Technical Analysis 102

There are broadly two types of trading opportunities:

1. Event-based Trading
   • View on rates
   • View on FX
   • FII Flows
2. Short Term Trading
   • Chart Patterns
   • Fundamentals – Industrial Production, Inflation, GDP, RBI announcements
   • Derivatives Markets Information – PCR, SF Basis, SF OI, Nifty OI, Nifty Basis, Volatility, Options OI, Strike Distribution, Skew
   • Institutional Activity – FII, DII
   • Regional Markets, Global Markets
   • Commodities
   • Currencies

On Chart patterns, some specific averages are followed by a vast majority of technical analysts:

• 10 Min MA
• 10 HMA
• 10 DMA
• 10 WMA
• 30 MA
• 50 MA
• 200 MA
• 500 MA

Some specific points to keep in mind:

1. If the market opens gap-up, and immediately gets weak (selling starts), the day’s high may be made in the opening few minutes. In addition, markets usually close at day’s low.
2. If after opening gap-up, markets continue to trend up, then it might keep on going up over the day.
3. Gaps get filled 80-90% of the times, and hence there is a decent chance of market coming back to the gap levels.
4. If the stock futures basis is strong, it implies more speculators in the market. Any negative news would lead to large moves in the market.
5. If Index futures trading at a premium, then hedging activity with Nifty futures is very low. Again, any negative news could lead to large moves in the market.
6. If the stock futures OI increasing and premium is rising, then retail speculative interest is building up.
7. If one can’t roll the positions, the same is unwound in the cash market in the last 30 minutes on the expiry day. Stocks which have been trading at a discount (and hence have short stock, long SSF positions) would rise in the last 30 minutes.