Option trading strategies that i hope will work.

[detrich]

God!! Give me time to exit my CE at least rate to rate. Why are u so bearish , r charts indicating that. And how much heavy fall do u think would come your way?? And why woul i have last laugh dude , didnt understand it.

Dear Rajat,

Have you taken a look at the charts? I mean have you downloaded it? If not plz do it. I will be just glad to elabarote on it. As for last laugh buddy you got the flair to pick the best strategy with respect to the condition which is very rare. so if not this one then I am sure the next trade that you will make will be good for you. No other reason.

 

[coolboy007]

Dear Rajat,

Have you taken a look at the charts? I mean have you downloaded it? If not plz do it. I will be just glad to elabarote on it. As for last laugh buddy you got the flair to pick the best strategy with respect to the condition which is very rare. so if not this one then I am sure the next trade that you will make will be good for you. No other reason.

All rite understood . I am not even a beginner at reading charts yaar. Yups i downloaded the charts but couldnt interpret anything.

Dow down good for u.

 

[detrich]

All rite understood . I am not even a beginner at reading charts yaar. Yups i downloaded the charts but couldnt interpret anything.

Dow down good for u.

Dear Rajat,

Plz bear with me, I will just post the reply in few minutes I am really sorry for the delay. I am having trouble with power and net.

 

[coolboy007]

Dear Rajat,

Plz bear with me, I will just post the reply in few minutes I am really sorry for the delay. I am having trouble with power and net.

No problem friend , my dusshera holidays have started and now would join back school on 13 th oct. Till the holiday today i will be with DOW till it closes.

 

[detrich]

Dear Rajat,






I am really sorry I just did not realize that. Well for starters, I will just try to give you a crash course in technical analysis so that you will find rest of my post easier to understand. I will try to be brief and yes before implementing this method in trading please thoroughly prepare yourself through mock trading first before implementing them in live trades. Because as Dr. Alban said “Little knowledge is very dangerous”.

Moving Averages (An indicator frequently used in technical analysis showing the average value of a security's price over a set period)
There are basically three most popular averages
1) EMA(Exponential Moving Average) I favor this because I find it more relevant to the
market prices.
2) SMA(Simple Moving Average)
3) VWMA(Volume Weighted Moving Average)

The four lines which in the chart do you see them???
1)blue(5 Day) 2)Green(10 Day) 3)Red (30 Day) 4) Blue (60 Day) . This line represent Average price of the security for the given period. With the help of these lines the signals are generated in three ways
1) Buy signal is generated when MA (shorter period) cross above MA (longer period)
2) Sell signal is generated when MA (shorter period) cross below MA (longer period)
3) When the Moving Starts to lag behind the Prices this happens during the trending
Market after a strong wave (It could be upward or downward) at that for brief period
of time there is a slight movement in different direction. For e.g. current market
condition. It is hallmark really the best indicator when combined with MACD to give overbought and oversold signals

MACD (Moving Average Convergence Divergence) (Located in the lower half of the chart)

There are two lines in the MACD indicator. The faster line (MACD line) results from the difference between the 26 days EMA of the closing prices subtracted from the 12 days EMA of the closing prices. The slower line (signal line) is a moving average of the fast line. It is usually a 9 days EMA of the faster line.
There are four signals in this as follows.

Trading signals
1)Buy signal is generated when MACD line cross above Signal line
2) Sell Signal is generated when MACD line cross below Signal line (i.e. when the bars turn red)
MACD-Histogram: The MACD-Histogram represents the difference between MACD and it's signal line (usually the 9-day EMA of the MACD). The plot of this difference is presented as a histogram, making centerline crossovers and divergences easily identifiable. Whenever MACD crosses the signal line, MACD-Histogram crosses the zero line.

Sharp increases in the MACD-Histogram indicate that MACD is rising faster than its 9-day EMA and upward momentum is strengthening. Sharp declines in the MACD-Histogram indicate that MACD is falling faster than its moving average and downward momentum is increasing.

Divergences between MACD and MACD-Histogram are the main tool used to anticipate crossovers. A positive divergence in the MACD-Histogram indicates that MACD is strengthening and could be on the verge of a bullish moving average crossover. A negative divergence in the MACD-Histogram indicates that MACD is weakening and can act to foreshadow a bearish moving average crossover in MACD.

The MACD is also useful as an overbought/oversold indicator. When the shorter moving average pulls away dramatically from the longer EMA (i.e., the MACD rises), it is likely that the security price is overextending and will soon return to more realistic levels. MACD overbought and oversold conditions exist vary from security to security.

I think I have to get this in two parts because when I started to explain I realized that this is more harder to explain then do. So in few moments please I will post my next installment SAR and formation. Feel free to ask me if you do not understand any of these. Because without proper charts it will be tougher. Try googling some of the terms.:d Thank you for your patience

P.S.- For that matter anyone who has doubts please feel free to contact me.

 

[coolboy007]

WOW WOW WOW!!!!!

I am becoming a technical analyst thanks to you friend many many thanks.
Have totally understood the concept of SMA .

Have one doubt ,

Which one is the signal line in your graphs , its the green line na???
Also i sometimes use ***** charts as they are live WHICH TIME periods shud i use for weekly trades 10 day , 15 and 60 for SMA ??

And what values to fill in MACD indicator SLOW PERIOD , FAST PERIOD , SIGNAL PERIOD. There the MACD line is blue and signal line red , and histogram length shows the HUGENESS OF MOVE DOWN OR UP. What does divergence and MACD reading give us???

Thanks i think in this week i wud learn a lot frm u. Thanks a lot.

 

[detrich]

sir, ur doing good work .. pls countinu post ur threads . thanks

Dear Tomdickparry(cool id),

I am glad that you find this post useful thanx a lot and yes I will keep on posting.

 

[detrich]

WOW WOW WOW!!!!!

I am becoming a technical analyst thanks to you friend many many thanks.
Have totally understood the concept of SMA .

Have one doubt ,

Which one is the signal line in your graphs , its the green line na???
Also i sometimes use ***** charts as they are live WHICH TIME periods shud i use for weekly trades 10 day , 15 and 60 for SMA ??

And what values to fill in MACD indicator SLOW PERIOD , FAST PERIOD , SIGNAL PERIOD. There the MACD line is blue and signal line red , and histogram length shows the HUGENESS OF MOVE DOWN OR UP. What does divergence and MACD reading give us???

Thanks i think in this week i wud learn a lot frm u. Thanks a lot.

Well the one's which I prefer are 5,10,20,60 for moving averages.
As for MACD I think I have already given you the periods. But still If you want to know I will put it. as follows
Fast Lines- Differnce between 26 day EMA-12 day EMA
Slow Lines(Signal Lines)- is the MA of Fast lines and the period is 9 Day EMA.

Histogram varies from chart to chart- It largely depends on the nature of the security for e.g. Nifty will have longer shadows than average stocks because of the sheer amount of volatality. The only way to know wether it is in oversold or overbought direction is to take a look at previous phase in similar direction and compare it to the current phase. The thing to look out for are the crossovers. They are the signals which will be cruicial. The movements after crossover are at times really big. So when you see a crossover confirm with SAR and MA's to see wether it is valid or not.

 

[detrich]

PART II

Dear Rajat,


This is the continuation of the signals:-

Third and the most important indicator to make directional calls Parabolic SAR (the red dots) it is the most useful indicator for short and medium term movements. Parabolic SAR (stop and reverse) is an indicator that we can safely say is a very useful and accurate tool during a trending period - when it provides excellent entry and exit points.
A stop loss is calculated for each day using the previous days data. The advantage Parabolic SAR is that the stop level can be calculated in advance of the market opening. A stop level or dot below the current price indicates that the price is generally bullish. The stop level will move up every day. When price falls to the stop level, a SAR signal generated. Whereas a stop level above the current price indicates that the price is generally bearish and the position is short. The stop level moves down every day until the price rises to the stop level, a SAR signal triggered.

Buy signal is generated when the price meets the Parabolic SAR stop level (dots), while short ( i.e. .when red dots are above the prices rise meet the level at which it is located at that time the crossover is supposed to take place)
Sell Signal: Price meets the Parabolic SAR stop level (dots), while long( vice versa of above definition)
And lag of around say 30% to current price and SAR is a good sign for reversal.

Fourth one is ADX(Average Directional Index) was developed by J. Welles to measures the strength of a trend. It is important to know the market’s movement, whether it is trending or trend less.
ADX is derived from two other indicators called Positive Directional Indicator (+DI) and Negative Directional Indicator (-DI). ADX is essentially a smoothed difference between the +DI and –DI lines. +DI measures the strength of the up moves and –DI measures the strength of the down moves over a period. A buy signal is given when the +DI line crosses above the –DI line and a sell signal is given when the –DI line crosses above +DI line.

Wilder’s ADX line evaluates the directional movement of the market on a scale of 0 to 100. When ADX rise above 40, it indicates a strong trend whereas when ADX drop below 20, it indicates a weak trend. ADX does not tell the users the trend as bullish or bearish, but merely assess the strength of current trend.
In simpler terms when you see the line rising it means that the trend is gaining strength it is going to continue for a while. When it is falling means there will be a change in phase or at times it means that a corrective move has started i.e. the one against the current trend. To confirm this you have to use ADX in combination with other indicator like MACD.
Patterns in really very brief I have just concentrated on the most common pattern which are easier to spot and take decision. So if anyone is interested in more please message me but my advice will be to first practice them.
Bullish:
Ascending Triangle-The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns. Regardless of where they form, ascending triangles are bullish patterns that indicate accumulation.
Symmetrical Triangle -The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape
Bearish:
Descending Triangle-The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. There are instances when descending triangles form as reversal patterns at the end of an uptrend, but they are typically continuation patterns

A Rectangle is a continuation pattern that forms as a trading range during a pause in the trend. The pattern is easily identifiable by two comparable highs and two comparable lows. The highs and lows can be connected to form two parallel lines that make up the top and bottom of a rectangle. Rectangles are sometimes referred to as trading ranges, consolidation zones or congestion areas.

And yes again the same advice Google anything the patterns because it would be really easy to understand this with relevant charts. Again I am repeating please practice this in mock trades not in real time because this cannot guarantee success but with practice and experience you will be take more output from all this. Always remember to use combination of strategies. The next installment is the reason why I feel that Nifty is heading towards the 3500-mark.

P.S.-For complete beginners please refer to www.investopedia.com.
I found it really good when I had started. They have a really nice articles for beginners.

 

[detrich]

I am feeling really sleepy here. I am sorry I promise I will continue to posts my resons and details on my portfolio tommorow. Thank you people for giving your precious time to read my post I am really obliged to you all. GOOD NIGHT to everyone. See you in the morning.