Nifty Futures Trading Strategy-New

ag_fx

Well-Known Member
#1
Hello to all the members of Traderji.

I am starting this new thread with an aim to develop a trading strategy for Nifty Futures. The strategy will be only a short term/intraday strategy and would be such that no positions are carried forward beyond 1-2 days.
I have been observing some patterns in Nifty Trades and thus came up with this strategy. I would be discussing each and every part of the same in the later part of the post.

I came to Traderji as a novice trader. Learnt a lot from the threads of Saint and finally trying my first stint at developing something for myself.

Suggestions/criticism/feedbacks of all the members especially the seniors are most welcome. We can together aim at creating a good profitable strategy.


AIM: To trade Nifty Futures in the intraday time frame to gain. Most of the trades would be closed within 1-2 trading days.

Pre requisites to trade this strategy:


1) Functional knowledge of Technical Analysis: It would be required for the trader to understand TA features like Resistances, Supports, Trends, Bid, Ask, Volume and certain indicators like RSI, MACD, Moving Averages & pivot levels. In case a beginner is reading this post, I would advise him/her to grasp some basic concepts before even trying to paper trade this strategy. I would definitely recommend Saint’s “Teach a man how to fish” thread for basic TA knowledge.

2) Access to intraday live feed and charts.

3) A broker platform on which your trades could be punched as fast as possible.

4) A risk capital in which you can trade at least 2-4 lots of Nifty(or Minifty) at a time and can fund some MTM.

5) Full time traders. Part time traders will not be able to enter/exit as decided and may loose money. This strategy will work only for full time traders.

6) Highest order of discipline. If this strategy comes out well formulated and robust, then it should be traded with discipline, without any ifs or buts or emotions.

Entry/Exit Rules:

Open a chart with the following specifications:
10 min, NIFTY, candle stick, Exponential Moving Average(10), Exponential Moving Average (25), RSI, MACD. We will be watching MACD and MAs for our entry and exit levels.

1) A sell signal is generated when MACD crosses its signal line on downside. A buy signal is generated when MACD crosses signal line on upside. Only take position in 2 lots.
I prefer to enter each trade with a preset entry and SL levels. Usually for the 10 min time frame a 60point TP and a 30 point SL is used by me.

2) Add to the existing position upon a confirmation from MAs. When 10 interval MA crosses 25 interval MA on downside, add to shorts and if it crosses up, add to longs. Again, only 2 lots to be added. When adding positions, the TP levels of original positions are used. However, SL levels would be -30 points from our new entered position.

3) Poistions should be taken only after the completion of the 10 Min Candle. Any position taken before the completion of bar may hit SL immediately and is a risky trade.

4) Avoiding whipsaws: Enter a fresh Long trade only when the High of the candle making MACD crossover + filter(5 points) has been taken off. Similalry, enter a short trade when Low of the candle making MACD crossover-filter(5 points) is taken off. In case you use point 4, your TP and SL levels may be +50 and -30. While, this skews our Risk:Reward ratio per trade a bit, in longer run, it helps a lot by avoiding many whipsawas and thus potential loss of money.(Forward tested fact).

Exit:

1) Exit at the levels pre decided by you(Whether TP or SL). You can also use a trailing stop loss approach which I have explained later in the post.One approach is to cover half of the open lots at 60 points profit and keep rest half open for EOD/SAR/SL.
2) SAR: Stop & Reverse: In case you haven’t hit any of your SLs or TP levels, reverse your position every time MACD makes an opposite move. So, for example, if you shorted when MACD moved down crossing the signal line and now, it has again crossed signal line on way up, then SL your last two positions and take this as a new fresh trade.
3) EOD: Exit half of the open positions at EOD(3:20-3:25PM) whether at Loss or Profit. Most of the time, they will be in small profits(from the backtested results). The Rest Half can be closed at TGT/SAR/SL the next day.
However, with the backtested and some of the forward tested results with us, this point is changed a little as follows:
At 3:20 PM, see your net position. If its Long, do Step (i) and if its short,do Step(ii)

(i) Check these things
Where is MACD and signal line with respect to zero.
If both are above zero and not sloping down towards zero, check the status of EMAs(10,25).
If the EMA(10) is over EMA(25), check the gaps between EMA(10) & EMA(25) and the gap between MACD and signal line,
If the Gap hasnt reduced since the crossover, or remained flat.
If all these tests, pass, keep ALL LONGS OPEN. Else close Half Lots.

(ii) Check these things
Where is MACD and signal line with respect to zero.
If both are below zero and not sloping up towards zero, check the status of EMAs(10,25).
If the EMA(10) is below EMA(25), check the gaps between EMA(10) & EMA(25) and the gap between MACD and signal line,
If the Gap hasnt reduced since the crossover, or remained flat.
If all these tests, pass, keep ALL SHORTS OPEN. Else close Half Lots.


4) In case of gap Opening, wait for the 10:05 candle to complete before doing SL(in case it moves against you). In case it moves in your favour, keep updating SLs as and when they hit new levels(as explained in Trailing SL method).

Trailing Stop Loss:

Everytime the position starts moving into your favour, keep updating your SLs. Here is the approach for it:

Once the open positions move 30 points in your favour, move your SL to your entry points.Cover half lots at entry point and keep rest half at original SL or SAR.
Once the open positions move 60 points in your favour, move your SL to entry point+30 points. Cover Half lots at +30 and keep rest half for entry point or for SAR
Once the open positions move 90 points in your favour, move your SL to entry point+60 points. Cover Half lots at +60 and keep rest half for +30 or for SAR
Once the open positions move 120 points in your favour, move your SL to entry point+90 points. Cover Half lots at +90 and keep rest half for +60 or for SAR
Once the open positions move 150 points in your favour, move your SL to entry point+120 points. Cover Half lots at +120 and keep rest half for +90 or for SAR

Mostly, SAR for the remaining Half Lot would hit first before SL.

This process would help us prevent our capital. We might loose on some big profits too, but would be far more consistent with returns.
This is just what my approach is. You can have your own levels for the same.


Use of RSI.

RSI would be used in case of dilemma. It would not trigger any Buy/Sell singals, but only would be used as an indicator to support your view.

Another approach to the strategy is to use only SAR and no fixed levels for TP. However, I prefer the first method because of more consistent gains.

We can forward test various variations of this strategy to come out with a robust plan.


Drawback:

In a side way intraday market it will generate whipsaws. I would request suggestions for the same to improvise on the strategy.



Attached with this post are the results so far with the strategy(updated weekly).


http://**********.com/files/176886392/19nov-26dec.xls

replace the **** with r a p i d s h a r e ... widout the spaces....
I dont know why the link is getting converted into *****..can anyone help?
 
Last edited:

rkkarnani

Well-Known Member
#2
Great initiative!
Please elaborate the settings of MA: Simple or Exponential. MACD and RSI settings used.
Thanks and all the best for your new 'venture'.
 

ag_fx

Well-Known Member
#3
Great initiative!
Please elaborate the settings of MA: Simple or Exponential. MACD and RSI settings used.
Thanks and all the best for your new 'venture'.
Ahh...How could I miss that..here are the specifications:

MAs: Simple
MACD: 12,26,9 or 26,12,9 (notions are different in different charting softwares)
RSI: 14

These are pretty much the basic or default settings with these indicators.
 
#5
Dear Sir,

Could any one suggest a comprehensive and simple reading for Japenese Candle sticks? Is anything available on-line?

Regards
Bharath
 

AW10

Well-Known Member
#7
Great initiative Ankit. Keep it up.
I have few observations on your strategy.. They are my opinion and beliefs only so don’t take them personally but if you find them useful then probably they will help in improving the strategy..

1) As per my understanding of this strategy, it is simple MACD signal based strategy. MACD is derived from MA hence by their definition, they are lagging indicator.. and they are trend following indicators..

2) Your setting of 2 Moving averages (10 and 25) is not very different from 12, setting of MACD. They are going to give u more or less same signal just 2 or 3 bars apart.
Just try to look at your chart by observing the MA lines and compare that to MACD line.
To me, they look very similar.

So IMO, you can very well start with 2 contracts upfront.



3) Trend following systems by nature have record of giving many loosing trades in sideway market - so we got to use some filter to identify if mkt is trending or in sideway mode..before using MACD signals..

4) Trend following systems makeup for the multiple loosing trades in sideway market by that dream run on those few trades.. that captures the big trend. They typically don't work on target exits.. to ensure that when they win, let the win be great.. They just enjoy the ride. Trend followers have high degree of patience - first to live with long string of loosing trades and second to ride the big trade with no hurry to book profit (unfortunately most of us don't have that amount of patience).

IMO, if you keep cutting your profit at 60 points then u will never have big winner..
You will end up having more trades where u are stopped out with 30 points loss.
If you backtest and have a record of % of winning trades and % of loosing trades, then that will answer the issue.

5) As per point 2 above, why not open the trade with 2 contracts, book profit on 1 of them at 60 points and let other contract ride the trend. This also means that you will be hitting stoploss at 2 contracts on loosing trades.
Again backtesting results might help in optimising stoploss and target points.

6) Usage of RSI is not very clearly defined. It is left to lot of subjective judgement of individual. RSI /Stoch are great indicator in sideway market but they are poor in trending market. They can remain overbought/oversold for long time in trending market.
So I don't know how u can use RSI with MACD.. they are two different breed of indicators and have very different behaviour. One of the possible use of RSI could be
in defining EXIT or partial exit from the position.

7) Hope you have backtested this strategy and have some type of trade record for analysis purpose. Without knowing the statistical output of any strategy, IMO, it is no more then a nice creative idea. And we have no fact to support that it is going to make money for us. Trading is not easy and backtesting one's strategy is the handwork of trading business.

Hope I have not mentioned too many points to puncture your enthu bubble. Plz take them in right spirit. You can improve the strategy and make it a tradable one.

Happy Trading.
 

rkkarnani

Well-Known Member
#8
Great initiative Ankit. Keep it up.
I have few observations on your strategy.. They are my opinion and beliefs only so dont take them personally but if you find them useful then probably they will help in improving the strategy..

1) As per my understanding of this strategy, it is simple MACD signal based strategy. MACD is derived from MA hence by their definition, they are lagging indicator.. and they are trend following indicators..

2) Your setting of 2 Moving averages (10 and 25) is not very different from 12, setting of MACD. They are going to give u more or less same signal just 2 or 3 bars apart.
Just try to look at your chart by observing the MA lines and compare that to MACD line.
To me, they look very similar.

So IMO, you can very well start with 2 contracts upfront.



3) Trend following systems by nature have record of giving many loosing trades in sideway market - so we got to use some filter to identify if mkt is trending or in sideway mode..before using MACD signals..

4) Trend following systems makeup for the multiple loosing trades in sideway market by that dream run on those few trades.. that captures the big trend. They typically don't work on target exits.. to ensure that when they win, let the win be great.. They just enjoy the ride. Trend followers have high degree of patience - first to live with long string of loosing trades and second to ride the big trade with no hurry to book profit (unfortunately most of us don't have that amount of patience).

IMO, if you keep cutting your profit at 60 points then u will never have big winner..
You will end up having more trades where u are stopped out with 30 points loss.
If you backtest and have a record of % of winning trades and % of loosing trades, then that will answer the issue.

5) As per point 2 above, why not open the trade with 2 contracts, book profit on 1 of them at 60 points and let other contract ride the trend. This also means that you will be hitting stoploss at 2 contracts on loosing trades.

Again backtesting results might help in optimising stoploss and target points.

6) Usage of RSI is not very clearly defined. It is left to lot of subjective judgement of individual. RSI /Stoch are great indicator in sideway market but they are poor in trending market. They can remain overbought/oversold for long time in trending market.
So I don't know how u can use RSI with MACD.. they are two different breed of indicators and have very different behaviour. One of the possible use of RSI could be in defining EXIT or partial exit from the position.

7) Hope you have backtested this strategy and have some type of trade record for analysis purpose. Without knowing the statistical output of any strategy, IMO, it is no more then a nice creative idea. And we have no fact to support that it is going to make money for us. Trading is not easy and backtesting one's strategy is the handwork of trading business.

Hope I have not mentioned too many points to puncture your enthu bubble. Plz take them in right spirit. You can improve the strategy and make it a tradable one.

Happy Trading.
Wow!!! Great input. Shall surely help in taking this thread and system ahead. You have sprinkled your post with a few gems. :D
 

rkkarnani

Well-Known Member
#9
Ahh...How could I miss that..here are the specifications:

MAs: Simple
MACD: 12,26,9 or 26,12,9 (notions are different in different charting softwares)
RSI: 14

These are pretty much the basic or default settings with these indicators.
Thanks Ankit.
In your post you have mentioned :
AIM: To trade Nifty Futures in the intraday time frame to gain. Most of the trades would be closed within 1-2 trading days.
We are trading a 10 minutes chart intraday. When do we exit ? How is the trade continued for 1-2 days. Carrying over trade would mean risking gap openings?
 

shinchan

Well-Known Member
#10
Dear Sir,

Could any one suggest a comprehensive and simple reading for Japenese Candle sticks? Is anything available on-line?

Regards
Bharath

please go here. post no. 14 onwards.

http://www.traderji.com/technical-analysis/16436-trading-under-candle-light-2.html

Traderji forum has wealth of information. search the threads and you will get lot of information.

Ankit.

sorry to post this here. But as bharath is new to the forum, I had to post it here only.

BTW, very nice initiative by you. All the best.


shinchan
 

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