»Fast Profits Daily by Equitymaster

On This Day - 5 NOVEMBER 2020
Here's How You Should Trade This Rally

Vijay Bhambwani, Editor, Fast Profits Daily

In this video I will address a question that a lot of people have asked me on my social media pages and in the comments section here.

It's about how I changed my mind about the market going up using my 360 degree approach.

My view are based on hard asset prices, i.e. commodity prices, staying up in spite of the fact there could be a second wave of corona.

I shared my views in this video.

So why do I keep saying stay sharp, trade light, keep a small exposure?

Why am I saying the statistical beta is likely to spike up and you should trade carefully?

I have the answers for you in this video...

Hi, this is Vijay Bhambwani here back with you in this video. I am hoping that you're enjoying the rally in the market, the markets are treating you kindly, and you're raking in trading profits even though I've been warning you that you must keep your exposure and footprint extremely light in the market.

Now in this video I am trying to address a question that a lot of people have asked me on my social media pages and some even asked in the comments section here as to how I have changed my mind about the market going up using my 360 degree approach on the basis of hard asset prices, commodity prices, staying up in spite of the fact that there could be a second wave of corona, a video that I have recorded barely three days go.

On my social media pages, on Equitymaster's Telegram Channel, which goes by the handle Equitymaster official, which by the way, you must join if you haven't already done so because I keep putting up at least three updates every day, post market late in the evening, which is based on a home grown statistical model that I use for discerning trades out of the market.


So why do I keep mentioning the words, stay sharp, trade light, keep a small exposure, even though I am saying that strong hands in the markets are likely to lift the markets higher? Why my saying that the statistical beta is likely to spike up and you should trade carefully?

First of all, I belong to an old generation of traders who basically believe in conservation of capital as the primary motive and earning alpha, which is sheer profits, as a secondary motive. If you keep protecting your capital from losses and then keep trading high probability trades, mathematically speaking, what should be left his profits.

So that is maybe a slower approach but over a period of time, you are likely to be better off than traders who make a lot of money on one day, lose it all on the next, come back again on the third day, and the graph is extremely volatile. Consistency actually means a lot more over a period of time.

Now, as usual, you're used to receiving a whole lot of statistical data from me and I'd like to point out some numbers which you should keep in mind, which should answer your question about why I keep telling you to be careful and keep your trading exposure light.

Now index volumes across all expiries as per the NSE website, which means Nifty Bank, Nifty 50, both combined across all expiries and now over six lakh lots per day after hitting her high of 713,416 lots on 29th of October, which was the expiry day for October, both weekly and the monthly expiry.

Now these are unprecedentedly high values. When volumes are basically this high, both sides are tussling. The bulls and bears are slugging it out. Both are throwing a lot of money at each other and saying, I think I'm right.

Now, whenever two elephants trample, it's the ants that gets crushed. The smaller traders are basically getting chopped out of trades. Their stop losses are coming first and targets are coming later because the bulls and bears are fighting it out.

Just for the sake of example, take a look at one happened in the markets on Wednesday when the US election leads started coming out. Did you see now the Nifty gyrated between the positive and negative in triple digits? Now that's the kind of volatility that can kill you. Which is why I keep saying, cut your exposure small.

Now where the stock futures volumes are concerned across all expiries, all stock futures combined are now hitting between 875,000 lots to 915,000 lots with a recent high being 177,8230 lots made on 27th of October, which is two days before the expiry of the October futures.

Now these are unprecedentedly high turnover figures for even individual stock futures, which means that the volatility in the market is extremely high. Now you get a lot of gyaan on social media, especially WhatsApp, and some of those good morning messages can actually rankle you by the sheer volume traffic of the number of messages and besides the same message being repeated from multiple sources as forwards.

But once in a while you do get some pearls of wisdom, even with what WhatsApp forwards and the one message that I continuously admire is, don't tell me what you think or feel about me. I will know how you feel about me from the way you behave with me. Which means actions speak a whole lot louder than emotions.

Which is why I give a whole lot of credibility to screen reading, which basically tells me how the traders are actually moving in and out of the markets as far as their trades are concerned and being digital markets, electronic markets, every time a trader and enters and exits, he leaves a digital footprint behind on the trading terminal screen.

Now let's take a look in the open interest figures, which also shows up in MWPL. A whole video has been dedicated to MWPL and I have recorded this as a single, very important criteria for how it can determine market trends.

So the Nifty open interest where the November futures are concerned, the prompt futures are concerned is at the highest currently at 10,511,850 lots as on closing of Wednesday. Wednesday's trade is as the highest after 16th of October 2020.

The bank nifty open interest is relatively speaking lighter, which is why a ramping up of open interest at a significantly higher level, maybe likely as compared to the Nifty 50. Do remember that the bank nifty has been rising sharply in the last couple of trading sessions as compared to the Nifty 50.

So this kind of volatility is likely to get even more sharper for the simple reason that the open interest can get shredded if the market moves against the traders. This kind of expectation that is, built up by the traders by increasing their exposure in the markets, if the markets were to go against them, there could be a flurry of exits from these trades and the higher the open interest, higher, I fear, could be rush towards the exit door.

Which is why volatility invariably rises with the open interest. The higher the open interest, the higher the expectations of the market traders and the higher the disillusionment once these expectations are belied or not met. Which is why I keep telling you, continue to trade. I to expect strong hands are likely to lift the markets higher but at the same time keep your exposure levels small so that if any untoward market trend reversal happens, the damage to your capital will also be limited to a small extent.

This is why I have been advocating trading light and I'll record a lot of more lot more videos about sharing my knowledge about trading systems, trading regimen with you in the coming days. On this promising note, I bid goodbye to you in this video, not before leaving you with a reminder to click like on this video if you agree with what you saw. In the comments section do let me know what you think of this video and what you would want me to record in my next videos.

Also subscribe to this YouTube channel if you haven't already done so and click on the bell icon to receive more alerts for future videos. Also help me reach out to fellow like-minded traders who are interested in knowledge based investments and trades by recommending my videos to your family and friends.

Vijay Bhambwani signing off for now. Take very good care of yourself, your health, your family, your friends, investments, and trades. Thank you for watching. Have a very profitable day.

Stay safe and have a profitable trading day!

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst)

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