Trading Systems Using Technical Analysis

[SwingKing]

Purpose of this thread

I am starting this new thread where I will help users of Traderji to build robust systems in the markets. I have got many requests to start a similar thread and hence now I feel I can devote some reasonable time to start a thread in this domain.

What to expect

Please do not expect me to provide you with ready to use trading systems. This is certainly not the motive of this thread. All you can expect is my sincere devotion towards testing your trading ideas and suggesting ways to make your system more robust. I have certain testing parameters on which I judge systems and whatever I suggest in making a system more robust will be based on these parameters.

Structure of this thread

Time to time I will be providing some basic methodologies to build a system upon. But rest of the times, this thread would be kept alive only by users of this forum. If one needs to get a system tested, then I would request for the system to be posted here. I will try and give the results as soon as possible depending upon the work load on my "never - tiring" system testers. Systems won't be tested based on profitability but will be tested based on robustness. In short, what we are looking for is to make a "good" system and not a "profitable" system. The latter is the result of former and hence our focus will be on robustness.

Beginner, Intermediate or Advanced?

Well, you can post anything you want. Don't worry about the outcome. Be it a breakout system or a moving average system, don't worry about what other users will think about the post. I can assure you that I will give comments about any level of system without making one feel inferior. I have been in the similar situation when I started out, and hence I understand that to become a successful trader, one needs to get all the "naive" questions answered. If you simply have an idea, you can post it here. We can certainly hope some of the programmers of this forum to convert that idea into a system.

Furthermore, we can also hope for some of the other prime contributors of this forum to comment on the same. I hope AW10, Asnavale, Bunny, Columbus, DanPickup, DS, Linkon7,PraveenTaneja, Rajputz, Smart_trade, SavantGarde, Simple_trader, Stocks.Murtaza, Sudoku, Trader.trends (I hope I have not forgotten any name) are reading this.

How to benefit from this thread

How do we start? Well, if you have an idea, post it here. Rather than asking how it should be done, post what is there on your mind first. Please remember, this is not a give away thread. This is a thread where we can expect inputs from all the users to make something more refined. So please refrain from asking "How can this be done". Rather ask "Can this be done"? It's all about moving forward together.

What to Avoid

Apart from abiding by forum rules, I would request our esteemed users to not post stock tips, inquiries, market views etc on this thread. Also, please refrain from posting results of systems discussed here. Let this thread be solely for system design and testing.

In the end ...

In the end all I can say is that either we can make this thread a success and help each other to build some real systems or we can let this thread roll back in the section of "non usable" threads. The choice is in our hand.

 

[SwingKing]

--- Reserved ---

 

[sumosanammain]

............................................................

 

[ksesha]

Hi Raunak,

Thanks for starting this thread. I am relatively new to stock market and started trading for the last one year. I am regular but a silent observer of traderji and follow and admire all the threads of the senior members mentioned by you.

I have been reading about the indicators and their significance but was not sure which one to choose. So I decided to do khichidi using all of them using a system developed on my own which is based on metastock alerts. The results are encouraging so far.

Here comes my khichdi system,

I trade in futures and filter the ones whose 100 day average volume is greater than 1000 contracts per day.

Long Signal: If any 5 of the below mentioned events occur in the last 5 days
Buy: Buy the next day if the stock is trading positive after 3.15 PM

1) Cross of Macd , Moving average of Macd :- Parm 12, 26, 9
2) Cross of Stochastic , 20 :- Parm 14
3) Cross of RSI, 35 :- Parm 14
4) Cross of CCI, -100 : Parm 14
5) Cross of +DI, 10 or Cross of 35, -DI or cross of +DI, -DI :- Parm 14
6) Cross OBV, 14 day Moving average of OBV
7) Cross Close, 20 SMA

Stop signal: If the stock closes less than 2% from the entry or highest high after entry
Stop sell: Sell to cover the next day if the stock is trading negative after 3.15 PM

Short Signal: If any 5 of the below mentioned events occur in the last 5 days
Short: Sell the next day if the stock is trading negative after 3.15 PM

1) Cross of Moving average of Macd, Macd :- Parm 12, 26, 9
2) Cross of 80, Stochastic :- Parm 14
3) Cross of 70, RSI :- Parm 14
4) Cross of +100, CCI : Parm 14
5) Cross of -DI, 10 or Cross of 35, +DI or cross of -DI, +DI :- Parm 14
6) Cross 14 day Moving average of OBV, OBV
7) Cross 20 SMA, Close.


Stop signal: If the stock closes higher than 2% from the entry or lowest low after entry
Stop buy: Buy to cover the next day if the stock is trading positive after 3.15 PM


I request you to please test the system and let me know its worthiness.


Thanks in advance
Sesha

 

[seetharamank]

one silly question what is pram

 

[SwingKing]

one silly question what is pram

I think you meant Parm which is mentioned above in the post.

Well its actually Parameter (s).

Tc

 

[SwingKing]

Hi Raunak,

Thanks for starting this thread. I am relatively new to stock market and started trading for the last one year. I am regular but a silent observer of traderji and follow and admire all the threads of the senior members mentioned by you.

I have been reading about the indicators and their significance but was not sure which one to choose. So I decided to do khichidi using all of them using a system developed on my own which is based on metastock alerts. The results are encouraging so far.

Here comes my khichdi system,

I trade in futures and filter the ones whose 100 day average volume is greater than 1000 contracts per day.

Long Signal: If any 5 of the below mentioned events occur in the last 5 days
Buy: Buy the next day if the stock is trading positive after 3.15 PM

1) Cross of Macd , Moving average of Macd :- Parm 12, 26, 9
2) Cross of Stochastic , 20 :- Parm 14
3) Cross of RSI, 35 :- Parm 14
4) Cross of CCI, -100 : Parm 14
5) Cross of +DI, 10 or Cross of 35, -DI or cross of +DI, -DI :- Parm 14
6) Cross OBV, 14 day Moving average of OBV
7) Cross Close, 20 SMA

Stop signal: If the stock closes less than 2% from the entry or highest high after entry
Stop sell: Sell to cover the next day if the stock is trading negative after 3.15 PM

Short Signal: If any 5 of the below mentioned events occur in the last 5 days
Short: Sell the next day if the stock is trading negative after 3.15 PM

1) Cross of Moving average of Macd, Macd :- Parm 12, 26, 9
2) Cross of 80, Stochastic :- Parm 14
3) Cross of 70, RSI :- Parm 14
4) Cross of +100, CCI : Parm 14
5) Cross of -DI, 10 or Cross of 35, +DI or cross of -DI, +DI :- Parm 14
6) Cross 14 day Moving average of OBV, OBV
7) Cross 20 SMA, Close.


Stop signal: If the stock closes higher than 2% from the entry or lowest low after entry
Stop buy: Buy to cover the next day if the stock is trading positive after 3.15 PM


I request you to please test the system and let me know its worthiness.


Thanks in advance
Sesha

I'll get this thing looked into.

Tc

 

[SwingKing]

KseSha,

Kindly read the following. I have highlighted your questions in Black and my answers follow below that.

1) Cross of Macd , Moving average of Macd :- Parm 12, 26, 9

Essentially MACD is nothing but relation of two averages with each other. On stand alone basis this strategy is definitely going to fail. This assumes that trend is in place and hence like any trend following strategy it will give you losses in range bound markets.

I have seen many traders being profitable using this simple technique but that is because somehow they have found ways to eliminate bad deals and foresee which signals are going to be more profitable. When I tested this simple methodology on Indian markets, I found that psychologically it is difficult to execute this. For eg, in 2007-2008 this strategy would have yielded loss of 28% on your equity with winning percentage of 33%. Now had you stuck with this strategy in 2008, I can almost guarantee you that by beginning of 2009 you would have lost faith on this system. Hence, most likely you would have missed the rally of 2009 due to stress aspect.

Solution: If you find this strategy appealing, stick with it. Don't go by what is purely written in some text books. With little bit of screen time and other indicators you could well find out which deals to ignore and which to take. In my own experience i have found that MACD works well after some good correction in an uptrending stock. It also does well in markets which are in similar situation to ours at the moment.

2) Cross of Stochastic , 20 :- Parm 14 ;Cross of RSI, 35 :- Parm 14 Cross of CCI, -100 : Parm 14, Cross OBV, 14 day Moving average of OBV;Cross of +DI, 10 or Cross of 35, -DI or cross of +DI, -DI :- Parm 14

Please do not waste your time behind these strategies. If you want to learn about RSI/Stochastic, then understand their concept and use it together with MACD. Your results will improve. But do not make RSI/Stoch your system on standalone basis. Same goes for OBV and DI. These are all supporting indicators and are best used for aiding in decisions.

3)Cross Close, 20 SMA

Now, this is something which will be useful. But it entirely depends upon how you put it in use. Moving averages system do work, but one needs to know how to use them. Conventional theory says that such systems are not profitable. Though this is true, it does not account the traders skill in decision making nor does it account for other indicators being able to eliminate bad trades.

Solution: If you want to use this strategy, then pick a stock which is trending. Furthermore, look the other stocks belonging to the same sector and see if they are showing the same phenomenon. If they are then wait for the prices to consolidate and come near 20 day SMA. Look at buying around those levels.

Hope this helps.

Tc

 

[ksesha]

Thanks Raunak for a quick reply. I probably missed emphasizing enough that, I was picking the stocks which gave atleast 5 signals out of 7, in the last 5 days.

Will you please clarify that the test results considered that as well.

Regards
Sesha

KseSha,

Kindly read the following. I have highlighted your questions in Black and my answers follow below that.

1) Cross of Macd , Moving average of Macd :- Parm 12, 26, 9

Essentially MACD is nothing but relation of two averages with each other. On stand alone basis this strategy is definitely going to fail. This assumes that trend is in place and hence like any trend following strategy it will give you losses in range bound markets.

I have seen many traders being profitable using this simple technique but that is because somehow they have found ways to eliminate bad deals and foresee which signals are going to be more profitable. When I tested this simple methodology on Indian markets, I found that psychologically it is difficult to execute this. For eg, in 2007-2008 this strategy would have yielded loss of 28% on your equity with winning percentage of 33%. Now had you stuck with this strategy in 2008, I can almost guarantee you that by beginning of 2009 you would have lost faith on this system. Hence, most likely you would have missed the rally of 2009 due to stress aspect.

Solution: If you find this strategy appealing, stick with it. Don't go by what is purely written in some text books. With little bit of screen time and other indicators you could well find out which deals to ignore and which to take. In my own experience i have found that MACD works well after some good correction in an uptrending stock. It also does well in markets which are in similar situation to ours at the moment.

2) Cross of Stochastic , 20 :- Parm 14 ;Cross of RSI, 35 :- Parm 14 Cross of CCI, -100 : Parm 14, Cross OBV, 14 day Moving average of OBV;Cross of +DI, 10 or Cross of 35, -DI or cross of +DI, -DI :- Parm 14

Please do not waste your time behind these strategies. If you want to learn about RSI/Stochastic, then understand their concept and use it together with MACD. Your results will improve. But do not make RSI/Stoch your system on standalone basis. Same goes for OBV and DI. These are all supporting indicators and are best used for aiding in decisions.

3)Cross Close, 20 SMA

Now, this is something which will be useful. But it entirely depends upon how you put it in use. Moving averages system do work, but one needs to know how to use them. Conventional theory says that such systems are not profitable. Though this is true, it does not account the traders skill in decision making nor does it account for other indicators being able to eliminate bad trades.

Solution: If you want to use this strategy, then pick a stock which is trending. Furthermore, look the other stocks belonging to the same sector and see if they are showing the same phenomenon. If they are then wait for the prices to consolidate and come near 20 day SMA. Look at buying around those levels.

Hope this helps.

Tc

 

[chiragvyas.50]

2) Cross of Stochastic , 20 :- Parm 14 ;Cross of RSI, 35 :- Parm 14 Cross of CCI, -100 : Parm 14, Cross OBV, 14 day Moving average of OBV;Cross of +DI, 10 or Cross of 35, -DI or cross of +DI, -DI :- Parm 14

Please do not waste your time behind these strategies. If you want to learn about RSI/Stochastic, then understand their concept and use it together with MACD. Your results will improve. But do not make RSI/Stoch your system on standalone basis. Same goes for OBV and DI. These are all supporting indicators and are best used for aiding in decisions.

Hi raunak,

You are suggesting not to trade on stochastic indication. I m trading right now with stochastic indication with support and resistance. So please let me know should i go ahead with this system, or let me know the other possibel indicator i can use to improve my system.

i only trade with nifty-50 and some good junior nifty stocks..

My strategy with stochastic is like:::::

1) decide trend with 3 & 6 month graph(trade only with positive & neutral trend, ignore negative trend)
2) wait %k value comes below 12%
3) buy when %k cross 12% value..
4) ignore if result or news comes negative
5) my stop loss will be support.


Thanx
Chirag Vyas