[2018.01.17] Ninja Trader = New Concepts l Rule of 79 l Neck Holds

Introduction and Session Overview

Starting the Program

• The speaker emphasizes the need to scale up the program significantly, indicating that it will take two or three more sessions to cover all basics thoroughly.

• Acknowledges the complexity of the material, suggesting a gradual approach to ensure understanding.

Questions and Engagement

• Before diving into new content, the speaker invites questions from participants to clarify any doubts or comments they may have.

• Plans to create additional videos for better tracking of progress among participants.

Reviewing Previous Content

Understanding Past Videos

• The speaker checks if everyone has reviewed previous videos and comprehended the material discussed so far.

• Encourages participants to raise their hands if they missed anything or did not understand certain concepts.

Significance of Key Concepts

Importance of Five and Thirteen Days

• The speaker begins discussing the significance of five and thirteen days in trading strategies, noting that this understanding will develop over time.

Clarifying Trading Rules

• Addresses a question regarding emotional aspects related to trading rules 90 and 40, explaining their relevance in long trades.

Visualizing Trading Strategies

Candle Analysis

• Introduces a visual representation using candles in trading; explains different types such as full hold (10), ankle hold (90), chest hold (40), and neck hold (17).

Recognizing Patterns

• Discusses how traders can identify patterns by observing candle formations, emphasizing logical reasoning behind these observations.

Practical Application of Rules

Rule of 79 Explained

• The speaker elaborates on the rule of 79, including its application in market analysis and liquidity considerations during trading decisions.

Logical Approach to Trading

• Emphasizes that successful trading relies on logical thinking rather than mere speculation; encourages participants to adopt a rational mindset when analyzing trades.

Engagement with Participants

Checking Participant Practice

How to Use Stochastics in Trading

Introduction to the Session

• The speaker emphasizes the effectiveness of their teachings, likening it to "magic" and assures that everything taught will work most of the time.

• They express a commitment to quality, stating they won't teach unless they are confident in the material's reliability.

Importance of Tomorrow's Master Class

• A strong recommendation is made for attendees not to miss tomorrow's master class, which has been meticulously prepared over several days.

• The speaker indicates that significant thought has gone into structuring this session, highlighting its importance.

Indicator Introduction: Stochastics

• The focus shifts to introducing an indicator called stochastics, with a query about participants' familiarity with it.

• Stochastics is described as widely used in institutional trading, particularly for index trading, although many may not be aware of its applications.

Types of Stochastics

• The speaker outlines different types of stochastics: normal stochastics, fast stochastics, and slow stochastics.

• Emphasis is placed on knowing which type to use; fast stochastics are highlighted as the preferred choice due to their effectiveness.

Secret Sauce in Trading

• A metaphor comparing cooking techniques (like making butter chicken) illustrates how mastery in using indicators can differentiate successful traders from others.

How to Use Fast Stochastics in Trend Seven

Adding Fast Stochastics

• The process of adding fast stochastics is straightforward, especially on the Trend Seven platform. Other platforms may vary in their approach.

• After adding stochastics, set the parameters with a value of five for the first setting. This is crucial for accurate readings.

• Adjust the percent K and percent D settings; set percent K to zero and percent D to two, with a preference for blue color coding.

• The resulting indicator will display only percent K without double lines, as percent D represents an average that won't be utilized here.

Understanding Stochastic Indicators

• An explanation of stochastic indicators follows; they are used to identify overbought or oversold conditions in stocks.

• The stochastic indicator can be positioned either above or below the price chart; personal preference dictates its placement.

• Unlike RSI, which has fixed levels (80 and 20), stochastic oscillates between 0 and 100. Values above 80 indicate overbought conditions while values below 20 indicate oversold conditions.

Parameters and Settings

• Clarification on how stochastic indicators function: they cannot exceed 100 or drop below 0, maintaining a bounded range.

• Percent K represents current momentum while percent D serves as a smoothed average; adjustments can be made based on trading strategies.

• A normal stochastic setup includes both percent K and D along with an average bar; understanding these components is essential for effective analysis.

Practical Application of Stochastics

• Visual representation of standard stochastics shows distinct lines for percent K and D alongside their averages—important for traders to recognize patterns.

• Emphasis on ensuring clarity among participants regarding the use of fast stochastics before delving deeper into complex details.

Trading Strategies Using Stochastic Indicators

• Focus on understanding basic principles before layering additional complexities into trading strategies involving fast stochastics.

• Two primary methods exist for trading using stochastic indicators: recognizing overbought/oversold signals versus following market trends more closely.

Understanding Stochastic Trading Techniques

Conventional Wisdom in Stochastic Trading

• The speaker emphasizes the importance of understanding conventional wisdom in trading, indicating that traditional methods may not be effective. They aim to provide a professional approach to trading.

• The first piece of conventional wisdom discussed is the idea of buying when overbought and selling when oversold, which the speaker advises against.

• Another common method involves using crossover signals between two stochastic lines (K and D), but this is also dismissed as ineffective for their strategy.

Utilizing Stochastics Effectively

• The speaker instructs that stochastics should only be used as an entry point during an uptrend, determined by analyzing moving averages on a chart.

• Exit points should not rely on stochastics; instead, they should be based on supply zones or trailing stops. This distinction is crucial for successful trading.

• Stochastics are highlighted as indicators of momentum rather than price or volume, providing insights into the speed at which prices are changing.

Key Rules for Uptrends and Downtrends

• In an uptrend, traders should focus solely on buy signals from stochastics when values are below 20; conversely, sell signals above 80 are to be utilized in downtrends.

• The speaker stresses clarity in these rules: only buy during uptrends with low stochastic readings and sell during downtrends with high readings.

Understanding Retracements and Exit Velocity

• When discussing retracements within an uptrend, the exit velocity is defined by how quickly prices move out of overbought or oversold conditions (above 80 or below 20).

• An example involving candle formations illustrates how to determine potential trade entries based on specific patterns observed in conjunction with stochastic readings.

Confirmation Signals for Trades

• A "root" value of 79 is introduced as a critical threshold for confirming trades; traders should set alarms to monitor this level closely alongside price movements.

• Synchronization between price movements exiting key levels (like 20 or 80) and candle formations serves as a double confirmation before executing trades.

Trading Strategies and Confirmation Techniques

Understanding Candle Formations and Stochastic Indicators

• The speaker discusses the importance of candle formations in trading, emphasizing that stochastic indicators provide added confirmation regarding speed and exit velocity.

• A 1% movement can yield significant profits; for instance, a 2% gain translates to ₹15,000. Higher precision and conviction are essential for successful trades.

Building Conviction in Trading

• Conviction is built through understanding simple yet often overlooked concepts in trading. The analogy of seasoning in cooking illustrates the difference between skilled and unskilled traders.

• Visual cues are crucial when deciding to enter a trade; signals must be clear during price retracements.

Utilizing Rules for Trade Entry

• The "rule of 17" is introduced as a method to confirm trade entries when prices move above certain thresholds.

• Once inside a trade, trailing stops can maximize profit potential; significant gains (e.g., ₹70,000 - ₹80,000 per lot) are achievable with proper strategy.

Market Trends: Uptrends vs. Downtrends

• In an uptrend, specific strategies should be employed as buy signals; conversely, downtrends require different tactics focused on selling.

• Lower tops indicate downtrends where sell signals become relevant; traders should avoid using buy signals during these periods.

Navigating Sideways Markets

• In sideways markets characterized by confusion, both buy and sell signals may be utilized but must align with advanced candlestick techniques discussed earlier.

Importance of Proper Tools and Settings

• The speaker emphasizes the necessity of having a knowledgeable teacher to guide traders through complex concepts that aren't commonly taught.

• Using the correct settings for indicators like percent K is vital; adjustments based on moving averages (14-day candles recommended).

Synchronization of Indicators

• The synchronization between various indicators (5 & 13 moving averages with 14-day candles) enhances trading accuracy.

Trading Strategies and Stochastic Indicators

Understanding Trade Timing in Uptrending Stocks

• The speaker encourages experimentation with various trading strategies, particularly focusing on uptrending stocks. They emphasize the importance of identifying retracement points for optimal trade entry.

• A key moment to enter a trade is highlighted when the stock shows signs of moving out of a retracement phase, providing strong confirmation for potential gains.

• The concept of "exit velocity" is introduced as a critical factor for determining when to re-enter trades after a retracement, suggesting that traders can achieve significant returns by timing their entries correctly.

Utilizing Stochastic Indicators Effectively

• The discussion shifts to the use of stochastic indicators, specifically mentioning the "hammer" and "rule of seventeen," which are tools for maximizing profit during trades.

• Questions arise regarding the relevance of fast stochastic versus slow stochastic indicators. The speaker suggests removing slow stochastics from consideration to streamline trading decisions.

• Emphasis is placed on focusing solely on percent K from fast stochastics while disregarding percent D, as it provides quicker signals and better momentum insights.

Momentum Trading Insights

• The combination of stochastics with other trading rules (like rule 79 and candlestick patterns) is presented as an effective strategy for identifying exit velocities in both upward and downward trends.

• A cautionary note about using stochastics: they should primarily be used for buying signals at lower levels rather than selling signals at higher levels, indicating a strategic approach to market entry and exit.

Advanced Concepts in Trading

• The speaker briefly mentions diversions as an advanced topic but advises against delving into it until foundational concepts are mastered through practice over several days.

• Questions from participants lead to discussions about taking trades without confirmation. It’s noted that understanding momentum through stochastic indicators is essential before making such decisions.

Analyzing Market Conditions

• When discussing specific market conditions like Nifty's LRC (Linear Regression Channel), it's emphasized that trades should only be executed during retracements confirmed by momentum indicators.

• Clarification on impulse versus retracement phases highlights how traders can identify where momentum originates using stochastic analysis, reinforcing its role in decision-making processes.

• Exit velocity becomes crucial again; traders must recognize this signal during retracements to make informed trading choices based on market behavior patterns.

Moving Averages Explained

• Discussion around megaphone formations indicates caution against trading under certain complex conditions unless fully understood by the trader.

• Differences between short-term (five-day moving average) and longer-term averages (14-day moving average), emphasizing their roles in capturing quick trades within index movements.

Understanding Stock Trends and Indicators

Moving Averages in Trading

• The discussion begins with the use of a 14-day moving average for stock forecasting, emphasizing its role in identifying trade trends.

• The speaker suggests using five and thirteen exponential moving averages (EMAs) to gain a clearer perspective on stock trends.

Clarification and Engagement

• The speaker checks for understanding among participants, indicating the importance of clarity in trading concepts.

• Acknowledges a shift in perspective regarding trading strategies, highlighting personal preferences versus general practices.

Technical Setup for Trading

• For Ninja Trader setup, the recommended configuration includes five EMA and thirteen EMA along with specific indicators like percentage K.

• Entry and exit points are primarily determined by supply zones or dynamic trend support levels (DTSLs).

Stochastic Indicators Usage

• The speaker confirms that stochastic indicators can be used for trading but notes their effectiveness varies between stocks and indices.

• Emphasizes that indices reflect group psychology while individual stocks are influenced by personal investor behavior.

Behavioral Economics in Trading

• Discusses how different market dynamics affect stock movements compared to index movements, linking this to behavioral economics principles.

• Highlights the significance of mass psychology when analyzing market indicators.

Identifying Market Conditions

Understanding Pick Seasons

• Defines "pick season" as periods where markets exhibit choppy or sideways movement, suggesting these times may not be ideal for trading.

• Provides visual examples of pick seasons during discussions about market conditions that should be avoided.

No Trade Zones

• Describes certain market patterns as "no trade zones," advising against trading during these periods due to unpredictability.

Systematic Approach to Trading

• The objective is to build a systematic approach step-by-step, focusing on foundational knowledge before diving into complex chart reading techniques.

Trading Strategies and Timeframes

Holding Period for Indices

• Clarifies there is no fixed timeframe for holding indices; it depends on individual trading strategies and stop-loss placements.

Decision-Making in Trades

Understanding Market Control and Trading Strategies

The Concept of Control in Trading

• The only control a trader has is at the point of entry into the market; exits are determined by market conditions.

• Fast or low-level shares can be advantageous, emphasizing the importance of timing and strategy on daily charts.

Moving Averages and Index Trading

• Moving averages provide perspective rather than direct trading signals; they should be used to inform larger trades.

• In index trading, small percentage gains can yield significant profits due to large trade sizes, necessitating a synchronized trading system.

Stock Trading Dynamics

• When trading stocks, smaller amounts may be involved; thus, different strategies like using 5 and 30-minute charts are recommended.

• Proper entries are crucial when stocks cross certain thresholds during trading hours; understanding this helps in making informed decisions.

Utilizing Stochastics as an Indicator

• Stochastics serve as an additional indicator for confirming market momentum rather than being the primary tool for trading decisions.

• Weekly candles are not suitable for index trading due to the nature of trades being smaller and more frequent.

Breakout Trades and Strategy Application

• Breakout trades require careful observation; indicators alone do not dictate actions—traders must apply strategic thinking akin to chess.

Trading Strategies and Practical Application

Understanding the Rule of 79

• The speaker emphasizes the importance of taking trades on the same day, highlighting that immediate action is necessary when a trade opportunity arises.

• The "Rule of 79" is introduced as a guideline for trading decisions, indicating that not all trades will be perfect but should still be pursued based on this rule.

Trade Outcomes and Profitability

• A block of ten trades is discussed; even if only four are successful while six result in stop losses, profitability can still be achieved due to effective stop-loss management.

• If four trades yield a profit of three to four percent while six incur only half a percent loss, overall gains can still be realized.

Importance of Practice in Trading

• The speaker encourages practical sessions and chart analysis as essential components for developing trading skills over theoretical learning.

• Emphasis is placed on practicing trading strategies to encounter real-world challenges, which helps clarify questions and deepen understanding.

Classroom Dynamics and Learning Approach

• The speaker expresses skepticism about traditional classroom settings for teaching trading concepts today, suggesting that hands-on experience is more beneficial.

Future Sessions and Dynamic Training Components

• Discussion about breakout strategies in index training indicates they are part of the broader strategy but should align with individual comfort levels.

• Mentioned are two additional components related to dynamic training that will be explained in future sessions.

Conclusion and System Simplification