Hidden bearish divergence appeared. More selling on NIFTY to come.

The downtrend continued but with timid volumes. Yesterday 21st Dec NIFTY was in the positive territory almost throughout the day, in the last hour fresh selling pressure came in the market and NIFTY closed 21 points lower and a nice hidden bearish divergence was formed in our SMT chart (the green line). Therefore we had to close our bullish hedge and short the market by selling NIFTY futures and 8000 Jan series puts.

As mentioned in the previous blogs, the bullish hedge was created by buying NIFTY futures (at spot value 8150) and selling NIFTY 8250 calls. These calls were losing value faster and when reached to a delta of near 0.20 on 20th Dec, they were squared off with good profit and simultaneously fresh 8150 calls were sold, which mitigated our loss (on futures) largely. Since the calls were sold at a higher quantity (1.6 times the futures contracts) they created a better hedge when the prediction did not work as anticipated. Therefore despite the futures contracts losing about 100 points since opening, the entire unrealized loss on this were covered by the profits gained from the sold call options. That is the beauty and biggest advantage of this trading strategy.

Tags: hidden divergence, custom indicator, divergence, proprietary trading, futures, trading, smart money tracker, smart money, nifty, indian stock market, forecasting, regular divergence, derivatives, finance, prediction, options, market analysis

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