Closure

I am moving my writing to a brand new Wordpress website which is under design. It will be called globexguru and should launch sometime in September.

There are three primary reasons for the move.

1. I just dont "dig" this format. I have tried it, not just with this blog, but with my other blogs, and it feels like a linked list ( a paradigm from my programming background ). I hear a lot of good things about Wordpress and have tried my hand at it. I believe it is called Web 2.0, though I must admit I have no idea what that means. No problems - I am getting it set up by a top-notch professional.

2. I visualize this effort a bit along the lines of some sites out there like Traders Helping Traders. I will get in some more contributors, all experts in their areas, to write on my new site. It will be a lot more interactive, colorful and grabbing. I just dont see that happening with this blogger format.

3. This is my business. All said and done, I am not doing this for information dissemination or any such noble cause. I am one of the very few traders out there who are making 50% CAGR here and now, with a hypothetical model which can extend this to 70% CAGR over the long term. I intend to show this clearly, not just with snapshots of my account statements. There will be trades, charts, bulletins, videos and a lot more. There has to be publicity, and SEO just doesnt work well enough with blogger.

I am sure that those who understand and appreciate what I am doing would like to trade with me, or even better, to let me auto-trade their accounts exactly like I trade mine. Interactive Brokers, where I trade, has a cool system which enables this sort of thing. I will put up all the details on my new site.

See you soon on Globex Guru!

IST Theory - What is IST & why the NIFTY?

Ok, I think it is time to explain what IST stands
for.

IST = I Sell Time

When I first thought of this blog, I had decided
to call it ISellTime. It is only later that a
better name occured to me. However, my technique,
which I intend to polish into a theory, retains
the original monicker.

Why the NIFTY? Why not the E-Mini S&P 500, which
I actually use? Two reasons -

1. I want to demonstrate how the theory works for
any liquid, broad market index.

2. It keeps me focused on the theoretical aspects,
which is difficult to do with something I trade
every day.

There is also a third reason, which is that I dont
want to give too much away. I depend on this for
a living, and I make no bones about the fact that
I have had and still have apprehensions about
writing this blog.

Thanks for your viewership!

IST Theory - The NIFTY one month later

Please refer to my post of 4/29/08 titled
"The NIFTY is approaching 200dma resistance".

Here is last weekend's summation -

4875 rsi 33.41, 50/200 4909f/5205uf
low 4448 Jan 22 4468 Mar 18, hi 5298 May 2
weekly uptrending 50wma at 5075, line lost again!
wrsi 47.04, must rise and take out 50 else trouble
fib levels 6357 - 4468 = 5189 hit! 5412 5635
DB breakdown 5/26 bearish po 4600

Let me quote what I wrote in the previous post-
"This first approach will ALWAYS fail, though
one does not know WHEN it will fail". I was
referring to the 200dma resistance.

Let me draw the latest weekly chart. Remember,
about 4 weeks have elapsed.



Ah, one can see that it went up to about 5298
before turning around. Thats roughly 100 points
above the 200dma ( not shown in these weekly
charts but you can take my word for it! ). Since,
it has fallen to just below its 50dma at about
4900.

Let me explain the cryptic lines in the analysis
above-

1. price, rsi, 50dma, 200dma.
4909f means 4909 flat.
5205uf means 5205 sloping up but flattening.
The 200dma line, which slopes healthily up in
a nice bull market, is flattening! If it curves
down, it will form a strong downward sloping
resistance, or that unhappy word DOWNTREND!

2. some recent significant highs and lows

3. the 50 weekly simple moving average line ( see
chart ) which had held the nice move all these
months, and the nifty jittering around it.
Still nothing too bad.

4. a comment on the weekly 14-RSI, as can be seen
from the chart. Back in March 2007 and July 2006,
this indicator plunged the depths of March 2008,
then picked up and didnt look back. We need the
same to happen, so the 50 line becomes important.

5. fibonacci retracement levels of the move down from
6357 to 4468. We have claimed the 1st level at 5189,
which unhappily was close to the 200dma. Thus double
trouble!

6. a p&f chart comment- on 5/26 we had a double bottom
breakdown and the bearish price objective, 4600.

So, the approach to 200dma did fail, and this time
the 1st fib retracement level was also sitting there
to make it more difficult. But we could not know
WHEN it would fail.

I wont bother you with classical trading analysis
of the nifty, since I am doing that with the Euro.
I just wanted to say that one way to play this
would be as follows -

Sell a CALL option above the resistance zone
For symmetry, sell a PUT option below the support zone

That, my friends, is a short strangle. Its what
I do for a living!

Questions -

1. Which months options to sell?
2. Exactly which strikes to sell?
3. What happens if my strikes are approached?

The answer to those questions, is my speciality.
I do not need to be able to predict where the
nifty will go - I have already collected my
cash by selling the strangle. All I need to do
is to be able to protect my money. I need to
react if it looks like I may be exercised on
my short options.

"Do not predict; react!"

Thanks for your viewership!

The Euro story - Recovery

Something has finally happened in the Euro. Lets
first look at what we were doing before. We traded
the Euro short on the classic trendline break,
got a 200 pip reward and closed our position
after reaching the reward level.

We then said we will wait to see if it goes further
down or goes back up. I am showing the annotated
chart below to explain all this in a simple picture.



This is the daily chart with the Fibonacci levels
and annotations of what we were doing. The Euro
held support at the March 23 swing low on May 4
and has since been going up on mild volume. We
will now switch to the hourly chart.

Remember, we said that when it does start to go up,
it will encounter resistance at the inflection point,
which was the point where it did the classic trendline
break and which also, once the swing low support
held, was close to the 50% retracement level of
the fall to the swing low. The next annotated chart
shows this.



Please follow the datewise comments boxes till you
come to 5/16. Everything should be clear. Please note
the lack of volume since 5/16 as we await confirmation
of whether the inflection point, which I mentioned
in a previous post would be strong resistance, has
now become support.

When will we know it ( in the sense that of course
one never really knows anything but when can we be
sanguine about it ) ? Remember what happened when
we went short. Here it is -

1. A significant chart action takes place with volume.
2. Our attention is drawn.
3. We wait to see if it is a head fake.
4. We get confirmation that the action is not a fake.
5. We take action, with a suitable risk-reward ratio.

For the above 5 steps to play out now, following will
have to take place -

1. The inflection point must hold on a test, with volume

Once that happens, where will we go long and what will
be the risk-reward? For that, we need a different chart.
Here it is -



The chart clearly shows how the rising trendline and
the inflection point will intersect to form a strong
test area. If this area is tested with volume, we
will have to surmise that the trendline break on
4/24 is now history and we will at least be going
back to the 4/23 high and maybe beyond.

If the trendline/inflection point is not tested,
we will be in watch mode. One possible situation
could be that it will move up on low volume to
the 4/23-4/24 highs where there is the strongest
resistance.

In the next post on the Euro, we will avoid these
number crunching exercises and try to distill exactly
what we have been trying to do. This will lead to
our 3rd law of trading - "Support becomes resistance;
resistance becomes support".

Thanks for your viewership!

Delusions - Why technical analysis works - 1

A few posts back I alluded to the "self-fulfilling nature
of technical analysis". I will start the series with this
post. I couldnt think of a clever name for it!

Please look at the chart of the S&P500 below and read my
comments in the right margin.



The S&P 500 has been in an uptrending channel since the
"Bear Stearns bottom" on March 17. Thats when the Fed
made a signal statement of the kind they rarely have in
the past, viz, "We will NOT allow the market to collapse".

Of course, what impact that will have on inflation, and
whether inflation will ultimately destroy whatever
little gain can be had from the Fed-supported stock
market, is a whole different story!

Anyway, I have a few points to make, and here they are.

1. Do you think the index has been supported by the
uptrend line or the 20-DMA ?

2. Was the index turned back at the start of May from
the 200-DMA or the top of the uptrend channel ?

3. Is the RSI holding above 50 for the last month or
so a sign of strength?

4. Is it time to rejoice now that the MACD has crossed
above the ZERO line?

I will give you the answer to these questions. The
answer is "Your guess is as good as mine". But thats
not the whole point of the story.

The point of the story is that these technical
parameters and events are what is used by the majority
of program trading systems which have such a huge
impact on the market these days.

And thus, the reason why technical analysis works
is not some inherent magic in moving averages, channels
or anything like that. It works because of the same
principle which would have allowed you to double
your money many times over if you had bought the
Dow 50 years ago and sat back and done nothing
since - the "herd principle".

You will go only so far with the "herd principle",
and that too when you are good enough to be on the
side of the majority herd more often that not,
which is no easy task. Maybe you will make 10%
annually with some consistency, and pat yourself
on the back for you would have beaten most overpaid
money managers on Wall Street. You will most assuredly
NOT make the kind of returns I do on a regular basis.

Times are changing. Events of great significance are
taking place. There is more money in the swap market
than in the stock market. Commodities are no longer
the playfield of commercials and speculators, but
of investment-minded pension funds! The "herd" which
ran things are finding themselves out of their depth!
Will you be able to choose the correct herd?

There will always be a place for technical analysis.
We need to understand what the herd is thinking.
But we certainly do not need to trade like them!

Thanks for your viewership!

Delusions - The kind of analysis you dont want to read - 2

Here we go again.

"JUNE JAPANESE YEN -- The market posted the lower close
of the downward trend on the projected reversal date and
the 161.8% Fib extension. Since then, the market has
drifted away from the centerline and appears to be forming
a bullish TR pattern. Friday's session closed above the
20-day SMA, while Monday's session pulled back and closed
slightly below the SMA. This is typical market action and
provides a buying opportunity. -- Buy the Japanese yen at
9775 stop, with a protective stop at 9600."

Out of sheer kindness, I am keeping the attributions out
of these posts. I want to draw your attention to the
175-pip risk, with no reward mentioned anywhere. I call
this kind of analysis the worst word I can think of
calling it - "daily wage literature".

By the by, at the bottom of the page where this analysis
is from is the following legend -

*Due to the volatility of the markets, all trade
recommendations are subject to change without notice."

Talk of covering your backside!

What I will reveal to you as this blog unfolds, and
which I will back up with every monthly statement
from my account, is how to make money irrespective
of market volatility. I will not make a recommendation
with the proviso that it may be defunct tomorrow.

A few articles back, I had mentioned the 2nd principle
of my trading - "Do not predict; react!". That is just
the opposite of this stuff, which can be summed up
by "Predict away; but I may be wrong!".

Thanks for your viewership.

Primer - A simple lesson on the MACD and RSI

The MACD ( moving average convergence divergence ) and
the RSI ( relative strength index ) are two of the most
widely known technical indicators. But I am certain
most people do not know when to use one or the other.

Here is a simple explanation. You can read a lot about
these indicators at sites like stockcharts school. But
you will not know what I will write here, which is more
important than blindly digesting technical details.

The simple rule of thumb is, use the RSI in a ranging
market and MACD in a trending market. A ranging market
is one where the price keeps oscillating between two
levels, and this happens often, sometimes lasting for
months and even years. A trending market is like
the one of the Euro futures I showed in the post
on the classic trendline break.

In either market, use the respective indicator only
to time trades. The primary trade setup should still
be based on the technicals of the price/volume action
and a well-grounded fundamental knowledge on the time
period being considered for the trade. Within this
framework, you can use the RSI or MACD to tighten
your entry point.

Here is an example of the MACD in a trending market.



I suggest you look up charts of the Euro, Yen or
S&P500 for other RSI and MACD setups that have occured,
while keeping firmly in mind that if technical
indicators indicated oversold or overbought conditions
or trend changes correctly, then everyone in the world
would have been a successful trader!

Why did I say the above, after seeming to endorse the
use of the indicators in some capacity? The reason
will be clear as I expand on another subplot of this
blog, the self-fulfilling nature of technical analysis.
I am still thinking of a good name for it!

Thanks for your viewship.