts in June. All this is from Nifty Futures only. I'm okay with this. I've also started to look into commodities and running manual forward tests there.

On Nifty Spot, despite the run up in prices, the fact is that the markets are actually ranging. On the monthly time frame, bullish sentiment is 42% strong while bearish sentiment is 58% strong.

Also, going into July 2016, there are two market cycle dates (today and July 5).

From the bullish perspective, a breakout over 8484 is necessary for continuation.
From the bearish perspective, a fall below 8152 can result in weakness.

With 8152 as monthly support and 8484 as monthly resistance, Nifty's movement between these two numbers will decide which side wins. Reversals, if any, can also happen from these levels. Besides, the mean level of Nifty is currently at 8180