iCharts Discussions

SwingTrader · Posted: Sat Nov 03, 2012 11:09 pm Post subject: Trading market breadth cycles

I am doing some live testing trading the market breadth cycles coupled with price confirmation. I am planning to post the trades here in this journal. Do note that all this is for your study/interest only. Even though I am actually trading these signals, I do so with tiny positions in a separate account dedicated for testing only. These are not calls, people should decide on their own and should not follow these signals blindly.

Market Breadth Cycles

The market breadth cycle charts I have built use advance/decline stats and other related stuff to chart the extremes to which market has moved. The idea is to identify market extremes and then position properly for subsequent moves. The actual signals come from price confirmations once the short or medium term trend has turned after hitting extremes.

I have two charts for this, one is the medium vs short term breadth cycle chart (this is the main one that I will be using for trading short-to-medium term) and other one is the long/medium/short term cycle chart which is for more higher level market analysis. The long term chart will be posted only once in a while if I see any significant long-term market trend shift.

I am posting both these charts to begin with. Please excuse me for the loud colours on the long term chart Very Happy

Current status : Short term cycle (red line) is cycling up indicating short-term up move even as the medium term (blue line) is beginning to roll down. I will go long with an ITM call (maybe 5600 CE) on Monday to trade this short-term cycle up. I will decide against going long only if the market does a complete U turn down on Monday. Unless we see a strong down move on Monday I will go long as mentioned above just before close or even earlier if market is too strong.

Let us see where this goes....

parva · White Belt Joined: 07 Dec 2009 Posts: 89

Dear ST ,

Delighted to see you participating .....

Awaiting your calls...

Regards

PARVA

2guns

vinay28 · Black Belt Joined: 24 Dec 2010 Posts: 11748

".........I will decide against going long only if the market does a complete U turn down on Monday................."

ST, will you really change your stance with one day's U turn? Don't you think that's too short a time span? If so, theoretically, you may be required to change every day ....... more like whipsaws!

Just in case you haven't seen these, I am giving a few links

http://www.tradestation.com/en/education/labs/analysis-concepts/the-market-breadth-score

http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=4&cad=rja&ved=0CDkQFjAD&url=http%3A%2F%2Fwww.aaii.com%2Fjournal%2Farticle%2Fmeasures-of-market-breadth-a-look-at-trading-statistics&ei=tCiWUOb4KoePrgfepIG4AQ&usg=AFQjCNEdHuJzsISEVudAAKdcfoIXBHx4nw&sig2=3BifNTSXGVFA2e3EVnH3rw

http://www.tradingmarkets.com/stocks/commentary/the-surprising-truth-about-market-breadth-3-powerratings-stocks-905442.html

SwingTrader · Posted: Sun Nov 04, 2012 7:12 pm Post subject:

vinay28 · Black Belt Joined: 24 Dec 2010 Posts: 11748

ST, no, it wasn't leg pulling. You are right in that I did wrongly wonder whether one day's move would alter the stance.

It's good to know you are trying to develop something much more on breadth-based trading than currently available and that would surely have an edge.

One doubt though. If it's only the market breadth, then do you think whether over long term it will be kind of repetitive, somewhat like a simple harmonic motion? I am asking this because, even in a long term bull/bear market, there is a phase when breadth is extreme as cash based buying/selling is intensive and then it gradually tapers off as fno activity picks up and spreads over a much longer period than that for cash based buying/selling.

SwingTrader · Posted: Sun Nov 04, 2012 8:33 pm Post subject:

vinay28 · Black Belt Joined: 24 Dec 2010 Posts: 11748

ok great!

SwingTrader · Posted: Mon Nov 05, 2012 9:21 am Post subject:

SwingTrader · Posted: Mon Nov 05, 2012 9:39 pm Post subject:

Bought a small position of NOV 5600 CE @ 158.15 today about 30-35 mins before close as NF did show some strength before close and it did not go down too strongly in the morning session (NF got supported at BEAR level very well). I will consider closing this position for a loss if NF closes below 31st Oct lows as at that point the reason for initiating this trade will get negated.

Short-term market breadth cycle is heading up and that is the reason for this trade as mentioned in posts below. Watching medium term cycle closely. I am hoping it does not deteriorate much further. Any deterioration could take the market down further.

vinay28 · Black Belt Joined: 24 Dec 2010 Posts: 11748

ST, your loss would be substantial if 31/10 low is broken?

SwingTrader · Posted: Mon Nov 05, 2012 10:00 pm Post subject:

vinay28 · Black Belt Joined: 24 Dec 2010 Posts: 11748

ya ok

SwingTrader · Posted: Wed Nov 07, 2012 5:17 pm Post subject:

With market trending up sharply, I have partially hedged the NOV 5600 CE position today by selling equal number of NOV 5800 CE @ 68.25.

The trade is now a bull call spread with max profit of Rs. 5.5K per lot and max loss of Rs. 4.5K per lot. The position will start to show loss if NF goes below 5685. I am treating the short calls as a partial hedge as of now. Will re-consider after looking at tomm's trading.

More later with breadth cycle chart...

SwingTrader · Posted: Wed Nov 07, 2012 7:03 pm Post subject:

Today's Breadth cycle chart : A couple of days of upside is possible before a pause - short term breadth cycle is proceeding up well. This is just an estimate, not prediction. It can easily go on for few more days or turn down tomm. I will take it a day at a time.

vinay28 · Black Belt Joined: 24 Dec 2010 Posts: 11748

"......selling equal number of NOV 5800 CE......"

Smart move ST. Smile