The Short Term Trader’s Strategy

First, it is not neccessary to trade every day. Traders should wait for proper setups – a confluence of a number of positive elements.
Second, Traders can adjust to uncertain trading environment by modifying their bet size – the volume. Trade small when the technical position is unclear.
After Friday’s big rally, today was expected to be uncertain, even a narrower range. Both turned out to be true. As explained over the weekend, with the Nifty in an intermediate up trend, the strategy should be to buy on dips. This strategy should have given small rewards today.

Monday has seen a narrow range in trading, yet again. We should expect the contraction to lead to an expansion in prices, soon enough (maybe tomorrow). Given the intermediate up trend, prices should break on the upside. A move below 4380 will suggest short term weakness. Short Term Traders should identify early morning momentum, then look to buy while the Nifty stays above 4380. What happens if the Index goes below 4380 ? Well, you can stay away, or take a short position fully understanding that the short position is counter to the intermediate up trend.

This is the second post for Monday. The first post can be read by scrolling below.

Meltdown! What the World is Saying

In his quartery newsletter: http://www.gmo.com/websitecontent/JGLetter_ALL_2Q08.pdf , Jeremy Grantham writes:
I thought things would be bad enough but they turned out to be a lot worse. …
The Fed’s primary job is really quite simple: Protect the integrity of the U.S. financial system. In this they have sadly failed. The Fed and the Treasury have moved to bail out large financial corporations under the smoke screen of a liquidity crisis. As is increasingly realized, it was not a liquidity crisis primarily, but a solvency crisis. Marked to market 6 months ago, Bear Stearns and Lehman were bankrupt as are Fannie and Freddie today. The bailouts are really providing what amounts to capital to insolvent firms…….
We have been collectively living beyond the planet’s means by over-consuming finite resources.
We run a serious risk of a meltdown in confidence in leadership totally unlike anything we have seen since World War II.
….the fundamental global outlook is substantially worse than expected. Our advice until now was very simple: take as little risk as possible except for emerging markets. Now it is even simpler: take as little risk as possible.

In the short term, slowing world economic growth combines with credit, currency, and inflation problems to dominate the outlook and offer poor prospects for emerging markets and commodities.
Longer term, the reverse is true and they look like the assets to own.
My Notes: The Author’s summary is: There is more pain likely. The bear market is far from over. It may go all the way into 2010 or even 2011