Here i am posting one of my article dtd.07.10.2007 which may be useful for trade-learners
Since its my writing , definitely i am not violating any rules,......to show you the requirement of understanding the markets.
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THESE R HARD CORE FACT BASED ON OBSERVATION OF MARKET FOR LAST 6YR
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AUCTION CONCEPT IS VERY IMP FOR TRADING, NEGOTION OF BUYER AND SELLER ..A VALUE ZONE,HIGHER UNJUSTIFIED A SELL PT,....LOWER AGAIN UNJUSTIFIED BUY PT.
...FOR A DAYTRADER LAST 0.5HR..TIME TO CLOSE TRADE[IRRESPECTIVE OF PROFIT/LOSS]
PROFESSIONAL MONEY MANAGER WHO BELIEVES IN TA LOOK FROM LONGER TIME WEEK/MONTH.....START BUY THEN AS THEY HAVE MONEYPOWER.
normally we all lower price ....use for buy oppurtunity and use higher price zone for profit booking oppurtunity.
in normal condition market stay at top or bottom a little .and stabilise at price equilibrium pt
IF WE LOOK FROM LONGER TIMEFRAME WE HAVE BETTER ANALYSIS TO TRADE
IMBALANCE OF PRICE IS OPPURTUNITY
HENCE PRICE TRY TO REACH QUICKLY TO BALANCE.
NOW TIME TO REACH THAT...IS OPPURTUNITY
WE must study behavior of market to understand it.
define ;RANGE DEVELOPMENT
NORMAL DAY
TREND DAY.....UP AND DOWN [nothing told consider up to put sp idea]
VOLATILE DAY
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RANGE HELPS TO DEFINE DAY IN TIME
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CONCEPT OF CONTROL ; BUYER $ SELLER
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PRICE NORMALLY GREED DRIVEN IS UP
PRICE UNDER CONTROL OF FEAR...DOWN TREND
MARKET MOVES FROM IMBALANCE TO BALANCE
THROUGH PRICE EXTREME/RANGE EXPANSION OR VALUE AREA..SLOW MOVE
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LONGTERM TRADER WATCH FOR OPPURTUNITY, SEARCH FOR A PRINT[REPEATATIVE TENDENCY OF EDGE 'GIANT FOOTPRINT'
WHEN LARGE BUYERS COME PRICE MOVE UP AND WHEN BIG SELLORDER COMES PRICE FALL DOWN.
IN UPMOVES LIKE RESPONSES COME FROM GREED DRIVEN OBSERVER
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HENCE MARKET BEHAVIOR STUDY FURTHER BREAK UP 2SUBTLE ISSUE
1]IMBALANCED DIRECTIONAL MOVE
2]BALANCED ROTATION OF MONEY IN CYCLE /FOR SECTOR ALSO DUE TO CONSTANT CHANGE OF PARTICIPANTS PSYCHOLOGY[GREED AND FEAR]
OPENION...Longterm openion of price reflects true value of stock
current value=todays value[all known and unknown openion hidden in price]
its imbalance we search for.....in weekly chart we see value shifting higher to see oppurtunity of longterm buy
range extension[predictive] shows biasness of close,normally in a range day DAYTRADER do active participation[whether earn or lose] at day top and at day bottom
now continuity of price at extension towards end of session provide biasness of watcher[better skilled trader] to put money for future oppurtunity to earn with trend[continuation]
AT CLOSE TIME HIGHER PRICE BUYING ACTIVITY SUGGEST LONG TIME STRONG HAND BUYER ACTIVE [OPPURTUNITY EXISTS TO EARN]
HENCE STUDY FOR OPPURTUNITY TO CONTINUATION OF IMBALANCE IS IMP WITH THE HELP OF 3 TOOL......PRICE,VALUE AND MARKET ACTIVITY
wide expansion is good for daytrade.....from range to wider range ...to be watched for
now narrow range suggests 'side ways market'.....
INITIATION OF TRADE
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1.WATCH[OBSERVATION]
2.RESPONSE i]extreme......STOP
ii] favourable[ continue to hold or add]
other factor....problem of hope
3.now study specific case[with past data ,if ieod very good
4. failed expansion....too much too soon
5.trend termination...........trend of opposite....if proffesional fading coming with volume
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always ask current condition , value with mean [open high low close..mean] vs close price
HOW LONG TERM PLAY TRADER R THINKING ? R THEY UNCERTAIN ??
IF YES , DONT PUT MONEY......OBSERVE, LET OPPURTUNITY SLIP BUT DERISK
.....so now u test idea
check imbalance & direction of price move.......to reach a value in time and rupee from imbalance to balance.
IF FAILED EXPANSION CAN GIVE FADE....OPPOSITE DIRECTION TRADE[VICIOUS MOMENTUM
NEXT COMES STRENGTH OF BUYER AND HOLDING POWER....VS MARKETING STRATEGY ADOPTED BY MEDIA.....TO LURE THE WEAK MIND IN FORMING A CROWD RUN/CHASE
.....same way at bottom imbalance occur .........if new directional trend fail ? study....
oppurtunity or risk!!!
study neutral day and volatile day
...........................day 1,day 2, day 3, day 4, day 5.......@TOP ZONE AND BOTTOM ZONE
...........R U GETTING THE SIMILARITY ......HOPE NOW USE IT STOCK SP. CASE
now we actually watch this constantly unfortunately positional holding [blocked openion of direction] CRIPPLE OUR READING[ANALYSIS CAPACITY]
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IMP OF LONGTERM TRADER, ACTIVE PARTICIPATION CREATES BULLISH BIAS . ON THE CONTRARY AGGRESSIVE SELL BY THEM CAUSE DOWNFALL
WHEN THEY R UNDECIDED , WATCHING.....market stays in sideways .
another imp observation ,....one first move fail[neutralise by counter selling] THEN AGAIN MOVE ...........THIS NORMALLY HELPFUL, ACTUALLY 3RD MOVE HAS MORE STATISTICAL UPBIAS .
MIND IT ALWAYS.......PERCEPTION OF VALUE ITSELF IS VARIABLE
U MUST STUDY RELATIONSHIP WITH PREVIOUS DAY/WEEK......WHAT IS HAPPENING NOW?IN MARKET ,IN THIS SESSION ..TODAY....THIS HR??
STUDY BALANCED DISTRIBUTION WHICH NORMALLY HAPPENS BUT AWARE OF POTENTIAL LIQUIDATION PT
a bull is ready to liquidate for profit .......but where??
adding of new info [+ive dimention].....no risk....hence hold further for bigger profit.
but opposite direction move starts.....bull must liquidate to book money profit.
hence excess of profit[desire].....act a new dimention to an existing trade
.......VOLUME TO STUDY....BIG MEANS MORE ATTRACTIVE BUYER OR SELLER
HENCE STUDY AFTER OPENING WITH RESPECT TO YESTERDAY CLOSE .......HOW MARKET IS BEHAVING TODAY [1/2 HR]...CRUCIAL .UNDERSTAND WHAT IS A TREND IN CONTINUITY..
WHETHER IT EXISTS AND FURTHER CHANCE OF CONTINUITY , ON THE CONTRARY imbalance and move to extreme or mean reversion balancing move[no trade oppurtunity exist then]
ON THIS CONDITION ON ACTUAL MARKET CORRECT TRADE EXIST.....AND THIS IMBALANCE AND MOVE TO EXTREME FACILITATE A TRADE[ CONTINUATION TYPE BUY SYNDROME TRADE WITH TREND.
HOWEVER ANOTHER DIFFERENT BALL GAME CHOSEN BY A FEW PRO.
LOGIC..change can happen rapidly .observe[perception change of participants]
normally its dificult to understand change of trend due to bias[ so being minority these pro r in right side of trade,unexpected event due taken care of]
study session 1 hr chart bias & gap fill..session 2 ...session 3...session 4 session 5
similarly in day 1 day 2 day 3 day4 ....day5......WHEN OPPSITE FORCE ATTACK ?
HOW IT ATTACK ........INDIVIDUALS PERCEPTION OF VALUE......MOMENTARILY WEEK HAND GO IN UNCERTAINITY MODE AND ACT FOR SELF SABOTAGE.....THROW AWAY IDEA [IF AT ALL] IN PANIC.......AND supply money to this cold blooded pro......as if natural loser[being weak disciplined person]
HOWEVER STRONG HAND ALWAYS PROVEN RIGHT DUE TO CONFIDENCE[JUST LIKE RECENT ENTRY @BSE14200......]STICK TO AND READY TO BUY , ABSORB AT FALLING PRICE CONSIDERING IT AS FURTHER BUYING OPPURTUNITY
hence perception of same event has 2fold outcome/influence.......weak hand seller and strong hand as buyer
.......as a normal person we r fearful of uncertainity , so any event which has financial implication we watch, and try to derive its influence in short term and those who can think for long term,......size and visinity.....a cluster zone can be created considering upper boundary price tag[target]....and lower zone value [entry pt]
all we know condition affects price.......so plan should be ,
1]change of price up...sell oppurtunity
2]low zone...considerably buy idea....provided new percept not so bad
........dynamics of each case stock specific is different
....hence another idea .....surprise event
unlikely event
expected event ......has to be added
in expected event normally mean reversion towards value equilibrium occur
another 2 factor.....fundamental impact of an event and understanding time frame r imp.
normally higher time frame ,say weekly......has more bias...
however in case an unlikely event ,occurs as a shock, price and its value both move together towards a directional bias until stability
hence give priority to surprise event as it act as oppurtunity
on the contrary if u r in wrong side , book loss early if possible reverse position
......remember for expected event after announcement normally price reacts to opposite direction
THIS INSIGHT HELP TO UNDERSTAND RISK BETTER IN TRADING .
buyers /sellers confidence and uncertainity r imp factor
actually buyers' dominance /sellers big volume attack....this 2 greatly influence price and so called direction into 'oppurtunity' [threat to a fool]
wild move suggests thrust, when participant transfer from hesitent to aggressive ...wide range occurs.where as openion based participation without rigid parameter and future uncertainiy cause wide fluctuation [volatility]
hence a feel for value is vital
oppurtunity=price away from actual value
normally price fluctuate above and below value
execute=how quick u can act
depends on how much clearly u can visualise with certainity
always study from long term prospective,..what chance is there from present balance to go to quickly imbalance and stabilise higher[new] balance zone
.....now ask ....will sombody buy at higher,if yes....ok..buy now.
for shorting , if u see big seller may come or not.
hence mean reversion is a good theory to apply in market
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hence u check if at present
1] current market is undervalued or not [strategy]
2]study of imbalance in buyer'side
3]continuity factor
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hence reaction to news is an imp study to understand internal strength of market
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confident trader[longterm mature buyer] vs. novice day to day [trouble lover]
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remember current perception of value r always reflected in price
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be ready for atleast 2 different event 1]unlikely.....2]expected one
play plan for both r entirely different
for unlikely event,if u r in otherside ,damage is very costly,hence prepare for it,..as then price and value both quickly goes against u,shockingly bigger loss
hence be ready in mental level for it[worst case scenario]
experience helps to understand this price/value/event relationship and expectation of people vs. news and its reflection in price
this i call market dynamics of watchers
hence confidence and uncertainity of watchers[potential buyer/seller] gives only directional bias.with uncertainity more rotation occurs ie. distribution phase
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price distribution study
........................... study of ask vs. bid
1]10 -1030..first half hr
2]13-1330 lunch hr
volume or order flow study based on
3]15-1530[presently upto 16oo]close hr tick data[pib]
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this study of tpo...time price oppurtunity concept u have to do for u [own research]
mine shall not validate ur plan....however i suggest to distinguish to understand
up day
down day
volatile day
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first half hr ..opening initial balance with yesterday close
lunch hr...observation of biasness development
closing hr...time to take action
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most imp is long term holder[strong money] r participating or they r sensing danger...hence selling delivery [distributing] to sit on cash andor taking money out
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normally all buyers want to buy low and sell at profit[high]
so categorise buyers......short term and long term in trading percept.
long term trader search for unfairlow price with bigger view with higher holding period
shortterm player search and book profit with quick imbalance
hence when break out style is visible ,ranging is moving up with interesting higher pivot break pt, with perception of imbalance to continue.......long term player put big chunk of money near day end with high bias of continuity
so short term day trade type player ,skillful in execution take its advantage ..with their computer generated signal [an edge to take !%profit] continuously take profit with him as per his comfort level ......he is happy , as his scanner suggest oppurtunity every now and then.....based on %up list/volume up signal /a quick pivot break up.
however for long term buyer its not that easy........he has to search continuity of directional bias , ruthlessly buy out volume at top with money power to prove break out.
hence study on eod /weekly chart of impulse[main direction] and distribution [reaction]..
where this phenomena is going to happen now
hence i repeat again ,good 1-2 day mometum players use to play to trade in the side of big money player.
some other skillful player trade ..buy and sell in small targeted zone.
however when other players,new players vs. strong money players maintain equilibrium ....
hence plan of small profit with sector rotation occur as equilibrium tradezone facilitates buy low at support and fade at weekly resistance pt.
so long term fund is out and watching as imbalance creation is aim for strong hand......with watch when they found without news some strong resistance zone is touching again and again ,they test with good money power ..can they break it? ,if yes, put it....and pull price price out of that resistance to new imbalance with a hope of continuity ,luckily greedy buyer or fearful short seller, sometimes media with news help them to fulfil target.
this balance area of around resistance line is test ground .....against new buyer by other pro seller or experiment field for short term players, however ...continuity or holding several days over this new acquired land [from bear]....severity of opponent comes down ...as a true pro they leave to win against bull in other stock where high price on top may attract short seller.
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oilman
(primary purpose to stop argueing among traderji-members)
