SH's MArket Correction Prediction Strategy

#1
Dear Friends,

What I am about to share below is a swing strategy by which a trader can estimate the approximate time by which the market would start correcting against the current trend. This comes in very handy on deciding when to start booking profits and also one can start building a opposite position to the trend in the anticipation of the upcoming correction. PLEASE NOTE THIS A SWING STRATEGY AND TIMEFRAME APPLIED TO IS 'DAILY'.

This is not based on any complex calculations (like Gann/Fibo/EW) but based on a common sense approach and a belief that history 'repeats' itself. (Thats the underlying assumption of TA anyways).

I use this strategy on Nifty futures, once can derive a strategy from it for any particular stock they trade in through some trial and error.

This Strategy is highly inspired by the concept of 'Market Reversion to mean'.

Reversion to Mean rules for NIFTY

- Nifty futures price has to revert to 3 EMA within a maximum of 3 days before it goes anywhere else.

- Nifty futures price has to revert to 15 EMA within a maximum of 6 weeks before it goes anywhere else..

- NIfty Futures price has to revert to 34 EMA within a maximum of 16-18 weeks (4 months) before it goes anywhere else.

- NIfty Futures price has to revert to 100 EMA within a maximum of 28 weeks before it goes anywhere else. (7 months)


How to apply the above rules in Trading

- Look out for any daily candle where the candle body is not touching 3 EMA. Thats a signal for booking any profits and wait for 3 EMA reversion for entering again. If candle body doesnt touch 3 EMA for 2 days, one can open an opposite position and aim for 3 EMA as target price. This is something I extensively use in my 315 Strategy as well.

- Look out for a trend on daily charts where 15 EMA has not been retested for 4 -5 weeks in continuation. This is a signal that markets should correct now (target 15 EMA). One can start booking profits in 4-5th week and can actually open an opposite position in 5th-6th week aiming for 15 EMA.

- Similarly, look out for a trend where 34 EMA has not been tested even once in the last 14-15 weeks. Book any profits in 14th-15th week and one can open an opposite position in 17th week aiming for 34 EMA.

- Similarly, if you see 100 EMA not being tested in last 6 months, start building a positions aiming for 100 EMA retest in next month or so.

This I have found is a very strong tool to predict corrections (price correction or time correction). In my tests the success ratio is above 90% however I am ready to be corrected by anyone who finds otherwise. :)

PLEASE NOTE THAT THESE TIMEFRAMES ARE FOR NIFTY FUTURES ONLY.

Happy backtesting !!


Cheers
SH
 

rkkarnani

Well-Known Member
#2
Dear Friends,

What I am about to share below is a swing strategy by which a trader can estimate the approximate time by which the market would start correcting against the current trend. This comes in very handy on deciding when to start booking profits and also one can start building a opposite position to the trend in the anticipation of the upcoming correction. PLEASE NOTE THIS A SWING STRATEGY AND TIMEFRAME APPLIED TO IS 'DAILY'.

This is not based on any complex calculations (like Gann/Fibo/EW) but based on a common sense approach and a belief that history 'repeats' itself. (Thats the underlying assumption of TA anyways).

I use this strategy on Nifty futures, once can derive a strategy from it for any particular stock they trade in through some trial and error.

This Strategy is highly inspired by the concept of 'Market Reversion to mean'.

Reversion to Mean rules for NIFTY

- Nifty futures price has to revert to 3 EMA within a maximum of 3 days before it goes anywhere else.

- Nifty futures price has to revert to 15 EMA within a maximum of 6 weeks before it goes anywhere else..

- NIfty Futures price has to revert to 34 EMA within a maximum of 16-18 weeks (4 months) before it goes anywhere else.

- NIfty Futures price has to revert to 100 EMA within a maximum of 28 weeks before it goes anywhere else. (7 months)


How to apply the above rules in Trading

- Look out for any daily candle where the candle body is not touching 3 EMA. Thats a signal for booking any profits and wait for 3 EMA reversion for entering again. If candle body doesnt touch 3 EMA for 2 days, one can open an opposite position and aim for 3 EMA as target price. This is something I extensively use in my 315 Strategy as well.

- Look out for a trend on daily charts where 15 EMA has not been retested for 4 -5 weeks in continuation. This is a signal that markets should correct now (target 15 EMA). One can start booking profits in 4-5th week and can actually open an opposite position in 5th-6th week aiming for 15 EMA.

- Similarly, look out for a trend where 34 EMA has not been tested even once in the last 14-15 weeks. Book any profits in 14th-15th week and one can open an opposite position in 17th week aiming for 34 EMA.

- Similarly, if you see 100 EMA not being tested in last 6 months, start building a positions aiming for 100 EMA retest in next month or so.

This I have found is a very strong tool to predict corrections (price correction or time correction). In my tests the success ratio is above 90% however I am ready to be corrected by anyone who finds otherwise. :)

PLEASE NOTE THAT THESE TIMEFRAMES ARE FOR NIFTY FUTURES ONLY.

Happy backtesting !!


Cheers
SH
Its amazing to find people who share there concepts so openly and freely and this I trust happens only on Traderji. :)
A small clarification would be in order:
In your above write up, is it the 'weekly EMA whereever the time frame for reversion to mean is in 'weeks?!!!
 
#3
Its amazing to find people who share there concepts so openly and freely and this I trust happens only on Traderji. :)
A small clarification would be in order:
In your above write up, is it the 'weekly EMA whereever the time frame for reversion to mean is in 'weeks?!!!
Dear RKKARNANI,

The EMAs are daily as the timeframes used is DAILY only.

I have mentioned timeframes is weeks as well as in months .. that only signifies the time period within the Nifty will revert to Daily EMA.

Cheers
SH
 
#4
Just to give an example to make it more clear.

Last time when 3 EMA was tested by NF daily candle = 30th Dec 2009
Hence next 3 EMA touch has to happen before end of day 5th January 2010 (3 trading days from 30th Dec)

Last time when 15 EMA was touched by NF daily candle = 23rd Dec 2009
Hence next 15 EMA touch has to happen before 1st week of Feb 2010 (6 weeks from 23rd Dec)

Last time when 34 EMA was touched by NF daily candle = 23rd Dec 2009
Hence next 34 EMA touch has to happen before 23rd April 2010 (4 months from 23rd Dec)

Last time when 100 EMA was touched by NF daily candle = 4th Nov 2009
Hence next 100 EMA touch has to happen before 4th June 2010 (7 months from 4th Nov)

Cheers
SH
 
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rkkarnani

Well-Known Member
#5
Just to give an example to make it more clear.

Last time when 3 EMA was tested by NF daily candle = 30th Dec 2009
Hence next 3 EMA touch has to happen before end of day 5th January 2010 (3 trading days from 30th Dec)

Last time when 15 EMA was touched by NF daily candle = 23rd Dec 2009
Hence next 15 EMA touch has to happen before 1st week of Feb 2010 (6 weeks from 23rd Dec)

Last time when 34 EMA was touched by NF daily candle = 23rd Dec 2009
Hence next 34 EMA touch has to happen before 23rd April 2010 (4 months from 23rd Dec)

Last time when 100 EMA was touched by NF daily candle = 4th Nov 2009
Hence next 100 EMA touch has to happen before 4th June 2010 (7 months from 4th Nov)

Cheers
SH
SH, When we say that the price would revert to mean e.g. 34 EMA maybe touched before 23rd APRIL i.e. "before such and such date"!!! would it imply that the same may even happen 'tomorrow'!!!!!!
 
#6
Just to give an example to make it more clear.

Last time when 3 EMA was tested by NF daily candle = 30th Dec 2009
Hence next 3 EMA touch has to happen before end of day 5th January 2010 (3 trading days from 30th Dec)

Last time when 15 EMA was touched by NF daily candle = 23rd Dec 2009
Hence next 15 EMA touch has to happen before 1st week of Feb 2010 (6 weeks from 23rd Dec)

Last time when 34 EMA was touched by NF daily candle = 23rd Dec 2009
Hence next 34 EMA touch has to happen before 23rd April 2010 (4 months from 23rd Dec)

Last time when 100 EMA was touched by NF daily candle = 4th Nov 2009
Hence next 100 EMA touch has to happen before 4th June 2010 (7 months from 4th Nov)

Cheers
SH
Dear SH,

Have no words to praise you.

You are so kind enough to share your strategies.

Wonderful,

Again Thanks a ton. And will start troubling you by asking questions. Please bear us.
:clap::clapping::rofl:
 
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#7
SH, When we say that the price would revert to mean e.g. 34 EMA maybe touched before 23rd APRIL i.e. "before such and such date"!!! would it imply that the same may even happen 'tomorrow'!!!!!!
Yes, before means it can happen today, tomorrow or day after ... but will happen before 23rd April.

The fact that we know it will revert to 34 EMA helps us if we see around 2nd week of April that this reversion has not happened yet ..we can exit our current trend following positions and open opposite positions aiming for 34 EMA.

i will give you an example.

Check our 21st August 09 that was the day when Nifty futures tested 34 EMA at around 4450. That meant that the max days NF could have stayed away from 34 EMA was 4 months from that date i.e 21st December 09.

34 EMA was retested again on 26th October 09 ( 2 months 1 week). We could not trade this correction. However had this trend stayed on for 4 more weeks (i,e till Nov end) .. I would have started to build short positions from that point onwards aiming for 34 EMA.

In 80% of cases 34 EMA is restested with 3 months .. 4 months is only once in 2 years.

Cheers
SH
 
#9
SH, thank you for unveiling one more mantra.

Do you interweave this strategy(other than 3ema) with 315 in any way?

Thanks
Yes, thats the whole point. We learn Maths and Science separately but their true magic is revealed when they are applied together....!

These are basic rules which I keep at the back of my mind always when I am trading based on 315 or 534 or EHL5 or contrarion etc. Their combination gives amazing results and leaves others wondering 'How the hell did he time it so beautifully? ' ! :lol:

I will give you another example.


I was trading based on 315 and was long since 24th August 09 in Nifty futures. As on 1st October 09 my Nifty futures were in 400+ points profits (it was a huge 315 trending move).

However at that point I saw that Nifty futures had not retested 15 EMA since September 4th (that was almost 4 weeks on 1st October). As per the 15 EMA reversion rule I hedged my longs with buying puts ... Nifty corrected and touched 15 EMA on October 6th which saved me a good 100 odd NF points in puts.

The big correction that i caught later was due to 100 EMA rule. By October 20th I had realised that Nifty futures had not corrected to 100 EMA since last 6 months (last 100 EMA touch was on 1st April 09). Hence I started adding puts in my portfolio to hedge my longs again.

NF generated a sell on Oct 24th at 5008 (based on 315). I immediately closed all my longs and immediately shorted double quantity in NF knowing that 100 EMA retest was almost inevitable now. I also held onto my puts that were bought earlier by me as a hedge for NF longs.

100 EMA at that point was at 4650... I kept 4600 as my target for shorts .. 100 EMA finally got retested on Nov 3rd (thats exactly 7 months and 2 days from 1st April). From 5008 to 4600 .. I was able to catch a 400 point massive correction ! THAT RESULTED IN HUGE PROFITS WHICH I BOOKED in shorts.
Also, that left a lot of my followers wondering ' Hell how did he predict it so nicely' :clapping:

The secret is out in the open now :)

Cheers
SH
 

observer

Active Member
#10
Although I have not derived anything yet but was just analysing hypothetically. I was looking at TCS Futures chart, if the theory was true for the stock too, would it be time to be ready to book profit? It has not touched 34ema since october. Is the 03/11/2009 34ema touch considerable?
 

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