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Friday, 8 March 2013

Why is market moving up – Understanding the Psychology

Dear Readers
Why is our market moving up continuously. All sectors are participating in this rally. If you remember, we had a catastrophic fall on the budget day and everyone was negative about the future. What changed now ?

Reason is simple. Lot of people went short in big numbers on the day of budget, thinking that it is the end of the world and Indian economy. Those who were wise bought the bottom on the budget day. Shorters are now trapped.

From that day SLs are triggering for the bears and this is keeping markets up. Shorters are trying to exit every downmove and that is more than enough to support this market at this point in time.

Again, I warn my readers not to trade based on a news. I had also written that markets will stabilize only in 2-3 days after budget and trend will emerge. This applies to all major news events.

As as example, if you look at L&T chart, lot of people went short on the budget day. The stock started moving up from next day and one by one, their SL levels are taken off and this is moving the stock  up. Some of the bears turned bulls, thinking that they can now make up for the loss if they reverse the position.

Nifty vs Dow

Nifty has a very good correlation with Dow historically. But several weeks before the budget, Nifty is not moving in tandem with Dow. While Dow is making historic highs now, Nifty is not. Bulls think that there is a catch up left for Nifty with respect to Dow. This is another reason for the upmove.

Friends, it is important to understand the basic psychology so that we do not get mislead by the wrong guidance from different analysts who just give calls after the downmove or upmove has started. I got several queries from readers on how and when to exit their shorts made on budget day. I strongly recommend my readers NOT to make trades on such knee jerk reactions based on news.

Read my interesting posts on news based trades here. I am sure after reading these, you will stop trading based on news !!

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