Swing Trade Nifty

April was the month of consolidation for Nifty with sideways move providing good opportunity for swing trades. As Nifty continues to swing between the well defined channel,  forming an expanded flat before the next big move which may coincide with the election results. One must be prepared to alter his trading strategy, with the increased volatility as a knee jerk move in Nifty is a possibility.

Coming to the swing trade, the swing of 6665-6810-6680-6850-6720 provided a cumulative 555 Nifty points opportunity for the traders. The use of trend transition technique of Triple Trend Oscillator  provided an easy guide to initiate the swing trades. As can be seen in the attached chart, the 15 minute trend oscillator lead the trend change to initiate trades to capture the swing. Being at the lower end of the channel, the trend transition is again pointing to  the developing divergence.

Emerging Markets To Begin a New Uptrend- Elliot Wave International

In our previous posts Modi Wave or New Bull Market   (March 7, 2014)  and  A New Bull Market (March 26, 2014) we have indicated beginning of a new bull market in India.

Elliot Wave International, in its latest update on Asian-Pacific Financial Forecast for  April  2014 has confirmed that that emerging Asia has diverged upward from the other emerging markets since their 2011 lows. India was the first to get off the block after a consolidation of more than six years and other markets are likely to follow, with India being the best performing market.

Read more: http://www.elliottwave.com/freeupdates/archives/2014/04/22/emerging-markets-begin-new-uptrend.aspx#ixzz30B0pDXgZ 

Wockhardt - Bullish Alignment

Wockhardt  is up 9% today at Rs. 707 at the time of writing this post. The stock has developed a healthy synchronised bullish alignment, which is pushing the stock up. The stock is likely to move up rapidly to achieve higher targets in near future.

We had in our earlier post dated   April 2nd,2014  titled WOCKHARDT: This isn't Magic, TTO saw it coming   and even  earlier    predicted Wockhardt as a good investment candidate for medium and long term. The stock had corrected from its highs of Rs. 2000 to Rs. 352 and a new upmove was in the offing. The stock is poised to retest the old highs of 2013.

India VIX

India VIX has shot up in April touching the all time high of 36-37. Presently at 31 the VIX is likely to go up further in the coming days.  

Backtest Results for Nifty using Triple Trend Oscillator

The following are the Backtest result for CNX Nifty trades using Triple Trend Oscillator for the period January '14 to March '14. These results are base on 2 lots of trade which were able to capture 1960 Nifty points during the period.

Nifty Inverse H&S

Nifty has broken out of the inverse head & shoulder pattern on weekly charts at 6450. The level has been subsequently retested and now the targets 7500-600.

Weekly Breakout in Reliance

Reliance has broken out of the triangle on the weekly charts which gives an upside target of 1070.

Surprise move in NIFTY

The sudden and unexpected upmove in Nifty on Thursday left the bears trapped once again. Such moves are not uncommon as the major trend, though in corrective mode, is still above the zero line ( see the hourly chart of Nifty below). These moves trap the bears on the wrong foot and in the process move the indices higher on short covering.

A closer look of the 15 minute chart below shows the development of intraday bullish alignment which resulted in a ferocious upmove in Nifty.

As expiry approaches, an intense battle lies ahead as bulls will use all their might to close the expiry above 6800.

Using Bullish Alignment for Intraday Trades

The biggest challenge day traders face is selecting a stock which can produce big moves on the day. There are several ways to identify such potential movers based on price and volume criteria.  Yet it  is extremely difficult to identify such a stock out of thousands of traded stocks.

One of the ways to identify such stock at a relatively  early  stage of the move would be to look for stock with synchronized bullish/ bearish alignment structure on the short term chart say 5 or 15 minute charts. The alignment of trends in either direction results in trending move  in the direction of the main trend. A day reader has to extremely agile to encash such opportunities.

The following 15 minute charts show how the bullish alignment structure  in the Triple Trend Oscillator can be used  to trade intraday for smart profits.

Why FIIs are Bullish on India ??

The following monthly chart of Nifty explains this :

Nifty has broken of of a six year consolidation period, since 2008 having made consecutive higher bottoms with a stiff resistance at 6300-6350 levels. The ascending triangle formation is a bullish continuation pattern, and with Nifty breaking the resistance of 6300-6350, has come out of the ascending triangle with a long term target of 10,000.

As market discounts fundamentals at least 3-6 months in advance, all domestic factors such as the election results, political stability, inflation control, GDP growth, current account deficit, upturn in business cycle, favourable economic policies etc. are all being priced in. Though,  key performance  indicator from the government data and corporates results currently hardly give any reasons to rejoice.

Lack of  investment options to invest in other emerging markets like Russia, Brazil and China, makes India an attractive investment destination receiving disproportionate share of investible funds. The interest rates in US are low but with a rise in inflation, the real interest rate would make investment in US unattractive.Coupled by the fact that fund outflow continue from Japan and the view that US markets may underperform, fund managers are allocating a larger share of funds  to emerging markets like India and Indonesia.

As markets move ahead, more compelling reasons to invest in Indian will follow. Has the retail investor missed the bus again??

See our earlier posts :
http://eqtrend.blogspot.com/2014/03/modi-wave-or-new-bull-market_7.html
http://eqtrend.blogspot.com/2014/03/a-new-bull-market.html

Trading Naked Options

Option traders face an uphill task, managing price, volatility and time erosion. Various complex option trading strategies have evolved to manage option trading risk but still,  formulating option strategies could be frustrating.

Though options are complex instruments for risk management, they can be used effectively under any market conditions. Option offer, flexibility, high  leverage and limit the risk. 

Before we proceed, it is important to understand the various components in  option pricing:

Delta is the amount an option price is expected to move based on a $1 change in the underlying stock. Calls have positive delta, between 0 and 1. Puts have a negative delta, between 0 and -1.

Gamma is the rate that delta will change based on a $1 change in the stock price. So if delta is the “speed” at which option prices change, you can think of gamma as the “acceleration.” Options with the highest gamma are the most responsive to changes in the price of the underlying stock.

Theta, time decay,  is enemy number one for the option buyer. On the other hand, it’s usually the option seller’s best friend. Theta is the amount the price of calls and puts will decrease (at least in theory) for a one-day change in the time to expiration.

Vega is the amount call and put prices will change, in theory, for a corresponding one-point change in implied volatility. Typically, as implied volatility increases, the value of options will increase. That’s because an increase in implied volatility suggests an increased range of potential movement for the stock.

(Read more at: http://www.optionsplaybook.com/options-introduction/option-greeks/#ixzz2yBw5fKfm)

An  advanced option trader has highly sophisticated tools to trade in options where each of the above component is analyzed.  However, for an individual it boils down to managing the intrinsic and time value of an option.  The intrinsic value of an option moves in tandem with the price of the security whereas the time value works against it as time progresses.

Hence it is important for an option trader to know the trend force and its direction before trading in options. A strong trending move can negate the effect of theta (time value erosion), keeping the option trader in profit, even when close to expiry.

Trading naked options, if timed correctly, can become a relatively risk free, simple  and  high profit strategy . An option trader using the Triple Trend Oscillator (TTO) will be in a position to judge the tend quality. The position of trend oscillators close to zero indicate sideways moves which can kill an option trader.  The best trend structures  would be when the trends are placed away from the zero line indicating strong trending move in either direction. Again the position of the intermediate and minor trend would indicate the trend strength and the trigger line could be used to take position in the direction of  the major  trend.

Most options have monthly expiry cycle. Trading in options with long term view  (2- 3  months) requires high level of skills.  Short term trades in the near month options using hourly charts  is the easiest way to trade in options. Buying near month, in–the-money (ITM) or at –the-money (ATM), naked  call and put options using  bullish and bearish alignment of trend oscillators in TTO can be  a  simple but highly profitable option trading strategy. Since the options buyer’s risk is limited to price of option he has purchased, a favorable risk reward ratio and using tight risk management can result in surprisingly good returns.

More on using bullish alignment on Synchronized Bullish Alignment = Super Profits
More  on Trading F&O using TTO

The following charts show how bullish/ bearish alignment of trend oscillators in TTO can be used to trade naked options.

Source : National Stock Exchange, Mumbai

Source : National Stock Exchange, Mumbai

Elliott Wave & TTO

The principles of Integrated Trend Analysis when used with  the other well renowned technical theories like Elliott Wave which can enrich the trading experience. There are numerous possibilities of using TTO alongside and in conjunction with  the Elliott Wave theory. For example, the blow off rally in wave three can be associated with a synchronized bullish alignment in TTO.

The following chart is a perfect example of trend behaviour in each of the five waves. It is important to notice the  position of the various trends, i.e. major, intermediate and minor trend as they emerge during the five Elliott waves.

The bullish alignment of the three trends is a clear indication of the third wave  in progress. During this period, the sub trend continue to oscillate above the main trend, and a fall below it indicating the beginning of the fourth wave. Again, during wave five, the trend remain subdued, as the sub trend fails to rise above the main trend, thereby indicating progression of wave five and a reversal thereafter.

In the following  hourly chart, CNX Nifty seems to have completed the fifth wave which would be followed by a three wave (A-B-C) retracement.

The above is the corresponding daily chart of CNX Nifty which is on the verge of giving a sell signal on zero crossover.

WOCKHARDT : This isn't magic, TTO saw it coming

Wockhardt (NSE:WOCKPHARMA) jumped 20% today and was frozen at the upper circuit. TTO anticipated the  move well in advance, as the scrip had bottomed out on the weekly charts and was poised for an upmove.

In the following chart ,exactly 15 days back we discussed investing in Wockhardt in our research paper "What is Triple Trend Oscillator" under Medium and Long Term Investing.  The hourly trend had moved up above the daily trend in the weekly chart thereby confirming a reversal.

Wockhardt example in our Research Paper

The following is the updated weekly chart of Wockhardt as on  April 2, 2014.

Peeping into the Future

Stock price move erratically. Any help a trader might get to predict the future trend is welcome.

In our post dated March 21, 2014 titled, INFY PULLBACK , the TTO indicated a trend transition in INFY. The short  term  trend momentum had already started moving up, above the long term momentum, thereby indicating that the scrip has bottomed out for the short term  and is poised to move up, pending a buy signal. This was a good eight days in advance !!

Subsequently, a buy was generated at 3230-40 levels and the price has started moving up. One can continue to ride the uptrend till  any signs of weakness. The resistance areas could be 3410 and if surpassed, 3650.

Anatomy of a Trend

Every trend carries within itself several  sub-trends of various lower degree, though hidden, but play an important role in shaping the trend quality. The need is to identify these sub-trends and view them in conjunction with the main trend, so as to get an overall technical position of the security.

Integrated trend analysis is an attempt to study  and analysis these diverse forces which affect the price of a security. What Triple Trend Oscillator does is, it  puts the multiple trend on the screen simultaneously, to present an overall picture.  

The position of the trend oscillators, play an important role in determining the trend strength. In case, all the trend oscillator remain above the major trend and continue to oscillate above it, the security would exhibit highly bullish impulse and rise rapidly. Reverse is true for a highly bearish security, when all the trend oscillators fall below the major trend and continue to oscillate below it.

A trader intending to take a long position in a security would be cautioned by the headwind,  in the form of a short term weakness in  security, and would wait till the short term momentum has again turned positive to minimise his risk and a possible stop loss trigger. 

The following hourly chart of ICICI Bank shows a fairly long  bullish daily trend, along with the  sub trends. A trader can, by avoiding the short term down tends, perfectly time his entry  and ride the uptrend with minimum risk.