Sunday, June 21, 2009

The game of buying and selling Stock Futures … The extra bit… (for day trades)

After you read every book on technicals – you do get impressed on the wonderful strategies that line the pages. When you try most of them you are generally where you started your journey from. At the end of the day you realise that the strategy does not work as it probably should. Then – atleast as far as I am concerned I try to look back where I went wrong. There are things that have struck to my mind as to why the strategy did not work – that is whenever it did not work…

    • Firstly, I over relied on a system that is not perfect when I started. Technicals have to be taken as a whole and overreliance on one of them creates unwarranted trades.
    • When I start with a strategy I get impressed seeing the strengths and do not go into the weakness that strategy has or the circumstances under which it shows weakness. To elaborate it – some strategy work when the markets are trending – others work when the markets are non trending. So you cannot apply same template to different conditions.
    • We fail to see the important landmarks that are around the corner and fail to see the impact of those events correctly. The impact is sometimes not as we think it to be.

I am spending time to try and understand the markets and the functions. It is interesting, intriguing and mystifying all at the same time - to say the least bit but then there are realms of investing that we as retail investors try not to explore. I will try to put forward a proposal in front of you today and try to salivate your taste buds for higher forms of investing. Like always – there are some presumptions and assumptions that we are to be made before I present the strategy to you. What I will be proposing is – that you are a typical investor who is afraid to take a step into the future and options because of any reason that justifies to YOU. So let me start out with my assumptions.

Day for 315 trades

  • You so invest in stock but are afraid of futures and options.
  • You do have a sort of methodology for studying technicals – or any other thing – may be even astrology that will help you select the time to buy and time to sell the stock.
  • I next hope that when you buy a stock you are assuming the stock to trend up and when you dump it – you are not bullish about the stock and expect it to go down.
  • You understand mathematics (Ha! this one is to finger some people I know).
  • The stock that you plan/intend to buy has actively traded futures (this is one of the difficult part at the moment in India, the stocks are a handful) What happens when the futures are not liquid enough – the jump suddenly can trigger your stoploss but the squareoff does not happen as the price variation is too great.
  • You have the capacity to trade in lots (The SEBI dictated lot of the stock).
  • you have an exit strategy from the stock if it hits your defined stop loss.

Now what I do is to setup and prepare for the trade. That preparation includes the following:

  • Decide upon the trend for the day.
  • The major news expected.
  • Relative performance on the previous days to include the ATR.
  • Fire up the Live chart of that stock and set it to candles – 5 min, EMA 3 and EMA 15.

After the set up is complete wait for the markets to start. Take positions in the direction of the lower EMA crossover. That is to say if 3 EMA crosses below the 15 EMA take it as sell and hold the sold position. After the trade is confirmed – I generally immediately set the stop loss above / below the 15 EMA. After the trade goes on my favour I trail stop loss initially along the 15 EMA and as the gap widens I move the stoploss below / above 15 EMA and also widen the gap between the trigger and stoploss so that in event of an unfortunate event of sudden drop or runaway of the market it helps. I know a lot of traders who also take the help of other indications to trail the stoploss – that could be Stochastics, MACD, RSI or whatever – well that remains a personal choice. After all this there has to be a aim – and that aim – can be how many points you will quit after. Once again this is a personal choice and I personally feel uncomfortable thereafter – made my bit for the day and carry forward no headaches.

If you have understood the above then it is good if not now let me explain with some true life scenario…

I will do so showing the performance on nifty… and though I wanted to show my Indiabulls charts I think you will have to do with a chart from icharts. Please bear with me.

Explanation 315 Assisted Day Trades


allvoices

13 comments:

S S Cheema said...

Sorry the presentation does not seem to have come in correct resolution so the text is cut up in all the slides. Please leave your mail ID here I will mail the presentation.

r m said...

Paaji:

Good idea! Please let me know how long you have tried it else I'll backtest it before trying it in live market.
The overlapping of text does not matter. Now I can read beyond the lines. ;)
In any case i got the email too!
Thanks a tonne!

S S Cheema said...

rm Actually i too was struggling with no electricity so have not been able to give out the shortcommings of the strategy. There are some pitfalls that everyone should be aware before plunging in. I am going out now - will try to amend it once I come back late at night.
Cheers
Cheema

Anonymous said...

Dear Cheema,

It is excellant. I have been testing 5 EMA Trading System. Now I will test your method as well. Thank you once again for educating.

Just I would like to know your sucess percentage performance with your trading system from your experience pls.
Regards,

Veer

r m said...

Paaji:

Tried it today, worked like a charm on every crossover! Don't be surprised if I gift you a merc someday - it will be bought out of profit from your strategy!

:)

jeetu chan said...

mr.cheema,

its a great strategy and i have been following a similar one in dlf,(dlf being a high beta share with daily swing of more than 3-4%),a little simpler though,i do it with a 45 sma on a 1min candle chart,i buy if a green candle is formed completely over the 45sma and sell when a red candle is formed completely below the 45 ema,u can backtest it on icharts as i also use the same,it gives an avg of 1.25% returns per day over a period of 30 trading days or more, this works on nifty/bank nifty too but dlf is equally liquid and the swings or the average trading range % is higher so works better in dlf.....would appreciate your comments on the strategy.

rgds
jitendra chanana

S S Cheema said...

jitendra i read your post a number of times but could not get an essence of it - could you please explain with charts?
that would be very nice
cheema

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sharetipsinfo said...

Dear Visitors,

This blog is really nice and informative. We are pleased to know this blog is really helping people. It’s our pleasure to post informative content on this useful blog created by webmaster.

As budget season is approaching so it is wise to think before investing as we can witness very volatile market in coming days. Moreover, we are expecting some stock market correction in post budget session


We advise every investor to book profit before budget and try to grab value stocks at further decline for short to medium term.

For any query feel free to contact us.

Regards
SHARETIPSINFO TEAM

+91- 9891655316
+91- 9899056796
+91- 9891890425

Saoirse said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Patricia

http://forextradin-g.net

S S Cheema said...

Thanks Saoirse. Will surely visit your blog too.

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