Archive for the ‘Trading Psychology’ Category

How do we justify the current market move ?? Fundamentals -> Technicals -> Psychological.

Saturday, April 4th, 2009

For any short term market move or for that matter, any move in markets, if you cannot justify using fundamentals, then technicals can throw some light, like markets remaining in over sold or over bought for a while etc.,
What if technicals also cannot provide a solid reason?
This is where psychology comes into picture and can throw some light on
why markets move the way market moves?
I generally prescribe to the fact that it is rather meaningless or futile to find out a reason for each and every one of the market move.
If you happen to read the headlines of top sites providing live market updates, they feel obliged to provide some reason for every market move and if markets starts moving contrary to the reason they have specified in the existing headline, then they are forced to change the headline. (they cannot change the markets anyway :-)
Indian markets move in line with global markets !! and also
Indian markets decoupled from the rest of the global markets !!
The fact is that, you cannot make money or atleast I cannot make money if I have to depend on either one of the headline above to earn my daily bread.
There are innumerable and countless variables involved and trying to fit the market move based on all or a subset of these variables becomes way too complex or at some stage becomes totally inexplainable.
So what moves the markets then ??
Assuming market is a zero-sum (infact a negative-sum considering the slippage and commisions) game, we need to get our money from one of our fellow participant. We cannot all win at the same time over a long period of time and especially if we have a time-bound contract (derivative) for instance, then at the expiry of the contract some people lose and some win. But the fact remains the former ‘some’ is much larger when compared to the latter ‘some’.
So if we are able to tune ourselves and position ourselves on the side of the winning ‘some’, then there is a chance that we will not only earn our daily bread but also earn a fortune in the long run.
Given this scenario, majority of the people are bearish after Apr 10th, reasons aplenty, results start coming out, election uncertainity etc., etc., It is common view and every person participating in the market thinks that way. This is also proven by the fact that the implied volatility of ‘put’ options were much higher than that of the ‘call’ options and people are frantically buying 3000 and below strike puts which in my opinion might all go worthless and April could also be a month for NIFTY closing higher than last month.
Using this reasoning as a base, when will I accept that I am totally wrong. If NIFTY falls below 2960 at any point in time before this expiry. Because at that time the majority of the bulls would have got trapped from the levels of 3200 and higher and it then becomes a level playing field for both the bulls and the bears and there might not be any edge to enter into the arena then. So the best would be to stay outside and watch the action if at all that happens.
04 Dec 2009
Was just browsing through Yahoo and found contradictory headline for the same news. ultimately one of them will be removed based on the market action…