Technical Trading - Practicing the Theory

[AJAY]

Hi AW10 and Biyasc,

Thanks for raising an important topic that needs to be addressed. Hi AW10 once this is finished we will discuss the immediate performance issue.

When it is coming to probability it is sure that it is always 50/50. And there is no holy grail as well to trade the markets. But in the process of designing a trade, though the trade set up is not a holy grail, by following certain practices we can make it a winning trade at the end of a particular period. Most important of these practices is "Never leave the asset that gave you loss and never leave the principle that gave you loss." Here important thing to note down is the asset chosen should have some good qualities to be picked to trade like liquidity etc. and the trade set up should have a practical angle of initiating trades with ease and comfort backed by proper logic."

Friends,

In normal course life not in trading life- we come across different cross roads and to choose the path for the future course we apply our common sense, calculate the risks involved in choosing the path, confirm that at that point of time the decision that we take should be right in every angle and then we take a decision. But only time will tell us whether our decision is right. Say for example a student after completing +2, might choose an engineering degree as his next course thinking that he will have a good future by pursueing that course and he has got enough resources to pursue the course and another one chooses a commerce degree because he has got no choice for the resources he has got. And after the completion of the course, the one that chose commerce might come out as a winner in life against the one who chose engineering. We cant say. This depends on several factors. And similarly we might avoid going by a road thinking it is jammed and the road we choose to go by might also be jammed. These things are general examples in routine life.

Here I want to make it a point to discount the true theory of probability as we need to discount it to continue our practice. Then take the fruits whatever come out whether sweet or bitter.

By adopting a small logic like an active stock going near around the rejected price for a couple of days generally gives even a small move in intraday in a single direction which is more than enough for the intraday trader against the risks he/she is taking.

My logic is only this.

Friends, if you like it or not I dont know. I know only one thing. When you are on road, there is always a risk of meeting with an accident. But fearing that we should not stay at home, but at the same time we should never go inattentive when we are on road. Lets take necessary precautions and then start our journey. Lets go logical.

This is my philosophy and I apply the same in trading as well.

Happy practicing technicals

Ajayakumar

 

[VJAY]

Ajay sir,
Nice explanation!How simple you you took some type of fears from my mind...I hope many newbies like me help from every posts & words from you.....
Thanks for you coming back and we get an opportunity to get something from you.

 

[biyasc]

Hi AW10 and Biyasc,

Thanks for raising an important topic that needs to be addressed. Hi AW10 once this is finished we will discuss the immediate performance issue.

When it is coming to probability it is sure that it is always 50/50. And there is no holy grail as well to trade the markets. But in the process of designing a trade, though the trade set up is not a holy grail, by following certain practices we can make it a winning trade at the end of a particular period. Most important of these practices is "Never leave the asset that gave you loss and never leave the principle that gave you loss." Here important thing to note down is the asset chosen should have some good qualities to be picked to trade like liquidity etc. and the trade set up should have a practical angle of initiating trades with ease and comfort backed by proper logic."

Friends,

In normal course life not in trading life- we come across different cross roads and to choose the path for the future course we apply our common sense, calculate the risks involved in choosing the path, confirm that at that point of time the decision that we take should be right in every angle and then we take a decision. But only time will tell us whether our decision is right. Say for example a student after completing +2, might choose an engineering degree as his next course thinking that he will have a good future by pursueing that course and he has got enough resources to pursue the course and another one chooses a commerce degree because he has got no choice for the resources he has got. And after the completion of the course, the one that chose commerce might come out as a winner in life against the one who chose engineering. We cant say. This depends on several factors. And similarly we might avoid going by a road thinking it is jammed and the road we choose to go by might also be jammed. These things are general examples in routine life.

Here I want to make it a point to discount the true theory of probability as we need to discount it to continue our practice. Then take the fruits whatever come out whether sweet or bitter.

By adopting a small logic like an active stock going near around the rejected price for a couple of days generally gives even a small move in intraday in a single direction which is more than enough for the intraday trader against the risks he/she is taking.

My logic is only this.

Friends, if you like it or not I dont know. I know only one thing. When you are on road, there is always a risk of meeting with an accident. But fearing that we should not stay at home, but at the same time we should never go inattentive when we are on road. Lets take necessary precautions and then start our journey. Lets go logical.

This is my philosophy and I apply the same in trading as well.

Happy practicing technicals

Ajayakumar

nice explanation ajay. :thumb:

 

[AJAY]

Dear friends,

Before going further lets discuss some points on immediate performance. I feel I am honored as AW10 posed a question to throw some light on immediate performance. Dear AW10, I know that you dont require the inputs about the Immediate Performance. You just wanted it for the sake of other members who require that awareness.

Friends,when a trade is designed from a low range bar model, as AW10 rightly put there is trade-off of Low risk entry and Immediate Performance. The very reason for this is very simple. For a low range bar, definitely there are a few high range bars before it. And this low range bars range is sandwiched between the activities that happened in those high range bars. So there will be a natural pressure from both sides on the price. Because of this the waiting time is more in the entry that is taken with Low range bar. And especially when this Low range bar is a bar on Daily charts, it generally demands higher time to have a breakout. Lets discuss with an example. If the LRBs range is 100 and 96 and other previous bars range is say 103 and 92, the activity that took place between 103 & 100(i.e., above the high of the LRB) and 92 & 96 (i.e., below the low of the LRB) keeps pressure on the price even after it gets released from the LRBs range. In these times the immediate performance generally doesnt happen.

Friends, one point I would like to share here is that I trade only on break out, though the stop is a little distant against the trade taken within the range of the bar. The very reason is to avoid falling prey for Bias. A breakout trade never makes me biased as the move if doesnt happen on the break out side, it will happen on the other side by hitting my stop.
IF my entry is within the range of the bar, then I feel I am predicting the markets with a bias. I personally dont do this and dont recommend you to do this unless you have iron will to implement your trade as designed before the entry-without shifting your stops with BIAS.

And to reduce the waiting time in trade and to initiate the time stop entry we can give some filters to the LRB. For example, a LRB in touch with a Bollinger band or a LRB after an action bar with volume, a LRB where proportionate volume is higher against the action bar which is before the LRB etc.

And all this LRB that I discussed here is more aiming at Daily charts. For intraday charts we need not take a few of them to consideration. That part I will discuss later.

Friends, if this confuses you please post. We can discuss with some examples. But if somebody helps with the examples more appreciated.

Happy Practicing Technicals
Ajayakumar

 

[AW10]

Dear AW10, I know that you don’t require the inputs about the “Immediate Performance.” You just wanted it for the sake of other members who require that awareness.

Ajay, I was selfish here and wanted your views to help this part of my trading. Ofcourse, your views will always help other readers too.
Thanks for sharing your views.

To share my approach to breakout trading - I do pay attention to the fact that whether price is breaking into a support/resistence zone or it is breaking into a clear zone.
If it is breaking into S/R zone, I shift the boundry of my trading range beyond consolidation area and include Support/Resistence zone also as the part of trading range. So, in my trading, for the example that you have given, I will consider 103 to 92 as trading range, rather then 100 to 96. To reduce the risk of the trade, I might take discreationary entry on breakout of 100/96 with smaller position size and scale-in to the position after break of 103/92 zone.

Happy Trading

 

[AJAY]

Dear Friends,

This is in continuation to my previous post on immediate performance.

I call this as 4th gear scenario. I mentioned this in my previous posts as well. In 4th gear the vehicle travels more distance in the same time than the distance it travels in the 1st gear. Similarly, we identify these 4th gear scenarios on charts where the price moves quicker in a direction in a lesser time against its earlier move in the same time.

And another advantage is 4th gear scenario understands the failure. If our vehicle travels at a low speed in 4th gear we can easily understand that there is a trouble with the vehicle.

Similarly, on chart where we identify the 4th gear scenario where price doesnt move according to the conditions described, we can easily understand the need to exit the position and reverse it.

In case our trade entries are designed to take place in these 4th gear scenarios, it becomes easy to handle the trade. And in these scenarios only we can apply time stop.

The strong top or strong bottom that we discussed earlier belongs to this scenario only. Our fellow member Vijay identified a few stocks and posted them yesterday in the morning. If any one of you followed them you would have understood how the 4th gear scenario works on seeing the move is Bank of India. Of course it is an extraordinary move that it gave. But generally the moves go that swift and that fast.

And trading a range break out always need not necessarily be a 4th gear. If it matches the earlier chart pivot or it matches with the previous swings expansion values, then to a great extent we can call it 4th gear.

And for day traders one more input for this scenario I want to give is as follows.

Look for a V or A model price behavior after 3 p.m. on a 5-minute chart for an active stock.

Here the price should clearly form a V or A. It means the move that happens after 3 pm. should get retraced either in full or to a great extent. It should form a clearly visible support or resistance for that swing.

And the next session, if price reaches there in the first 30 minutes, generally it respects that S/R. And in case it penetrates that S/R, then it moves with a big thrust. It can be understood as 4th gear.

Friends, here the logic is simple. In the last 30 min. day traders generally dont make fresh entries. And the exits of day traders definitely take place here. We know day traders are the market makers. When the market makers are making their exits, price forming a S/R is an act by strong hands. So in the next session, if the entry in the earlier session is by strong hands, then naturally these levels get respected as they are protected by the strong hands. But if these formations are made by weak hands(sometimes it happens), then these S/R values crack heavily. Thus the entry designed at these supports or resistances are considered by me as 4th gear.

Friends, you please observe this on your charts and come back with your queries. But while reading the charts, dont read them with bias. Read them always with What if at the back of the mind and keep the logic behind the interpretation at the top of the mind.

Happy practicing technicals

Ajayakumar

 

[AW10]

Thanks Ajay for sharing the practical side of last 30 min reversal.

Happy Trading

 

[ajshare108]

hi ajay

i have gone through your thread first time today and find it a very great.:thumb:

some where you have written about a ebook written by you. since you have removed, how can i get the same.

pl reply

anil

 

[AJAY]

Hi Anil,

Thanks a lot. And that book is not a great write up where you can get any inputs. It is only written for my satisfaction. Some people even called it an article

Because of space constraints I only removed it. Will post it again here in our forum once I am through with the current write ups.

Meanwhile anybody who has got a space may upload it again, if you are pleased.

Happy practicing technicals

Ajayakumar

 

[AJAY]

Hi Friends,

In the recent past we discussed three models to trade intraday. One is Identifying Strong Top and Strong Bottom formations and trading at those levels. Second one is looking for the stock the price of which hovered around the open price for the day and choosing that one for the next session's trading and the third one is trading in a stock where a Support/Resistance formed after 3 pm in the previous session.

In these three models, we choose the stock to trade for the next session a day before. This offers us to plan well for our trade like where to enter, where to put stop, when to apply the price stop etc. And as our route map is ready, our travel goes generally smoother. While making the trade plan, please plan it keeping three scenarios in mind. One is a gap up scenario, the other one is gap down scenario and the next one is flat market scenario. So you will be ready for the trade handling in any scenario. By doing this you are removing the scope for surprises. Then definitely you will not go biased in trade and you will run trade with consistance success.

I Will try coming up with more trading models. But please do remember. Please observe the models first. Understand them properly. Make detailed notes on the observations and then only try implementing them. In observations you will come across different practical issues. You yourself can answer them once you, in the beginning, are not in trade. Once you turn comfortable, then trade. This is applicable to any model of trading you adopt. It need not be one among the models that we discussed here. I mentioned this several times and I keep telling the same forever.


Happy practicing technicals

Ajayakumar