People love to use the cliche.
"Don't catch a falling knife"
I love to argue with people.
One must define
rising
falling
...
if you are following intra day charts.. trend down
if you are following eod/weekly? trend still intact!!
The mechanical 'knife catching/trend following' system says the following...
Always remember what is falling in one tf can be rising in the other.
That is the basis of alexander elder's tripple screen.
Stock Name: S&P CNX NIFTY
Buyarea=4179.67
S1:4,179.25 S2:4,200.28
R1:4,286.10 R2:4,352.06
Target1:4212.65 Target2:4245.63
Target3:4285.2
SL1:4153.29 SL2:4113.71
System: Trend follower
Stock Name: S&P CNX NIFTY
Buyarea=4143.14
S1:4,141.49 S2:4,174.95
R1:4,247.30 R2:4,312.63
Target1:4175.8 Target2:4208.46
Target3:4247.65
SL1:4117.01 SL2:4077.82
These are the two calls being genrated by the 'knife catcher'
This system is 50:50 and quite profitable if traded mechanically...
If you aren't comfy with catching the knife on the way down.. then read on for details and other ranting.
Best way to gamble is to take a call option. max risk is well defined in that case.
Only try long if u can handle the stoploss levels....
last time catching the falling knife worked at 4030.. it cannot work every time :)
If you refer to my post of last corrective. I had given buy calls on a whole list of stocks on the way down itself...
You know why there is always a buyer for nifty and a group shares? Even in a 'decline'?
Because someone is always sitting on cash to invest.
There is always some index fund out there which has a mandate to buy nifty/a group stocks daily.
Now in the face of such insane competition to buy nifty do you really want to trade nifty short?? Nifty usually doesn't get trashed nearly as much as midcaps ...
Which is why I like to invest in midcaps in any kind of correction. Which is why: my previous post requested people for good midcap picks... and I got exactly 0 responses :).
Total waste of time.. i swear thats what this blog is. a total waste. It is mostly an exercise in self glorification and egotism.
Now , back to nifty. Funds are always buying nifty they are the ones that give you the support regardless of the short term trend.
You know why??? They create the long term trend?? How?? As long as investors are willing to pump cash into mutual funds these guys have to buy. They cannot exactly sit on cash if they have been ordered by their investors to buy.
The smart investor will not even panic and exit nifty in a 10/20/30/40/50/60% drop because history teaches us that every dip is to be bought until the fundamental trend is up.... For those who actually try to learn from history that is. If you haven't learned anything yet then I suggest studying a dow jones chart along with a p.e band. Refer to previous posts. Only an investor has the luxury of holding nifty thru a huge dips all the way to 60-80-90% retracement :). Reason is the max loss? is initial capital. risk is limited. A leveraged trader needs a stoploss......
So if you are long on nifty? Pick a stop, stick with it.
Already reccomended profit booking yesterday on that 4000 call. It did double so you cannot complain. 100-120 buy price. low hit 86. high hit 280....
profit booking advised 200-240...
Have you ever wondered what the largest timeframe trend is??
Over the lifetime of an investor as long as the index is not purchased at a p.e.g >> 1 (using a 2 year valuation mechanism) the net returns on any major index will tend to outperform fixed deposits. (reason?? index companies don't go bankrupt, the major index usually represents the top companies of a nation, the backbone of its economic engine, also you get automatic portfolio management as companies get moved into and out of the index based on their size, risk with the main index is always very very small and is tied to macroeconomics like gdp growth etc rather than microeconomic fluctuations, also keep in mind inflation causes an upward bias/drift in stock prices so its easier to be long than short in the longest timeframes)
In the longest timeframes, the knife is almost always rising...
For now dip in progress. look to short. I prefer shorting stock futures at premium so that I can cover at near 0 premium or at discount in a panic. That gives extraordinary profits as compared to shorting nifty. You need to work out alpha/beta etc before you figure out which stocks to short and in what ratio if you want to emulate return of nifty to upside/downside. clearly shorting all 50 nifty stocks though ideal is not feasible. Mind you shorting 50 futures contracts in the right ratio. i.e basket selling futures will be a better idea than shorting nifty futures. reason?? NF often goes into a discount in a drop and when short stoplosses get hit it goes into a premium. My favorite short side stocks usually are sbi/rcom. They generally perform in line with nifty on the downside. Beta is >1 which means higher leverage/lower comissions (as % of volatilty) and as opposed to nifty these 2 can be shorted at premiums even in a decline.
Today looking for maybe 1260-1250 below 1280 in sbi and rcom 480 below 494.
if you want to learn how to juggle falling knives, then you really need to be very very quick with your levels.
Fibonacci/ewt or very very quick with intraday chart patterns like my friend rajnish who seems to have a crazy knack for picking hns and inv hns intraday on a 1 min chart :).
No real way to prove that it even works and it doesn't work for me... but it works for him.
What works for me??
For those who want to use something that works for me ? (will it work for u? I don't know.. can u handle being wrong 50-60% of the time?? right only 40%? but making 2x losses on the wins??)
http://niftytraders.blogspot.com
7/105
Why 7/105?? its near optimal on automated backtests... What is the theoretical significance??
8 is the smallest elliot wave cycle , 5 up 3 down.
why 105??
105 is the 21 of the higher trend 21*5.
so 7/105 keeps you with the trend of the current tf wave as long as it is on the right side of the trend of one higher timeframe.
Keep in mind 7/105 will deliver one whipsaw either in w2 or in w4 whichever is the sharp correction...
If you really want to understand this stuff then please take a perfect elliot wave plot it in detail down to 3 degrees and then try plotting a lot of moving averages to see which combinations will give what type of signals :)
Just remember this.
a really good system? Will work on all timeframes.
My system will only work till nifty is in the same cycle degree wave.
Meaning lets assume this is Wave I on a very very very very large scale :)
When the big bad perhaps even boring ?? or exciting?? depending on sharp/flat etc.. wave II comes. the cycles will change. It would not be prudent to anticipate a change in the cycle degree wave until the fundamentals of cycle degree change.
w1/w2 is built on insanely good fundas p.e.g of 0.5-0.618...
w3 on cycle degree is built on good fundas i.e p.e.g of 1 or lower
When we go into speculative territory p.e.g of >1.6
then we would in w5
(this by the way is my latest pet theory based on trying to tie up fundas and technicals. I have no proof of any of these concepts though i would definitely like to study this stuff if i could get a lot of data on all world indices including historical p.e ratios+ forward earnings estimates)
.... When wave5 of wave I or whatever is done at a p.e of say 30-50 then we can go into a 2-3-5 year bear market (again depends on sharp/flat correction if sharp u could end a bear market in 2)
For those who are wondering we haven't even begun the madness yet.
You want madness??? Please go see china p.e.g. of 2+++ Thats a w5 of some sort. That is speculation. Dubai last year hit p.e of 30 then corrected 50% from the highs. no not 50% retrace of last swing :) 50%.... from low to high.. full retrace, came back to a p.e of 15... from 30.
For now don't worry about a long term 2-3 year bear market, we're at a p.e of 19-20.. flat consolidation w4 material in the worst case, not bear market w5 top material. Don't exit all of your delivery no matter what everyone says. 2-3-6 months is all that this market is likely to manage to the downside. Because when we go to a p.e of 19/17/15 etc value buyers will be waiting.
So back to my old point why 7/105?? 105 hours is roughly 21 days. (Note I actually use a 70 minute chart so that my daily chart subdivides into 5 parts)
I also use 1/76 on hourly or 1/68 on 70 minute (which corresponds to being on the right side of the higher tf 13 ema of higher timeframe)
I have not finished my fractal oscillator system yet but it is coming along. The issue is that the middle 4 hours of the day are not created equal to the opening and closing 30 minutes.
Time is relative.
It is relative to volumes/trading activity.. When trading activity is hectic then time contracts and when trading is dull it expands. This was another one of my 'original theories' but I discovered that someone had already 'invented/discovered' the theory before me.. its called an equivolume chart
So maybe an equivolume chart might be of use.. I still have to experiment with variable time shifting mechanisms/equivolume
Amibroker doesn't seem to have built in support for a time dilation function so I am coding my own.
I had an interesting debate with someone
who thinks
7/105 on 10 minute outperforms 7/105 on hourly.
backtests prove 7/105 on hourly beats 7/105 on 10 minute
(I have tested the 2 viable combinations which small traders can use and my test is based on ground reality. There are 2 combinations viable for small traders
a) take nifty spot signal trade on futures
or b) take futures signal trade on futures
third option/fourth option is take spot entry and use futures exit or futures entry and spot exit all the while trading on futures.. all this is too chaotic. not tested yet. will have to wait for another day)
The best way to trade nifty spot??? Use nifty spot.. get neat. trade all of nifty.
My friend actually tested 7/105 on spot meaning he is backtesting on spot.......
which is artificial: actual returns will be inferior due to slippage/comissions in nf.
So point is my colleagues' testing method is flawed
Now as for point two which he made.
7/105 on hourly will only work on larger tf when nifty is trending.
If one truly truly understood the fractal nature of the market
He wouldn't be making this point.
My point stands. if 7/105 is tuned to the fractal structure of the market it will work in the same cycle degree wave almost equally well on 70 min/13 minute or hourly/10 minute.
When the system breaks down, which it inevitably will after cycle I
Then it will stop working on both hourly and 10 minute.
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