How to trade with an oscillator

Smart_trade da,

I have backtested the data of about 3 months and have made some observations and developed some rules(based on posts from you and Raaghav) regarding entry with stochastics. Plz go through them and if anything is missing or incorrect kindly correct me----


RULES ----

1.Never buy/sell in overbough or oversold region even if stoch stays in the ob/os regions for mre than 5 bars. Wait for the stoch to go in to neutral and when it again turns , take the trade.(basically this is Raaghavs observation and on backtesting i found that it avoids false signals and gives good risk to reward ratio)

2. yesterdays high , low, vloume point of control play an important role.Hence it pays to have them on the chart.

3.when price moves up towards a previous known resistance/ or a reversal candle pattern is formed....that area is the new resistance. Look where the stoch is...if in ob then short. But shorting must only be done after 3BAR RULE.(exception if stoch is staying in ob region for greater than 5 bars)

(3 bar rule is something that i again picked from Raaghav. If a bar is formed at some resistance level and stoch is in ob region wait for the next 2 candlestick bar to form. they both must take out the previous bars ow. by this time the stoch has invariably moveed down from ob region.)

4.On GAp up , Gap down days do not trade upto 10.15-10.30am as the stoch gives false signals.

5.USE THE STOCH JUST S AN INDICATOR ,LET THE PRICE MOVE FIRST AND USE STOCH TO CONFIRM ITS MOVEMENT NOT THE OTHER WAY AROUND.

Now I have tried this technique on different markets and will say how the technique works in diferent markets----

1.Equity market----okay. about 40-45 percent trades are false and the remaining trades are not great if we dont get a good broker.

2.Indices---Works great for nifty, banknifty, midcap nifty, sensex.

3.commodity---works exceptionally well for daytrading in commodities.

Smart_Trade da....plz recheck if i have mentioned something that is not correct.

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Hi ST,

Due to your inputs regarding Stoch, it has become one of THE best weapons in my trading armoury,

With reference to above 5min NF of today, one can see the Stoch staying in OS region for , god know how many candle ( i lost count :lol::lol: ). I was itching to enter on the pullback but it never went to neutral zone.

Just wanted your thoughts..........is it one of those rare cases where the momentum is so high , the 5 bar rule is rendered ineffective? By that I mean we dont get a chance to enter/add? any ways of spotting this ?

Anyway thanks for everything ( on this and other threads):thumb:

Thanks for the kind words, tempest.....

Yes today's momentum on downside was exceptional and such strong markets will not give any meaningful pullback for you to enter. On such days you can enter on bars lows such as 2:15, 2:35 or 2:50 and keep stoploss at high of the bar. It is a great entry with very small stops and in a strongly trending market, the trade becomes a multibagger in a few minutes. Today many must have made 7-8 % of their capital in the last down move itself if positions are taken on 1 % risk....

Smart_trade

Dear Smart,
In one of yr earlier posts,u had mentioned that if a stock remains in ob/os region for much more than 5bars,say 10bars,even on retracement/pull back,it is not prudent to enter anticipating original trend to continue because of exhaustion.
That being the case,even on pull back today was it wise to add shorts?Ofcourse s/l r there.

I have also observed yr strategy works very well in commodities & NF than in equity.(Disclaimer: All my tradings are only in Paper & i am posting charts & queries only for discussion. I read somewhere that 'Even a Best teacher could not give out his Best ,unless & until questions r asked by students"