Barclays has jumped 73% yesterday
http://www.reuters.com/article/marketsNews/idCALQ63846120090126?rpc=44
How does one deal with this kind of volatility?
1) Be real time in the market....EOD charts don't work...trading is a full time job
2)Avoid stock specific risk by trading in the Nifty. Stock movements tend to cyclical, news driven or rangebound for considerable periods of time.
Some features of Nifty:
1) Very very very liquid...daily volumes in Nifty are 3 times ALL other stocks put together
2)Daily movement capped at 10%...which anyways is extremely rare
3) Trending for a large part of the time...some stocks are trending...others are stagnant...but Nifty always gives you the moves...long or short
4) Index is the weighted average of the 50 most liquid names in India...so well diversified anyways
5) All FIIs and Mutual funds have an exposure on index and index stocks
6) You can play both sides of the market and profit from rallies as well as corrections
Start trading in the Nifty...professionally and not speculation...Nifty main rab dikhne lagega!
Tuesday, January 27, 2009
Monday, January 26, 2009
Using options to manage risk
Trading in Options has a lot of myths. If done professionally, Option trading offers traders the following advantages:
1) Can manage risk much better than by trading in Futures
2) Limits downside risk with unlimited upside potential
For example say someone is Long Nifty Futures and we have a gap down of 500 points like on 17 October 2007...this is a huge drawdown to the portfolio. But if one were to be holding a long call having paid a premium of 40 points then one would hardly blink an eye.
So by trading in options one can ride the trend and also limit downside risk. Because of this limit to risk one can leverage 3x-5x comfortably and still sleep like a baby at night!!
Nifty options are extremely liquid...this is critical to Options trading....not all stock specific counters are liquid...so if starting off new in this try to stick to Nifty.
1) Can manage risk much better than by trading in Futures
2) Limits downside risk with unlimited upside potential
For example say someone is Long Nifty Futures and we have a gap down of 500 points like on 17 October 2007...this is a huge drawdown to the portfolio. But if one were to be holding a long call having paid a premium of 40 points then one would hardly blink an eye.
So by trading in options one can ride the trend and also limit downside risk. Because of this limit to risk one can leverage 3x-5x comfortably and still sleep like a baby at night!!
Nifty options are extremely liquid...this is critical to Options trading....not all stock specific counters are liquid...so if starting off new in this try to stick to Nifty.
Sunday, January 25, 2009
Banks shares collapse 80% in 2 weeks in UK
UK banks like Lloyds, RBS & Barclays have crashed 80% in 2 weeks.
http://money.ninemsn.com.au/article.aspx?id=719871
The banking sector everywhere is extremely weak...shorting the Bank Nifty or individual Bank stocks in India with stop loss in place might result in extraordinary returns in the coming months...
http://money.ninemsn.com.au/article.aspx?id=719871
The banking sector everywhere is extremely weak...shorting the Bank Nifty or individual Bank stocks in India with stop loss in place might result in extraordinary returns in the coming months...
Do we need a 85% hit rate in trading?
Yesterday I went for the CNBC Investor Camp in Kolkata. It was a pleasure listening to Sudarshan Sukhani speak who according to me is one of the best Technical Analysts in India. He has a very rational mind and converts his thoughts into an actionable trading plan.
I was interacting with some of the other delegates. Most people seem to want to know:
1) When will the Nifty reach 6000 levels again
I never believe in predicting tops and bottoms. It is easier to trade with the momentum without worrying about tops and bottoms. One can make a lot of money even if the Nifty oscillates between 2500 and 3500 for the rest of our lives.. Someone asked me what my hit rate was....I said 50%....most people want a higher hit rate..But what is more important than the hit rate is the risk reward ratio....keep the losses small on the losers and let the winners run...this will result in lots of profits.
I was interacting with some of the other delegates. Most people seem to want to know:
1) When will the Nifty reach 6000 levels again
I never believe in predicting tops and bottoms. It is easier to trade with the momentum without worrying about tops and bottoms. One can make a lot of money even if the Nifty oscillates between 2500 and 3500 for the rest of our lives.. Someone asked me what my hit rate was....I said 50%....most people want a higher hit rate..But what is more important than the hit rate is the risk reward ratio....keep the losses small on the losers and let the winners run...this will result in lots of profits.
Saturday, January 24, 2009
Bank Nifty
Am short on Bank Nifty Futures at 4550...it is currently at 4082...for those having a bearish view on Banks (I am sure there are some bravehearts who are still bullish) the Bank Nifty Futures provides a convenient way of gaining from the fall while avoiding stock specific risk.
A move from 4500 to 4000 levels is a 10% fall on an unleveraged investment. Which is amazing for a 5-10 period horizon. The Bank Nifty is a very trending index and once can get these moves (up and down, though its always safer to trade in the direction of the trend) quite frequently on this index.
The momentum in Bank Nifty is extremely bearish. There is still scope to ride the downward trend.
As always keep lot sizes under control and stop losses in place.
A move from 4500 to 4000 levels is a 10% fall on an unleveraged investment. Which is amazing for a 5-10 period horizon. The Bank Nifty is a very trending index and once can get these moves (up and down, though its always safer to trade in the direction of the trend) quite frequently on this index.
The momentum in Bank Nifty is extremely bearish. There is still scope to ride the downward trend.
As always keep lot sizes under control and stop losses in place.
Thursday, January 22, 2009
Recession Humor
1. The US has made a new weapon that destroys people but keeps the building standing,. Its called the stock market - Jay Leno
2. Do you have any idea how cheap stocks are ?? Wall Street is now being called Wal Mart Street - Jay Leno
3.. The difference between a pigeon and a London investment banker . The pigeon can still make a deposit on a BMW
4. What's the difference between a guy who lost everything in Las Vegas and an investment banker ? -A tie
5. The problem with investment bank balance sheet is that on the left side nothing's right and on the right side nothing's left.
6. I want to warn people from Nigeria who might be watching our show, if you get any e mails from Washington asking for money, it's a scam. Don't fall for it - Jay Leno
7. Bush was asked about the credit crunch. He said it was his favourite candy bar - Jay Leno
8. The rescue bill was about 450 pages. President Bush's copy is even thicker. They had to include pictures -Jay Leno
9. President Bush's response was to meet some small business owners in San Antonio last week. The small business owners are General Motors, General Electric and Century 21. - Jay Leno
10. What worries me most about the credit crunch, is that if one of my cheques is returned stamped 'insufficient funds'. I won't know whether that refers to mine or the bank's.
NEW STOCK MARKET TERMS
CEO --Chief Embezzlement Officer.
CFO -- Corporate Fraud Officer.
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry.
VALUE INVESTING -- The art of buying low and selling lower.
P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
BROKER -- What my broker has made me.
STANDARD & POOR -- Your life in a nutshell.
STOCK ANALYST -- Idiot who just downgraded your stock.
STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves..
FINANCIAL PLANNER -- A guy whose phone has been disconnected.
MARKET CORRECTION -- The day after you buy stocks.
CASH FLOW-- The movement your money makes as it disappears down the toilet.
YAHOO -- What you yell after selling it to some poor sucker for $240 per share.
WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.
PROFIT -- An archaic word no longer in use.
2. Do you have any idea how cheap stocks are ?? Wall Street is now being called Wal Mart Street - Jay Leno
3.. The difference between a pigeon and a London investment banker . The pigeon can still make a deposit on a BMW
4. What's the difference between a guy who lost everything in Las Vegas and an investment banker ? -A tie
5. The problem with investment bank balance sheet is that on the left side nothing's right and on the right side nothing's left.
6. I want to warn people from Nigeria who might be watching our show, if you get any e mails from Washington asking for money, it's a scam. Don't fall for it - Jay Leno
7. Bush was asked about the credit crunch. He said it was his favourite candy bar - Jay Leno
8. The rescue bill was about 450 pages. President Bush's copy is even thicker. They had to include pictures -Jay Leno
9. President Bush's response was to meet some small business owners in San Antonio last week. The small business owners are General Motors, General Electric and Century 21. - Jay Leno
10. What worries me most about the credit crunch, is that if one of my cheques is returned stamped 'insufficient funds'. I won't know whether that refers to mine or the bank's.
NEW STOCK MARKET TERMS
CEO --Chief Embezzlement Officer.
CFO -- Corporate Fraud Officer.
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry.
VALUE INVESTING -- The art of buying low and selling lower.
P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
BROKER -- What my broker has made me.
STANDARD & POOR -- Your life in a nutshell.
STOCK ANALYST -- Idiot who just downgraded your stock.
STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves..
FINANCIAL PLANNER -- A guy whose phone has been disconnected.
MARKET CORRECTION -- The day after you buy stocks.
CASH FLOW-- The movement your money makes as it disappears down the toilet.
YAHOO -- What you yell after selling it to some poor sucker for $240 per share.
WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.
PROFIT -- An archaic word no longer in use.
Wednesday, January 21, 2009
Nifty very bearish...Go short!
The Nifty has turned extremely bearish across all timeframes..it has also broken 2700 which was a critical support....please exit all longs in stocks and futures...get out of long calls and short puts.....can short futures or long puts as long as Nifty remains below 2830...As before maintain stop losses n keep leverage low. Good luck!
Tuesday, January 20, 2009
Goodbye RBS
Bad scene on the banking front
http://finance.yahoo.com/news/RBS-expects-fullyear-loss-up-apf-14097594.html
RBS shares are battered from 300 pence to 13 pence...
Keep an eye for shorts on individual banks or Bank Nifty index in India as a similar story should/might unfold here....as usual keep lot sizes low and stop losses in place....
Stories unfolding now like Lehman, Satyam, RBS, Citi, Unitech are a clarion call to people of the buy-and-hold long term investor mentality.....who consider trading "risky".....keep your leverage under control and stops in place....and let the 95% people with investor mentality transfer all their wealth to the 5% with trading mentality...
http://finance.yahoo.com/news/RBS-expects-fullyear-loss-up-apf-14097594.html
RBS shares are battered from 300 pence to 13 pence...
Keep an eye for shorts on individual banks or Bank Nifty index in India as a similar story should/might unfold here....as usual keep lot sizes low and stop losses in place....
Stories unfolding now like Lehman, Satyam, RBS, Citi, Unitech are a clarion call to people of the buy-and-hold long term investor mentality.....who consider trading "risky".....keep your leverage under control and stops in place....and let the 95% people with investor mentality transfer all their wealth to the 5% with trading mentality...
Timeframes
Continuing on my previous post on timeframes, I have found momentum trading to be the most profitable and easy to trade. By having a timeframe of few days to a few weeks it is easy to spot and ride a trend even in these volatile markets. What may appear rangebound and directionless to someone with a longer timeframe will appear trending to someone with a smaller timeframe. It takes many hours (more likely years) of research and backtesting to arrive at the correct timeframe. But once you arrive at your sweet spot, its a smooth ride.
Sunday, January 18, 2009
Timeframes for trading
Often one hears one Technical Analyst being bullish (going long) on Nifty while another being bearish (going short). While this may appear confusing and paradoxical it is possible both will eventually end up making money. The reason being each person trades in his own timeframe. Broadly speaking the following timeframes exist:
1) Long term traders : timeframe of greater than 3 months
2) Momentum traders: timeframe of 1 week to 3 months
3) Day traders: all positions squared off by 330pm
4) Scalpers: They enter and exit markets in a matter of few minutes
The key is to identify your timeframe and trade according to a well tested sytematic plan. Then watch those Nifty points pile up!
1) Long term traders : timeframe of greater than 3 months
2) Momentum traders: timeframe of 1 week to 3 months
3) Day traders: all positions squared off by 330pm
4) Scalpers: They enter and exit markets in a matter of few minutes
The key is to identify your timeframe and trade according to a well tested sytematic plan. Then watch those Nifty points pile up!
Tuesday, January 13, 2009
Nifty bearish again
Nifty futures closed at 2740 levels...all indicators are now bearish...while I can't predict how low the market will go or whether it will indeed go much lower..the momentum is downwards now....go short, keep stop losses and enjoy the ride for as long as it lasts....
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