Trading Plan For Each Market Situation.

Any Market(Commodity , Equity , Currency) remains in Consolidation or range bound for 70% times , extreme volatile 5% , 20% times in trend which includes normal & extreme both & 5% non trending or non trading .

We must have trading plans for 

a) Consolidations.

b) Trending (Normal & Extreme)

c) Non trending.

 Consolidation Trading Plan:
Strictly keep r/r 1:2 & follow your stop losses as market may remain in range & moved in both directions so chances are higher for stop loss hitting.

Technical formations: Triangles, rectangles, pennant, horizontal channels are the common formations.

Volumes: Random & low compared to trending market.

How to trade Consolidation: First of all find major upper & lower level for break out. Usually rsi took support at 40/30 & resist at 60/55 level. Make position near resistance & support with small stop losses.

Success ratio: 50-60% ratio is good enough n happy trading as most of the time we remain in this zone almost 70%. So if we go with 50-60% ratio with r/r 1:2 we can earn good amount for life spanning n savings too.

Trading quantity: Trade with risk capitates but suggests keeping small sized quantity.
Stress level: Medium, need to control over quantity traded n playing each n every move of market. But can be controlled by keeping patience.
Fear & Greed Factor: Both come simultaneously with randomness. Market test your patience n force to put trades, some spikes can be seen.

Risk of Ruin: Medium to low, as major part of your trading goes in brokerages even if you go with small stop losses.

Trending Trading Plan:

In trending market keep a risk reward ratio of 1:4 or above or we can simply follow trailing stop loss method to retain maximum profit from current trend.

Technical Formation: Breakout from reversal pattern like head & shoulder, Double top/bottom , cup n handle , triple bottom/top , wedge formation , triangles .Breakout from Continuation pattern like all consolidation patterns, Channels, pennants, flag, triangles, rectangles.

Volumes: High at breakouts, medium in between trend & extremely high or low at top/bottom. (Sign of reversal).

Extreme Technical Formation: Bump & Run, Channel, small flag & pennants.

How to trade Regular Trending Market:

First confirm the breakout from both reversal n continuation pattern then take entry with proper sl go ahead for target. In trending market RSI for bulls took support near 40 & find resistance near 80 zone & remain in upper range while in bear market took resistance near 65 n supports at 20-25.Also u can remain in trend with the help of moving averages for trailing stop loss method or can use parabolic SAR. In trending market you must have a rock solid exit strategy to remain in full trending market.

Success Ratio: If u enter correctly in market than your success ratio can be up to 100% . Normally 80% success ratio is achieved during this period. As maximum profit will make in this move only .We have to get maximum out of it & earning could be life changing amount.

Trading quantity: Normally enter with medium to large quantity n add more positions in pullbacks & corrections.

Stress level: low when entered properly & extremely high when entered wrong n holding it. This is the market condition when u should remain n play each n every pullback n correction as r/r ratio is favourable n works for you.
Fear & Greed Factor: Greed is commonly at high level, fear remains at low level. Confidence of participant is high.

Risk of Ruin: Very high if play against the trend. Low as everyone makes money in it; small or big J

How to trade Extreme Trending Market:

Normally moves are very large n swings are also very large. One should keep focus on entry & exit for this kind of movement. Usually suggest to follow trailing stop loss method to gain maximum out of it n be with this extreme move. Exit is more important in this trend coz swings are very large n when trend changes it is not easy to pretend, while return in this move is too high so on risk is also too high. From risk/reward ratio one should focus on risk prospective instead of reward as price action is too fast so as gains.

Technical Formation: Most Common formation is bump n Run, Extended channels, extremely overbought /oversold indicators. RSI values trades b/w 90-95 to 60-55 for bulls & 55-60 to 15-10 for bears.

Volumes: Volumes remain high during full trend & extreme at end of trend due to major short covering/fresh buying. (Sign of reversal)

Trading quantity:  Again I suggest risk is more imp than return in this kind of market. Even small quantity can give u awesome returns in terms of profit.

Stress level: Very high for those who are on wrong track, low for who are on right side?

Fear & Greed Factor: Greed is at extreme level n fear joins the party in later part of trend. Over Confidence is commonly witnessed. One should try to keep emotions in control.

Risk of Ruin: Very very high if play against the trend & Low for who are on right track as money flows in particular direction. J

Non Trending Market:
It is advised not to trade this kind of market as we can see either no volatility in this phase of market , volumes shrinks a lot which provides lot of confusion in mind whether trade it or not fear n greed both comes simultaneously n create more panic situation. This market only creates brokerages which creates risk of ruin to very high level. Confidence level is at lowest level.

Correlation B/w Currency & Commodities

Today We  will discuss Correlation b/w Currency & Commodities.

Correlation (Definition) :In the world of finance, how two securities move in relation to each other can be defined as mutually correlated to each other.

It can be classified as:
1) Positive Correlation(Directly proportional)
2) Negative Correlation(Inversely proportional)

1)Positive Correlation:It can be defined as when one security moves in any direction(up or down ) ,the other follows it significantly.

2)Negative Correlation: It can be defined as when on security moves in any direction (up or down), the other do exactly the opposite of first one.For eg. if xyz security moves up ,then second security moves in downward direction.

This are the basic that one should keep in mind before we move forward. Now we will discuss this funda in Indian scenario. We will understand this concept with the help of 2 Commodities Gold & Crude oil in respect to  1 currency USDINR.

In India , as we all know that around 70-80% of crude oil is imported in India. As per international market treaty , we have to pay them in USD. Also prices in Gold are decided according to International market  n coz of higher demand in gold from Indian people n jewelers we have to import gold from International market to fulfill our local demand  & pay them again in USD. So basically price of USDINR will increase as long as we import things n pay them in terms of dollar.

The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of 6 foreign currencies.
It is a weighted geometric mean of the dollar's value relative to other select currencies:

• Euro (EUR), 57.6% weight
• Japanese yen (JPY) 13.6% weight
• Pound sterling (GBP), 11.9% weight
• Canadian dollar (CAD), 9.1% weight
• Swedish krona (SEK), 4.2% weight
• Swiss franc (CHF) 3.6% weight

Here we will discuss USDINR impact on MCX Futures(both gold & crude).
Whenever there is increase in price of USDINR , MCX Gold Prices will also increases , means it has direct correlation with MCX Gold prices in Indian terms. But in International terms Gold have negative correlation with respect to Dollar Index.
Below is the chart showing the negative Correlation between DX & LGD (International Gold).
While this correlation is because It is assumed that value of any currency is measured in terms of how much gold that country has in reserved . USA has the highest gold reserve as compared to all other nations & Many nation had agreed to consider US dollar as benchmark Currency for trade prospective in anywhere around the world. So US dollar remain in demand every time.That is why USA is assumed to be Powerhouse of World Economy.

Why Negative Correlation: It is just coz US dollar has made its standard to be equilant to gold.

Below is the chart of MCX Gold Future & LGD .One can easily see a wide gap b/w MCX gold in red & LGD in blue. This wide gap is due to fluctuation in USDINR. As  USD gain prices in INR also Increases irrespective of prices in LGD n vice versa.

 Below is the chart of USDINR (spot) & MCX Gold. We can see a direct correlation b/w USDINR & Mcx Gold . Simple reason behind this is we import gold from International market & we have to pay them in terms of dollar. So whenever there is rise price of dollar MCX gold will follow the same pattern.

CRUDE OIL

 Another Commodity is Crude oil (Black Gold).Below is the Chart of WTI crude & US dollar Index.It also has Negative correlation with USD coz USA is the largest consumer of Crude Oil.USA also has to import  crude oil from gulf countries , pay them in dollar . 

 Below is the chart of MCX Crude(red line) & WTI Crude(blue line). Prices are directly proportional but we can see some wide & narrow gap which is due to fluctuation in prices of INR w.r.t USD. As gap expand means rise in price of USDINR , while contracting gap literally means sell off in USDINR prices. While cross over shows out performance of Crude due to dollar fluctuation.

Below is the chart of MCX Crude (Red), WTI Crude (Blue), USDINR (spot).

Below is the chart of MCX Crude(Blue) & USDINR Spot(red). We can see some wide/narrow gap which is due to rise/fall  in price of WTI crude while appreciation/depreciation in INR as compared to USD. 

 
 Conclusion : From the above facts , figure & chart we reach to following conclusion.
Gold: If we are trading gold in Indian rupee , we have to keep a track on 2 things.
1) Price in International market i.e. LGD
2) Movement in USDINR.

We have direct correlation with LGD & appreciation in price of USD in terms of Indian market. It means whenever there is increase in price of USDINR , price of Gold in Rupee term will also gain though LGD have no major move or in downtrend
Also , price of gold in rupee term will loose its value when there is decrease in price of USDINR , though LGD have uptrend or sideways move.
& have negative (inverse) correlation With US DOLLAR INDEX.

One should adapt proper strategy to avoid conjunction in prices in LGD & MCX Gold along with USDINR movement.
  Also MCX gold follow its particular trend near to festival season  irrespective of what ever trend it has in LGD.

Crude Oil:  If we are trading Crude Oil in Indian rupee , we have to keep a track on 2 things.
1) Price in International market i.e. WTI Crude Oil
2) Movement in USDINR.

Like Gold , Crude is also very much  sensitive to USDINR , means a rise in price of USDINR will boost prices in Crude in Indian terms & vice versa though what ever trend WTI Crude follow.

but WTI Crude Oil have negative correlation with US Dollar Index.
One should adapt proper strategy to avoid  conjunction in prices in WTI Crude Oil & MCX Crude along with USDINR movement.
    Also MCX Crude Oil closely follow USDINR movement. A fall in WTI Crude along with appreciation in INR w.r.t USD will add on falling pressure in MCX crude oil prices, like it is happening current market .