Trading with EMA, Stochastic and Patterns.

Hi Friends,

As promised [here], I am back with the live results after extending Pride's intraday method to "Inter-Days" . I would like to thank all the members who have helped me directly/indirectly in coming up with this method. This method should suite part-time traders the most as the involvement is theoretically very less.

Following is the setup:

1. Indicators Used:
EMA: 5 and 13
Stochastic: Period-8, %D-3, %K-4
Technical Patterns [Triangles, Channels, HnS, I-HnS, Tops, Bottoms, Wedges, Flags, Pennants and Candlestick patterns]

2. Time Frame:
60 minutes [1 hour]

3. Entry:
1. Enter on a crossover of EMA 5 and 13.
2. Enter with a minimum of "2X" Lots. i.e for example for Mini NF, minimum 2*1[where X=1] lots have to be bought.

4. Reversal:
1. Reverse the trade on the crossover of EMA 5 and 13 [Wait for the current bar to complete].
2. If we have had a reversal in the last two days, reverse with "1X" lots [i.e Enter with 1X lots].
3. If we fall more than 100 points or ~[1.5% - 2.0%] from the highs of the day we reverse our trade.
4. If there is a EMA crossover due to Gap up/down against our position, we should reverse with "1X" lots.

5. Adds:
1. If the Stoch's are in overbought/oversold region for more than 8 bars.
2. Based on technical analysis, if we find a pattern in timeframes < 60mins we should add.
3. Adds should be "Intraday", unless we find a pattern on higher timeframes such as 60mins or EOD.
4. Except for point "1", in all cases adds are optional. There is no strict rule for adding other than patterns mentioned on this site. If you can't add not a problem, follow the flow.

6. Exit:
1. When we have entered with 2X lots, exit 1X lot, when the stoch has a crossover and moves from overbought/oversold region to the neutral zone.
OR
2. When we have entered with 2X lots, exit 1X lot, when the stoch has a crossover in the neutral zone.

To summarize, this setup involves following the flow using EMA's and extracting juice through adds on the basis of Technical analysis and reducing losses by having adds on intraday. I have back tested this method from December 2008 to July 2009 for Mini Nifty Futures. The results are decent enough with a minimum of ~150 points [Feb 2009] to a max of ~750 points [July 2009]. I have excluded the election results in the back testing. On an average, we could expect 250 - 500 points per month based on this method. There are certainly places were this method could be improved and very much open for the same.

People, interested, please back test this method to your comfort for atleast 2-3 months [It will not take more than 1 hour ]. My personal experience is that we need to have lot of patience just watching the charts - No panicking if the price falls 30-40 points in a flash .

Regards,
-Sri

I am also extending prides method for swing trading....Will let you know once I am done with a complete system...

Well done Humble....What Pride introduced to the TJ has been very effectively used up by various traders around. We all are and should be thankful to Pride for the same.

So you have a new system here. I guess you used it on NF. Any other Scrips you backtested this for? Coz I remem you used to trade Pride system on stocks.

Also, I believe the system has pretty fair amount of subjectivity. Recognition of patterns etc esp Adds. it would be great if you can walk through the steps during LIVE market hours to enable better execution.Since TF is 1 hour, I am sure the posting isnt a problem.

Happy Trading

This is a tooo much of subjectiveness in the system. < 60 mins is 1,2,3,5,15,30 min TF. How are you gonna add?

Also, you mentioned adds are only for intraday. So how do you exit?

Ankit, Thanks for your kind words .

Will try to answer your questions here:

I forgot to mention this point about Adds in the first post, will add it now - "Adds are not compulsory" for this method. The results I have posted does not include the "Adds" at all.

My intention was to develop a method that would not take more than 1/2 minutes of my time in an hour. However on some days when I am comparitively free without any meetings/calls I would like to compensate for the 50-80 points that i loose during crossovers. Usually during a crossover we loose 50-80 points from our profits while waiting for the next bar to form.

Adds should be done with atleast 90% confidence and i believe the best way is to use the Technical analysis. For me it does not matter what method/what timeframe I follow for adds as long as I end up in profits. I have left this part for the individual trader to decide . Every trader is different and they have to come up with their own modifications for Adds.

On a personal note, I use the 5 min timeframe on MiniNF for Adds. I follow patterns that i have learnt from this wonderful site. Entry and Exit will be defined by the patterns. I would be satisfied with even a single add in a week with 20-50 points. I have been observing the Price movement of Mini NF for almost 6 months now and i feel that after getting 20 points profit we should have a trailing stop-loss.

B/w I have tested this method only on Mini Nifty Futures. I am not sure about the behaviour with stocks, but i believe it would be something worth looking at .

Regards,
-Sri

Page Reserved for posting results for MiniNF current month.

July 2009 ---------- 762 points

hi humble,

6. Exit:
1. When we have entered with 2X lots, exit 1X lot, when the stoch has a crossover and moves from overbought/oversold region to the neutral zone.


can you elobarate on this? Fast stoch has to cross slow, is that enough? or wait for fast stoch to go to OB/OS and comeback? what happens to remaining 1x ?

on entry, we dont check stoch. is that right?

how do u handle the gaps?

Hi,

Case1:
When we have entered with 2X lots we enter with the assumption that the Stochs will move towards the overbought/oversold region and stay there for some time. Crossovers in the overbought/oversold region is not important. Wait for the fast stoch to enter the neutral zone. This is the ideal situation.

We exit 1X lot when the fast stoch enters the neutral zone.

Case2:
However, there could be a situation where the fast stoch has a crossover in the neutral zone itself before going to the overbout/oversold region.

We exit 1X lot when the fast stoch has a crossover in the neutral zone itself.

Thanks for coming up with this question, I had forgot to include this, I will include this point in the first post.

Handling "Gaps" is the biggest nightmare to any flow systems. This is the exact reason, I want the "Adds" only on "intraday". If there is a definite trend, then the Stochs in the Overbought/Oversold region will take care of our 2X lots. In all other situations I hope our 1X lot will reduce our losses.

Also if there is a EMA crossover with a Gap up/down against our position then we should reverse/enter with 1X lot.

Yes, we do not check the Stoch for entry.

Regards,
-Sri

Good System.. Need to Check on individual stocks with good momentum (like DLF or HDIL )

July 2009 Chart.