Trading Scenarios

Almost all the reading that I do suggests that the Green Shoots coming in the USA may not be so ‘green’ after all. An oversold market led to a sharp rally, but the new up move cannot still be classified as a bull market.
What is the difference between an uptrend and a bull market?
Well, these are terms that I use for my understanding. In a bull market, buying can be done with the assumption of almost certain rewards in blue chips. If the timing is wrong, the investor may have to wait more, but at some point prices will cross their previous highs.
An uptrend is a momentum driven rally. So far it goes up, it goes up. If it stops going up, we have no way of saying when the next up move will come. It could be in a month, or after six months or an year.

Just as the continuation of the uptrend is not certain, continuation of a downtrend is also not certain.Therefore, buying on panic declines, sharp corrections will reward investors, because at such points, we may well be near the lows.

How do you determine if a buying opportunity has arisen? The question is: when is the correction deep enough to justify buying? The answer will be different for each investor / position trader. It also depends on your deep pockets and risk ability. Let us discuss some scenarios.
1. Stock specific. You wish to accumulate a stock, say Suzlon. At 105, you are not keen, but if it were to reach 80 or closeby, you will be a buyer.
2. Index levels. At 3800, you are comfortable accumulating stocks for trading. You understand there may be more pain left, so you invest 50% of your planned outlay, willing to buy should prices fall further. The additional buying will be done on base bulding in the index.
3. Momentum. You plan to begin buying once the RSI14 on the Nifty falls below 40, then rallies to cross 50. (In such cases, you need plan B to do something else if the RSI does not fall below 40).

The theme that really works wonders is Patience! Wait for the market to oblige you. It will do so, if you show your willingness to wait.

Swing Trading Short Positions
Bramesh said “Today we moved below 4200 but not able to sustained market again fooled the traders adn many are stuck with short positions”
Chandu says “Great analysis,But we may find support @4090.If we break 4200 tomorrow.May be we will go to 4100 and bounce back to 4500.And only close below 4100 will take us to 3800.”

When you are in short term trading, the tactics are different. Scenario building is essential, as these commments show, but eventually we have to follow the market. Random noises in the market can spoil our scenarios, stop us out or worse put us against the trend. The link here http://www.sudarshanonline.com/2009/06/what-is-bear-market.html has a comment by ‘A Student for life….’ which explains how we need to respond to market action. I recommend you read this excellent analysis.

The comments mentioned above also answer men’s question :”After getting knocked down from 4700 you are now saying it is not a buy on declines, just think what if one shorted before the election, bot on declines as suggested earlier, and now after everything is over you are saying it is not a buy on declines? I am unable to understand, may be it is my limitation, could you please clarify, just where I am missing you”

I will add my view: When does a correction become a downtrend? For me, if it goes below 4200. Then, we wait for consolidation – signs that the down move is ending. I can buy whatever I want, provided I exit below 4200. That’s how I will do this.
I did not understand the reference to ‘shorted before the election’ ? Why should we short before the election ?

Have Fun!