Sunday, March 14, 2010

Replies to comments March 14

Earlier in the day, I posted an unedited version of my video containing comments for Monday trading, on YouTube. Here is the link to the post: http://www.sudarshanonline.com/2010/03/just-for-fun.html


aansh asks:
I would like to know your advice on use of moving average. Which moving average should i use simple or exponential ??

My Notes: Usually, the exponential average is a better choice. The simple average should be used when you are following a setup where the author has specifically asked for the use of the simple average. I think that the weighted average is probably superior to these two.


On my post : "When the market is slow and dull", Saurabh asks four questions, linked and relevant.


--During the course of the day, which indicator has proved to be the best leading indicator of impending fall in volatility ?

My Notes: Traders should identify falling volatility on end of day charts. A period of low volatility , will, by definition result in low volatility intraday. Use Average true range and Historical Volatility to do so.

--Apart from the gut feel, How can one anticipate that the market is going sideways and it is time to come up with an alternate strategy ?

My Notes: Apart from looking at indicators mentioned above, a range bound market results when charts start showing consolidation patterns : rectangles and, less frequently - triangles. After two or more Big range days, the markets will usually go into many days of range bound movement. After a sustained uptrend or downtrend, look for a period of consolidation / distribution. One way is to reduce position size after a large trend following profit.

--All the trend following traders, should't they just keep out of the market when it is sideways , rather than changing the strategy and use a strategy that is the absolute opposite of what our mind gets trained to use ?

My Notes: Mostly, yes. But, in reality, there is no prior announcement of an impending sideways market. So, trend traders get whipsawed for a few trades, decide on the basis of end of day charts that markets are rangebound, therefore stay out till a trending move begins. Often, smaller size trades for mean reverson may be put on. One reason why traders should do so is the fact that sideways markets can continue for a long period.

--Could you please give an example of a setup that can be used for mean reverting markets ?

My Notes: Momentum oscillators are ideally suited to trade in range bound markets. Examples; RSI, Stochastics, CCI, CMO......Buy the dips and sell the rallies.

 Student of Market has given sensible suggestions on trading in sideways markets. Please read it here : http://www.sudarshanonline.com/2010/03/when-market-is-slow-and-dull.html


Niftic gives his views on the Nifty:
Nifty on the verge of making Head and Shoulder Formation Top, Bearish- Target 4150 if 4750 is broken.

amitkbaid1008 says
I use multiple time frame trading strategy and I identify trend on 5min TF and then look for pullbacks on 1min TF using CCI(3). Is it OK or not?

My Notes: Sorry, but I think it is terrible.

First, trading on 1 minute time frame is like walking over thin ice. Sooner or later you will fall into trouble. The five minute period is the lowest period for trading. Anywhere.... While traders use smaller periods, they get burned out fast. (Most traders do not undestand this - they think they can do it. But, it is never different.)

Second, CCI-3 or similar pullbacks are best suited for much higher time frames - daily or weekly. There is so much noise on the lower periods that these indicators become almost random rather than predictive.

3 comments:

sahil said...

Sir I use 5 mint time frame to trade n look 15 n 60 mint to see if theres any resistance or support of bollinger bands on these time frames. And one suggestion, draw simple moving avg n exponential on 5 day, 5-15-60 mints charts n note which is better, u will hav to change ur opinion. Simple moving avg works 90% of times than exponential

Saurabh said...

Sir.

Thanks for your reply.

Truly appreciated.

Regards

Saurabh

amitkbaid1008 said...

Sir

Thank you very much for your reply.

As I was using 5min TF for Intraday trading and you are saying "Sorry, but I think it is terrible" So which time frame would you suggest for Intraday trading.

Thanks in advance for your anticipated reply