Wednesday, September 30, 2009

Trend Channel for the Nifty

The recent up move for the Nifty fits a trend channel well. The Nifty chart below shows the channel as well as the A & B points from which the lower trendline has been made.

Futures Trading with Channels
A move below the lower trend line will be a signal tht the current up move is facing a correction or whatever. This is simple technical analysis, but effective.

If we follow this method, then we are unlikely to sell at the very top. Prices will have to come down about 150 points before a down move is signalled. Now, think about this: is this so terrible? In an uptrend, do you really want to goshort every time the Nifty moves down just a little bit?

As I write, U.S. markets are down. It is possible that this weakness can continue till the close, and, may then affect the Indian markets tomorrow. If you are a day / swing trader, you may like to use the 15 minute rule to go short in the Nifty. You should also keep some rules with you on the short term trend. What will signal a change in the trend from up to down? I have given one rule here - the channel. You must have some method of your own. So far the short term trend is up, short positions carry high risk, so keep volumes down, and follow your stops.


Aurobindo said...

Hi Sudarshan,

Can we use a whipsaw count as a indicator for entering the market. Say if I have rule such as

1) If 3 MVA crosses 50 MVA 2 times without yielding profit then on 3rd crossing enter the market. We may miss some opportunites but we will increase the chances of profit and avoid whipsaws. Usually after the end of a long trend , the next trend signal will definitely yield in a loss thats due to a fibonacci retracement.

2) I have heard some traders combine stochastics in trend following system to minimize the drawdown. How and when to use Stochastics. I have tried using ADX(Average Directional Index) and Stochastics. But I am not successfull.

Could you please explain how to have 2 strategies i.e., One for trend and other for sideways. I been to trying to compensate the whipsaw losses through stochastics but its not effective yet.

3) Will offsetting a moving average reduce whipsaws? I created a program to test my strategy on historical data.

Signal criteria
1)If the current closing price is greater than 21 day moving average on (current day -21)th day then go long.

2) Vice-versa for sell.

Only this strategy helped me to reduce losses and show a decent profit when run on a program.

Could you please share your views on my comment?

G.S.Dhillon said...

aurbindo i use stochastic, ADX with indiacator KST or momentm on 15 mint daily chart with gud success, it doesnt give any whipsaw. If u want to see how i use this throgh team viewer software, my yahoo messenger id is i dont whether mr sudarshan allow to post personal mail adress on his blog, but if he allows, we r grateful to him

amitkbaid1008 said...

HI Aurobindo & Sorry to Mr. Sudarshan

Aurobindo you are pointing your questions towards Mr. Sudarshan but I am giving just my views on your queries.

Stochastics/ADX/MACD will give additional confidence for trade. You must look for Both i.e. Moving Average and other indicator to give same signal and then you can enter the trade. This will reduce some kind of whipsaws.

Another filter you can use for Moving Averages is use 3 or even 4 Moving Averages instead of just 2. Use two big Moving Average to decided the basic trend and then enter the trade in the direction of basic trend using two small Moving Average. Myself is using EMA (89,34) for basic trend and EMA (5,13) for trade.

But one thing I must say that ADX/DMI is very very useful indicator to sit out of sideways move if you can understand this.

dp said...

hi sir

sir i have a big problem , could u pls pls give me the direction on moser.i hold for long time
and i realy in is a request

i know this blog is not for that , i need help

wish you all the festivals


imentors said...

Dear Mr.Sudharshan- I would like to have your vies on long term options. What I have experienced- Its simple and non complicated -if we measure technical s on long term basis.

I will give you an example- at current Nifty levels I can buy 5000 PE ( June 2011) - and wait for 2-3 months for expecting a correction- as most of the participants are expecting Or - In case we have correction and nifty drags to 4000-4500. We may buy 4000 CE ( JUNE 2011). Here i have a limited loss- in case market does not move in expected direction,however,profits are comparatively Good.Please give your views- while keeping a positional trader in your mind>>>> Regards/Manoj

men said...

Amit could you please explain when you buy and sell on 4 MA? I am using (5,20) with 34 giving direction, but adding 39,84 sounds interesting, is it buy when 39 crosses 84 from bottom and 5 crosses 13 from bottom? then what about sell for the above entry, is it sell when 39 cuts 89 from the top?

Here is an astro view,

as of now it looks like what he is saying is possible, though let's see.
Happy trading

Pi said...

sir you use tradestation software for backtesting. how do u get market data in tradestation? what do you do for data feed ?

Rohan Shenoy said...

The support line of this trend channel has been broken today on closing basis. However, the volumes on NIFTY index were not great, infact lowest in this week. So can this be said to be true breakout(down),atleast technically, though the markets may be pulled back into the trading range?