Let’s continue from the discussion of https://forum.unofficed.com/t/session-1-the-pen/15. What happened to the PEL trade? You can see that PEL has longed the moment the news is posted. A slight look at the chart and I bought it.
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And the trade was booked in couple of minutes. This sudden surge happens on falls like this. This happens because all longs pressed exited at market order doing panic so the supply of sell orders increases and demand of buy order decreases.
Sellers are hence forced to sell at a higher price. (Note if you are holding a stock, you need to “sell” to get rid of it). But you may ask why I booked profit?
Because what happens next is even more dangerous. People go short on it with tight stop loss as it is a lower high (The concept of lower high will told later). In short, as it surged abit, the stop loss of the short if done at that time is near to the entry making risk and reward juicy.
So it falls rapidly too.
This is called scalping.
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Another buy and sell within minutes. Now how I spot when to enter and when to exit will be discussed later on but what I am pointing here is - The more you do the trade, the more is the chance of hitting your stop loss.
It is a basic rule of probability.
Now I bought again but I am sure that it can fall this time because no one wants to keep overnight long position into PEL after this level of news.
But I was confident that it will come up.
- Anyways I bought december futures.
- Expiry was within 48 hours. So I shorted an OTM Call options.
When stock falls, the fear rises. Options being an insurance (will be explained later) also rises abnormally. So I got a nice premium too. What happened next?
So as you can see one can survive without a stop loss. Stop loss is just another measure of risk management. As long as you’re actively managing it and acknowledge that there is a risk - Everything is fine!
This will be discussed into details later. But will serve as a good example that how one tweet share of Pramod makes 30K 
" This sudden surge happens on falls like this. This happens because all longs pressed exited at market order doing panic so the supply of sell orders increases and demand of buy order decreases. "
When the number of sell orders is increasing and buy orders decreasing, shouldnt the price go down instead of going up ?
Four things -
- New Long
- Long Covering - Closing the Long (i.e. it needs short order to close that)
- New Short
- Short Covering
What you are seeing here is first of all short covering (sorry if i am creating confusion.). So the guys who were shorted are booking quick, like i am longing and booking quick!
Then due to this, it is shooting up as there is surge of buy orders.
Now what happens is Long covering. As many people were praying to exit on slight bounce. They got their bounce!!
Then what happens is New naked short which crashes things more down.
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Could you perhaps explain the four points ?
I am not able to make any sense of your explanation still 
Long: Long position is to buy the stocks first and then selling it later.
Short: Sell the Stocks first (without having stocks in account) and then buy them before the final settlement.
Long Unwinding: Close out position of Long, i.e Selling the stocks to exit the long position.
Short Covering: Close out position of Short, i.e Buying back the stocks to exit the short position.
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