How to trade with an oscillator

[Smart_trade]

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Regards
Raghav

1) The 10-12 bars work in all timeframes...be it 5 or 30 min.Doji and small antitrend bars also to be counted as long as in any of those bars the indicator does not flip ( meaning comes to neutral zone from OB/OS zone )

2) It is my experience that after 5-6 bars in overbought/oversold zone, the market will go sideways or a bit in reverse direction for 2-3 bars and then a strong move again in the original direction....this move I trail my profit booking level to the low of each successive bar high/low( once it makes a new high/low ) depending upon whether it is a down or upmove.

The above when you take a position on 5 bars OB/OS zone...if you are taking the position based on the regular OB/OS and all entry critaria wait till the the oscillator goes to other extreme and extract the maximum from the move.

3) In sideways markets the oscillator will navigate from OB to OS zones back and forth giving us good trades, but when strong trends start , the first indication is indicator staying in OB/OS area for more than 5 bars....the next indicator is suppose we are in downtrend, after staying in OS zone for more than 5 bars,the oscillator goes in neutral area and gives us a buy signal....but the market takes a feeble rally and the oscillator is unable to reach the overbought area and from the half distance the market and oscillator turns south. This is an indication that the downtrend is going to be strong and sustained...and here we shift to trading pivot lows breakdowns, add aggressively and ride the trend till it does not reverse.....This happened on Friday 14-05-2010 afternoon downmove in Nifty, and Bank nifty futures and many stock futures....

If I have to mention one secret of trading profits it is multiple adds and hold till the trend reverses...I take 2 adds in daytrading and in exceptionally strong trends take 3 adds. No fancy formula,AFL, Computer programme, system will make more money than adding in the direction of trend and holding...if you understand and master this ,you will be light years ahead in your path of trading success.

You are doing well....great going....

Smart_trade

 

[Smart_trade]

I have posted a 5 Min Bank Nifty Futures chart of 14-05-2010. I have marked buy,sell and add points, stoploss levels....Note that in the afternoon the oscillator was unable to go till OB zone twice...indicating excess weakness and a crack to soon follow...which did come through allowing us to add aggressively and trail our stoploss levels till the end giving us a very sweet move ........we traded this move on pivots ( mweaning pivot highs and lows...not the camerrilla variety ) getting a hint from oscillator.....

Smart_trade

 

[Raghavacc]

1) The 10-12 bars work in all timeframes...be it 5 or 30 min.Doji and small antitrend bars also to be counted as long as in any of those bars the indicator does not flip ( meaning comes to neutral zone from OB/OS zone )

2) It is my experience that after 5-6 bars in overbought/oversold zone, the market will go sideways or a bit in reverse direction for 2-3 bars and then a strong move again in the original direction....this move I trail my profit booking level to the low of each successive bar high/low( once it makes a new high/low ) depending upon whether it is a down or upmove.

The above when you take a position on 5 bars OB/OS zone...if you are taking the position based on the regular OB/OS and all entry critaria wait till the the oscillator goes to other extreme and extract the maximum from the move.

3) In sideways markets the oscillator will navigate from OB to OS zones back and forth giving us good trades, but when strong trends start , the first indication is indicator staying in OB/OS area for more than 5 bars....the next indicator is suppose we are in downtrend, after staying in OS zone for more than 5 bars,the oscillator goes in neutral area and gives us a buy signal....but the market takes a feeble rally and the oscillator is unable to reach the overbought area and from the half distance the market and oscillator turns south. This is an indication that the downtrend is going to be strong and sustained...and here we shift to trading pivot lows breakdowns, add aggressively and ride the trend till it does not reverse.....This happened on Friday 14-05-2010 afternoon downmove in Nifty, and Bank nifty futures and many stock futures....

If I have to mention one secret of trading profits it is multiple adds and hold till the trend reverses...I take 2 adds in daytrading and in exceptionally strong trends take 3 adds. No fancy formula,AFL, Computer programme, system will make more money than adding in the direction of trend and holding...if you understand and master this ,you will be light years ahead in your path of trading success.

You are doing well....great going....

Smart_trade

ST,

I am gratefull for your highly encouraging words and sharing such deep insights.

Hope you will get some free time to see the chart below and evaluate.Though I have posted the same in my previous posts ,there I missed the adds which is a shortcome in my style of trading. Also the point of discussion there was something different.Here I am trying to depict how I would have traded with adds in my kitty..The chart is almost a replica of Bank nifty chart posted by you.

1. Bought 1 lot
2. Added 1 lot
3. Added 1 more lot
4.Covered on break of PL
6.Break of consolidation on lower side.shorted.
7. Here I have a small question.Point number 7 is break of previous PL again which is without doubt a adding point.However would it be ideal to add at break of 2 top counter trend bars ( Marked in the chart (5147).?
8.Time to cover.

================================================================================
Also I fell in love with TATASTEEL as its ATR for last one month is 23 Rs. below is the chart.Its breaking lower levels one after another.It gave opportunity for almost 7 adds.
Pls comment if I need to do anything more.

Regards
Raghav

 

[Raghavacc]

ST ,

while studying came across a tricky situation. ICICI Bank .

here after staying in the OB zone for extended period immediately it did stay in OS for more than 5 bars. Then the Stoch went to OB and flipped and our order got filled. However The stoploss got hit and then it gave a huge move in the direction we entered.

Here my query is:

How do we handle this Consecutive OB AND OS case respectively? Do we accept stoploss and re-nter or do we have any standards to filter out the trade? Like waiting till Stoch makes lower high i.e: Negative divergence.

Regards
Raghav

 

[Smart_trade]

ST ,

while studying came across a tricky situation. ICICI Bank .

here after staying in the OB zone for extended period immediately it did stay in OS for more than 5 bars. Then the Stoch went to OB and flipped and our order got filled. However The stoploss got hit and then it gave a huge move in the direction we entered.

Here my query is:

How do we handle this Consecutive OB AND OS case respectively? Do we accept stoploss and re-nter or do we have any standards to filter out the trade? Like waiting till Stoch makes lower high i.e: Negative divergence.

Regards
Raghav

Consecutive OB/OS flips happen mainly due to gap openings and drastic shift in supply/demand balance due to international events....market takes time to adjust to these imbalances and in such period we may get a whipsaw...accept it with a smile and move on rather than tweaking the method to eliminate this whipsaw....more one tweaks...more the method looses its robust character....soon the market regains its balance and starts behaving in normal way. At the time of whipsaw note the negative divergence and enter again and make the most of the decline that followed.......

ST

 

[vinst]

ST ,

while studying came across a tricky situation. ICICI Bank .

here after staying in the OB zone for extended period immediately it did stay in OS for more than 5 bars. Then the Stoch went to OB and flipped and our order got filled. However The stoploss got hit and then it gave a huge move in the direction we entered.

Here my query is:

How do we handle this Consecutive OB AND OS case respectively? Do we accept stoploss and re-nter or do we have any standards to filter out the trade? Like waiting till Stoch makes lower high i.e: Negative divergence.

Regards
Raghav

I have also come across Consecutive OB AND OS situation and it is a lot of trouble when it is going on (if I recall correctly, it was CNXIT in Feb march 2010).

regards
vin

 

[AW10]

If I have to mention one secret of trading profits it is multiple adds and hold till the trend reverses...I take 2 adds in daytrading and in exceptionally strong trends take 3 adds. No fancy formula,AFL, Computer programme, system will make more money than adding in the direction of trend and holding...if you understand and master this ,you will be light years ahead in your path of trading success.

Very Well said Smart_Trade. I fully support this point.
Thanks a lot for sharing your insight into trading Stochasitcs.. and nicely documented chart.

Happy Trading

 

[AW10]

ST ,

while studying came across a tricky situation. ICICI Bank .

here after staying in the OB zone for extended period immediately it did stay in OS for more than 5 bars. Then the Stoch went to OB and flipped and our order got filled. However The stoploss got hit and then it gave a huge move in the direction we entered.

Here my query is:

How do we handle this Consecutive OB AND OS case respectively? Do we accept stoploss and re-nter or do we have any standards to filter out the trade? Like waiting till Stoch makes lower high i.e: Negative divergence.

Regards
Raghav

Raghav, my 2 cents on the issue that u have mentioned.
In my view, we got to know our tools better. You current Stochastics setting of 3,8,4, looks at last 8 bars to perform calculation. So if there is any erroeneous data u have in last 8 bars, the result will be faulty. It is like - garbage in, garbage out. Computers don't understand it, but we human being should.
As mentioned by ST, the OS reading that u see, is nothing but garbage output for me. Due to wide gap, the data use in calculation is not reliable. so better to you our judgement in interpreting it.
If you move to higher TF, this effect will get smoothened and you will get clearer picture.

In my view, if this kind of situation (shift from >5bar OB to >5bar OS) on cleaner chart, this shows me shift in momentum. >5 Bar indicates and strength in momentum..and we just need to go with it.

I think, in that case, the setup of >5bar OB should get negated cause that we histroy. Latest setup of >5bar OS should rule now..

Smart_Trade, Hope I am correct in this explanation.

Happy Trading.

 

[Raghavacc]

Raghav, my 2 cents on the issue that u have mentioned.
In my view, we got to know our tools better. You current Stochastics setting of 3,8,4, looks at last 8 bars to perform calculation. So if there is any erroeneous data u have in last 8 bars, the result will be faulty. It is like - garbage in, garbage out. Computers don't understand it, but we human being should.
As mentioned by ST, the OS reading that u see, is nothing but garbage output for me. Due to wide gap, the data use in calculation is not reliable. so better to you our judgement in interpreting it.
If you move to higher TF, this effect will get smoothened and you will get clearer picture.

In my view, if this kind of situation (shift from >5bar OB to >5bar OS) on cleaner chart, this shows me shift in momentum. >5 Bar indicates and strength in momentum..and we just need to go with it.

I think, in that case, the setup of >5bar OB should get negated cause that we histroy. Latest setup of >5bar OS should rule now..

Smart_Trade, Hope I am correct in this explanation.

Happy Trading.

AW,

Points well taken. I would have gone to basics immediately after seeing whipsaw which would have directed me to that gap up.....

Its pure economic matter of demand and supply...

Regards
Raghav

 

[Smart_trade]

Raghav, my 2 cents on the issue that u have mentioned.
In my view, we got to know our tools better. You current Stochastics setting of 3,8,4, looks at last 8 bars to perform calculation. So if there is any erroeneous data u have in last 8 bars, the result will be faulty. It is like - garbage in, garbage out. Computers don't understand it, but we human being should.
As mentioned by ST, the OS reading that u see, is nothing but garbage output for me. Due to wide gap, the data use in calculation is not reliable. so better to you our judgement in interpreting it.
If you move to higher TF, this effect will get smoothened and you will get clearer picture.

In my view, if this kind of situation (shift from >5bar OB to >5bar OS) on cleaner chart, this shows me shift in momentum. >5 Bar indicates and strength in momentum..and we just need to go with it.

I think, in that case, the setup of >5bar OB should get negated cause that we histroy. Latest setup of >5bar OS should rule now..

Smart_Trade, Hope I am correct in this explanation.

Happy Trading.

Beautifully put forward, AW10...great going....It is a treat to read your posts....

Smart_trade