Nifty P&F analysis Nifty 0.50% x 3 (medium term) Point & Figure chart is trading back above 45 degree trendline drawn from important mini- bottom of 7563 formed during April 2016 Major counts are achieved and pattern has turned to neutral hence setup on this chart is turned to sideways 1% x 3 breadth indicator of Nifty 50 universe has crossed 80% that indicates exhaustion which is typically followed by price or time correction Nifty 10 x 3 (short term) Point & Figure chart has witnessed breakout from 4 column triangular pattern & achieved short term bullish counts as shown in chart 2 Risk reward doesn't seem favourable for fresh positional bullish trades unless breadth moves in to neutral zone Range-bound price moves are expected, 8320 - 8080 are levels to refer
Transcript
Nifty P&F analysis
Nifty 0.50% x 3 (medium term) Point & Figure chart is trading
back above 45 degree trendline drawn from important mini-
bottom of 7563 formed during April 2016
Major counts are achieved and pattern has turned to neutral
hence setup on this chart is turned to sideways
1% x 3 breadth indicator of Nifty 50 universe has crossed 80%
that indicates exhaustion which is typically followed by price
or time correction
Nifty 10 x 3 (short term) Point & Figure chart has witnessed
breakout from 4 column triangular pattern & achieved short
term bullish counts as shown in chart 2
Risk reward doesn't seem favourable for fresh positional
bullish trades unless breadth moves in to neutral zone
Range-bound price moves are expected, 8320 - 8080 are
levels to refer
Bank Nifty P&F analysis
Bank Nifty 0.25% x 3 chart is moving
within narrow columns after forming Mini-top at
20175
Relative strength chart of Bank Nifty
against Nifty is showing under-performance by
sector index during recent times, although
medium term chart is bullish and above 45 degree
lines
Hence trend and setup is mixed on various
time horizons
It seems wise to wait for clear formation
to emerge. 18200 on closing basis is important reference level
Sector Relative Strength analysis Relative strength charts plot P&F of a ratio chart of two instruments. Price of numerator is out-performing
denominator if ratio line is rising. Conversely, it is under-performing denominator if ratio line is falling. P&F
formations help in identifying and scoring the sectors and it’s constitutes based on the score matrix. Read
here to understand the methodology of scoring a chart based on P&F formation of last three columns.
Below are the tables showing current performance of sectors based on Relative strength matrix score
If there is one factor which is extremely crucial in determining whether the person would be successful in making money as a trader/investor or not, it is whether he/she has chosen a method that is consistent with his personality and comfort level. Virtually every successful trader/investor that I know has ultimately ended up with a trading/investment style suited to his/her personality. I have learnt from my experience and it is my firm belief that there is no trading system that comes ready- made, one size fits all. There are so many trading styles that successful traders have adopted and the first thing a prospective trader or a trader after a few years of trading should do is to conduct a self- personality check to find out the approach that he or she is comfortable with. This according to me is the single most important element that separates winning traders from losing traders. Each trader must select the right market (equities, commodities, currencies), choose between discretionary trading and system trading, fundamental or technical methods, duration of trading ( intraday , swing, positional or spread trading), aggressive and conservative styles, and so on. For all of these opposing choices, one should do the right selection that matches his personality so as to avoid internal conflict which is very damaging. It appears that every trader would have done this homework but in reality rarely does one seriously select a method that is in sync with his personality. In a general sense, it is remarkably common for traders to adopt methods entirely unsuited to their personalities. Instead what I find in the market place is traders who are good at system development end up consistently interfering with their own systems and overriding it due to lack of discipline and produce disastrous results. There are traders who buy stocks with an intraday horizon and end up keeping them in their long term portfolio due to incapability of booking losses. For them, a long term investment is a short term trade gone wrong. You will find plenty of investors who are naturally inclined towards searching potential long term ideas but end up instead doing short term trading because of emotional weaknesses like impatience or a habitual compulsion to be in a hyperactive need of consistently doing something in the market. There are a lot of naturally born floor traders or screen readers who have great intuitive skills but abandon their special talent while listening to the loud opinion of the market which always turns out to be wrong at critical junctures. At the extreme end, you will also find plenty of theoretically oriented people/persons who after a lot of hard work develop intricate, low-risk arbitrage strategies but instead of putting them into practice decide to become position traders which is an approach that requires a different degree of risk acceptance far beyond their comfort levels. It is not uncommon to find investors loaded with momentum stocks in spite of having an aversion to volatility. Also it’s not common to find investors holding on to value stocks (bought on tips) when they have a natural inclination for instant gratification which momentum stocks provide. In all the cases mentioned above, one thing which stands out very clear is that, traders/investors with a natural bent for one style of trading/investing end up using a diametrically opposite style, usually to fulfil some emotional need which unfortunately they are not even aware of. To put it rightly, the need to match personality and trading style may be a matter of simplicity and common sense but it is certainly not common. One should be aware of the following observations about one’s own personality to find out the right approach that would suit him 1. If you can’t stand to give back significant paper profits, then you are totally unsuited for a long-term trend following approach. Even the best long term trend following system will be a disaster because you will never be able to follow it. 2. If you can’t stay away from the screen, then investment will never suit you. Instead you should be day trading. 3. On the other hand if you don’t want to watch the quote monitor, forget about intraday trading. 4. If you can’t stand the emotional strain of making trading decisions, then focus on a mechanical trading system. 5. If you cannot handle the uncertainty of overnight news flow, then you are suited only to be a day trader. In a nutshell, the approach you use must be right for you; you must be comfortable following it. The importance of this cannot be overemphasized.
Incidentally, it is because of this singular reason of mismatch of trading style and personality that purchased trading systems rarely make profits for those who buy them, even if the system is a good one. The odd of getting a winning system may be reasonable but the odds of getting a system that fits your personality is very little. System trader cannot create a system that fits everyone’s personality.
How does one find a system that is in sync with his personality. Given below is a list of questions whose honest answers will help a trader/investor to select a system suited to his personality.
1. What is my greatest weakness as a trader/investor? 2. What is my greatest strength as a trader/investor? 3. What do I find most interesting about trading/investing? 4. What do I find least interesting about trading/investing? 5. Can I handle drawdown’s? 6. Do I have the patience to sit on stocks? 7. How much effort (time and money) am I willing to commit to trading/investing? 8. Should I trade as per a mechanical system or a discretionary system 9. Can I handle volatility 10. What all should my ideal system contain.
As one introspects and carefully answers the above questions and evaluates, it should become clear to you exactly what you will need for your system to be successful. Knowing one’s personality type and the specific idiosyncrasies of one’s temperament is the piece that will round out the ultimate success of your trading puzzle.
D PRASAD
The writer is a Chartered Accountant and is in stock market for the past 20 years both as a investor following fundamentals and also as a trend following technical analysis. He is very well read on the subjects of Trading Psychology and Behavioural Finance. He can be reached at [email protected]
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