Nifty Trade Update - 18th Dec

Update 10:30 AM : Sell Nifty @10825 CMP

Update 02:45 PM : Exit , pls cover short at CMP 10905



Note: Spot prices mentioned, you may trade in futures/call/puts basis spot price.

Technical Learnings: Neutral Triangles

Triangles are most commonly occurring technical patterns yet they are neglected the most. Its relatively easier to detect triangle pattern and usually they appear during the last leg ( 5th wave). Waves are usually overlapping and thrust/movement once the triangle pattern is complete is usually unidirectional and one sided thus making it easier to trade.

Neutral Triangle




Neutral Triangles

Just like all triangles Neutral Triangles has five legs too ( just like an normal impulse) but below are some of the important things to note.

• The most important characteristic of neutral triangle is that wave 'C' is the longest among directional wave ( i.e. wave A C & E) 
• Wave 'D' is always bigger than wave 'B'
• Wave 'D' may or may not surpass end point of  'B' (in the above example its surpassing but its not mandatory)
• Wave 'E' can be longer or shorter than wave 'A' (usually similar to  wave 'A' in terms of price and time)
• Once the Wave 'E' is retraced (in faster time) it can be assumed that trend has changed and long/short position can be taken with  a SL at end point of D wave (or beginning of E)

Nifty View: Update for 18th Dec 2018

Near Term Trend:  ↔️ (Sideways with a positive Bias)

Market Update: Nifty opened with a gap up of around 50 points and throughout the day maintained its upward trajectory before closing around 80 points up at 10888. Dow had crashed 500+ points on Friday and traders were expecting a weak opening however market obliged by doing exact opposite. Some positive sentiments are building in Nifty on back of lower inflation lower crude and New RBI Governor.

Nifty today crossed 10850 in style by a gap up and has given a secondary confirmation that its probably ready for its next leg upside. But like I mentioned in previous post too we need Nifty to cross 10950 levels (that too in faster time) to get complete confirmation. Till then the downside gates will remain open. Point to note is that VIX is now sitting at 14+ levels, previously when Nifty was at 10900 levels VIX was at 20+ levels so markets are way more calmer now ( especially with election results out of its way now).

To summarize, the entire up-move from 10K levels does seem like a corrective move only as its really very slow and has too many overlapping moves but that doesn't mean you can go and short Nifty ( corrective moves can last for a long time) . Let me take this moment to explain one important characteristic of the market. This entire year all Bull/Bear moves have consumed exactly 34-40 days ( alternatively). this has worked out like a charm till now ( pls see the below chart). Now the question is will this work again? Today was the 34th day for Nifty, so can we expect another top in next 1-5 days?



Nifty Jan-Dec2018

See all major bull/bear phases have lasted exactly 34-40 days. So its time to be cautious don't get overexcited by seeing Nifty outperforming global markets.

Trading recommendation: No position still. If Nifty crosses 10950 levels then we might look to go long at suitable entry points else create short position at appropriate time. Till then sit tightly. 

 

Basics of Markets: Technical Patterns

I will use this space to explain various basics technical patterns, which every trader should know. Will try to post one technical pattern at a time (whenever I get time) and explain how it works.

 Every technical pattern may not always turn out to be what you expect but when it does it can surely help make you lots of money. Trading is a game of possibilities and you continuously need to scan market movement for various possibilities that may be present.



 

Top 3 Reasons: Why Most Traders Lose Money in Stock Markets

Stock market is simple game It goes up and it goes down so chances of winning or losing is always 50-50. So even if you flip a coin and trade basis heads or a tail you should be fine and in long run you will probably end up being at a breakeven point i.e. no profit no loss. But if this is the case then why more than 90% of traders lose money in this market? What makes it so bloody difficult to trade? If you ask me this question then I would say this is because of the following 3 mistakes which every trader MUST avoid. 

Mistake#1 : Tendency to book small profits but inability to take small losses: To me this is the single most factor causing most traders to bleed big time in stock markets. Whenever we enter into a trade we are quick to book profits. We buy Nifty at 10500 it rises 20-30 points immediately our palms start itching and we book profit. So no harm done, good we have booked profits. But what happens when we buy Nifty and it starts falling? We wait. It falls 100 points we wait a little more. It falls 200 points. We wait a little more then in the evening Dow falls 500 points and there is panic all around Nifty opens with another 100 point gap down next day and our loss is 300 points now margin call is getting triggered what we do? We have no option but to exit. So we did two trades, made a profit of 30 points in trade 1 and took a hit of 300 points in trade  2. How long do you think one can survive like this? We have a target for profits but no target for losses. If your upside target is 50 points then your SL should not be more than 30points. So in long run you should always be 20 points up ( even if you are wrong 50% of times). Idea is 'cut your losses short and let your profits run' but we end up doing opposite. We immediately book profit and wait for losses to mount till they become so huge that we are unable to bear them. Basically we do not exit loss making trade on our own we wait for markets to kick us out.

Mistake#2 : Not having a trading plan and trading basis gut/News based trading- We either do not have a trading plan or we keep changing it frequently. We give too much importance to news flow and social media and analysts saying Nifty has made a top or bottom. Dow rises 400 points  next day we think Nifty will follow suit so we buy Nifty and then feel surprised when Nifty end up closing negative. We then start blaming speculators and operators and say this whole market is fixed. My advise is never change your stance by a single set of data point. Data point will keep changing frequently but market trend will rarely do so. "RBI hikes interest rate" or " BJP loses state election" is no reason to go and short this market. The one thing about News is that its not exclusively available to you, everyone already knows about it yet we act as if someone whispered this only in our ears. Do not do that. If markets want to go up it will go up regardless of BJP win or lose RBI hikes or reduces interest rates or crude is at 140USD or 50 USD. Everything comes secondary. news flow or data points can impact market movements for intraday or for very short term but soon it will resume the main trend. So try to catch the main trend always, Do not be impacted by change in data points or negative news flow cause it just does not work. Be a leader not a follower.

Mistake #3: Expecting markets to follow you instead of following Markets (Quick to call out top and bottoms)- Most traders have very narrow view of Market and they will keep looking at market with their predefined mindset only. The problem with predefined mindset is that whenever we see a fall of 500-700 point we assume its a good time to buy and we are quick to jump on the idea that bottom is in place and its a good opportunity to buy. Similarly when a stock has had a good run up we tend to say " it has gone up a lot now it must fall so lets sell". Please understand there is a reason a particular stock has gone up or down and even if a stock has gone up100% there is no reason why it cant go another 300% up. We should never assume the top is in place or bottom is formed. Market is supreme and there is always a reason why it goes up and down and till the time you do not understand that reason do not take a bet against it. Its always safe to assume that main trend will continue ( instead of assuming that trend will reverse now). Let market decide when it wants to change trend and when it does you simply bow to it and move out, you do not fight. We keep fighting markets by taking contrarian view and assuming it will change its trend. Trends can run for days months or even years. Simply follow markets do not expect it to follow you. Markets are way much bigger that what you and I think. Give it the respect it deserves, do not fight it. Simply listen to what it says and follow no question asked. Period.

I can go on and on and list out 10 more reasons but the broad undertone of what mistakes majority of traders make is covered in these 3 points already. Its very difficult to master 100% of these traits and even experienced traders fail to do so but even if you manage to follow them 70-80%  of the times it will be good enough for you. The key here is that as soon as one realises that he is wrong then he should move out immediately. Its better to sit out with NIL position and letting go of some the probable profits then getting into a wrong trade and suffering losses. After all money saved is money earned.

Stock market trading is nothing but a mind game. You need to be mentally strong to survive here so keep your emotions aside, market has no regard for what you or I think it has a mind of its own. It teaches humility, the moment you think you have figured it out you will be proven wrong. Its like a test match where wicket is totally favoring bowlers and you are batting on 5th day. So face every ball as if its the1st ball you are facing, doesn't matter if you are batting on 100 or 200. Just like the game of cricket, complacency can be fatal in stock markets too.



 

Nifty View: Update for 17th Dec 2018 (Monday)

Market Update: Flattish close today. Markets traded between high and low of yesterdays and didn't make any move at all and closed almost flat. You may call it consolidation you mall call it resilience or my you call it markets inability to climb new high it doesn't matter. Nifty just didn't give any clue about its intentions today but having said this I feel the time is running out for Nifty to climb to new highs. Its been almost 2-3 weeks and we are still stuck at 10700-800 levels. Next 2-3 days are going to be extremely critical  and Nifty's move will probably give us indication about which way it wants to go.

The previous move from 10965 to 10350 (6day)  and then shap rally from 10350 to 10850(3-4 days and counting) is just a volatile move by markets to get rid of weak hands. Right now Nifty looks strong but the downside gates have not been closed yet. There is a strong probability of testing 10350 again but there is no confirmation right now. On the upside we need Nifty to cross above 10965 in next 2 days. till now Nifty has retraced about 80% of fall (from 10965 to 103450) in about 65% of time so the move up does look faster. If nifty can cross 10965 levels then we are probably heading back to 11100-11200 or higher levels

Broad picture- If you look at overall picture then the entire fall from 11750 to 10K levels took about 40 days. From the lows of 10K so far nifty has consumed about 33 days and retraced about 55% of total fall ( in about 80% time) which is very very slow. So overall we remain in correction mode. There was a good chance about 2 weeks back (when Nifty broke above 10600-10750) of markets scaling back to 11500 levels ( that's when we had gone long too)  however with each passing day the chances look dim now. New moves always come faster ( called impulse) slow moves are corrective moves and they last till they last and after they are over the main trend resumes. So don't think that current move from 10K levels is a bullish move (unless we cross 11750 in next 7 days which is next to impossible).So if 10965 gets crossed in next 2 days then we can expect this corrective move to last a little bit longer and nifty might see higher levels of 11100 or 11200 like I mentioned above else the lower levels might be retested pretty soon.

I personally feel markets are more or less done with the 'cleaning act' and has removed weak hands already ( both long and short side) surely it can spend few more days in this range and keep us guessing but it should make a move pretty soon now.

Near Term Trend:  ↔️ (Sideways)

Trading recommendation: No position, same as yesterday. Don't recommend going long/short yet.



 

Nifty View: Update for 14th Dec 2018

Market Update: Nifty opened strongly at 10800 levels and registered a high of 10840 but couldn't sustain the momentum and dropped to 10750 levels before closing the day at 10790 levels. Nifty today made a Doji candle. Doji candle signifies indecisiveness where open and close rate are similar and market makes a big low and high shadow (and real body is small).

10750 was a good resistance level which was crossed today and Nifty traded above this level though out the day. This definitely count as a positive but Nifty is not out of woods yet. Even after rallying up almost 450 points we still need confirmation that bull trend has resumed. Nifty took 6 days to fall at 10350 from 10965 levels and after 3 days it has retraced almost 75% of the fall. We need Nifty to reclaim 10965 in next two days to signal a start of a fresh upmove. Nifty has given one confirmation today by crossing 10750 successfully today however secondary confirmation would be to make a new high above 10840 tomorrow and finally crossing 10965 levels (in 5 days).

What is worrying me is that entire rise from Oct low of  10k levels has already consumed too much time. Right now we are in 7th week ( from Oct low) and still below 61.8% (fall from 11750 to 10K) of total retracement. If this was a bullish move we should ideally have been sitting at 11K levels by now. Slower retracements are usually sign of corrective moves.

Even though market is making big moves, its indecisive ( we are still at same levels we were 10-12 days back). Need to give few more days to Nifty to settle down before we take trading call. Global markets can play a crucial role going forward. Dow and S&P have already touched their respective Oct lows and even though the correlation between S&P and Nifty is not working presently there is always a risk of catching up.

Trading recommendations: Still no open position, there was a whiff of a trading opportunity around 3pm ( updated here) but it didn't materialize. No point in doing any sort of trade just yet. Sit patiently.