3 SMA Intraday - inspired by SH

augubhai

Well-Known Member
#1
Dreaming (Mungerilal style)

Aim of the system:
1. Be with the trend on the charts.
2. Catch at least some of the trend reversal close to the top/bottom
3. Avoid whipsaws (Deleted in favor of point 4)
4. Be profitable everyday.
5. Money Management - do not fall off the right side of the Equity Curve Peak. (I have a fear of heights)

Somebody, please give me an award for wishful thinking...
 

augubhai

Well-Known Member
#2
Allright, just jumping the gun now and posting the system rules. Just checked a few charts. Seems to work for Nifty and Banknifty. Did not seem to work well for Crude Oil and some random stocks. Is whipsawing on Nifty today... Many false DL signals.

Will be great if someone can backtest this. I do not have either the historical Intraday data or Amibroker, etc.


Definitions:

3 SMA - 3 bar Simple Moving Average of Close

DL - Daylight bar. This is a bar that does not touch the 3 SMA. Bigger the gap between the 3 SMA and the bar, the better.

Buffer - Padding added to OR and Pivots.

OR - Opening range. Range from high of the day to the low of the day. Initially, OR is the range of the first bar of the day. If the close of a new bar does not result in an ORB, but creates a new High or Low, then OR will be the Range from current high of the day to the current low of the day.

ORB - Opening Range Breakout. Point at which the price moves beyond the OR and Buffer

Pivot - In a trend, the most unfavorable price excursion, between the most favorable price excursion and a more favorable price excursion.
(Ok, I am confused by that statement, so I will try to explain it better.)
In this system, we are only interested in supports in an uptrend and resistances in a downtrend.
In case of an uptrend:
  1. Find the highest high(HH1) of the trend so far.
  2. Then we wait for a higher high(HH2) to form. HH2 is greater than HH1.
  3. Check if there is a Pivot Low (PL) between the HH1 bar and the HH2 bar. In this system, a PL is the low of a bar whose low is lower than both the previous bar low and the following bar low. If there is no PL between HH1 and HH2, then no new Pivot TRP.
  4. Find the lowest PL between HH1 and HH2. This is a Pivot TRP for the Uptrend.
Similar steps for finding the Pivot TRP for a downtrend.

Pivot TRP Break - Point at which the price moves beyond the Pivot TRP and Buffer

Trend - The general direction of price movement. Can up, down or sideways. In this system, the trend is considered sideways until the touch of the first TRP. After that, it is always in a trend - up or down.

TRP - Trend Reversal Point. Price point at which a trend changes.
In this system, there are 3 kinds of TRP.
  1. DL - Trend is up when price is above DL High, and down when below DL Low.
  2. ORB - Trend is up above the ORB. Trend is down below the ORB.
  3. Pivot TRP Break - Trend is up above the Pivot TRP of a downtrend. Trend is down below the Pivot TRP of a uptrend.

SAR - Stop and Reverse. After your first entry for the day, you are always long or short until the end of the day (EOD). So when trend changes from up to down, exit long positions and reverse to short positions.



System Rules:

Charts: Candlestick or OHLC. Intraday Rolling.

Indicator: 3 SMA

Entries: Buy immediately when the trend changes to uptrend. Sell immediately when the trend changes to downtrend. Preferably, use stop orders for entries. To find the trend, see the definition of TRP.

Exits: Exit EOD. Otherwise, this is a SAR system and you go long or short at TRP.

Money Management/Position Sizing/Scale In: :confused::confused::confused:
 

augubhai

Well-Known Member
#3
I am a poor communicator. Many of you are probably not clear about the system rules. Perhaps, the chart will give you a better visual explanation.

And those who have understood the rules - if you find that I have not marked the charts per the system rules.... then I am just a fool deluding myself. Please point out the errors so I could come out of my Mungerilal delusion.

Chart for NF for the last 3 days

 
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NTrader42

Well-Known Member
#4
Hi

Seems from your chart marked with trades, that you are using the . . .

  1. Low of the free bar (daylight) that is above the MA3 as a Short trigger and

  2. High of the free bar (daylight) that is below the MA3 as a Long trigger

Are there any other considerations for this trigger ?

Thanks
NT
 

augubhai

Well-Known Member
#5
Hi

Seems from your chart marked with trades, that you are using the . . .

  1. Low of the free bar (daylight) that is above the MA3 as a Short trigger and

  2. High of the free bar (daylight) that is below the MA3 as a Long trigger

Are there any other considerations for this trigger ?

Thanks
NT
I have considered both ends of DL bar as triggers. DL bar high is buy trigger, and DL bar low is sell trigger. Doesn't matter which side of the MA3 it is.

I have also not considered any buffer for the DL bar triggers (though it seems to be a good idea).
 

augubhai

Well-Known Member
#6
Code:
[U]4. Be profitable everyday.[/U]

Now I am attempting some position sizing and profit booking conditions. 
(These are key points that every trader must address to stay profitable long term, but I will just treat them as guidelines and do not plan to mark them on the charts. Doing the calculations in an Excel sheet or Calculator is fine, but marking everything on iCharts is a pain.)

[B]Position Size:[/B]
Decide on the amount that you can risk per trade for the day. Then calculate the risk in points (including costs). 
Costs = Brokerages+Taxes+Slippages

For example, let's say you decide that the risk per trade for the day is Rs. 10000, and the OR High is 5000 and OR Low is 4970. In this case, assuming a buffer to 5 points, ORB happens at 5005 and 4965. Let the cost to be 3 points per round trip (entry and exit - assuming you trade Nifty Futures with good volume), but conservatively, for calculations, we will take the cost as 5 points per round trip.
So the risk in points will be (5005-4965+5)=45 points.
Position Size = 10000/45 = 222.2 units -> 200 (rounded down)

Yet to decide: Rest of Money Management - including how to decide the risk per trade for the day.

[I](OR = Opening Range, ORB = Opening Range Breakout)[/I]

Note: If your costs are higher in futures, check if your costs are lower on options. You will have to choose the right options (ITM). Also, slippages will be higher in ITM options.

[I](ITM = In the money)[/I]

[B]Sizing Points:[/B]  
These are points at which you adjust your position size upwards or downwards based on new TRPs. For a long trade, sizing points will be DL Bar Highs and HH1. For a short trade, sizing points will be DL Bar Lows and LL1. While upsizing should be done only on DL TRPs, downsizing can be done on any TRP.

[U]Example 1 - upsizing at DL:[/U] Continuing with the above example, let's say we went long on ORB at 5005, with a position size of 200 Nifty Futures (4 lots). Let's say we are in a good uptrend and after some time in the trend, we get a DL bar with high of 5040 and low of 5035. Your risk in points for the DL Bar will be (5040-5035+5) = 10 points. With this, you can a have a position size of 10000/10 =  1000 units. But since your current position size is long only 200 units, you can place buy stop at 5040 (or rather 5040.05) for 800 units on completion of the DL Bar. - Quick Gun Murugan says: "Macha, be quick to place the orders, you also need to place SAR orders at the DL Low. MIND IT!!". If your buy stop is hit, you will be long 1000 units with SL(SAR) at 5035.

[U]Example 2 - downsizing at HH1:[/U] Let's say the uptrend continues in the Mungerilal world, and the price reaches a high point (HH1) of 5050, and then comes down to form a Pivot Low of 5040, and then starts moving up again. If the price crosses 5050, then there would be a new TRP at the Pivot Low - Bufffer, 5040-5 = 5035. Your risk in points for the new TRP will be (5050-5035+5) = 20 points. With this, you can a have a position size of 10000/20 =  500 units. But since your current position is long 1000 units, you place a limit Sell order at 5050 for 500 units.
(Between Example 1 and 2 the TRP remained constant at 5035, but whatever... you are just trying to find a reason to lock profits)

[I](DL=daylight, HH1=Higher High 1, HH2=Higher High 2, LL1=Lower Low 1, LL2=Lower Low 2, PL = Pivot Low, TRP = Trend Reversal Point, SL = Stop Loss, SAR = Stop and Reverse)[/I]

[B]Lock Profits:[/B]
All the funky calculations to lock profit by downsizing is fine, but sometimes you do not get the scenario needed to downsize as above. What then? Answer: Find other reasons to lock profits.

1. One very good reason that I use is to Exit 100% at Close of favorable High Volume WRB (If the Range and Volume are visible even before close, but the direction reverses in the middle of the bar, place an SL at the bad end of the bar). Calculate the new risk in points and position size and reenter if price breaks the good end of the WRB.

2. Exit 50% at x times initial risk of the at point of entry. Here we take risk as the |(Entry-SL)|. x varies depending on the type of TRP.
    - If entry was on a DL on the first or second bar of the day (DL due to intraday gap), then x=2.
    - If entry was on a DL on any other bar, then x=3.
    - If entry was on a DL bar that whipsawed once, then x=2.
    - For any other entry, x=1.  
    Place limit orders to exit. But if you see a straight up or straight down move in your favor, you might want to cancel the limit order, and wait for the move to stop before exiting. (One way is to exit on a bar close on the other side of the 3SMA)

Yet to decide: Exits at Trailing Stops, Bands, etc. I use a wide % trailing stop in other systems. In this system, there are very few opportunities to use a wide trailing stop.

[I](WRB - Wide Range Bar. Good End - end where I get more money, Bad End - end where I get less money)[/I]

:annoyed::mad::(
All these rules are just junk. Checked on the charts of the last 3 days. The only rule worth retaining is to exit 100% on a favorable WRB. All the other rules may give you some money, but will be too much of a pain to execute unless some part can be automated.

Still need to work on Profit Locking and Stop Losses. Maybe I will look at the same rules once again, and also other rules, but avoid complicating with too many rules.

I wasted a lot of time checking these rules. Hope noone else spent time on this. I wrote pretty bad for anyone to read, so I am pretty confident that noone else would have spent their time reading it. :rofl:

So it back to the drawing board for me. Next time hopefully, I will do the analysis, and then post the rules.
(Only Quick Gun Murugan is supposed to first shoot, and then talk :rolleyes:)
 
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vishal7176

Well-Known Member
#8
@ auagubhai ,

can you give us more detail on chart ....with explantion .....

which TF u r using ?

i read your all explanation .....but u not mention anywhere use of 3SMA ....then why u choose it ??

please ...

thankyou
 

augubhai

Well-Known Member
#10
@ auagubhai ,

can you give us more detail on chart ....with explantion .....

which TF u r using ?

i read your all explanation .....but u not mention anywhere use of 3SMA ....then why u choose it ??

please ...

thankyou
Vishal,

Thanks for pointing that out.

The timeframe is 5 minutes. Reason: more opportunities to get DL bars in lower timeframes.

The line shown on the charts is 3 SMA. We identify DL bars using 3 SMA. Also, in this system, Pivot Highs are always above 3 SMA, and Pivot Lows are always below.
 

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