Friday, January 25, 2008

The Big Crash,Technical Analysis,Rumours,Survivorship Bias,Luck and Me

The Big Crash:-It was 18th january friday noon and we wer trding around 5900 and we touched 5900 around 1 pm aftr a weak gapdown opening . From top wer already down quite a bit.from high of around 6330 on 10th january.we wer already down more than 400 points.but till now so called midcap momentum guys wer holding or falling less.but that noon even midcaps momentum joined the bears party.all momentum stocks like nagarfert,rnrl,jindal steel etc came down on average 10% and nifty also within 2 and half hours came to almost 5700 and we shut shop around 5700.On monday most of the asian markets wer down around 3% .so we opened gap down with asia arround 5600.we tried to bounce from 5500 levels .but bounce dint lasted much and we kept declining for the whole day and hit a low of 4979 around 2:45 almost down 12% from previous closing.then a little bounce came and we close at 5200 almost 8 percent down or 500 points down from previous close.momentum future stocks wer almost killed and they all wer down on average of 25-30%.there wer no place to hide . usa was closed But europe was open and it also crashed 5-7% .so on tuesday asia was also down 5-6% on average we opened with down curcuit and when curcuit opened we hit a low of around 4480.we wer down whooping 30% from the highs.from friday to tuesday noon in just 9 hrs of trading we fell almost 1500 points on nifty and most stocks wer crashing rnrl hit a low of 80 it was trading around 240 last week. essar oil came to 110 levels from 350 high of same month.finaly these stocks recovered with market but still they closed down 30-40% with nifty closing around 4900.

IMPACT OF THE FALL:- market lost a whole generation of retail traders.lakhs of people got totally wiped out of wasnt only the people lost even the sub brokers and brokers wer lot of their clients accounts went in debit and brokers have to bear those losses.lot of terminals wer shut by exchange and wer not allowed to buy due to lack of margin.Turnover came down drastically in futures.almost 30000-40000 crores worth future positions wer cut in just 2 days.

TECHNICAL ANALYSIS:-until 18th of january everything was fine even we had a some fall from highs still every analyst was positive.the most bearish of technical analysts wer saying 5500-5300.there was no special behaviour by moving averages that is different from earlier declines.none of the oscillators wer sugesting that kind of crash.Macd s ,rsi s all wer normal there was nothing that was suggesting carnage.There was no strange divergence in any of the indicator.none of the elliticians wer having the wave count that suggested 30% fall in 2 days.neither gann fans suggested that bulls will be blown into the space.But still we fell it was surprise for anyone who thought market was predictable.not even one support between 6000 and 4500 held for more than half an hour.All fibonnaci retracements, trendlines wer broken as they dont even existed in real and wer just human superstitions.still people will say that we held 4500 support even that was broken for some time but we had to stop somewhere it was mere coincident that was around 4500 where we stopped.

RUMOURS:- if there would be a fear there would be rumours.but few of the rumours wer weird and almost impossible to is an example:-


this is impossible here is the reason the group message next day :-

PLEASE AVOID CITI BANK RUMOURS ,, ARE U FOOL??????????? THIS BANK IS HAVING NETWORTH OF 2700 BILLION DOLLORS AND ITS SUBPRIME LOSS IS ONLY 18 BILLION DOLLORS........ .CITIGROUPCitibank was founded in 1812 in New York.It has 200 million customer accounts in 100 countriesMore than 300,000 employees$2.4 trillion in assetsSources: Citigroup, Reuters.

if citigroup went bust then it would take the whole worldwide banking system with then even ur fd s r also not safe.which cant happen in a day.but people wer in so much fear that they even believed in this silly rumour.

SURVIVORSHIP BIAS:- the fall was a black swan unexpected unpredictable.(from nassim taleb s book the black swan).so anyone who was using risk management based on the models that uses past events to judge future risk should have been got hit badly or escaped luckily.for retail traders who use margin and leverage and does not do anything to manage risk it was supposed to come one day.there fall is inevitable."Survive first and then make money"George Soros.its my view and that can be wrong that if someone survives in futures trading for 10 yrs.he will probably make a fortune here.I will continue telling myself that u r just here for survival.u cant afford to lose this costly entertainment.just keep stick in there and save urself from the black swans.

MYSELF IN THE CRASH:- The second half of 2007 was just a dream run for me.i was left with just 70k in august.then i made a recovery in falling market of august i recovered most of the losses i had earlier in the yr.then my equity curve shot up wildly and i was up 3500% to 25 lakhs at the end of december.first 2 weeks of january wer flat to down for me.but in third week of january as market was falling i was now again making money.But on monday on 21st january when market opened gap down most of the momentum stocks wer already down 10-15% nifty was also near support.i tried botom fishing and as from last5 months it was alwys paying to buy gap downs.despite one of my gap down pttern that i use was suggsting downward movement. went long market bounced a bit this ncreased my confidence and i added more longs.but the bounce dint lasted for too long.nfty started falling again and break the lows easily i decided to sell in profits vanished and turned to stocks that were holding also started to crashand within minuts they crashed badly and wer down 20-25%.i realised the virus of hope was spreading inside me.i should act and i acted and i booked all my losses and i was down 7 lakhs for the was a mistake and i should have acted 20 minutes earlier.there was feeling of uneasiness in my whole was a big risk i should not have taken that big long positions.i controlled my senses and decided to continue trading for trading .it was just 12:30 still 3 hours to go there is still lot more time left to trade and volatility is huge so this is my best time to recover my losses fast and then i was back in synch with markets.and upto the end of days session i recovered almost 80% of the money i lost earlier.Next day tuesday when market open with down curcuit and went to 4450 i again traded properly and recovered most of the losses that wer left and was back in profits i was up 3 lakh for january which was decent performance consdering.most of the retail futures traders got wiped out of the wat saved me from this fall ?as per my view 2 things:-

1st LUCK i was lucky enough to think on monday to book my losses and recover most of the losses same day.

2nd:-my decision of not keeping overnight positions. 4 months back as there was enough volatility and my account size was not so i can afford which big hedge funds cant afford to do. trading intraday.intraday trading is considered risky.but intraday trader is lot safer as one is immune to overnight risksnext day who knows as happened earlier also and market open curcuit down margin trader who use leverage will be wiped out of markets in markets.anything can happen osama can throw a bomb on usa again or any other financial black swan anything is possible.

1.survive first and then make money
2.supports and resistances are just to make bulls and bears hope as eventually they always break.
3.there is no evidence based proof that technical analysis or weird wave theories dont trust these things too much.
4.if u trade in futures or use leverage and dont have any methods to control risk(stoplosses,position sizing etc)u r bound to lose sooner or later.
5.dont get overexcited and too happy on profits until they r in ur trading account.and dont get too depressed due to a loss until u have enough left to recover that money. is unpredictable.but still money can be made here by controlling risk and by discipline.
7.if u want to invest buy the whole market or the full index nifty.i dont believe buy nd hold can be easily outperformed.
8.charts tells you about past behaviour of markets and it is not necessary that future would be related to that.
9.if u use margin and leverage then use hedging or dont keep them ur positions overnights.
10.majority will always lose in futures market.

(DISCLOSURE:-the motive of ths article is to just remember watever happened and i aso want to see how my beliefs will change in the future from we keep learning and changing with the time.if u read this article and found lots of english mistakes dont mind i m not good in this language).