Experiments in Technical Analysis

asnavale · #**561** 31st December 2006, 07:14 PM

Quote:

Originally Posted by karthikmarar

Just Sharing a few thoughts…

We should have different stops … a “Start Trade Stop/ Stoploss” for capital protection and a “Trailing Stop” for locking in the profits.
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Warm regards

Karthik

Hi Karthik,

Just sharing my views on stoploss concept. I agree with your concept of different stoplosses, an intial "Start Trade Stoploss" followed by a technical stoploss.

When we enter a trade we can adopt a percentage based stoploss as per MM rules we want to follow. If the current price is against us and differs from buy price by an amount equal to or more than the SL% we should exit. If, after entry, the prices move in our favor such that the current price differs from the entry price by more than the SL%, then switch over to a trailing SL. Then our exit will be only if the trailing stoploss is hit. Even if the system gives a SELL signal, we should ignore it till the trailing SL is hit. A recent case is that of EDUCOMP. On 27-12-06, based on Closing price a SELL signal was generated. But next day, although the price initially fell further, it recovered and went higher than the previous Close and thereafter it has resumed its uptrend. If we had a trailing stoploss, the SELL signal would have been ignored and we would continue with the uptrend. The question would be how to fix the trailing stoploss. We may discuss this further. May be you or other members have different views. I am just expressing whatever I could think of.

Regards

-Anant

asnavale · #**562** 31st December 2006, 11:01 PM

I WISH ALL MEMBERS A VERY HAPPY AND PROSPEROUS NEW YEAR. MAY THE NEW YEAR BRING LOTS OF PROFITS TO ALL.

HAPPY TRADING

-Anant

premsinha12 · #**563** 11th January 2007, 10:22 PM

You are going to start a very good learning platform where every person working on TECHNICAL ANALYSIS can share his experience and get benefitted.
We all will be with you in this learning & teaching process.

Quote:

Originally Posted by karthikmarar

Friends

Nowadays I see lot of interest in Technical Analysis among the members. Saint is doing a wonderful work in teach Technical Analysis with his great Thread “Teach a Man…”.
The logical step normally one takes after learning the basics of TA is to experiment with various Indicators and trading systems. We all go through this in our endeavor to come up with a good, workable, profit making Trading system. These experiments teach us lot about the behavior of various indicators, setup and the pitfalls.

If we sharing our experiments we can gain more insights, get new ideas, get to know the pitfalls and increase our knowledge. So I am starting this thread as a platform for sharing our experiments, ideas and our own research.

I will be posting some of my experiments with trading system and indicators. I also plan to cover some systems I have come across. Also I will talk about some of my custom indicators. But all these studies would be based on short to medium term perspective. Intraday traders will not find anything for them I suppose. Maybe these will work on shorter time frames also, but I have not tested these for such time frames. I will also post the Meatstock codes and Amibroker afl whenever required

Please note this will be a public thread and everybody is encouraged to post their studies and experiments so that we all can share and learn.

Soon I will kick start the thread with my first trading system.

Warm regards

Karthik

karthikmarar · #**564** 12th January 2007, 09:47 PM

Hi prem

Thanks. learning and sharing... that was the very idea behind this thread. It has turned out a nice thread and hope it will go a long way

warm regards

karthik

karthikmarar · #**565** 12th January 2007, 09:51 PM

Hi friends

The first round of the System Implementation Exercise (SIE) is concluding today. It has taught all the participants a lesson or other. For me it has shown how such an exercise with a new system tells so much about the drawbacks of the system. Any amount of Backtesting will not give such a feel. It is good to implement such an exercise before one starts with his or her own new system.

Now the second phase of the SIE will be starting on Monday. I thought now I can spend some time for this thread.

As I was looking at my old notes on experiments in TA to select something interesting to post, an often repeated compliant came to my mind. There were many telling me that there is nothing for us Newbee in this thread. I has always thought that thread was the right one for a newbee. Looks like I was mistaken.

So this time something for the newbee.. I will take up something very simple but something a new TA aspirant always face first…. The MACD.

So I will cover in a series of post ..”Trading the MACD”..

I plan to cover the following topics

Basics
Basic signals
A deeper look into the MACD to get additional information
Combining MACD with other Indicators
Afls
Finally a consolidated pdf file of entire discussion with charts.

(let me see how far I can go on this..

)

For a glimpse of what we will look at, eclosing a sample chart..

warm regards

karthik

jayanti1108 · #**566** 12th January 2007, 10:01 PM

It will be great with your new thread with MACD. For any newbie like me this will be of great help.

WISH YOU ALL THE BEST......

rahulg77 · #**567** 12th January 2007, 11:48 PM

Hi Karthik,

Great Idea....I am sure u will cover this but also a look at MACD combinations for different periods such as daily, hourly and intraday charts. would there also be a logic why certain MACD combinations are better for daily and which will work the best for 5 minutes chart and why. Also will the combination we use for daily chart, change for a certain script ( maybe based on volatility).

I think these points if discussed will help all of us.

Rgds

Rahul

aca_trader · #**568** 13th January 2007, 10:58 AM

Quote:

Originally Posted by karthikmarar

So this time something for the newbee.. I will take up something very simple but something a new TA aspirant always face first…. The MACD.

So I will cover in a series of post ..”Trading the MACD”..

warm regards

karthik

Wow! Another Learning Opportunity.
Eagerly waiting for it to start.

Best Regards,
--Ashish
tradingtalks.blogspot.com

karthikmarar · #**569** 13th January 2007, 09:44 PM

Hi friends

First, Thanks to Jayant, Rahul and Ashish for the encouragement. I do hope this will be useful to newbees. My friends say that I have a knack for complicating simple things. I do hope that will not be the case here.

Most of you know the basics of MACD. Still for the sake of completeness I will explain in brief the basics.

The MACD or The Moving Average Convergence Divergence was by Gerald Appel, It is one of the most popular indicators. It is a very simple reliable Indicator. Also it is an Indicator a TA enthusiast gets introduced to first. The MACD is constructed by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. The MACD is considered to be a momentum oscillator though it is widely used by Trend followers.
The most popular formula for the MACD is the difference between the 26-day and 12-day exponential moving averages. I will use this standard setting and later if time permits I will try to present other combinations. A 9-day EMA of the MACD line is used as the signal line.

A positive MACD indicates that the shorter EMA is greater than the longer EMA indicating that momentum is positive. A rising MACD indicates the difference between the short EMA and the long EMA is increasing and in other words indicates a rising momentum. In the same way a negative MACD indicates that momentum is negative and a falling MACD indicates an increasing negative Momentum.

Refer chart-1

To be continued....

regards

Karthik

karthikmarar · #**570** 13th January 2007, 09:54 PM

Three common signals

MA cross over or signal line crossover. The basic and the most common is the signal line cross over. Buy when the MACD line crosses above the signal line and Sell when the MACD line crosses below the signals line.
Zero Line crossover. Some use only the zero line cross over as signals. Buy when the MACD line crosses the zero line and Sell when the MACD line
crosses below the zero line.
Divergences

Let us see in a little detail what happens when the moving average cross over and zero line cross over occurs.
Let us assume that the stock is in a downtrend and the MACD is below the zero line and below the signal line. Then when the Bullish moving average cross over (MACD crossing the signal) occurs the shorter EMA has started converging towards the long EMA indicating the negative momentum is waning. It does mean that the bullishness will continue. It may or may not. So a Buy when the Bullish cross over occurs does not always produce a good trade.

Now consider when the stock is in an up trend and the MACD is above zero and the signal line. If a Bearish cross over occurs (MACD crossing below the signal line) the short EMA has started to converge towards the long MA indicating that the positive momentum is waning. It again does not indicate that bearishness has set in. It may be just a pull back. The stock may dip and then continue its journey upwards.

When the MACD cross above the zero line it mean that the short EMA has actually crossed over the long EMA indicating that the momentum has indeed reversed from negative to positive. In the same manner the when the MACD crosses below the zero line it means the momentum has turned negative. The Bullish zero line cross over generally gives better trades. But many times it will notice you are entry is much delayed. The Bearish zero line cross over gives too much of your profits and some time one loses money too.

To summarize

Buying based on Bullish MA cross over does always produce good trades. However in many cases this does helps in early entry points. How to distinguish is the problem. Combining with other Indicators may help. We will explore this later.
Selling based on Bearish MA cross over may take you out of the trade too soon. Again combining with other Indicator may be of help in deciding if it is time to get out.
Bullish zero line cross over generally prove profitable. The drawback again the entry point may be delayed in many cases.
Selling based on Bearish zero line cross over may give away too much of your profit. A trailing stop may help in over coming this issue

Chart-2 illustrates some of these points.

to be continued...

regards

karthik

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