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The Long Trade

December 14, 2008

Chapter 1: The Setup

Move not unless you see an advantage; use not your troops unless there is something to be gained; fight not unless the position is critical.

NIFTY:The Big Picture

In October 2008,  S&P CNX NIFTY, a benchmark index of 50 weighted stocks touched 3 year low. It read 2252. It lost the highest in this entire 11 month. And in one month it fell around 27%. But it rallied sharply higher in the next three weeks.As shown in the figure adjoining, the monthly chart shows an extremely steep fall. The lowest point of the month breached a 3σ[standard deviation of the 9 period lowest lows] level. Meaning, it feel too low, too fast even on month to month basis. The yellow line is the 3σ deviation from the previous lows of 9 periods.

The move looks a lot like a Kangaroo Tail.

A Kangaroo Tail, is extremely similar to a long shadow hammer and is a potent reversal sign. For one,it has tested lower lows, but didnt attract volume. In fact the day after, NIFTY touched an  low of 2250, volumes were the least. So one thing, is clear: the kangaroo tail is in place.

Chapter 2: The Plan

Let your plans be dark and impenetrable as night, and when you move, fall like a thunderbolt.

Nifty Weekly

Prices almost always rally in the opposite direction of a tail. Here the tail is on the low side. So there is an upward rally. For the subsequent part of the week, NSE rebounded but couldnt keep up. Yet, bears couldnt hammer it down anymore. MACDhist started ticking up after a prolong splash of bearishness. December has till now showed good moves, an appreciation of around 6.4% and the MACDhist has ticked significantly up from its last lows. Looks like the move has just started, a lot of upside is remaining.

The Plan?

Go Long.

Chapter 3: Gambit

If he(enemy) is secure at all points, be prepared for him. If he is in superior strength, evade him.

This week closed with a strong bullish engulfing of the previous weeks losses. Trend looking up.

Put a hard stop on previous week’s[the week ending 5th Dec] low: 2570, a soft stop on  previous week’s [5th Dec] close: 2714

And a cautionary level on previous weeks’ high:2832

Chapter 4: The Heist

Updated: Dec19,2008 As mentioned in the comment, the heist is on. For those who are in the lookout, should look out for another opportunity in the immediate future for an entry. The NIFTY should retrace back to the daily EMA and shrewd speculators might look for an entry at that point. I am looking for a channel breakout. But this is a low probability idea. the daily MACDhistogram is receding, but weekly movement seems is on.

Chapter 5: On the Run

One Wednesday, Dec 25th 2008, the trend line joining the bottoms of the relief rally was broken. It would have been prudent to exit at that point.

All quotes taken from The Art of War by Sun Tzu. This is not a trade recommendation.

2 Comments leave one →
  1. Soham Das permalink*
    December 15, 2008 4:00 pm

    Today had been good day if someone would have tried entering NIFTY, because there were lots of swings on both sides of the market and hence it was cheaper compared to last few trading sessions

  2. December 27, 2008 10:39 pm

    Exit. The trendline was broken, two days back

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