Experiments in Technical Analysis

My 2 cents on daytrading.
The reaction time in daytrading is very very short; you need to react fast. If you are using too many indicators and comparing and confirming them, you can not react fast enough. Therefore use just one indicator and understand it thoroughly.
Now, I will outline a trading system ( not mine ) that I have used successfully.
You must trade with the trend. Use 50 period Simple Mov. Avg. to determine trend. If it is sloping upward trade from the long side and vice versa. If it is flat, stay out.
I use 10 and 20 period Expoential Mov. Avg. for entry. Wait for price to move between these avg., then enter the trade. You can use candlestick to refine your entry. Doji, hammer, piercing pattern for long entries; doji, shooting star and dark cloud cover for short entry. After you have used this technique for about 3 entries, you may want to wait for a larger pullback to the 50 SMA itself and enter the trade there. Quite often the trend is so strong that it will not pull back to 10-20 zone. That's where I use woodie's CCI pattern called " Zero line reject"; it will put you in the trade if you are not getting the pull back to 10-20 zone.
Check out woodiescciclub.com for explanation of ZLR.
To gain an early entry, you may have to look at classic chart pattern. I have found the rectangle to be the most reliable. You can use breakout from rectangle to get an early edge.
Confine yourself to 2 or 3 markets. It is ideal for index futures. You can use it on some highly liquid stocks with fair volatility.
I hope I have been of some help. If you want to use this system, paper trade it for a while and see if it meets your need; if it does not; well throw it out, it didn't cost you anything anyway.
Happy trading,
Nasir

Hello Folks,
This was posted in the "Daytrading" thread. I took the liberty of copying it from there, since I thought that it makes more sense here.
Would anybody like to comment on it?
Shamim

Hi Shamim,

I do not day trade as I can not whatch the intraday movements in the office. So I may not be proper person to comment. But from whatever I could understand about day trading I take the liberty to express my views. I may be wrong.

You have described use of 10 and 20 period EMA. But then what is the time interval? Many people use 3 min or 5 min bars. In such cases the 20 period EMA would manifest only after 1 or 1-and-half hour period. Then to take decision on that would take some more time. So you need to trade with 1 minute or smaller intervals. This needs a very fast internet connection and data feed.

However, on a couple of occasions when I was at home I tried my hand at daytrading. The method I tried was the one described by Mark McRae. It is also based on EMA. In this method 5 period EMA of Close and 6 periuod EMA of Open are taken. When 5-period EMA of Close crosses and goes above the 6-period EMA of Open then go long (Buy). When the opposite happens i.e. 5-period EMA of Close Crosses and goes below the 6-period EMA of Open then go short (Sell). If the price movement is flat there is a possibility of whipsaws resulting in losses. So, Strict Stoploss is advised. I got good results from this method. I used Quote Tracker for data feed from NSE and its in-built charting and indicators to follow the price movement. The time interval was 3 minute bars. As I have tried very few times, the success might have been by chance. But if you are regularly day-trading you may be able to judge it better. As I can not day-trade I have not tested it with any seriousness. Some paper-trading also showed good success ratio and profit potential.

I had told about this method to one of the boarders in another forum and the feed back was that the method works well.

I am describing the method here so that any experienced people can comment on it. Some people may be already knowing this method and using it.

Knowledgeable members and seniors may please give their valuable comments.

Regards.

-Anant

Hi Geo,

The list you have given is comprising of stocks which are doing well and all of them are in uptrend. What I observed from the charts of ASIANPAINT, CIPL, GESHIPPING and PNC is that although the prices are increasing, from about 5-6 days there is some distribution taking place. It is just the beginning. It may change into accumulation pattern again but if it continues the prices would fall. So keep an eye on the price movement and apply stoploss. Similarly SCI and TVSELECT are showing signs of distribution but not very clear. It could be an aberration. Need to watch the pattern closely.

-Anant

Hi Anant,
Thanks for your very thoughtful comments and concerns. This system does not generate signals on MA crossovers. The objective is to trade with the trend, once the trend is established and then take a chunk from the middle. The critical part is the slope of the MA line. I use 50 SMA, woodie's system uses 34 EMA. Both work well. You trade only when the 34 EMA or 50 SMA is sloping at an ideally 45 deg angle.
Once the trend is thus established, you try to trade the pullbacks. There are at least 2 good pullbacks, sometimes 3, into the 10-20 EMA zone. At times , in a strong trend you may not get pullback in the 10-20 EMA zone and that's where Woodie's ZLR works beautifully. Another of Woodie's very useful pattern, that works very well is TLB ( Trend line break) with the trend.
Regards,
Nasir

Thanks for all the great comments. Still looking for best trading methods.

Does anyone know of or have a custom Market Profile AFL giving the 70% upper and lower value areas?

The Amibroker Market Profile AFL doesn't let you choose the values.

RF

Hi Karthik,

How are u? long time no input from you in this thread. I need an advice/guidance from you. I am trying to create a thinking process for myself. Till now what happens is that I open a chart and i apply diff indicators and keep changing them till i find what my mind wants to see and hence creating a bias of opinion.

I am making a thinking process in which I will have check boxes and grade my studies and hence will finalise a criteria on which I will take entry or not and take exits or book partial profits.

Something like a mechanical system but since I will not be putting a explorer and I will grade it myself it will still be left with some personal Judgement.

Now I wanted a criteria to grade RSI, Stochastics and MACD. Like the binary wave. But in binary wave there is very less options like +1 if stochastic is above 50 and -1 if below 50.

I want to give more criterias like when it is below 20, above 50, above 80 and also include crossovers.

Since you write formulaes i figured you would be in a better position to help me set these criterias as u are used to putting down things in a fix pattern. Your guidance in the same would be highly appreciated.

Also, if ADX and visual shows that stock is not trending then I think it would be more adivisable to use stochastics-isnt it as in trending market it isnt effective. Hence I wanted to also reduce the weightage of stochastics when +DI is more than -DI and ADX is more than 25.

Any more insights and guidance would be of great help from you and other learned members here.

Regards


Rahul

Hi Rahul

I was a bit preoccupied with office work and also working sector and industry allocations for NSE stocks for Amibroker. Added to that health has been a dampener of late.

And then the thread was going good with great stuff from Ananth, SGM nasir and shamim.

Your idea is good. But working out the criteria could be the tricky issue.

Yes you could have conditional weight for different indicators.

For example IF ADX>20 and DI+>DI- then weights for Stochastic low.
IF ADX<15 and DI&DI< 15 then weights for Stochastic high.

Also you can provide elaborate weight system for stochastic, OS/OB, cross of OS?OB zones etc.

Though I would prefer to use RAVI rather than ADX.

Also how are you going to provide weigh for MACD? It should not just on cross over. MACD level also could be considered. A crossover above zero is more potent than a crossover below zero. One could also consider the RSI of MACD, which provides easier way for providing weights.

Just sharing some thought here. Maybe you could list in detail the weighing methods you have in mind . It could be refined from various inputs from the members. Colective minds can do wonders ..

I will share more thought on you idea later.

Regards

Karthik

Dear Karthik

Please take care your health.

Regards
Suresh

Hi Karthik,

I will soon write in of what I criterias I have mind and in the mean time pls do take care of your health.

Rgds

Rahul

Suresh, Rahul

Thanks for the concern...

warm regards

Karthik