What it takes to be a good trader:Characteristics of Markets

If one wants to be a trader then he should remember that market hates traders and by its very nature markets are designed to get rid of weak traders. By weak traders we mean who indulges in leverage trades and cant afford to bear loss beyond 2-3%. Market lure traders to get into wrong position and then triggers their SL that's the reason only 3-5% traders are able to make money in markets. There are few pointers which I have learnt (taught by markets actually) and would like to share 

• "Bulls make Money, Bears make money but pigs make nothing". This quote mean one should either be Bull or Bear but not a Pig. Pig is a confused trader, someone who is bullish in morning, bearish in afternoon and back to bullish by end of day. Of course one shouldnt be Just a Bear or Bull all the time and view should be changed based on market trend but it should not be changed very frequently.Identify the trend of the market and then stick with it dont be a confused traders. Trust your analysis and keep a view which is slightly longer ( 5-7 days atleast).

• Trade only on the right side of market: If the trend is up never short the markets, doesnt matter how convinced you are that its the top area. Let people on TV and youtube shout as much as they want to about market in overbought/overpriced territory. Keep a trailing SL book your profits (part or whole) but dont go against the trend. Similiary never buy when markets are in bearish trend (doesnt matter how lucrative the prices appears to be).

• Target never works: In market keeping a target never works, if Nifty is trading around 10000 and target area is 11K then rest assured Nifty will either touch 11500 or turn back from 10700 itself. Target is simply a myth and should be avoided, no one knows for how long markets will continue to move up. Keeping a target will always make you exit at wrong times. Instead keep trailing Stoplosses and continue to ride the trend for as long as it lasts. Dont be fixated on a number and be dynamic.

• No Intraday: Intraday forces a trader to take too many trading calls. One cannot time the market hence take a directional view and a positional trade only. More trading calls you take, more the chances of suffering losses ( don't be a Pig).

• Markets wont wait for you to enter: Trend reversal usually happens very sharply. If market drops to its support area and start hanging there consolidating then its very likely that the support area will be broken and trend will continue on the downside. Reversals are sharp  markets will just kiss the area and move back up. Its common sense, if market wants to move up why would it hang around at same spot for traders to enter into long position??. Remember- motive of the markets is to lure & suck traders into wrong trades.

• Avoid easy trades, leave gut feeling at home: Many times some trades seems 'easy' like for ex Nifty support area is 9500, market drops there and one feel its safe to go long here. Next thing you see market trading at 9200. Or Market opens with a gapup of 150 points. Easy trade will be to short market for 20-30 points ( Common thought: "after all its already up 150 points surely it will come down by 20-30 points its easy money isnt it"?). By the end of day Nifty is up by 250 points and instead of 20-30 points profit now one is sitting with a loss of 100 points.

• Be disciplined: Always stick to your rules ( if you don't have rules then make some), going against your own rules will occasionally earn you some profit but it will create a wrong habits and you would find that in long run your losses are far more than your profits. Markets will take everything in just one wrong trade.

These may sound simple, but will take you a lot of time to learn and implement. Even seasoned and experienced traders are not able to follow them all the time.Trading needs patience and give your self ateast 3-5 years ( in some cases even 10 years) to learn these simple traits and then apply in real life scenarios. If you want to make money then you have to do what 5% are doing and not what other 95%  are doing

Happy Trading!

Nifty Outlook and Trend for coming month(s)

Medium Term Trend:  ↑UP (down below 11550)

Today we are not going to discuss what markets did today or what its going to do tomorrow but we are going to have a look at slighter bigger perspective and discuss what it is going to do in next 15-60 days. Todays update is critical so read it carefully.

In our previous post we had mentioned that markets are at a very critical pivotal point and the sideways trading we are witnessing is probably wont continue for long and Nifty could start moving in a strong trend pretty soon. After seeing last 2 days move by markets this view has become even more stronger and we are reasonably sure ( mind you nothing is 100% sure) that the big trending move we have been talking about ( in either direction) is about to start pretty soon.

Lets see the 2 possible scenarios and their outcome-

1. Bullish scenario:  This scenario assumes that a new impulse started from 10600 levels and finished at 11850 and the move from 11850 to 11100 and then to 12103 and now to 11625 is part of a-b-c complex corrective. C has either completed at 11625 already or it can drop a little more (and become equal to a wave). Now once C is completed Nifty will start impulse of wave 2 which will take Nifty to 12700-13K levels minimum.



Nifty Intraday Chart

2. Bearish scenario:  Now here we assume ( and its looking like a very strong pattern) that entire move from 10600 levels is developing like a ending diagonal/contracting triangle which probably finished D leg yesterday at 11625 & started E leg today. Once E leg is finished ( should remain smaller than C leg) market will open a strong impulsive wave on the downside & Nifty will touch 10700-10500 minimum in that case.

Nifty Intraday Chart

Now you might say that we are talking about both the possibilities and its of no use but pls keep in mind that we are talking about 800-1000 point movement on either side and whenever market is poised for such a big move it likes to keep people guessing and keep them confused. But if you carefully observe the market movement for next few trading sessions you should be able to guess which way market is moving or about to move. Key here is to not get caught on the wrong side cause if market catches you on the wrong side and trend begins on the opposite side, your entire capital can be wiped out. Another important thing is that one should not try to catch bottom or tops in such market but wait a little before committing, since the expected move is big, one can still make a killing even if he enters a little late.

So in a nutshell, we are at a very critical juncture and soon Nifty will decide whether its moving towards 10500 levels or 13K so one needs to be extremely careful and go full throttle when the confirmation comes. As always if you wish to join us for our whatsapp real time updates/trading recommendations during trading hours then you may join us using below link:
 http://niftywaveindia.blogspot.com/2019/02/join-us-on-whatsapp-how-to-subscribe.html

Happy Trading!





 

Intraday Trading: Pivot Trading system.

While I don't recommend Day Trading, there are many who are interested in Day trading only and keep asking me what is the best way to trade Intraday. So for their benefit I am explaining one of a very effective Day Trading method . Its called pivot trading system and its simple yet extremely powerful and accurate. More often than not it delivers however key is to patiently wait for the levels before you initiate your trade.

You just need to spend couple of minute before the market opens and you will be ready to trade.To calculate pivot levels & support/resistance you need : Low, High & close of previous day.

Lets take example of Nifty. Suppose previous day low was 11500 high was 11610 & close was 11520

Now your pivot level = (11500+11610+11520)/3 = 11543
Resistance 1 = Pivot level*2 - low of day  i.e, (11543*2)-11500 = 11586
Resistance 2 =  Pivot + ( High-Low) i.e, 11543 + (11610-11500)= 11653
Support 1=      Pivot level*2 - high of day  i.e, (11543*2)-11610 = 11476
Support 2 =    Pivot - ( High-Low) i.e, 11543 - (11610-11500)=      11433

Now you have all the levels you need to trade ( you should have this info ready by the time market opens). Now once market opens let it settle down for first 30-40 mins and lets say by 09.45- 09.50 AM-

a) Nifty is trading at 11520 i.e, (below Pivot level but above S1)  in this case you Buy nifty once it crosses 11543 and sustain for couple of mins ( with a SL of 11476 S1) but if it starts moving down and break below 11476 (S1) then you short sell with a SL of 11543

b)  Nifty is trading at 11550 ( above Pivot but below R1): in this case you buy  when Nifty crosses 11586 (i.e R1) with a SL of 11543 ( pivot) and sell if Nifty break below 11543 ( pivot)

c) If Nifty opens between R1 & R2 then buy above R2 with a SL of R1 & if Nifty is trading between S1 & S2 then sell below S2 with a SL of S1

d) If nifty is trading very close to pivot point itself then wait for S1 or R1 to break before trading.

It is very simple and effective and can be used for any stock or futures ( online calculators are available to calculate pivot levels and one can use them But I listed the formula here so that you know how it works)

Practice this for few days and am sure you will find it useful and working. But like all trading rules the key rule here is the discipline. So trade with discipline.

Nifty Cyclical Moves/Time cycle corrections

While its important to look at prices, its also important to look at time cycles. Some times time cycles works better than any other technical phenomenon. Trading or price movement is basically an outcome  of traders behavior, psychology or emotions and its often observed that a particular behavior or emotion can only last upto a certain period or time. Hence at times we keep seeing rallies even when news flow is bad and keep seeing selling pressure when everything is good.

As per our views and observations, we have seen that markets usually follow 3 time cycles for corrections

1.Very rare:.50-60% These are basically stock market routs and are not very common

2.Rare: 25-30% corrections-these are some big corrections and are often seen once in 3-5 years

3.Common : 10-15% Correction- which can be termed as commonly occurring or business as usual and often see almost every other year

No.3 (10-15% correction) is pretty common so we are not going to discuss it but lets see a bit more of no.1 &2.



Nifty

Very rare 50-60%:  These are stock market routs which comes and changes the entire perspective or gamplay. Impact of such corrections are huge and their impression can be felt for years to come. Like we said such corrections are pretty rare and in our Indias context these are seen once every 8-10 years.

• First one was in 1992 ( the Famous Harshad Mehta scam) when stock market had lost more than 50%.
• Second rout came exactly 8 years after in Year in 2000 ( dot com bubble): when sensex fell from 6K levels to less than 3K
• Last rout we saw was way back in 2008 (Housing /Lehman Bros crisis) When there was a deep correction of 60% and Senses plunged from 21K levels to less than 10K & Nifty from ( 6k to sub 3k).

Looking at time cycles one can argue that another stock market rout is already due &  it remains to be seen if it comes and what will be the news/root cause behind it.

Rare 25-30%:Another mid level correction which is often observed is 25-30% these are not very common but still observed after 4-5 years. Since 2008 we have observed this correction twice.

• Once in 2010-11 when Nifty fell from 6k levels to less than 5K
• Second in 2015-16 when Nifty fell from 9k levels to 7k levels.

Looking at these time cycles one can argue even the 25-30% correction is due now in 2019. However keep in mind we have already seen a correction of 15% ( from top of 11750). So it remains to be seen what we are witnessing now remains a normal correction ( 10-15% which is already done) or turns into something bigger ( 25-30% which even current time cycle are projecting) or turns into something even  bigger and catastrophic and just destroys everything.

Just a food for thought!

Nifty Short Term/Near term: wave count update

Wave count update for Nifty movement from the lows of 10k in Oct'2018

Like I mentioned previously too, entire rise from 10K is looking like a complex corrective which is clearly visible because of so many overlapping waves and on a bigger time frame this rise from 10k to present levels is "B" leg of a new corrective or "E" leg of an extracting triangle. For now lets assume its "B" leg of new corrective ( fall from 10750 to 10K level being the "A" leg as explained in the Nifty medium term outlook).

Now we have been saying that this B leg is developing as "7 legged diametric" pattern ( once this diametric is completed Nifty is likely to open a new leg downwards. However inspite of completing more than 2 months, this diametric is still ongoing. Currently there are 2 possible outcomes. lets discuss each possibility in detail.



Nifty

Option 1: One possibility is that "f" leg got completed at lows of 10700 (in Jan) and after that "g" leg is developing as an irregular corrective pattern. Now theoretically "g" leg can mimic "a" leg ( which measured 600-700 points). So its possible that G leg can touch anywhere from 11200-11400 before starting a new leg down. However if the fall continues and Nifty break below 10580 in next3 days then it would mean "g" leg got over at 11118 ( probability of this happening seems pretty low as of now)

Option 2: Another option is that "g" leg got over at 10987 as failure pattern and what followed after that ( fall from 10987-10583) was an "x" wave post which Nifty has opened another corrective. Now considering various factors this is looking like a more probable and acceptable count. Implications of market opening another corrective are more or less same as option 1 only thing is that in this scenario Nifty probably can spend a bit more time in this corrective move ( B leg can stretch for some more time and can even see slightly higher levels). Rise from 10583 to 11118 levels is looking like a impulsive move ( "A" leg of new corrective) and it even broke the range market has been trading in since last 2 months. Now the fall we are seeing ("B" leg from 11118 to 10820 today) is a mixed bag but it remains to be seen till what level it retraces the entire rise. At todays low of 10820 its still less than 61.8%. If Nifty fall further from here and retraces more than 61.8% ( 10787 levels) then probably this second corrective is developing as a triangle ( probably as ending diagonal) which means Nifty can still touch higher levels (11300-11400). However it may also  starts developing as contracting triangle in which case there will be no high ( 11118 will be top) but even then Nifty might still see 11K+ levels before starting the downtrend. However if 10787 is protected then probably its developing like a simple zig-zag which opens up a possibility of a sharp upmove from current levels.

So doesn't matter which way you see, there is still a possibility for Nifty to move up in near term ( anywhere from 11k to 11400) and someone looking to short ideally should wait for some more time. Current developments in market are not suggesting a "short and hold" scenario and there remains a possibility of nifty moving up sharply and trapping traders on the wrong side or market may just tire out traders by not giving breakout/breakdown ( or by entering into a new trading range) anytime soon.

Ever since Nifty hit 10800 in December, its giving a hard time to traders which is expected during a complex corrective. Whole purpose of a complex correction is to push traders away from markets but as the time is passing by, markets are indicating they are pretty close to finishing this complex corrective and getting into a trending move.

Nifty Medium Term Outlook: Feb 2019

Nifty Outlook: I have never posted my medium/long term outlook on the blog and since many have been asking me for my medium/long term view, let me post it now. I am posting my view/wave counts from Jan 2017 ( low of 8K) as wave count prior to that assume very little significance as of now (from 6-12 months perspective).

Now most analyst and chartist are reading the recent development as a potential H&S pattern in the making. We are not saying that they are wrong but we don't fully concur. Main reason is the strong rise from all the way to 8k levels to 11k levels ( tail of left shoulder). As per our analysis and view its too long and strong. Secondly the congestion we are witnessing at 10900 levels ( supposedly right shoulder) is not very symptomatic of a H&S pattern or right shoulder. Now it may still be a right shoulder (in which case market should not cross 11177 levels and should turn sharply from these levels).



Nifty- H&S in making?

Now as per our view, we feel Nifty is either making a -

a) 7 legged diametric pattern ( ABCDEFG) : Count mentioned in Blue 
                                                 or
b) 5 legged Extracting triangle: Count mentioned in red



Nifty Diametric or Extracting Triangle

Now the only difference is if its a) 7 legged diametric pattern then its already completed at 11750 last year in Sep and if its b) Extracting triangle in progress then its still ongoing but must terminate below 11750 levels. So upside is capped in both the cases. Lets see how these pattern can impact markets. For short term both have same impact so it doesn't matter which one it is, the near term direction remains same.

7 legged diametric pattern ( ABCDEFG): If its a Diametric pattern then we already have a pattern completion at 11750 and the fall from 11750 to 10k levels In Sep-Oct last year was 'A' leg of next corrective and the rise we have seen from 10k levels is B leg which is still in making ( now this B leg in itelf is developing as another diametric pattern which I have been mentioning in my daily posts). The thing is the fall from 11750 to 10k in Sep oct last year though was sharp, it wasn't probably an impulsive move and was a corrective move only. If its true then B leg can test 78.8% of entire fall which means levels of 11400+ in Nifty. Now if  the A leg ( 11750-10K) was an impulsive move then market should not retrace more than 61.8% level of the entire fall which gives us levels of 11150. So if our diametric assumptions is true then we have 2 critical levels to watch out for 11150 and 11400 ( only chance that Nifty can go above 11750 is if this correction is developing as an 'irregular' or 'expanded flat' but looking at charts it doesn't look like so but still its a possibility even though a little one).Now Its possible that Nifty reverses from here itself ( 11150/11400 is the cap, its not the minimum requirement). If this is the scenario playing out then we might see sub 10K levels again soon but the fall wont be in one single line and it will not be easy to trade and once its complete expect a sharp move on the upside again which can go as high as 15K ( mimic the original 'A' leg of the diametric)

5 legged Extracting triangle: Now lets assume the pattern is developing as an extracting triangle. We can clearly see that falls are getting bigger and rallies are getting smaller which tells us the last point till which the current rally ( or E leg of extracting triangle) can go is 11700. If it happens then we will have a double top type scenario at 11700 levels and the next pattern will start only once E leg is complete. Problem is E leg has a big range and it can terminate anywhere from 11k to 11700 levels however it should terminate within next 4-8 weeks from now. Once Extracting triangle is completed the trend should start downward and though it wont be fast it wont be slow either (will be more impulsive than diametric) and even has the capacity to retrace 100% of its rise (which means testing sub 8k levels in Nifty).

So whichever way you look, currently there is a possibility for Nifty to move up a little bit from here and from there we should start a new leg down which could take us below 10k ( 9300-9900 if its a Diametric pattern) or all the way down to 8k levels ( if its a extracting triangle).However one should not focus on such long term targets as from trading perspective they don't matter. What matter is what Nifty is going to do in next 2-4 weeks but still its important that your long term direction is clear so that when actual move starts you are not taken by surprise.

Coming to fundamentals, I believe markets are super expensive presently and PE ratio is hovering around 26-27 ( it went as high as 28 which is similar to what we saw in Jan 2008). However a high PE ratio doesn't mean that markets will fall. If earning improves then PE will fall in line too but still its definitely not the right time to invest so will not suggest anyone to invest in stocks at current levels ( not even through SIP or mutual funds atleast till earning start improving and Nifty PE ratio fall below 20). That way your investment will be much safer from a medium term perspective. If one is a swing trader then all the times are right for trading and it doesn't matter in which direction Nifty moves, you can still make money. However for an investor the right timing matters a lot.