We all love a bargain… Except when it comes to stocks. The reason boils down to uncertainty. We know what our fruits and vegetables should cost at the grocer’s — but we’re far less certain about how much to pay for a blue-chip stock or shares in an S&P 500 Index fund.
Liquidity and Volume are the two different concepts widely misunderstood by the traders community. High Volume typically represents higher number of executed orders or high trading transactions, however high liquidity represents the order book is stuffed with thick limit orders at Bid and Ask prices levels. More closer the liquidity , lesser the market impact cost and higher the market efficiency.
In the long run, the direction of most equity markets is always up. That’s the best reason one can think of for long term buy and hold style of investing. However, there are downsides in the short term. The efficient market hypothesis indicates that investors (or fund managers) can’t do much about these temporary downsides. Does that mean the market is efficient?
Trading around the Psychological round numbers like 7000, 8000, 9000 are never been a easier task mentally. This is where many trading participants come up with weird forecasting stuff and this is the zone where frequent stop hunting happens and it is the process of removing weaker hands before market does its next move.
If you are a professional future trader in the markets then transaction cost plays a major role while trading. Lower the transaction cost translates to better returns and also reduces the risk to greater extent in the long run. By constructing a Synthetic Futures (Long/Short) we can reduce the total transaction cost by two-third of the actual instead of trading the futures.
Generally Panic events trigger strong emotional reactions that often results in ending up catching the trade at unfair price zones and makes too much cognitive bias which will not allow a trader to revise their trade decision. Lets analyze what happened on Nifty Futures. On 10th Nov 2016 SGX Nifty was trading around sub 8200 levels at the pre-open and market opened with the strong tone of bearishness as the global markets are in panic, S&P futures overnight markets crashed, Asian market crashed.
It is a interesting question from a sentimental point of view. Everyone gets excited especially the media channels and speculators when a popular chairman rejoins the board or a Resigns from the Board. Some how you need to understand that markets are crazy and illogical. So today I brought two case studies to understand how sentiment worked in the past especially when a popular Executive Board Member Joins/Resigns.
Lets understand the price movement of Nifty Future charts on 21st Sep 2016 and lets try to understand how the liquidity hunt happened. Nifty Futures opened within previous days range and started moving up unidirectional in the first 90min which also broken 2 day high followed by sideways action till 12:45p.m. The sideways action is followed by a sharp selloff in the noon session triggering huge volume at the bottom.
The Bloomberg Tradebook Trader Exercise has been designed by The ReThink Group to assist traders in practicing the thinking style. This mind game can be accessed over the web and bloomberg terminal. Ironically, brain and behavioral research shows that the markets only masquerade as a numbers game. They are actually a game that neuroeconomists have called “intentional social risk”.