Professional Documents
Culture Documents
CONTENTS
This newsletter is produced by the Association of Technical Market Analysts. All comments and editorial material do not necessarily reflect the organization's
opinion nor does it constitute an endorsement by the Association of Technical Market Analysts or any of its officers, of any products or services mentioned Sources
are believed to be reliable at time of publication, but not guaranteed. The Association of Technical Market Analysts and its officers, assume no responsibility for
errors or omissions.
Dear Colleagues,
Greetings of the Festive Season! Here is a wish for you and your family this Diwali, that you celebrate your achievements and the
unique faculties each of you has been bestowed upon with, to the hilt.
Algorithmic Trading, a disciplined execution of tested rules, is the next logical step to application of study of market action. ATMA has been able to
assemble together an unprecedented learning programme in the tutelage of Manish Jalan, a well known Algo Trader by way of a two day workshop in
Mumbai in the coming month. Given our not for profit nature, we have been able to squeeze down the participation fee for delegates to an unbelievable
0.10 X of the usual pricing of such programmes provided elsewhere, commercially. I look forward to our membership taking full advantage of such
opportunities. In time, we may be able to take forward such programmes in other vibrant chapters too.
Excellent readings continue to be compiled regularly by our Editor and the present issue goes a step forward further in this direction to continue to keep
ATMAsphere an industry leading publication. I earnestly look forward to a thicker participation in this publication process from all stakeholders.
Asia’s biggest currency trader, outside of the banking system, as per Euromoney polls for the last three years, “Thyaguji”, Head of Forex Treasury at Reliance
Industries Ltd. spoke at the recent Mumbai monthly meeting. Members and non member patrons of ATMA will likely benefit much by reviewing the video
recordings of his presentation on our website, if they could not attend this meeting.
The agenda for the ATMA continues to expand and I will likely never be able to over-emphasize the significance of volunteerism. Thus, I continue to solicit a
wider participation from our membership in owning our various initiatives and creating a wider leadership basis.
Sincerely,
Sushil Kedia
In this issue -
1. Andrew Cardwell - the legend – explains the concept of Divergence and Ranges on RSI with chart illustrations.
2. Deepak Shenoy elaborately describes the four emotional battles that the traders face at marketplace.
3. Abhijit Phatak illustrates how the basic tools of technical analysis can be employed to analyse and trade options’ charts.
Sumeet Jain reviews “Trade Chart Patterns like the Pros” by Suri Duddella.
ATMASphere is only expanding the subscribers’ list each month. We are truly thankful to each of you for the publication’s success. We expect you
to continue writing and at the same, motivate your fellow members in the technical analysis fraternity to do the same.
Please send in your contributions and feedback to editor@atma-india.net. You can also subscribe to ATMASphere completely free by clicking here.
Sincerely,
Meghana V Malkan
identify and monitor the current trend. Of course, the length of the moving
INDICATOR IN FOCUS: TREND ANALYSIS
average selected, or time period assigned to the oscillator used, should be
USING THE RSI predicated on whether it is for shorter term or longer term trading.
IMPORTANCE OF TREND
Most traders and analysts use RSI as an oscillator to identify
overbought/oversold levels and divergences, but those are just two of its
analytical applications. The RSI’s more dynamic and significant contributions
as a tool are its ability to:
1. Identify the current trend and keep the trader positioned property in
the direction of that trend; and,
2. When market conditions develop, give early warning of a possible
impending trend change, whereby the trader can reverse the position.
RSI RANGES
MARKETS “A victim of abuse in childhood insists that her father was caring and
minimizes the pain of her childhood, despite clear evidence that she was
By Deepak Shenoy sexually molested, physically beaten, and frequently humiliated. She insists
that she must have done something wrong to upset him, and will not use the
This article was originally published in the MarketVision Chronicle at
term "abuse" to describe what she went through. She undergoes periods of
http://www.marketvision.in and is republished here with the permission of
depression when, even now, she reaches out to him, only to be rejected”
the Author.
Traders face psychological battles every day – here’s four of them that you We tend to do this all the time, ignoring reality in the face of something more
might identify with. attractive. Among startups recently, there is a tendency to focus on being
entrepreneurs and gathering brownie points from the mere status, than from
The Disastrous Denial
the actual startup itself. I heard one of those in the startup “ecosystem”
To any market player, most market moves are astounding. They surprise
mention that we shouldn’t talk about how low past and recent exit
both in the direction and magnitude of the move. Stocks move against your
valuations have been, because it will discourage new entrants. The denial of
careful analysis, and the first reaction that we get is one of denial. It’s easier,
the great startup non-story is simply another concept where we will ignore
for our brains, to pretend that what we need to happen, is what should
the facts to enhance our needs. (I’m not against great startup ecosystems;
happen eventually, so everything against our view seems just fleeting and
I’m concerned we are kidding ourselves if we ignore the horribly low
temporary.
numbers that exits have seen)
When a stock starts to fall, you hear voices of support that the markets are
The startup market is a market with real money being made – the statement
full of manipulators who are keeping prices low. (Note: there is much more
that the best is yet to come is as good as saying that India is just emerging
incentive for manipulators to keep prices high, and there are far more
and the best is ahead of us. In general that is true, and has been true of every
instances of market players manipulating to the upside) Even at a broad
great story – Europe, America, Japan and China. But even there, there were
level, we tend to blame a market fall on FIIs exiting, the crisis in Europe etc.
and then, refuse to sell because the India story is still strong.
people that denied there ever was a problem, and in the process, set With the drop in volatility, option premiums fell, and time decay ate a
themselves up for massive failure. substantial portion of option premium. A pure option buy based strategy
would have failed miserably in these years, and it was apparent that at least
The lesson is to question ourselves. In the face of facts, to admit we were
on the Nifty (where options are the most liquid) there were long periods of
wrong, and move on. And more importantly, to focus on the next step ahead,
no-trades-available for someone only interested in buying options. Even for
instead of living in the past. It’s not what you did that’s as important as what
option sellers (like those who wrote straddles) premiums fell so much they
you learn from it and what you intend to do. In life you don’t often stand at
would have to take many more positions to get the same absolute return,
crossroads – in the markets, you will do it every other day. You can’t afford
leveraging themselves hugely in the process – a recipe for eventual disaster
the denial.
when the index moves by a larger amount than expected. They took trades
Why trade when there is no trade because they had to get the absolute return, and in the bargain, got absolute
Traders get addicted to the adrenaline of trading, where success is a sell risk.
point away and adds both to profits and to self-esteem. A trader once told
If there wasn’t an entry point anywhere, there is no reason to take a trade.
me, during a lull in the markets, that he couldn’t sleep properly if he didn’t
Like a friend says: I have a position. Cash is a position.
have a trade on – so he’d take on a Nifty trade just for the heck of it.
Putting on too little money, or too much
I get a lot of mail asking me which stocks to buy. Sometimes there are just no
It’s said that one of the most successful funds at any time once had more
stocks out there to buy. Sure, there may be some stocks somewhere that
than 1,000 stocks in its portfolio. Maybe that works for some people, but
went MACD positive or something, but they don’t fit my qualification criteria.
honestly, having that many positions means, even if you average weight your
At this time, there is no trade – should I dilute my criteria just because I want
stocks, that you will have positions worth 0.1%. Dialogues go like this:
to trade? Should I choose stocks, when there is booming market in
commodities instead, only because I want to trade stocks? Investor: My stock went up 5x!
There are sometimes months when the markets don’t move. The number of You: Wow. You must have made a killing!
big move weeks – when, in a period of a week, the Nifty had moved over
Investor: well, since I have 1,000 stocks, I had only 0.1% of my portfolio in it,
10% - had peaked in 2008 and 2009 (with over 19 such rolling periods each).
so it’s now 0.5%, so I made 0.4%.
2010, 2011 and 2012 saw less than 10 such weeks each!
http://www.investopedia.com/university/option-greeks/
However, since the past few years, traders in India are now able to get Over the past few years, I have made quite a few observations as regards
continuous charts of individual Options for all stocks and indices that are interpreting these Options charts, and if done correctly, one can get good
traded in Options. This is how a typical Options chart looks like (an hourly trades with a very low risk set-up (which is what every trader looks for). It is
chart of Nifty 5800 Sep CE). still a highly debated topic and many are not yet ready to believe that such
trades are possible. If one has the additional quality of identifying chart
patterns it is very helpful in getting good trades in Options.
The easiest way of trading options based on charts is by following the basics
of Technical Analysis (higher tops, higher bottoms etc.) Most strategies that
are used to trade based on cash or futures charts can be used for Options too
(e.g. Trend lines, Moving average crossovers etc.)
Following is an example of how Tata Steel could have been traded in Options
based on a Trend line breakout in the cash / futures as well as Options
charts):
The August futures contract gave a breakout from a trend line above 207.5.
Another very commonly used strategy in Options is for hedging. Just to give
an example – if one was long in Nifty futures on 19th September, a day before
the credit policy was announced, and if the trade is to be reversed only on a
trigger as per the trading system, the longs would have been carried till the
morning of 20th September. It is very essential that a trade in futures needs
At around the same time, the 230 CE gave a breakout from a trend line above
to be hedged ahead of an important event.
2.5.
Nifty futures (September):
Based on the chart of the 6100 Sep CE given below, one could have gone The data for Open interest in various Options can also be studied on charts,
short in the CE anywhere between 95 and 105, just before the policy was due and if interpreted well, can be used to get very good trades.
to be announced. The stop loss for this hedge could have been the previous
Following example highlights how the trend in the Open interest could have
day high which was near 125. One would have lost just Rs. 20 in the CE short,
been used to get a good trade in August:
but this helps in holding the long in futures till the impact of the policy on the
market is clear. The 6100 CE expired at 0, thus giving full profit of that Rs 100
premium which was used to go short.
Nifty was in a downtrend till a day before the August expiry and made a low
of 5108.25 on 28th August at around 10.25 am after which it was showing
signs of a recovery.
Nifty 6100 Sept CE:
OCTOBER 2013 ATMASPHERE | 15
The Open interest in these kept falling all the way till expiry the next day, and
the expiry was at 5409. One can imagine the profits in the CEs – 5200 from
30 to 209, or 5300 CE from 10 to 109.
If one was observing the Open Interest in the 5200 Aug and 5300 Aug Calls, it
was quite apparent that the Open interest in these options started dropping
soon after. The 5200 CE was available for less than Rs 30 (a risk of just Rs.
1500 per lot) and the 5300 CE for Rs. 10 (a risk of just Rs. 500 per lot).
A drop in Open interest here means that those who had gone short in these
CEs, were now covering them, which also gave an indication that Nifty is
likely to recover the losses.
The chart is for the combined premium of the 5900 CE and the 5900 PE. This
straddle gave a sell signal at around 350 on 5th September and expired on
26th September near 16.
Those amongst the ATMA membership who have a vision, a strategic string
Most important priority: Career Development of thoughts in place, who have had their brush with changing several jobs
and who would know how the inner world of HRM might be working, please
of ATMA Members polish your shoes and step forward your best foot!
Right at the inception this vision was incorporated into the design of our Get going ATMA! Long way to go and yes the world must yield the place to us
website. A powerful JOBS-BOARD exists where not only our members can the Technical Analysts that we deserve!
build their fully visible CVs they can also build additional CVs with
Does ATMA belong to you? If not, who does it belong to?!
anonymous values in key fields such as name of current employer etc. etc.
All of us must TORTURE TEST this tool, now and as many problems or Then within the Job-board is a feature for incorporating the profiles of your
errors or deficiencies are found must be noted and written to companies with a nice write up and logo you can make yourself a featured
webmaster@atma-india.net. Have patience while you critique the employer on this powerful tool that this mad 43 year old man could envision
deficiencies! Don’t stop at just pointing out what is lacking, but have the even at inception when he had no ideas of how a website is built. If I can
tenacity to stretch your thinking into proposing a solution. Difference stretch my brain and body so far, what stops you mightier younger, energetic
between criticism and leadership is that leaders identify what is missing smarter folks to beat me blue and black?
and figure out how to fix it! Own ATMA now! Some few of us at the fight
are getting bored of being its solitary owners.
small attention to detail changes the overall look and feel. All in all if you are
BOOK REVIEW: TRADE CHART PATTERNS
looking for something based purely on price action then this is the book for
Author: Suri Duddella Believers of “Random Walk Hypothesis” say that if you change the Aspect
Ratio of the charts these patterns might change and the studies may become
ISBN-10: 1604027215
erroneous. Rather, the right approach would be to plot a chart, look out for
(ISBN-13: 978-1604027211) patterns and try to trade. You will be overwhelmed by the magic. They just
work beautifully. This book is a must have in a trader’s library and I most
This book is clearly “By a Trader, for a Trader”.
certainly recommend it to the readers.
Trust me this phrase sums it all.
A very crisp book which in the first few pages answers most of the questions
Mr. Sumeet Jain CMT is a Senior Manager, Institutional
practioners of Technical Analysis have. Why patterns? Why not indicators?
Research Desk, Asit C Mehta Investment Intermediates
What is the statistics? What is the success ratio or percentage? How do I
Ltd., Mumbai. The author may be reached at
trade using patterns? Will they suit my time frame? What will be the targets?
sumeetsj@gmail.com.
Where will I place stops? All these questions are answered in the first 20
pages. And then the book starts. All the doubts which should arise after
acquiring the knowledge are answered first!!
The thirteen chapters sum it all up. Right from the basics like charts
construction to start with, dwelling into Fibonacci, then into Harmonics,
Channels, Bands, Elliott Waves and then Exotics. Event based patterns is
something that is covered in the end and deserves a separate mention.
All the patterns are clearly depicted on charts with proper explanation. Rules
of entry, stops and exits are mentioned separately in point-wise manner. This
Date – 7th and 8th December, 2013 (from 9.30 am to 5.30 pm)
Venue - PVM Gymkhana & Gymnasium, Maharashi Karve Road, Churchgate, Mumbai - 400021,Maharashtra
Speaker - Mr. Manish Jalan, a B Tech and M Tech in Mechanical Engineering from IIT, Bombay, he is the
Managing Director and Co-Founder of Samssara Capital Technologies LLP. He has over 9 years of expertise in the areas of profitable
systematic quantitative trading strategy development. Manish is a seasoned speaker in the areas of algo trading and quant trading with
investors and traders globally. He is also a consultant with Dun and Bradstreet, The NSE, Bank of America, ATMA and KPOs like
SGAnalytics on building models for hedge funds globally.
Registration Fees:
Non-Members - Rs. 15,000/- for two days (inclusive taxes)
Members - 50% Discount - the amount would be Rs. 7,500 for 2 days.
Directors / Owners of Member Firms of BSE - 33% Discount - the amount would be Rs.10,050 for 2 days.
Mumbai 26/10/2013 Venkat USD/INR - 21/09/2013 Vikrant Goyal Trading using Japanese Candlesticks
Thiagarajan Outlook
Bengaluru 27/10/2013 Dr. Musa R Kaiser Technical Analysis 28/09/2013 Subhadip Nandy Using Bollinger Bands to Day trade
OF Fundamental
Analysis of Nifty