ok! An update after a long time.
I have worked out our stratergy and after some paper trials my wife has taken it live with trades in stocks. ( she gets time to sit in front of the terminal !!). Also we are using 2 different charting softwares so ot works like double confirmation.
heartfelt thanks to sh for his 315 system which i have used as the bedrock of my stratergy.
basically we use either 5/13(wife) or 3/15(myself) ema crossovers. We are finding that both give signals at around the same time. Additional emas are 20, 34 & 50.
Adx is used to confirm trend. - we use setting of 9.
Rsi (9) & stochastics (9,5,3) are the secondary indicators.
Atr (5) - i just use it to get an idea of possible range of daily movement. But it does not work too well when the scrip breaks out. Many people say stop loss should be @ 1.5 atr, but i have found this to create excessive loss if position moves against you. So work out s/l based on support resistance levels or % loss acceptable.
Support & resistance lines are the most important. - these are drawn manually. The more the no. Of touches the stronger is the line & i increase its line thickness accordingly.
Volume is most important. I look for atleast 200% increase vis a vis of 50day average to even look at a scrip. I found this works to filter out manipulation. I also look at the % increase in price vis a vis volume increase. Gives some idea of the strength of interest, though it is not foolproof.
Now the methodology is something like this:-
(we are cuurently only tracking bullish movements. So following comments apply accordingly.)
1. Study the chart after getting 3/15 or 5/13 crossover. Done in the evening immediately after data is available - so monday to thursdays no evenings out
. Needless to mention there must be significant volume activity (atleast 200% rise).
2. Based on this select stocks that we are familiar with & are atleast rs.60-70 in price. I further limit myself to only f&o stocks as in future i plan to trade in futures only. Currently we look for bullish signals only as wife always trades in shares & so may need to take short term delivery. (currently she is the only one of us actually effecting trades.)
3. Draw support & resistance lines or update if already there.
4. Look at the candlesticks patterns - this shows u whether the scrip has done double bottom, h&s or some other clear pattern.
5. See how adx is behaving. It has to have a positive upwards slope. It also must be above 20. If it is showing a flat slope or a downwards bias it is not a good sign. If adx has declined below 25 & has downward slope then also it is an indication of end of trend or sideways movement. Frankly you need to develop an eye for the chart so that with a glance you can tell whether it is a good adx pattern or not.
Please note that upward sloping adx line also appears when the scrip is going down. Also when adx peaks out & goes sideways or downwards it is a sign of trend reversal. Of course a day or 2 down the line this can again change. Behaviour is also to be studied in conjunction with volume, +di & -di.
6. +di indicator should have crossed above -di indicator. The sharpness of the crossover & the slope of the seperation gives some idea of the strength of move - though this is not an universal rule.
Wife does not care too much about the adx rule. But she has been tracking the market for 10 years on a daily basis so the individual stocks behavours are there in her mind.!! :d
7. We compare notes and shortlist good scrips.
8. Trade is entered into based on levels. Theoretically you can just buy above determined price, put a stop loss order & a limit profit order & just forget about it for the day. This would work perfectly for stock futures. However we are going in for small quantities of stocks (as we are validating & creating rules on the go). So we either take a btst trade or take delivery & sell afterwards. Currently we are not utilising any margin.
Wife currently tracks the scrips throughout the day, but that is more to catch some fast move & exit quickly. I feel that it would be best to keep a watch on the scrips on intraday basis till we get the total pulse of the move.
Each scrip has its own behaviour pattern. But they all show rise, consolidation, rise type of moves & the support/resistance lines give you advance warning.
9. Get out of the trade when you feel your target is achieved.
10.we are finding that sh's 315 rules re adding to positions works, but currently we have allocated limited capital and so are switching to newer scrips.
10. The same suspects keep cropping up again & again - making life easier once you get the hang of the scrip's movements.
11. We have found that the rules above are giving us an indication a day or two before the pundits on tv start on the scrips.
12. You need to get an idea of which scrips are being blatantly manipulated & it may be best to stay away from such scrips.
13. We have found that 20ema & 50ema are important triggers. Prices crossing these levels brings in a lot of interest. Mostly it is in the direction of the move.
Now work to be done is as follows:-
a]shortlist scrips that one will track. I am looking at f&o scrips having high beta, decent turnover & fundamentals. Still working out the parameters & will share once i am done.
B]find out where data for open interst in futures & options-(put calls) is available. This hopefully will give an idea of the likely limits to which the scrip will move. Do not know if this is a right way of judging strength of move - seniors your thoughts please!.
C] refine the drawing of support & resistance. Are there any references or rules regarding this?
I will post some typical charts alongwith my comments. Later on i will post details of some actual trades done by us over the past few days.
We still have to calculate actual p&l but a thumbrule seems to be 5% per trade. Currently we are being ripped off by icicidirect in the brokerage. So that is another area where i have to do something.
