Wednesday, May 6, 2009

Trading the Dips with Oscillators - reply 1

VS asks:

Quote

Your 'trading the dips' using oscillators is interesting. A few queries.
1. Do you need to consider volumes while taking the decision?
2. Is there a good real time source in the open public domain for intra-day volumes at script and group (say an index) levels?
3. In the case of an index (say nifty) what is the importance of Advance/ Decline ratio?
4. Of the two - A/D ratio and volumes - which is of more importance?
5.How will you resolve cases when the signals are contrary to perceived trend?


Unquote

These questions are well thought out. I am giving my views on them.

1. Do you need to consider volumes while taking the decision?

I do not use volume. The problem I face is: soemtimes volume or volume oscillators will diverge from momentum. Then, there is confusion. Also, I never could derive buy/sell signals from volume. Traders may consider using an oscillator which includes volume as part of its calculations, like Money Flow Index.

2. Is there a good real time source in the open public domain for intra-day volumes
at script and group (say an index) levels?

Not that I know off. Other readers may help with any sources they are aware of.

3. In the case of an index (say nifty) what is the importance of Advance/ Decline ratio?

The A/D line, ratio and all its derivatives can add value to your analysis of the Nifty, mainly by pointing out divergences. They can also be used as part of a well defined trading strategy.

4. Of the two - A/D ratio and volumes - which is of more importance?

By this time you know what I am going to say - the A/D ratio is significant.

5.How will you resolve cases when the signals are contrary to perceived trend?

Readers should understand the depth of this question. For example, the perceived trend on Monday & Tuesday was up. So, I planned to take only the buy signals. But what happens if the buy signals generated whipsaws while the sell signals provided momentum. By taking only buy signals, i would be standing on the wrong side of the market.How do I resolve it ?

Now, there is no easy answer. Oscilaltors are not automated methods that can be followed blindly. So, if your perception of the market and the actual moves are more or less same, you continue with the oscillators. If the actual market moves differently, you take you loss, stay out for the day. Sometimes your perception may change because of indications on the charts, by the A/D lines or sector specific moves.

2 comments:

Raj said...

Dear Mr.Sudarshan,
I am starting Technical analysis Courses offered in your blog.Under Introduction to technical Analysis, the first course is 01. Financial Markets Explained.
Only the first page is needed to be read or all the pages?

Manish Chauhan said...

Very well explained :)

Regarding the information on real time volume data (which is free) , I only know of Yahoo charts

- go to any chart
- Click on the "Volumes" under "Overlays"

Example : http://in.finance.yahoo.com/q/ta?s=JPASSOCIA.NS&t=1d&l=on&z=l&q=l&p=e50,e200,v&a=r14,ss,vm,v&c=

The only problem with this is that its not 100% real time , the data is some minutes old.
but thats the best I know about .

Manish
http://www.jagoinvestor.com