A simple investment strategy to beat Nifty returns

ncube

Well-Known Member
#11
These days Heiken-Ashi charts are available in any charting platform, the advantage of this chart is that it makes visualization of the trend and changes in trend direction much easier. A typical heiken-ashi chart looks like this:

1568182884564.png


To make our analysis even more simpler we just need to track only 2 types of candles and 2 patterns as follows:

1. For Buy Signal: Either of these 2 signals
a. Candle with upper wick or
1568183052386.png


b. 2 candles pattern with the second candle having higher low
1568183221042.png


2. For Sell Signal: Either of these 2 signals
a. Candle with lower wick or
1568183026754.png

b. 2 candles pattern with the second candle having lower high
1568183147537.png
 

ncube

Well-Known Member
#14
upper wick==> Next Candle with higher high?
Each Candle represents the price action of that day, at the end of each day we just check the candle for that day or that day plus the candle of previous day for the buy/sell signal.

The upper wick indicates the highest price the stock reached before closure and the lower wick indicates the lowest price the stock reached before closure.

Buy Signals:
1568191749326.png

1568191792521.png


Sell Signals:
1568191771048.png


1568191805696.png
 

lemondew

Well-Known Member
#16
This isnt very clear. If the high is a one point above the close there will be an upper wick. if the high is 100 points above the close there will still be an upper wick. So long as it is not close = high (which is very rare) there will always be an upper wick. So every candle will have an upper wick?

Each Candle represents the price action of that day, at the end of each day we just check the candle for that day or that day plus the candle of previous day for the buy/sell signal.

The upper wick indicates the highest price the stock reached before closure and the lower wick indicates the lowest price the stock reached before closure.

Buy Signals:
View attachment 37514
 

ncube

Well-Known Member
#17
This isnt very clear. If the high is a one point above the close there will be an upper wick. if the high is 100 points above the close there will still be an upper wick. So long as it is not close = high (which is very rare) there will always be an upper wick. So every candle will have an upper wick?
Heiken-Ashi candles are a special type, it will create a wick only when the price has retraced more than 50% of the previous day candle. It gives an early indication of probable change in trend direction.

However we will not worry about the candle construction, if the wick is created with 1 point or 100 point, it does not matter to us, if there is a wick it is a valid signal for us.

To get some familiarity of heiken-ashi candles, you may plot it for few of the stocks and analyze it, you will observe that it starts generating wicks when there is volatility in the market or just before the change in trend. You can also refer to the Bajfinance heiken-ashi chart I had posted earlier to observe this behavior.
 
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ncube

Well-Known Member
#18
Buy Trade Rules:

The primary mandatory condition to initiate any buy trade is that the stock price should be above its 200 day ema. At the end of each trading day we will check the Heiken-Ashi cande for each of our 10 stocks we have selected.

If its above its 200 day EMA, then there are 2 situations:

1. First Buy trade for the Stock: We check if there is a buy signal for that stock, if yes we will keep a buy after market order at the high as displayed in the heiken-ashi candle. Since we had assumed our total capital as 3L to be invested in 10 stocks, each stock get an allocation of 30K. We will split this 30K into 3 parts of 10K each and invest each part at different buy signals.

1568199205922.png

2. Subsequent Buy trade for the Stock: If we already have a position in the stock and the stock price go below our previous buy price and has now given a new buy signal, then we will initiate a 2nd buy trade only if the new buy signal is minimum 2% (More the better) below the previous buy price. We will not initiate a new buy if the price moves in our direction as we already have a position active.

1568199245681.png


If one is good in coding he can automate this process of measuring the percentage difference between the 2 buy signals. However do not worry I will share you a excel template at the end which will give you this value when the current price is entered.
 

ncube

Well-Known Member
#19
Sell Trade rules:

As we are in a banking business we should expect minimum interest for the loan given, We are not interested to exit at break-even or at loss. Hence we have a set of rules on how to exit the trades.

At the end of the day if we get a sell signal for the stocks that we have open trades, we will initiate an after market sell order at the low of the candle to be executed the next day only if we get a profit of minimum 2% (More the better). This 2% is because we have certain trading costs to be covered, hence when we sell above 2% profit, after deducting the trading costs, we should get at-least 1-1.5% returns for the trade. If there are multiple trades open for the same stock, then this need to be checked for each of the trades.

1568200921936.png
 

ncube

Well-Known Member
#20
Taking a loss:

Certain loans do become NPA's which cannot be avoided and we need to write if off. In our case we treat the trade as NPA when the price fall below the 200 day ema. However we do not close the trade immediately below the low of the candle breaking the 200 day EMA, we give a last chance and a grace period before closing all the open trades for that stock as sometimes the stocks bounce back taking resistance near the 200 day EMA.

Once the candle crosses below the 200 day EMA, we wait for the first higher low candle to be formed and then we start keeping the after market SL sell order below the low of each day candle until it is below the 200 day EMA. If the stocks recover above 200 day EMA then we stop placing the sell orders.

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