SK Biswal Chief Engineer at ONGC. Interested in Stock option trading ,Technical Analysis of Stocks & Commodities

Apex Management Manual For Oil Industry Applied To Trading In Stocks

7 min read

We read and follow countless trading strategies for day trading, position and many more.You find trading strategies for break out, momentum and trend following trading strategies or procedures.We have Bollinger band or Rsi based strategies and MA cross over or candlestick strategies and tutorials available in youtube for future or stock trading.Inspite of all these strategies we fear to trade or if we do trade,we end up in loss.Are those strategies and implementation faulty or is there errors in our understanding and assumptions which are responsible for bad results?Well to give one example.Can you keep 11KVA high tension line lying on ground? Can you lay high pressure gas line exposed or laid underground ? Certainly not.High pressure gas line sometimes have pressure 4 times as high as that in domestic gas cylinder.Potential danger is incredible.But does the lay people know that?Or does he have competency know that ? His understanding is sense of indifference or at best a perspective of an harmless water carrying pipeline.Just seethe difference of perception between the assumption and reality.Lifeand death.Only a qualified and competent engineer understands and realizes this reality.Yes trades and trading are no less dangerous as compared to exposed high tension line or high pressure gas trunk line in terms of their immense suffering.Trenching is equally important for HT lines and trades to keep them at arms length from human life – in case of trade it your and your family life.Qualification and competency matters in trading .Volatility and manipulations ,now HFT and Algos have rendered trading more like 11KVA three phase high tension wire which are to be understood and handled by experts .Just blindly implementing strategies is fatal.

 
STARTING WITH BREAKOUTS OF TOMATO PRICE

LITTLE EXPLOSIVE TOMATOES

I am trying to investigate one common strategy as part of understanding the idea of the topic.When you buy a break out and it fails and falls back through the lows of the previous day it is time to get out. If the lows of the break out day are held that is a good chance of a new range and trend beginning. It is like inflation of commodities.Once price of certain commodity breaks a level ,it stays there for good length of time.Take price of tomatoes now which is ruling at Rs 120.00 per Kgs .Just watching its progress from range to range ,it provides objective lessons to trading in stocks in phenomenal way.From 15 to 20 range to 40 to 60 range and finally jumped to 100 to 120 range in less than couple of weeks.This is break outs in our day to day life but gives important lessons to sophisticated trading as to the power of breakouts .Merchants are enjoying these frequent break outs now days at the expense of common man and consumers .This is political part of breakouts and news papers calls them inflation and volatility.But it is combination of supply and demand dynamics plus sentiments.Or due to black marketeers and hoarding or simply manipulations.

Yes breakouts are driven by consumption demand ,speculation due to sentiments such as greed and manipulation.Price breakouts and greed feed each other and price gains further traction to next range or to next resistance level.So this is high probability trade.In theory ,every thing sounds fine and sure way to make profits.But based on this assumptions ,you trade – you end up in loss.So what went wrong?

UNDERSTANDING CYCLIC SYSTEM OF PRICE

Trend following as a trading strategy has pitfalls and trades if not handled technically like applied engineering..the net result is going to be zero.This is because price has cyclic  property like a typical processing cycle in refinery. Faulty engineering leads to wasteful internal recirculation within the system with net output zero or less than expected  due to passing valves. Therefore understanding engineering of equipment cycle and their functioning can only help achieve successful trouble shooting and desired results. Grasping the concept of wave nature of price and proper engineering of trades can produce desired result .Lack of it leads to internal recirculation with no net result. Imagine using a common ring instead of a split ring in an electric generator with net result of no current in galvanometer. Just refer to your high school physics. Understanding principle and engineering of mechanism is as much critical to trading not a common sense thing always.

ORBITING STOCK PRICES
stock prices tend to rotate and have rotational motion. It takes the form of wave in charts, Wave is graphical or schematic representation of rotating motion of prices like rotation of moon around the earth.so our common tendency to expect linear trend with no volatility is based on ignorance and illusive byproduct of greed and false assumption. This is like assuming moon would one day go tangentially off the orbit around the earth.Rotating motion is reduced to or represented by sinusoidal waves for oscillators .But to predict that this sinusoidal wave would someday get converted to a parabola for an oscillator is absurd and wishful thinking. Rotation for oscillators are a hard fact and reality. So is volatility of stocks.

But chart is sum of its parts. Each phase, up or down is followed by obedient and loyal medium term and long term averages like 50 and 35DMA and can be used as trend reversal.

However momentum is different cup of tea.Infact even when trend remains firmly up ,momentum or relative change could be zero or negative. You can not rely on trend for day trade or position trade. So it is important to distinguish between trend and momentum. Momentum is net directional velocity at the end of a wave, If price makes back and forth moves by 200 points , relative change is zero despite the trend being up.So one has to trade from level to level to catch relative change. Just you trade a trend as is done trend following strategy ,net gain going to be zero at the end of wave.Engineering matters her as does in refining or current generator.

WISDOM OF OIL AND GAS INDUSTRY AND GAME OF CHESS

Working in hydrocarbon industry carries life risk forever as oil and gas are highly inflammable substances .Therefore safety precautions and control measures carries premium here in terms of responsibilities.Heads rolls and criminal proceedings are initiated in case of negligence ,incompetencies and dereliction of duties responsibilities.It is chess board where well calculated strategies are played profitably.In spite of these serious consequences and possible lapses and costs .the industry is thriving in last century. In fact Banks and hydrocarbon sector share many risk aspects and impacts.Financial markets have crashes ,depressions ,bankruptcies or simply volatility and manipulation and hot or smart money.Well ,the prime responsibility in trading is to control the impact of twin risks such as manipulation and traps by cartels for both small and big traders.This is giant chess boards and some times decks are stacked against you as part of routine.Remember the risk of Chess.

HOW TO KNOW WHEN YOU ARE BEING GAMED ?

For example ,As described in above strategy,if after break outs price can not sustain the move and falls below previous day low ,your trade is up against manipulators and you got to exit which normally one does.This is controlling the risk before disaster buffet you and your account.In oil and gas industry decision making is quick and clear.The first person responsible has to stop the welding jobs in case of gas leaks or uncontrolled fire and call the tender .Simple direction is given to stop gas supply to consumers even for minor leaks due to potential nature of risk to people’s lives.Business and profit takes back seat.

With my limited perspective of market,potential risk or hazard it trades and stock market is rampant manipulations like match fixing in cricket matches and chess game tactics of smart money and cartels.As in case of gas leaks ,you are alerted of the potential danger and control It by by cutting off supply,in trading and stocks ,once yesterday’s low is taken or some other such things happened you should be alerted of manipulators ,pirates gaming you and exit.This is rationale behind exits of various strategies and sensitization of RISK.Risk is not just nearest level but lively creatures haunting you at some hidden and remote terminal targeting your trading account and balances in it.

VOLATILITY Vs GAMING

Trendlines ,patterns breakouts,moving averages and indicators ,resistance and support levels or pivots or fibs all do have real impacts on sentiment and actions of traders and people as vouched for in TA books to create bullishness or bearishness or neutral.They do imply and induce emotions such as greed or fear or nothing.One has to merely observe oneself and verify their authenticity.It does not take much.Then price gains traction either way or contracts.One can rightly anticipate or predict the future course to a certain degree by looking at the chart features and combining with sentiment.However most fail to profit as we tend to ignore volatility which is reality of random nature of market due to noise.Market is unique as it is random yet predictable so nicely.This is beauty.Harmless noise only when you learn to cohabit with it.Noise disturbs ,distracts and destroys trades if not planned and creates doubts and confusions.This is not safety issue and one should not exit due to noise or volatility or trades should not lost to whipsaw.

On the other hand,fatalities and losses occurs when your trades are gamed as in chess game.In chess like scenario ,there is no safety ,you are up against someone formidable like match fixers.You have to quit then.

RESPONSIBILITY IN TRADING

Responsibility in trading is exactly that in Hydrocarbon industry.Safety is primary concern in oil and gas sector and business values take back seat.Be it refining, drilling ,processing or transportation and handling ,unsafe conditions and unsafe practices can cause immeasurable losses to human lives and property and have serious legal implications.So the industry has huge responsibility in terms of handling these risk and conducting its business.

Two aspects are important and common to oil industry and trading.one -There are huge risk associated to both businesses.Second both business have to be conducted to make profits to make economic sense.So both business have to be vigilant and put in place robust contols to make business meaning fully.

To give a sense , BLOW outs happens in oil drilling rigs sometimes when drilling is in progress and causes losses to lives and resources.But oil companies can not stop drilling.Prvention mechanisms and continuous high tech monitoring have resulted in high performance drilling despite the monster of disaster forever lurking.The drillers lives are always in line.Yet a good driller goes about doing his job always following the operating or strategy manual and keeps safety manual handy for contingencies.

In gas transportation ,there is risk of pipeline leaks and big blast and fire as recently happened in Taiwan when many died.Due to this potential danger ,pipelines are monitored real time and in case of minor leaks ,gas supply is cut off which means loss to company.Here I am talking of responsibility –responsibility not only to make profit but responsibility to prevent dangers or risk.TWIN RESPONSIBILITY are applicable to trading as much as to oil industry.

BIFURCATION OF QUALITY AND SAFETY OBJECTIVES- HOLISTIC MANAGEMENT

Any professional has to follow the quality operating procedures called various strategies to execute the job he is assigned to and refer to the Risk register to control or prevent contigent risks or hazards.Both together constitute the management manual but not only those strategies peddled in net.This is where most of us are wrong and getting poor results ultimately.Major disaster happens both in trading and oil industry only when quality objective and procedure manual or trading strategy is blindly followed and safety bench marks are overlooked and hazard aspects are neglected due to ignorance,incompetencies and mismanagement or personal character and profile.

So it is important to have sense of both Job quality objective and Risk awareness or sensitization.In fact it is more important to have sense of risk and danger involved or else one fails in one’s responsibility criminally.Now imagine a lines man not knowing danger of 11KVA High tension line and going to work.Death trap.A sensible trader should be aware of all hazards and also the risk of predators and manipulators in Chess board called market before executing a strategy as Good driller would always go about his drilling job fully aware of the potential blow out conditions waiting and timely quit to save his life.Learn strategy but learn to detect blow outs.Follow APEX manual ,of which trading strategies are only part.

Now start drilling and watch out for Blow outs.Our oil companies have drilled many.

SK Biswal Chief Engineer at ONGC. Interested in Stock option trading ,Technical Analysis of Stocks & Commodities

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