Monday, 29 May 2017

Saturday, 27 May 2017

Being honest as a trader

The most critical concept that has helped me become a good trader is being honest with myself as well as others around me. I always try to be honest because I believe honesty always develops trust better than anything.... trust in my trading method, trust in my trade plan and If I am honest with you, you will also develop trust in me as a trader. The things to success are simple but we make them look complex which is why staying honest with oneself helps trader realize his/her mistakes and improve trading capabilities, clear dusty cloud off the mind, think straight and clear and keep on learning and improving oneself to climb the ladder of success. This is very simple thing but still not understood by human psych.

Also being honest with oneself helps practice discipline....again the most critical in trading.  Once I have made my trading rules, I just need to be honest in following them.  If I need to exit out of the trade on the break of certain level, I need to be honest and exit at that level.  If I need to stop trading after certain loss making trades, I need to be honest with myself and stop trading.  I cannot cheat myself by allowing myself to widen the stop loss or continue trading with consecutive losses.  If I start doing that, I know for sure it will only lead me to disaster.

As you all know, I regularly post end-of-day Nifty future charts along with little bit of thought process involved in spotting a setup. The trading may look very easy to you by just going through those charts but in reality trading is not that simple. As a trader, we have to deal with different trading situations and these situations make the trading complex. Let me give you few examples.  We will be often put into the situations where it will just trigger the entry and after triggering the entry prices will never move in our favor.  Prices will start to move only once we exit the trade.  After hitting the stop loss, it will only move in favor.  Prices may move very quickly in favor but we cannot profit out of it because it may retrace quickly too vanishing all the profit. It may so happen we wait for the prices to reach the target but prices reverse without reaching the target and take away majority of profit.  We keep on looking for the setups but they either do not appear or get missed.  The list will go on and on like this.  Also there will be lot of stress and emotions involved which too make trading difficult.  So what I try to do in my posts is I try to present the charts demonstrating how best one could have followed the trading method and benefited from it by being honest to the trading method. It never reflects my actual trading.

Trading, blogging and educating others on trading, all became possible because I have full faith in my trading method and I am honest as a trader.

Friday, 26 May 2017

Bank Nifty Future 26052017

Bank Nifty was little sluggish in the morning and traded in the narrow range till noon time.  It provided two setups as marked to go long.

Thursday, 25 May 2017

Nifty Future 25052017

Expiry day.  Opened within previous day's range but was able to trade above PDC and then BRN. This indicated strength in buyers or in other words bullish bias. Then there was a good BPB of BRN setup.  Unfortunately, it did not move much and prices remained in narrow range for around 2 hours.  It then first tried to break the lower range extreme but failed.  You might have probably heard that a failed attempt to break one range extreme often leads to successful break of another range extreme.  You might have also heard that once the prices consolidate enough, they will be ready for the move.  You also might have heard that during expiry day, prices often move from BRN to RN or another BRN.  Plus there was a bullish bias with range forming higher than earlier range.  All these indicated to go for a direct BO ignoring PDH above.  This direct BO yielded around 100 points of gain.

One more observation I would like to share with all of you.  Lately, on expiry days it is observed that markets often make a final sizable move exactly after 3 pm.  Just wait for the clock to hit 3 and immediately after that it will give a good move.  I have marked an arrow on 3 pm move to illustrate my point.  It was around 40 point move.

Tuesday, 23 May 2017

Nifty Future 23052017

It opened within previous day's range and soon broke below PDL.  The down move was very sharp and quick and did not allow the entry.  After that it consolidated below BRN for a long time. Expected a good move out of this consolidation.  The BO of range high was a good setup which did reach to LOL of PDL & PDC.  Here again the prices got rejected and gave another good down move.

Monday, 22 May 2017

Nifty Future 22052017

It opened within yesterday's range.  Once it broke below PDC and got accepted, there was a BPB short trade setup.  PDC continued to act as a strong flip the next time prices came back there and again presented a BOF setup for a short trade.

Friday, 19 May 2017

Nifty Future 19052017

Yesterday it showed the sign of volatility coming back to the Index trading after a long long time. Today it opened within yesterday's range and made a counter-trend up move which failed at the confluence of BRN and PDH.  This presented a nice BOF setup to go short.  If trailed properly, this setup generated a profit of 70 points plus.  After this big 100+ move, it was expected to take some rest and remain range-bound which it did.

How to read the price action at BRN PDH level for BOF setup:
1) Trend:  Nifty in a micro trend decline mode.  It is a very fresh trend which just started yesterday.  Since the trend is fresh, we can expect a good move in the trend direction.  So lets look for the setup which allows to trade with the trend.  BOF of BRN PDH will be the good setup.
2) Location and earlier price behavior:  Confluence of level BRN & PDH, so a good location.  Last time, yesterday, when the prices reached at the same level (BRN), it worked as a energized fencing and forced the prices to go away from the level quickly.  If history repeats itself today, we can expect the same thing at the same location today also, i.e. prices going away from the level very quickly.
3) How the prices reached there and possibility of reversal:  Prices reached there with orderly pull backs, traveling around 50 points.  This indicates critical mass probably took position in this counter-trend up move.  Also CT moves of 40-50 points normally gets exhausted at the strong S/R level.
4) Pattern:  Breakout of the level was good with good volume.  But even with this good BO, follow-up buying did not come.  This indicates prices unable to move higher.  So now if this BO fails, it will trap not only BO traders but also the critical mass.
5) Risk reward: It is more than 1:1 if the prices reach to LOD which can act as FTA.   If it breaks LOD it came go to PDL PDC to fill the gap.

This is a kind of rare setup where everything supports like trend, location, space, PA, critical mass, pattern etc.  How a trader following DP trading tactics can miss this trade!

If you put an effort to read the prices this way, you will have lot of confidence to take such setups. If you want to learn how to read the prices this way, take the help of Consistent Trader video tutorial which focuses on reading the PA and finding the good setups with ease.

Thursday, 18 May 2017

Nifty Future 18052017

It opened full gap down.  After that it traded in a narrow range.  Towards the fag end, it could break out of that narrow range and presented a BPB setup which moved well.

Wednesday, 17 May 2017

Nifty Future 17052017

It opened within previous day's range and traded in a narrow range.  Towards the fag end, there was BOF of PDH setup which did not work.

Markets are trading at all time highs but very quiet.  As a trader, it requires us to adjust to this low volatile phase of the market keeping our expectations low.

Tuesday, 16 May 2017

Nifty Future 16052017

After yesterday's very narrow range day, it broke out of that range in morning.  Looking at the momentum, it was difficult to go long on BPB of PDH/PDC.  After that it again formed a range and broke out of it in afternoon.  It then presented a nice BPB setup which moved well.

Saturday, 13 May 2017

How much money you need to day trade

The most essential requirement for day trading is "capital."  Capital is day trader's lifeline.  If you don't have money in your trading account, you will not be allowed to trade.  It is as simple as that. Also traders need to have enough funds to withstand a string of losses and have the flexibility to take a wide array of trades.

Now in order to determine the funds needed for trading, risk management must be addressed.  As a normal practice, traders normally follow a rule of risking only 1% or less of the total capital.  It means, as an example, on a capital of Rs. 1 lakh, a trader cannot risk more than Rs. 1000 per trade. To make it easy for you to understand, here is an  example.  If you buy a stock at Rs. 100 and place a stop loss at Rs. 99, risk is Rs. 1 on the trade.  If your trade position is 1000 shares, your trading risk on that trade is 1000 x 1 = Rs. 1000, i.e. 1% risk on a trading capital of Rs. 1 lakh.  This trading risk always must be 1% or less than that of the day trading account balance.  If you suffered few losses and your capital goes down to, lets say Rs. 90000, you cannot risk more than Rs. 900 per trade.  So as your capital grows, your risk taking capacity will grow and as your capital shrinks, your risk taking capacity will also go down with it.  By following this 1% rule, capital will be preserved during losing streaks, which inevitably occur.  By only risking one percent, even a ten trade losing streak keeps most of the capital intact.

Leverage and minimum capital requirement:
Day traders can typically leverage 20 to 40 times on their capital.  If there is Rs. 25000 in the trading account, a trader can take a position in Nifty Future which current contract size is around Rs. 7 lakhs, giving a leverage of 28 times.  Even when leverage is used, the one percent risk rule is always applied to actual account balance (Rs.25000 in this case).  In that case. only Rs. 250 risk per trade for Nifty Future is allowed, which is not possible.  Minimum risk of trading Nifty Future comes to around 12 points or Rs.900. So for every Nifty Future trade where the risk is around 12 points, the minimum capital requirement will be Rs. 90000 to Rs. 1 lakh.  In other works, to trade 1 lot of Nifty Future, a trader needs to keep always around Rs. 1 lakh (least minimum) in the trading account, and not just Rs. 25000.

Same way to trade in 1 lot of stock futures, I keep the trading capital around Rs. 3 lakhs.  This amount is 3 times more than the amount required for trading in Nifty Future and this is because the risk is more in trading stocks. I take a risk of 0.5% of the stock price for my trading in stocks.  As an example, if I want to take a position in a stock which quotes at Rs. 300 which lot size is 2000 shares, I will keep a stop loss at Rs. 298.50 (0.5% of 300 = 1.50).  So this way my total risk for that trade will come to Rs. 3000 (1.50 x 2000).  In other words, 1% of my total trading capital of Rs. 3 lakhs.

If you have Rs. 25000 as a trading capital and you want to trade in cash stocks, you can do that.  You can take each trade worth Rs. 50000 and still follow a 1% of risk rule.

Proper utilization of trading capital:
We do not need to keep all the required capital in cash with our broker.  We always can take some margin on our investments in stocks, mutual funds, ETFs etc.  Lets say you decided to trade in only Nifty Future and for that you require Rs. 1 lakh.  You have also some stocks and ETFs worth Rs. 50000 in your demat.  In that case, you can pledge these stocks and ETFs to your broker and get a margin of around Rs. 40000.  Now you need Rs. 60000 only in cash.  Out of this Rs. 60K, keep around Rs. 20K with your broker and rest amount of Rs. 40K in a bank FD and earn an interest on it. You stocks will also earn some dividends for you. This way you will be able to properly utilize the trading funds, making your idle funds to earn some money for you.

Lastly, again as another risk measurement, if somehow you exhaust this Rs. 20K very quickly in your trading account, you need to stop trading immediately.  You should not re-fund your account.  Take a break from trading and think about the reasons for your losses and work on them first.

Friday, 12 May 2017

Nifty Future 12052017

It opened CT full gap down.  Once it seemed like prices were getting accepted below PDL, it was possible to take BPB of PDC PDL which moved till BRN.  After that it formed a range and gave BOF of range high which also moved till range low/BRN.  There was an expectation of barbed wire at BRN and it did in fact form a barbed wire.

Have a look at earlier price behavior at BRN and see what it did.

Thursday, 11 May 2017

Nifty Future 11052017

It opened full gap up.  I was hesitant to trade the BPB of PDH setup so avoided trading it.  After that there was not any good setup to trade and it remained in a narrow range for rest of the day.

Monday, 8 May 2017

Nifty Future 08052017

It opened within previous day's range.  It tried to break PDH but failed and gave a BOF of PDH setup.  It was expected to reach to LOD PDC area but reversed without testing it.

Saturday, 6 May 2017

Proper Order Placement

In day trading, trade execution plays a big role and for the trade to get executed it requires us to place the order in time and at proper level.  We also need to place the orders in such a way that it allows us to enter into the trade at our desired price.  Entering into the trade far away from our desired price is not going to serve the purpose of trading.

Here are some guidelines that I follow for placement of orders into the system.

I first find a good setup  to trade.  Once I spot that setup, my next job is to identify a price level beyond which I would like to enter. Almost 100% of the time  I like to enter with SL trigger orders at the identified level.  There are two types of SL trigger orders in India which brokers allow us to do.  One is SL limit order and another is SL market order.   I hope you all are aware of these two order types, so I will not go into further details.  Out of these two types, for entry I always use SL limit order.  For exit, many a times it is safe to use SL market order.  The reason is simple, exit is not in my hand.  Exit is something which markets force me to do, so I will accept whatever price the markets offer me at that time.

1)  Now how to place this SL trigger order.  For Nifty or Bank Nifty is is quite simple.  Usually, trigger price is at 0.5 point away from the level and keeping a 0.5 point of difference between trigger and limit for Nifty is enough.  Sometimes while placing an order for direct BO setup, this difference has to widen to around 1 or 2 points for Nifty and around 5 points for Bank Nifty.

In stocks, order placement will vary from scrip to scrip.  It varies because some scrips are of lets say Rs. 80, some are of around 300, some are around 500, some around 1000 and some even more than that.  For example, if the stock trades at lets say 105, I will keep the trigger at 105.05 and limit at 105.10.  Having said that, sometimes depending upon the volatility of stock, I may not allow any difference between trigger and limit and keep both at the same price level.  For the stock trading at Rs. 450, I will keep the trigger at 450.10 and limit at 450.25 or 450.30.  Similarly, for the stock quoting at 1400, it will be like 1400.5 and 1401.  So here you might notice, depending on the price the stock is quoting at, I will have to adjust my orders.  I cannot keep the trigger order at fixed price and also difference between trigger and limit will vary.

If you are trading in highly liquid cash stocks, placement of orders in this way will work most of time and your order will get executed for normal/average quantity in normal market condition.  However, for stock futures, it is better for us if we also take into consideration the spread between bid and ask price.  Let me discuss it more with an example of Titan future.  Here in the snapshot of my broker terminal (SAS Online), notice I have kept both, price ladder as well as top 5 bids/asks.  As you can see, for the LTP of 494.50 the bid rate is at 494.30 and ask rate is at 494.95, a difference of 0.65 which is not normal.  Now lets assume, the LTP of 494.50 is your trigger level for entry.  You wanted to enter a long beyond 494.40, so you kept a trigger at 494.50 and limit at 494.70.  Now once the price hits 494.5 your order gets triggered, it travels from your broker to exchange with the limit buy price of 494.70.  But it will just stay with the exchange and will not get executed because at that time the ask rate is 494.95 (seller's price).  Now you have two options.  One is either you match the seller's price of 494.95 and buy it at 494.95 or wait for the seller to come to you and sell to you at your price of 494.70.  Instead of doing this, lets assume you were aware of this huge spread between bid and ask that was going on at that point and you were willing to buy even at slightly higher price and with that in mind, you kept your order like, trigger at 494.50 and limit at 495.  In that case, there is high likelihood that your order will immediately get executed.  So in nutshell, it becomes necessary to also take into consideration the spread and adjusting the placement of order or modifying it once the price reaches close to the trigger level for the trade execution.  However, it all depends on urgency of entering into the trade.  Many a times I will prefer to wait for my price.  Rather than chasing the price, I will allow to let go the trade if it does not come to my price.  There are lots of trade opportunities.  If I could not catch this, fine.  There will be always another waiting for me.

2) Another important aspect of reading the price ladder for order placement is to check whether there is any big or good sizable order close to the trigger price.  If there is any big order sitting there, I would wait for that order to get exhausted and then enter.  Let me give you an example of SBI future below.  The LTP is 302.40 and lets assume my trigger level for a long entry is at 302.60.  As you can see in the snapshot, there is a sizable single order for sell at 302.70 of 11 lots.  Now if my trigger is at 302.60 and limit at 302.70, I will be buying ahead of this sell order.  It simply means even after my trade, there will be still big quantity left in the system to sell which will not allow prices to move in my favor for some period of time.  So why not wait for that big 11 lots of sell order to get exhausted and then enter.  So once I notice this kind of order flow into the system, I will modify slightly my trigger at 302.75 and limit at 302.80 or 302.85 to enter after that seller is over with his sell orders.

 Sometimes due to certain market condition, even after taking care of different aspects for placement of order, it is still possible that the orders will not get executed and prices will jump the order.  But that should not stop us in getting our act right.  We need to be always vigilant of what is going on in the order flow side so that we can better position ourselves.  Remember, there are plenty of setups happening all the time.  If this stock does not allow me to enter, there will be always another one waiting for me.

Hope this post helps you in your order placement and better order execution.

Thursday, 4 May 2017

Nifty Future 04052017

I kept an eye at the open to see whether it was able to break the Range High as discussed yesterday but it could not.  In the afternoon, there was a setup at BOF of PDC and intra range low. I did not want to trade that narrow range so avoided.  Towards the fag end it appeared like it was making an attempt to break past 9370 level.  Attempted a long on BPB which ended as a scratch.

Wednesday, 3 May 2017

Nifty Future Range

As you can see on the chart Nifty is stuck in a 90 point range since April 26th.  Trading within this narrow range is very difficult.  Today was no exception.  Today it traded again in a narrow range and that too within this 90 point narrow range.

A good trade setup would emerge only at extremes of this range 9370 - 9280.

Tuesday, 2 May 2017

Nifty Future 02052017

After the open it tried to break PDH and trade above it but failed and gave a good BOF of PDH setup which moved well.  After this 90 point move in a straight line as expected prices remained range bound and no good setup was there to trade.