Month: September 2012
Since the 14th of September last Friday since up until today the market has been seized by news flow both of the good kind and the adverse kind.
Whilst QE3 and the diesel price hike caused a gap up on the 14th, the FDI news on Monday and the political situation on Tuesday have caused large differences between the open and the closes on each of these sessions.
The result has been a profile which has looked like this :
So we have short covering at the open on the 14th with a buying tail and long liquidation or profit booking on the 17th with a selling tail and two balanced profiles on the other two.
The most important aspects of the above chart are the buying tail below at 5530 and the selling tail above at 5670.
The process looks random but not until you merge the profiles where a distinct pattern emerges.
Have a look :
The merged profile above in Market Profile parlance is called a double distribution or a DD in short.
You can read more about the DD here- https://www.vtrender.com/content/double-disitribution-dd-0
Now that the market has formed the DD there are only two possibilities :
1) It will auction the zone between 5574 and 5616 and form a larger balances over a few more sessions. We saw this kind of a structure developing in the BankNifty a few weeks back. Such a move immediately from tomorrow will be positive for the markets and keep the uptrend intact and give a stronger base for a launch up later in the year.
2) The market will auction immediately the single prints 5528 to today's close and then proceed lower in the next few sessions. If such a possibility has to play out then the market will stay below 5574 over the next few sessions. Even if it does move above 5574 for a few points, the single prints in the middle of the profile will check upsides. The key to further downsides would be to see where the market establishes value relative to the lower distribution of the profile.
We had a normal day in the markets on tuesday.
The chart below shows that most normal days tend to be followed by trend days.Click on chart to enlarge
(Chart courtesy the wise men at Investor RT ! )
Day Types – Normal (NORM), Normal Variation (NVAR), Neutral (NEUT), Neutral Extreme (NUEX), Trend (TRND), and Non-Trend (NONT)
For an understanding of the various day types please follow- https://www.vtrender.com/content/market-profile-day-types
If you are trading stocks with big money and are interested in knowing how the global money flow works then you need to move your horizons beyond the universe of stock specific action and understand the global play between bonds, stocks, currencies and commodities.
Smart money which trades all of the above is known to move in and out of the above mentioned and a small weekly study keeping a tab on the inter market associations will definitely help in your broader understanding of the financial markets.
At Vtrender we track the Nifty and the bankNifty along with the USDINR in the currency space as well as Gold, silver, copper and crude and natural gas in the commodity sphere.
Here's some charts of the Nifty, the USD and the CRB.
For those of you who aren't familiar with the CRB index for commodities it is spelt here- http://en.wikipedia.org/wiki/Thomson_Reuters/Jefferies_CRB_Index
The charts illustrate the inter market relationship between stocks, USD and the CRB.
Notice the inverse relationship between CRB and the USD.
Stocks are driven by not only the dollar but to some extent by commodity prices. When commodities start to surge too high they act as a drag on the economy and consequently the stock market begins to stagnate.
In particular one has to take a careful look at rising crude prices.The surge from $ 50 to $ 100 in 2007 followed by a further move to $ 150 almost guaranteed that the stock market would not sustain the highs.
The charts above show that the CRB has some more to rise and the USD some more to go down.The difference this time around is that the liquidity flow is not just from QE but also LTRO which should make the commodity pack the better equation for savvy traders to park their funds.
The rally is stocks and commodities should continue through 2013.
At Vtrender- in our trading rooms and through our blog posts you have seen a unique way of looking at market action through a system of trading popularly known as Volume profile.
Through our Buy/ Sell indicators and precision levels you have seen this simple methodology transforming trades into huge profits whilst taking care to keep losses at a minimum.
Our systems, algo detection software and precision levels have always been driven by a keen understanding of market movements especially the roles played by buyers and sellers . Most of the systems we have with us currently get us in on some great trades using this simple philosophy of market auction.
We are now ready to take the next step in the trading cycle by developing alerts which will work regardless of market dynamics.
Using our core traits of sophistication, transparency and independence and combining that with cutting edge quantitative and technical research we are proud to bring to you trading strategies which will work in rising/ falling or flat markets with minimal risk.
Introducing Vtrender Quants
Vtrender Quants will be market neutral pair trading system with an algorithm putting us ahead in key trades based on statistical principles and price mismatch.
The system is designed in a way to insulate the trader from extreme market volatility.
It uses only derivatives (futures and options) so as to extract maximum leverage for the trading opportunity.
The core principle involves going long one instrument and short the other within a sector. The algo then detects a proper exit point for the trade in the same way as it determined the entry.
The minimum capital requirement can go up about 1 lakh per pair which can increase as more pairs are traded.
As the strategy is market neutral the effect of a big loss on account of an adverse market reaction is minimised. However event risk in the form of untimely news events for the instrument traded may affect the performance.
The alerts will be delivered in a newsletter format and will have the added benefit of an sms alert. The system does not rely on immaculate entries and exits, hence timing the trade is not very important. “Time in” the trade will be the bigger determinant of profits for this strategy.
Vtrender Quants will be a subscription based newsletter with a quarterly subscription rate of INR 9999/-. You can expect 1-2 trades every week with an average holding period running upto 2 weeks. As mentioned before time-in the trade will be more important in the strategy. For the same reason we will not have a monthly subscription option.
If you need more information , please send us a mail to vtrender@gmail.com.