Manu asked in trading room today about how to use MP for swing trades.
I am sure Shai/Viren have their accurate explanations. Here is my view based on observations:
1. I love stocks that are in Step-2 (the balancing step). Stocks in Step-2 are likely to give huge moves. I mean literally 2-4% in a matter of minutes!
2. “Market has a memory” – if a stock has found support a certain level it means selling stopped there and buyers stepped in at that level. If the stocks comes to same level, the same set of buyers are likely to “repeat” the same action of buying – unless the selling is just too strong! That’s my understanding of HVNs
3. 80% Rule on a weekly timeframe works!
4. The last of the reasons to like Step-2 is — if value is being created higher from previous week then I would go long with previous week’s POC/VAL as SL.
Here are 4 examples:
1. DIVISLAB – Value being created higher. Swing stop loss for me is 705-710 in futures.
2. ABGSHIP – Long from 244 levels. My stop loss was 238 because this is my favourite stock. Today it bounced off previous week’s VAL @242 and the bounce was pretty big one!
3. BEML: A stock that shows “market has memory”. 1090 was VAL from 4 weeks back trade. And that’s exactly where it found support last week. This week POC is higher. My stop loss is 1090.
4. BGRENERGY — I have to admit that I took an “anticipatory long” here. But this was in my trading plan for today. If there is a gap up in the 750-755 range, I wanted go long with strict SL. But even now its a long candidate for swing trade as long as 757 is held.
And lastly – this is a game of probability. As Shai said “you win some and you lose some” – As long as you come out positive at end of day/week/month (whatever your timeframe of looking at results is), you are doing good because futures trading is totally a “Zero Sum Game” – if you are making money being long/short, the person on the side of contract has to be losing money.