Conversations- November 2nd.

All of us have enjoyed a well deserved rest for almost three days. Tomorrow will be markets, once again. I wish you the best for the coming weeks.
Stop Losses
afzala.com has this problem : two days ago you described about stoplosses as per that i bought cropmton at 337 putting stop loss below 330 that was 2 weeks low . my stoploss triggered and at the same time it shoot up now at 375

My Notes: Sometimes, no matter where you place the stop, the market will stop you out and resume the original trend. That’s the way markets work. My suggestion is not to worry about one trade. Follow your rules consistently and you will get the rewards.

MACD

Vikas writes from Ludhiana: the default settings for MACD is 12,26,9..Suppose i use EMA crossovers of 5 & 40..then
1. Should i change the settings of MACD for my purpose?
2. What shall be the substitute number for 9.( for 5/40).& how do you arrive at ?

Please explain so that settings can be altered for different set of EMA combinations.

My Notes: If you are using EMA crossover of 5 and 40 then change the MACD settings to 5 and 40. The result will be the same as the EMA crossover. Usually 9 is the accepted value for trigger. There is no need to change it, since one value used for all stocks is more robust as compared to adjusting the value for each stock seperately. You can use a software to optimize the values for the MACD. But I do not recommend doing this.

Shazia says “When we were going up 4700 acted as strong resistance thrice, would it not act as support now?”

My Notes: Yes, it should. There was minor support and then resistance at 4700. Therefore, if the Nifty does move towards the larger support area of 4550- 4500, even then it should pause around 4700.

Going long
Nitin Damle says “I think it will bounce from this level and a retracement level of 50% will be achived it comes around 4934

Going short at this level is not at all a good trade but can we go long?”
My Notes: I will modify your comments to formulate a trading system for you. Here it is: I will go with the primary trend. I will buy a dip. My initial target will be a retracement level. I will exit part of my position at the target, and continue with the balance so far as the trend is in my favor. My initial stop will be 50 points below the low of the dip. A higher low will be my signal to go long.

Now, once you have a method in writing, you can follow it. If you consistently follow such a plan (any plan with an edge), you make money in the long run.

My trading system on Friday
men asks: ‘would it be possible to put up how your trading system was set up for Friday, I am requesting this as the market was very volatile’

My Notes: My intraday systems were ready to go long in the morning since the gap open changed the short term trend to up. Our systems require a thrust in the trend direction to enter the trade. If we want to go long, then our entry price will  high for the day + an additional number. This level was not touched and we did not go long. Then we went short at 4803 which ws covered at close around 4730. In fact, after the first 10 minutes, the trend was down throughout the day.

men also asks: “Also in such volatile conditions how should a positional person trade, this is beginning to hurt now. ”

My Notes: we are in a correction. You have to wait for the decline to be over. Why should you want to catch the absolute low anyway. The first sign that the market has bottomed out will come when w have a higher low, bullish candles, for more than one day. You have to wait.

Pi has a number of questions / points which I hope to reply with some leisure.

manoj bansal from pitampura. “on friday morning news has just come that bajaj hindustan can take over balrampur chini.but share prices fall.”

My Notes: Friday’s downbeat market may also have influenced this decline. Remember the saying “buy on rumor, sell on the news”. The rally in Balrampur prior to this news, probably discounted the beenficial impact.

Certified Technical Analyst K.K says that – he is keen to do CeTA. Well, a willing student is the best reward for the Association of Technical Analysts. Please contact taindia.com. I think the exam committed should look into this issue, hopefully in your favor.

Buying with the primary trend

Krishna asks if it is wise to buy since the primary trend is up.

My Notes: For a positional trader, buying is the correct approach since we are in an uptrend. Instead of thinking about a stop, the trader should determine the situation in which the primary trend will no longer be up. That will be the signal to exit this trade. I have discussed how 4500 – 4550 is a zone acting like a magnet. Then, the trend changes from up to down if the Nifty closes below this zone. A second signal comes if the Nifty closes below 4300, which will confirm a pattern of lower lows. Depending on your risk, you can choose on of these points to determine if the trend has changed. Wider stops lead to more profits, but increase risk.