RCom ~ Volume & Volatility Perspective...!!!

We have already discussed that volumes plays an important role in any movement in stock or underlying asset. Sometimes along with volumes, volatility also plays an important role in next major move or may be reversal. 

Now lets see how these play an important role trend reversal. Recently Reliance Communication Ltd (NSE ~ RCOM) get tripled in less than 35 trading sessions. 

Lets see Volume chart first. 

Below chart is before upmove started but try to focus on surge in volumes in last few sessions. 

Now lets have look at after what happened after trendline breakout. 

Now we can see actual accumulation in stock started near to 10/- and then slowly slowly volumes increase lead to more accumulation of stock and then whatever happened next is history. 

Also lets have look at volatility of this stock in derivative space. 

After breakout (present previous chart) we can see that there is huge surge in volatility and then it resulted into more upmove in stock except 1 day in-between.

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Basics About Derivatives...!!!

Derivatives as the term is not unknown to any of us whether we are traders or student. 

In simple words 'Derivative' is some kind of contract which is derived from value of some underlying instrument or asset class based on its performance. 

Derivatives are contract between 2 persons with or without middleman. 

Most common derivative instruments are Future and Options. Whereas Forwards and Swaps are not known or used. 

Lets have definition of these one by one. 

Future is exchange traded contract and it includes 2 parties (excluding exchange - middleman) who have agreed to exchange ownership of underlying asset at certain date in future at specified price.  

Option is contract between 2 parties who agree to buy or sell underlying asset without any obligation. In this case buyer of an option is required to pay some premium to seller (who in return get into obligation) and needs (seller) to sell his asset if buyer want to exercise his right. Options are both (Exchange traded as well as over the couter) Options are of 2 types - Call Option and Put Option. 

Forward is contract between 2 parties (without exchange - middleman) who have agreed to exchange ownership of underlying asset at specified (fix date) at agreed price in future. 

Swaps are contract between 2 parties who have agreed to exchange cash flows in future. These are not Exchange Traded Contracts. 

In our next few posts we shall try to write more about these. 

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Average True Range...!!!

Apart from Volumes, Volatility also plays an important role stock market trading.

We have already discussed Volumes and Volatility in basic way. 

Also on our Telegram Channel and Twitter Handle we have ready given links where daily Volatility reports can be downloaded. Still to make it easy we are sharing those links here again.

https://www.nseindia.com/products/content/all_daily_reports.htm 

https://www.nseindia.com/products/content/derivatives/equities/homepage_fo.htm 

Anyway let's move further and discuss one of the volatility indicator which is commonly known as ATR (Average True Range)

Actually ATR is calculated by average of 'N' days for which range is found. 

Range means difference of high and low for particular timeframe. Ideally parameter taken for ATR is 14 but this can be changed/modified as per trading requirement. 

ATR can be used to determine target or stoploss or upside resistance or downside support as the case may be. 

In low range or consolidated market moves use of ATR may not serve purpose.

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Long Liquidation...!!!

In our last post we saw that how short covering takes place

Now in this post we shall see that how long liquidation happens. 

Ideally long liquidation takes place when underlying asset is in uptrend but some consolidation takes place and at last due to lack of patience trader or holder of such position may exit. 

Please note volumes in derivative space is secondary aspect.  

Lets see first chart short covering has taken place. 

In above chart we can see long liquidation takes place with decrease in price and decrease in open interest. (click on image to see incase of any issue) 

Lower panel bars are open interest and not volumes. We can see that with consolidation for some time results into long liquidation and hence that results into open interest decrease. 

This is how long positions taken earlier are liquidated at later stage in slow or sudden move as the case may be. 

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Short Covering...!!!!

In our last post we saw that how long positions are built

Now in this post we shall see that how short covering happens. 

Ideally short built-up happens with slow or gradual increase in prices or in consolidated moves with slow or above average increase in open interest but Short covering is quick

Please note volumes in derivative space is secondary aspect.  

Lets see first chart short covering has taken place. 

In above chart we can see short covering has taken place with rise in price and decrease in open interest. (click on image to see incase of any issue) 

Lower panel bars are open interest and not volumes. We can see that with sudden up-move in last 5 candles (with arrow mark) there is also normal to high decrease in open interest. 

This is how shorts built earlier and liquidated at later stage in sudden move. 

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Long built-Up...!!!

In our last post we saw that how shorts positions are built

Now in this post we shall see that how long positions are built with happens to prices and how these long are liquidated thereafter. 

Ideally long built-up happens with slow or gradual increase in prices with slow or above average increase in open interest. 

Please note volumes in derivative space is secondary aspect.  

Lets see first chart Long Built-Up has taken place. 

In above chart we can see Long Built-Up has taken place. (click on image to see incase of any issue) 

Lower panel bars are open interest and not volumes. We can see that with slow and gradual increase in prices (with arrow mark) there is also slow and gradual increase in open interest. 

Also by the end of chart or at last bar we can see after prices went down down from top and also there is significant decrease in open interest. 

This is how Longs are built and liquidated thereafter. 

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Short Built-Up...!!!

In our previous post we have already cleared change in open interest should be interpreted in different ways and not with simple statistics that fall in price is profit booking or increase in prices are short covering. 

Any way in this post Let's try to understand terminology Short Built-Up 

Ideally short built-up happens with sudden fall in prices with huge or abnormal increase in open interest and ends with minor upward movement in price and decrease in open interest. 

Please note volumes in derivative space is secondary aspect.  

Lets see first chart short Built-Up has taken place. 

In above chart we can see short Built-Up has taken place. (click on image to see incase of any issue) 

Lower panel bars are open interest and not volumes. We can see that with huge red candle (with arrow mark) there is also sudden spurt in open interest. 

Also by the end of chart or at last bar we can see after prices turned up and also there is significant decrease in open interest. 

This is how shorts are built and liquidated thereafter. 

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Changes in Open Interest...!!!

We generally use words Short Built-up, Long Built-up, Short covering or Long liquidation but these words are mostly wrongly used by many of us. 

Whenever we see one sided move in any stock/index we use words Short Covering or Long unwinding/liquidation but many times our we mess up these and at many times results into loss making trades.

Lets try to understand these words one by one. 

Short Built-up

Such scenario happens when there is decrease in price with considerable increase in open interest (additions in open interest should be above normal) 

Long Built-up

Such scenario happens when there is slow and steady (sometime it may be sudden) increase in price with (gradually or sudden) increase in open interest

Short Covering 

Sudden or very speedy increase in price with high liquidation of open interest which is routine phenomenon Bull Market.  

Long Liquidation 

Decrease or flat market in prices with decrease in open interest is general indication of nearby Bear Market



IN NEXT FEW DAYS WE HAD WRITE SEPARATE POST FOR EACH AND EVERY ONE OF THESE WITH EXAMPLE. 

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

Volatility Indicators.

Volatility in simple words can be said as movement in prices. 

Basically volatility is must in any market for trading purpose. For investors it may not make big difference. 

Volatility is measured by mean deviation of mean price of underlying asset for given time period. 

But apart from this many traders use standard deviation also for calculating/considering volatility. 

Generally Traders use different indicators for considering volatility for their trading purpose. Majorly used indicators are as under:-

ADX (Avergae Directional Index) 

Bollinger Band (Bollinger Band) 

ATR (Average True Range) 

In next few posts we shall post in more description about these indicators. 

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Difference between Volume and Open Interest in Derivatives.

Often traders get confused between Volume and Open Interest

We have already discussed what is Volumes and what is Open Interest 

Let us try to understand this via simple example.  

(if you are not able to see full image please click on image to enlarge) 

From this we can understand that there is no correlation between Volume & Open Interest. 

Let try to see via different examples. 

From above examples we expect reader must have got clear understanding on difference between Volume & Open Interest

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What is Volume...???

Volume is one of the most and common word used in stock market. 

In simple words volume is number of shares traded of a particular stock for given particular day or time period.

Now if we talk about derivatives then please note there is difference between open interest and volumes. 

But please note only volumes are not important part trading or investment activity. 

For any stock to move up or down many other factors also play and important role. 

Most commonly used strategy for understanding bullish or bearish tone is to know delivery volumes. 

Such data/information is easily available on lead stock exchange websites. We are try to give few examples below:- 

NSE India Website

  

BSE India Website

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Ideally high delivery quantity/percentage is considered Bullish (more upside) given condition that stock is in upward momentum. But it must be noted that for every delivery seller there is delivery buyer. 

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Please note this blog post is for education purpose only. While utmost care is taken while writing this post but any human error cant be ruled out and we apologize for same in advance. 

What is meaning of Open Interest...???

Open Interest is word used in derivative trading.

Open Interest is total number of contracts which remains outstanding by market participants at the end of day. 

In other words Open Interest are those contracts which are not squared off on same day after entering in position.  

Ideally traders gets confused between open interest & volumes but there is huge difference. Anyway let's try to understand Open Interest by easy example. 

Please note we are not considering profit or loss in below example. (click on image if full image is not displayed)

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Please note we have considered only lots and not lot size or volumes in above example. 

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