Trading Nifty

Dear Friends,

Let us review our position.

Nifty went up as i had been suggesting that it would. The only problem is that RBI hiked the CRR much more than expectations. This created a possibility that the market may after the initial fall, rise to around 4460 level (future) and then fall. this forced me to book partial profit when the market recovered from the initial shock, as also take a hedge position. At the end of the day, the market kept going up.


My positions are as below

1.Nifty purchased at 4530 on 23/7/07 , current price 4508, M to M = -1100
2. Nifty purchased at 4410 on 30/07/07, sold today at 4460, Net profit = 2500.
3. Nifty Sept series shorted at 4440 on 31/07/07, current price 4491, M to M = - 2550

Overall, i am on a M to M loss of 1150 (effectively) which has reduced from the M to M loss of 6500/- yesterday.

Note i have not booked a loss so far. I have carried out four transaction in last one week, out of which two today were on account of an unexpected developement.

Also note that if i do not do anything now, the M to M loss will be approx constant from here onwards. This gives me an opportunity to coolly analyse where the market is headed. Volatile movements would not bother me.

Once the market is less volatile or i am sure of the direction of the market, i can take appropriate action.

Let us say i were to be sure that market is to fall, i would exit the long position, and short one more and make profit.

If on the other hand i am sure that the market is to go up now, i would exit the short position, add to the long position and end up in profit. Note i did not utilise any stop loss. All trades were carried out on analysis, not on chance.

As far as money invested plus back up. One nifty purchase, plus i has thought that i shall hedge only if it falls below 4350 (that was the thought before CRR hike), so 180 points or 9000/- Mto M plus funds to hedge. So at best 75000/- was the money involved. so returns may be calculated on 75000/- . Of course if the market would have moved up say 150 points above my buy price then i would have removed the provisions of money as back up, as they would not have been required. So the money to be invested / kept aside would have been lot less.

On a personal side, i have several stock futures invested in. The diversification helps reduce the amount of back up funds required, but since i have not talked about stocks on this forum, this paragraph is irrelevant, except for information on how much back up funds are required.

Last, the impact of the CRR hike needs to be understood before taking further steps. The rally could be merely a relief rally, or it could be that the market perceives that the hike is not likely to have a significant impact.

In either case a hedged position allows us breathing space and we are no longer constraint to act in a hurry. We can now afford to watch the market without fear, understand the movement and take decision accordingly.

Next post tomorrow morning

with best wishes,
Gaurav Kumar

Dear Marcus,

Market behaviour is a complex phenomenon. What needs to be understood is that we small investors play no role in market directions. What i look for is where big investors enter and where they are to exit.

Let us say that if you were a big player. When you want to pick up a huge chunk of shares, it must be at the expense of small players like us, who should sell enmass. So what are the levels that would create enough of us to short, so that they pick up. As also what psycological impact small moves would have on us, to make us panic and sell. I consider market moves entirely as a reflection of how bigger players would psyche out the rest.

In the same way when they want to exit, they would create a similar pattern on the other side.

Unfortunately, chart patterns are only indicative. As also i believe, that the patterns do not fit for all stocks, nor has it been possible for me to identify them for all the stocks so far. So i do limit myself to stocks where i can identify a pattern.

As an example, i know that ITC shall touch 205. I am long from the price of 155. now the pattern followed by ITC is remarkably different from that of Nifty or other stocks. It took me several months to think out the pattern.

A specific answer to what the pattern is therefore difficult. it arises out of a combination of technical analysis, knowledge of economics (at least somewhat), a bit of fundamantals ( for this i take the help of friends as i dont have time ) as well as psycology.

Let us now take the case of the CRR hike today.. What made the market go up in a frenzy, when the whole market was not expecting such a hike? I think of it as unusual.. So i would like to question who has driven the market up and why, when the logical market move should have been down...Once i get an answer to this question i take a decision as to where the market is headed

With best wishes,
Gaurav Kumar

i wud say very good, amazing.
u pointed out very well that big guns, run mkt. .
they don't care of any news , they uses the news.
one more exp. when mkt. was in the buying mode(4135-4620) so many times,
dow gone down(142,198,186).
but didn't effected our mkt.
and when at the level of 4620 correction was pending,dow crashed,
they started there profit booking.

the real fact is that money here is god.

and ya sl, i definately think that in f/o that shud be used.

warm regards
magnet man

how do you decide ? using technical indicators ? if so which one? pl tell if you follow any other method to be in profit
sanjay

Dear Magnet Man, Sanjay and others,

The correlation of Nifty and Dow is less than 1 (statistically speaking), hence following Dow for our trading is not a great strategy (my view).

This of course does not mean that i do not check the Dow index. I religiously check it every morning, but just as i check what makes nifty go up and down, i also look for what made Dow go up or down.. In essence, often it is possible to understand when the movement of Dow would have an effect on Nifty and when it shall not. Of course the success rate is not 100%.

Ultimately money is god, so it is big players in Indian markets who decide where our markets shall go.

Sanjay, as far as technical indicators go, i use RSI, moving averages, ROC, Stochastics, channels and a whole lot of others. Actually i learnt the hard way that charts can sometimes be misleading, so i started using other factors such as fundamentals, economics, psycology in combination with charts. Interestingly, i find that as far as technical analaysis is concerned,
at different times different indicators need to be used. also more the agreement between different indicators, more likely that you shall be right.

To be very honest, psycology plays a very big part in my decision making today.

Technical analysis has its limitations. If the indicators lead the market, they are volatile and if you follow them, you can be as confused as possible. If you remove volatality from the indicators, the indicators lag the markets and you get the signal later, not allowing you to take full advantage.

From my own prespective, i tried many things in the last few years, struggling with the indicators attempting to perfect them. I triesdintraday trade also, when i found that one day a few months back, i had gone out for 5 minutes and the market crashed leaving me shell shocked with all stop losses trigerred. Since then, i have changed to my present strategy (which i am still improving upon). The benefit amongst other things is that i no longer am tense (i remember having sweated profusely on a cold December day, when i used to do intraday trades). My returns are steady and on an annual basis look good (even though on a day to day basis they may not look great).

With best wishes,

Gaurav Kumar

DEAR GAURAV,

Though I had gone through this thread twice, dinn comment anything.

But I am watching whatever u want are writing.There is no logic.

Before commenting anything about TA, please study them properly, and comment.

By the way u may be surprised, for trading/giving calls I only track bar charts only. other indicators sometimes only.

U still need to learn TA, my friend.

dev mookerji

Sir, In my paper trading I had booked losses in Sept Nifty Short when the current Nifty came back to 4460+ levels. Also was holding the extra qty. for squaring at 4500 but your post made me square at 4460.
I find that in responce to another query you had advised to hold on to Nifty Sep Short, but by then the originally advised level where to square this position was reached and hence please for the sake of analysis consider that you have booked losses in Sep series and holding only longs in present series.
You can COOLLY analyse now, now that a hedge is in place, thats what people are trying to say, to LIMIT your losses in some way.

I dont know what to say!!! Gaurav, no one can be sure of anything in the market hence the need for Stop Loss or a hedge. You took a hedge midway, had you hedged your position early on you could have exited one position in profit.
MAYBE :As your system you are trading tells you to hedge a position only at a given level, in that case I feel it must be spelled out at the time the initial position is taken, then only can one know what is he expoing himself too.
Sir, the money requirement is spelled out at the very initial stage of a strategy, and does not change midway. In this case when the position was initiated there was no inkling that there would be funds required for a hedge, only concern was MtoM difference.
Many posts would not appear here ridiculing your strategy had you at the begining said about hedging. Now here you talk about : breathing space, without fear etc., many here were probably trying say this only that your initial position did not make one 'breathe easy' and were 'fearful' as the quantum of loss was not defined. It also tells us that inspite of your statement to the contrary you were not 'cool' about your trade till you took a hedge position

Dear RKKarnani and others,

Please read my posts carefully, i did not recommend squaring off of short positions. I has only asked to book profit on nifty taken at lower level (ie buy at 4410) , and short sept series at 4440. So i am long in one nifty (aug series), and Short in one (Sept series), with total M to M loss of 3650/-.
Also i have booked profit of 2500/-.

With respect to money required it is calulated from my earlier postings, where i clearly spelt out that i shall hedge only if nifty falls below 4350. So there is no change midway on money required.

One member commented that i should first learn technical analysis. Agreed. There are many many studies in technical analysis and i do not know all of them. I am sure nobody in the forum can claim to know all of them. If somebody does, he is a genius.

I am sharing my experience... not professing i know more than anybody else. Incidently, in my earlier posts, i had siad that the person who makes money is the king. (howsoever he makes it). One of my friends does astrological calculations and then invests. Incidently he makes money too. What should i say on that, except that he is a king in his own right. I may not agree with his methods, so what..,

Many may not find my strategies good, or comfortable. To each his own. If you believe in stop losses, place them . I have given an alternate strategy, which may appeal to some and may not appeal to some. Those who do not find it appealing are well within their rights to follow thier own. I am not imposing anything on anybody.

With best wishes,

Gaurav Kumar

Dear friends,

I plan to square off my long position in nifty august series (purchased on 23rd July) if the market hits 4535-4550 levels (aug series). at the same time at around 4450 levels in august series, i shall short one more nifty of september series.

If the market opens weak and does not go up to the levels i have stated, i will do nothing.

with best wishes,

Gaurav Kumar

I understood this statement to say that we exit the September Short if Nifty in August is 4440 to 4445.
Was there an error in your post, or clarify if i made a mistake in squaring my Sept position based on this post?