Fading The Gaps......Intra day!!!!

Since now a day we are either opening gap up or gap down so I thought I would share a strategy how to profit from these situations. I am myself learning how to Fade gaps and finding these setups as one of the best Day Trade opportunities. Here are a few simple rules to trade intra day gaps.

• The first trade we generally look at is to fade the gap. If we open gap up, we wait for the price to break its recent low and enter with a tight stop loss just above the high. The idea is that the price will close its overnight gap. The target is more often, the previous close. It’s vice versa in case of a gap down.
• The second trade is to enter in the direction of the gap after the gap is filled. The price tends to retrace back sharply after filling a gap. This time we target today’s open.
• If the price on gap up or gap down retraces a bit and makes no serious attempt at gap filling, then one must trade aggressively in the direction of the gap. The ideal entry would be, when the price breaks out of its open and also the high (gap up) or low (gap down) of the day.

The Hound Of The Baskervilles.....Woof Woof??? Not really

Why I decided to write about this signal was, because its time has come. We have been seeing too many inverse H&S and indicators’ giving a go ahead for long but the price is failing to confirm yet. This brief is from the book Trading for A Living by Alexander Elder.

Elder says this signal occurs when a reliable pattern or an indicator does not lead to the expected action and the prices move in an opposite direction. Alexander Elder names this signal, as The Hound Of The Baskerville, based on a famous story written by Sir Arthur Conan Doyle. In the story detective Sherlock Holmes was called upon to solve a murder case in a country estate. He found the essential clue when he realized that the family dog did not bark while the murder was committed. This meant that the dog knew the murderer, and that this was an inside job. The signal was given by lack of expected action-by lack of barking!!!

When the market refuses to bark in response of a good signal, it gives you The Hound Of The Baskervilles signal. This shows that something is fundamentally changing below the surface and it is time to get in gear with a new powerful trend that is developing.

Tails I Win...Heads You Loose !!!

Nothing is making sense now a days…we have feeling of déjà vu every time we see an inverse H&S…they seem to be in plenty now!!! Today we had a flattish opening. We made a swing high, went down tested the lows of the day and finally had a small triangle breakout. The breakout culminated in a Double Top (though a small one) and we far more exceeded the target to the downside. In the end it was just a tug of war between the Bulls and the Bears, where the Bulls managed to defend the lows of the day.

It’s getting more and more difficult to keep our bias intact. Though intraday movements are leaving one disturbed and confused, there is some solace in the daily charts (that is just for the time being!!!). In the daily chart of Nifty given below we can see that the MA crossover between the 50 period MA and the 200 period MA (circled area in the chart, also refer to my earlier post titled “Death Cross”) has already taken place and that point will be eagerly watched by both the camps. It’s still a matter of concern that we are failing to crossover over 50 period MA (we need to overcome this obstacle if we ever have to try and touch 200 period MA).Now for the point which provides some optimism. Our small little inverse H&S is still not threatened. In fact it now has a prettier Ascending Triangle to it!!!

Just a curious observation, though the overhead resistance for time being is 4962 and 5090, what’s really scary is that the REAL SUPPORT on the downside is at 4380. (Scared???well I am!!!). Leaving you with a one liner I read somewhere:

Don’t Be An Optimist Or A Pessimist Just Be A Realist!!!!

Just Some Chit Chat!!!

Today I had a discussion, which eventually turned into an argument with a friend and a fellow trader. It was about learning Technical Analysis from a Mentor or a Guru or for that fact, from books published by the likes of Charles Dow, Schabacker and Wycoff.

Well my friend had a point that none of the Masters will teach you everything, and that they will definitely hold back something, because by sharing that something, they would have to give up their advantage. Incidentally I had read the same thing about books published by celebrity chefs and famous restaurant kitchens, that, they either miss out on a key ingredient, or withhold an important step in cooking. Sounds logical who will ever go out to eat, if they can prepare the same delicacy at home.

My point was that, in trading, the key lies with YOU and only YOU. It’s in your MIND. There are no secret codes. It’s just that there is so much of information floating around, and in that information, one needs to discover the truth. Separate the wheat from the chaff. For a probing mind there are no secrets. The Holy Grail exists!!! It’s not in the well guarded secret of the professionals. It in fact lies within each one of us. We all have our Holy Grail; it’s just that we are looking for it everywhere, other than in ourselves.

Speaking about the argument, well it ended in a draw. We both agreed to disagree with each other. As for you, if this post has made you think, then I would certainly like to have your comments….maybe it will help me to wipe out some dust from my eyes.

‘‘We have more ability than will power, and it is often an excuse to ourselves that we imagine that things are impossible.’’

Rochefoucauld, 1665

Fading The Gap???...Or Something More Sinister??

This market is getting more confusing day by day (I just give up!!!).Yesterday we had an inverse H&S in 30 minutes, for which I had shown the target in the chart. Well that target was achieved albeit in gap up opening (so for the lucky few who had longs overnight had a field day). It wasn’t bad for the people who were left out yesterday...they had a chance to fade the gap which gave good profit. But the trading wasn’t easy; too many whipsaws and stops were gunned on the both sides. May be in times like these, you get to know the men from the boys (I am still a boy!!!).

It’s increasingly becoming difficult for the intraday players as well as positional to decide who is who. May be this is, just a momentary lapse of reason….but then, the markets can stay unreasonable, longer than we can stay solvent!!!

Speaking for myself, I am in a confused state of mind so leaving you with a thought to ponder upon:

‘‘Every man takes the limits of his own field of vision for the limits of the world.’’

Arthur Schopenhauer, 1851

V For Victory,Vengeance or Vendetaa.....Or Was It Just All Fools Day!!!

We had a small gap up (what’s new???) anyway it was filled up within the first 15 minutes, followed by an attempt to make a new high. As usual we failed (we kinda doing this more often!!!). After that again it was down to splitsville!!! Maybe we wanted cues from Europe (actually I really don’t know why we went down???). Well then someone pricked the Nifty in the bottom and it surged upwards to make a V formation. But alas that prick wasn’t that forceful, we failed to take out the earlier highs. In the process we ended up making a Double Top…If that’s not bearish enough, then look what constitutes the second Top ….It’s a Bearish Head & Shoulders Pattern!!! (small one though…nevertheless a bearish pattern!!!).

Before you start screaming Sell…hold your horses…the story aint complete. This Technical Analysis thing is getting me hooked on. Below is the 30 minutes intra day chart of Nifty. What do you see??? Surprise! Surprise! It’s an Inverse Head & Shoulders Pattern in the making, an equally bullish pattern, opposite to what we are seeing on the 5-minute time frame. This pattern if completes, it gives us a target of 160 points (4950/60 in nifty, which anyways is a strong resistance for now).

Technical Analysis is all about probabilities and not certainties. Here’s a parting note, if you observe an H&S Patten, you will find that every H&S Pattern, has a Triangle in it. And triangles are treacherous.. they have a mind of their own… you never know exactly which way they are going to breakout. Therefore we should always wait for confirmation in Price to take any further direction.

‘‘It is a profound mistake to think, the horizon is the boundary of the world.’’

Antoine Marin Lemierre

Skip A Turn…..Reverse….UNO!!!

Strange title for today’s Nifty analysis??? Well these are from a card game called UNO(Some people call it crazy8 when playing with a normal pack of cards).I just finished playing some games of UNO with my 6 year old daughter(she beat me to five straight games!!! So much to speak of my IQ!!!…some times I wonder why I am tryin2trade???).Coming back to Nifty, it was Skip A Turn (for the guys caught unawares on Friday…pay in pay out on Tuesday…year end…couldn’t do much with their delivery’s…operators day out!!!).It was Reverse(for Nifty, complete U turn from Friday…its funny how the bullish bias developed on one day is immediately discarded the next day).It was UNO(yet again for us coz we come first in terms of Highest percentage fall in Asia).

Speaking of Nifty we opened gap down(it seems to be a habit now with us, we are either gap up or gap down!!!). It was no looking back from their onwards. Big Daddy RIL, did try to provide some support initially….but to no avail. What could one single guy do, when heavyweights like ONGC and Banks were not willing to tow the line….and Cipla aint my idea of someone trying to make things easy. The chart above is plain vanilla…didn’t feel like drawing to much on it!!! If u made money today, here’s a parting note:

‘‘It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have got it, it requires ten times as much wit to keep it.’’

Ralph Waldo Emerson (1803–82)