Day trading Basics

manojborle

Well-Known Member
#1
Dear all

As the tiltle suggests the thread will contain basics for Day trading.

I am doing trading from last 2 years but still I am not able to find a system suitable for me.

From today I started reading "The Compleat Day Trader Vol. I" by Jake Bernstein and have decided that whatever I learn from it will post it here...

So whenever I make mistake in understanding the basic concepts, I would appreciate experienced traders here to help so that beginners like me will be benefited.

Thanks
:)
 

manojborle

Well-Known Member
#2

manojborle

Well-Known Member
#3
Moving Average Crossovers - Price Vs MA

As long as the price is above the moving average , trend is defined as UP.
As long as the price is below the moving average, trend is defined as DOWN.

When the price has been below the MA and then crosses above the MA, the TREND changes from down to up.

When the price has been above the MA and then crosses below the MA, the TREND changes from up to down.

The Simple rules are
Buy when the price closes above MA after having been below it.
Sell when the price closes below MA after having been above it.

Using these rules may give many false signals.
There are 2 ways to overcome the above problem.

" First adjust the length of MA to market and second which time frame is the best.

1. Length of MA

See the charts attached...




As can be seen from the charts, slower period MA reduces false signals on this 30 minute chart.

2. Time frame

The author says best time frame for day trader are from 1 minute to 30 minute.
So now it is up to the trader itself to decide which time frame suits him.

Now we will keep the Same MA and change time frame from 30 minute to 15 and 5 minute and see what difference it makes...........
15 minute time frame


5 minute time frame
 

manojborle

Well-Known Member
#4
Moving Average Crossovers - Price Vs MA

As long as the price is above the moving average , trend is defined as UP.
As long as the price is below the moving average, trend is defined as DOWN.

When the price has been below the MA and then crosses above the MA, the TREND changes from down to up.

When the price has been above the MA and then crosses below the MA, the TREND changes from up to down.

The Simple rules are
Buy when the price closes above MA after having been below it.
Sell when the price closes below MA after having been above it.

Using these rules may give many false signals.
There are 2 ways to overcome the above problem.

" First adjust the length of MA to market and second which time frame is the best.

1. Length of MA

See the charts attached...




As can be seen from the charts, slower period MA reduces false signals on this 30 minute chart.

2. Time frame

The author says best time frame for day trader are from 1 minute to 30 minute.
So now it is up to the trader itself to decide which time frame suits him.

Now we will keep the Same MA and change time frame from 30 minute to 15 and 5 minute and see what difference it makes...........
15 minute time frame


5 minute time frame
Now as you see in the charts you can decide which time frame suits to you.

I think i will go with 5 minute time frame

You can try different time frames with different MA and zero in on combination which suits you..
 

manojborle

Well-Known Member
#5
DUAL MOVING AVERAGE CROSSOVER

One way to limit no. of false signals from MA systems is to use 2 MA instead of 1.

The author says typically the 2 MA's used are related to about an 8:1 ratio.
For instance, for selected time frame 3-24 MA, 4-32 MA, 5-40 MA and so on.....

So we shall see these examples.....

3-24 MA


4-32 MA


5-40 MA
 

manojborle

Well-Known Member
#6
DUAL MOVING AVERAGE CROSSOVER

One way to limit no. of false signals from MA systems is to use 2 MA instead of 1.

The author says typically the 2 MA's used are related to about an 8:1 ratio.
For instance, for selected time frame 3-24 MA, 4-32 MA, 5-40 MA and so on.....

So we shall see these examples.....

3-24 MA


4-32 MA


5-40 MA
The charts are self explanatory I think
 

manojborle

Well-Known Member
#8
MOVING AVERAGES AS SUPPORT AND RESISTANCE

Another approach to the use of MA is to use them as measures of support and resistance.

Generally defined, support is a price level from which the market is expected to recover should it decline following price rally.

Resistance is a price level from which the market will decline following rallies in a declining trend.

Application of intraday MA for support and resistance trading:

3 steps involved are ----

1. Use the dual MA crossover method
8:1 ratio suggested earlier should be used

2. Determine the market trend
If the last crossover signal was bullish, then trend is assumed to be up.
If the last crossover signal was bearish , then trend is assumed to be down.

3. Buy on price declines to the longer of 2 MA's which serves as Support and sell Short if the trend is down on price rallies to the longer of the 2 MA lines.

In any case we have to close our position by end of trading session.

One example for this method is attached in the chart below
 

manojborle

Well-Known Member
#9
hi
I think I have told in the starting of the thread that I am reading the book and whatever I will learn I will put here.
With day to day examples I will learn how to use the methods.
i expect experienced traders to give their input here so that everybody will be benefited.

Thanks
 

manojborle

Well-Known Member
#10
moving average crossovers..............works well only in trending market..................please

tell something.......about day trading in extremely range bound market
hi
I think I have told in the starting of the thread that I am reading the book and whatever I will learn I will put here.
With day to day examples I will learn how to use the methods.
i expect experienced traders to give their input here so that everybody will be benefited.

Thanks
 

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