Simple trading strategy in commodity

#1
Hi All trading Gurus,

let me introduce myself so that nobody should follow this strategy blindly. I have started trading in commodity for last 1yr. Lost 1.2Lks (thanks to Silver only) till Oct-2012.

I used to make some TA and used to trade. Got some success but due to some big failure in silver made the big loss.

Now coming to my strategy. IT LOOKS VERY VERY SIMPLE AND EVEN SOMETIMES I DON'T BELIEVE WHETHER IT WILL WORK IN ALL CONDITION

# i HAVE cheked the chart of crude/aluminium/lead/zinc/silver/gold based on only RSI. when ever the RSI is below 30, buy the comodity and whenever RSI is above 70 sell the commodity

# there is some loophole (RSI above 70, few times comodity stays above 70 for quite some day) but same is not below 30. For this also I have thought some way out but in this the margin requirement is bit high.

Lets say for crude, taking the below example

Day-1 -close price 5200---- RSI is 70
Day-3 -close price 5312---- RSI is 76
Day-3 -close price 5423---- RSI is 80


My 1st lot sell will be at 5200, 2nd will be at 5300 and 3rd will be at 5400 (based on my margin which is 2LK) max I will trade in 3lots.....

So my Avg will come around 5300.

Advantage:
# I need not to keep on looking the price every time
# No SL
# Reward will be very good ( it can be like 3lots*100* 300Rs=90K in 1 or 2month)

Disadvantage:

# Need more margin
# waiting period is high

Note: I have checked the charts for 5yrs for all the comodities mentioned above

Recent success is Buy in Silver mini (last week) now it's giving 800Points per lot.

Frns, I NEED YOUR VALUABLE COMMENTS, suggestion AND HOW WE CAN MAKE THIS SYSTEM MORE FOOLPROOF.


why I am doubting is becus it's too simple
 

comm4300

Well-Known Member
#4
Hi All trading Gurus,

let me introduce myself so that nobody should follow this strategy blindly. I have started trading in commodity for last 1yr. Lost 1.2Lks (thanks to Silver only) till Oct-2012.

I used to make some TA and used to trade. Got some success but due to some big failure in silver made the big loss.

Now coming to my strategy. IT LOOKS VERY VERY SIMPLE AND EVEN SOMETIMES I DON'T BELIEVE WHETHER IT WILL WORK IN ALL CONDITION

# i HAVE cheked the chart of crude/aluminium/lead/zinc/silver/gold based on only RSI. when ever the RSI is below 30, buy the comodity and whenever RSI is above 70 sell the commodity

# there is some loophole (RSI above 70, few times comodity stays above 70 for quite some day) but same is not below 30. For this also I have thought some way out but in this the margin requirement is bit high.

Lets say for crude, taking the below example

Day-1 -close price 5200---- RSI is 70
Day-3 -close price 5312---- RSI is 76
Day-3 -close price 5423---- RSI is 80


My 1st lot sell will be at 5200, 2nd will be at 5300 and 3rd will be at 5400 (based on my margin which is 2LK) max I will trade in 3lots.....

So my Avg will come around 5300.

Advantage:
# I need not to keep on looking the price every time
# No SL
# Reward will be very good ( it can be like 3lots*100* 300Rs=90K in 1 or 2month)

Disadvantage:

# Need more margin
# waiting period is high

Note: I have checked the charts for 5yrs for all the comodities mentioned above

Recent success is Buy in Silver mini (last week) now it's giving 800Points per lot.

Frns, I NEED YOUR VALUABLE COMMENTS, suggestion AND HOW WE CAN MAKE THIS SYSTEM MORE FOOLPROOF.


why I am doubting is becus it's too simple
Firstly, thanks for sharing your thoughts.

wrt RSI : here's my 2 cents : you are trading the daily charts.

RSI pops up to say 70/80/90 levels....Correspondingly crude climbs up 100-150 points each session....and then crude moves sideways and occasional dip to 40-50 points....during this time RSI drops to 50/40 and then, zoom crude resumes its uptrend and makes new highs...

your earlier averaging of RSI goes in vain [hypothetically] ...and you have to start again...

Crude was just an example to convey my point. But since, you've seen it for the last 5 years...likely to be profitable for that particular commodity.


Stop loss needs to be defined. Markets can be irrational beyond one's averaging capacity.
Do not doubt your strategy just because its simple. If it works, go and mint money....simple. Complicating things, self-doubt, saying "yes...but" will make many traders jump from one strategy to another ....while their a/c is emptied.

thanks and all the best.
 
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#5
Thanks gurmy, comm4300 for your post....:)

As far as I remember the charts for last 5ys (I will recheck again), non of the commodity are ever reaching RSI of 90....

And if any is there above RSI 80, it's just a blind short (may be you have to avg 1lot more) and below 20 is a blind buy.

With occasional dip to 40-50 points in crude (combine with sideways movement for few days) The RSI will never dip to 40/50. This point I will recheck

To make my case more solid, I will post some charts lets say only on crude (multiple occasions). we can jointly revisit the chart , if I am missing something.

Frns: I request all the commodity trader to check on their own for other commodities as well.

Yes Mkt is irrational and definitely 2lk is such a small amount, that acct will be emptied in no time and I sincerely think SL is a must .
 

anuragmunjal

Well-Known Member
#8
Day-1 -close price 5200---- RSI is 70
Day-3 -close price 5312---- RSI is 76
Day-3 -close price 5423---- RSI is 80


My 1st lot sell will be at 5200, 2nd will be at 5300 and 3rd will be at 5400 (based on my margin which is 2LK) max I will trade in 3lots.....

So my Avg will come around 5300.


Anurag bro...Can you please elaborate your point....

I have started trading in this system and got a good success


dear friend
since ur ques. was hypothetical..
day 1 close 5200 sold at 5200...

day 2 open 5150..what will u do??
 

comm4300

Well-Known Member
#9
okay....without trying to discourage the author for coming up with something simple and probably effective....here's a chart where this strategy may not have worked or probably would have cracked the trader's patience....

the chart is take from sharekhan's trade tiger...RSI default settings.



first short trigger came around 08-nov-2011 RSI - 70 something. @4738
second short trigger came the very next day 09-nov rSI - 76.04. @4859
third lot short at RSI 81.37 16-nov @ 5150

Average short = 4915.66

Even the minor correction did not come to this average cost of ours.....

in fact crude touched a high of 5342..! imagine the M2M that you'd have paid...
the next few days did give a correction...i.e 16 dec 2011 crude dropped to 4903...and the went up again...and finally on 01-feb-2012 did crude drop to 4855 - below our average short level.....

this particular trade began from 08th Nov 2011 and lasted 3 months...until 01-feb-2012...imagine the m2m and the level of patience that would be required to hold on to this position....


again....NOT trying to discourage the trader...just sharing my opinion....

what happens to m2m - you need a good buffer. In this trade crude moved to 5342 from our average of 4915 i.e 427 points . x 3lots = 1281 points!
what happens to rate of return ? u trade 1 lot with 2lkh and make money...rate of return comes down...
only when the entire 3 lots of averaging comes in ...and the trade works out...do we have some gains...else loss.

all the best....
 

anuragmunjal

Well-Known Member
#10
Day-1 -close price 5200---- RSI is 70
Day-3 -close price 5312---- RSI is 76
Day-3 -close price 5423---- RSI is 80


My 1st lot sell will be at 5200, 2nd will be at 5300 and 3rd will be at 5400 (based on my margin which is 2LK) max I will trade in 3lots.....

So my Avg will come around 5300.


Anurag bro...Can you please elaborate your point....

I have started trading in this system and got a good success


dear friend
since ur ques. was hypothetical..
day 1 close 5200 sold at 5200...

day 2 open 5150..what will u do??


it is a loosing strategy frm the start. whwnever u gain , u gain in one lot. whenever u loose, u loose in 3 lots. the moment u trade ur 2nd lot, u are looking for breakeven, after trading 3rd lot, u are totally at the mercy of mkt. forces. one bad trade in six months or one year has the potential to wipe out ur accumulated profits and ur margin too.
this is simple common sense, no need to look up charts for this.

regards
 
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