Fundamentals - fundamentals of market (very important for intraday trading)
Fundamentals - fundamentals of market
(very important for intraday trading)
The most important question an Edgemonk Trader asks himself is "will I trade today" or "won't I"?
A retail trader wants to trade every day, every minute, every second and every damn tick.
To be successful you need luck and skill. The more you get the skill, the least lucky you have to be.
For example, if you want to swim in a pool or a water body, you will not directly undo your clothes and jump. You will observe internally various things, such as, for example: (1) depth; (2) water current; (3) climate; (4) water quality; (5) population around and et al.
To trade in a market everyday, we need to look at certain attributes before taking a trade, whether it is an
index future, index option, stock future or stock option
, and including cash trading. What are those attributes?
Checking market fundamentals is a minute by minute exercise. It is the most important part of your intraday trading.
What are market fundamentals. They are basically attributes that run the market for that day. That means they are the drivers behind the markets move for that day. They will be dynamic, but if we practice well we can master their dynamics as well.
Market fundamentals will give you the right market climate: (1) to trade or not to trade; (2) to take the direction - even if my direction is wrong, my risk will be less; (3) to size your risk.
Our strategy is that we should observe market fundamentals before taking ANY trade.
What are the tactics? That is what are the steps in this strategy.
The first step is look at the advance decline ratio. This is the most important attribute of a market. Look at the advance decline ratio of only Nifty 50 because that is the most important one. Don't look at the overall market or sub-index ones.
Look at the quality of the advance decline ratio. Who is driving the upside, who is driving the downside. Who is silent in the middle. (more on this in the live markets)
Analyzing the components, which we call component analysis. This is very important to give conviction to direction.(more on this in the live market)
What sectors are driving and what weightage stocks are driving the move.
Analysing the top-weightage stocks in depth, that is individually. (more on this in live market session)
Sector flows. What sectors are in the vogue today. if no sector imbalance, then we will ignore. If there is a sector imbalance, we will use that for stock trades.
We will observe cross market dynamics. How is the cash market doing, how are futures doing, how are options (primary importance) and other attributes.
Reliance, HDFC Bank, HDFC, Nifty futures, Bank Nifty future
Go to the NSE website, and downolad or collect data on the following: (1) Nifty 50 weightates; (2) Bank Nifty weightages; (3) Nifty sector index weightages; (4) Nifty sector indices; (5) Nifty 50 market capitalisation of all stocks.
Please remind me at the end to take one class on Index trading, where we will discuss concepts on how indices are formed and how they are managed.