Tuesday, March 30, 2010

A Sensible Decision

Reader Nitin Writes that he has followed my advice and taken up a job. He has an educational loan to replay, so he wishes to know if he can trade on the side with an automated trading strategy. Should he start with moving averages?

My Notes: Nitin, your comments have made my day. I am glad that you have taken a sensible decision. You should stay in touch with trading. Automatic trading systems is an easy way to remain in the field, and, hopefully, make money.

My suggestions are:

1. Use End of Day data as the basis of your trading decisions. This way, you will be free to concentrate on your job during the day. In the evening, you can update your data, check up your systems and plan your trades (If any) for the next day.

2. Trading with automated systems is a good idea, since it keeps you disciplined while making your decision making process easier.

3. There are three basic methods for trading - Volatility, Trend and Support-Resistance. A moving average system tracks the trend. It will make money in trending markets while losing in range bound markets. Support-Resistance systems buy on dips and sell on rallies. They get killed in trending markets. So, you have to decide for yourself - what kind of trading would you like? If you are comfortable with a few large profits and many small losses, then trend trading is for you. Experiment with exponentail, weighted and Zero lag averages. Use the dirction of the average as your signal. When the average is moving up - buy. When moving down - Sell. Keep a fairly large lookback, like 34 or 40 or even 55. This will enable you to catch most trends.

4. Have the 'Campaign Trading' approach. Trade in two units. The first unit should follow the moving average signal. The second unit should be used for quick trades in the direction of the trend. For example, in an uptrend, if prices pullback for three days, then buy the second unit, expecting a rally. Exit this unit in 3 or 5 days. This way, you can find opportunities to add value to your MA system.

One you start, then a lot of ideas to fine tune the system, will come to you.

have Fun!

9 comments:

Nirav said...

Dear Sir,

I am pursuing PGDM-Finance course and as a part of our curriculum we have Summer Internship program during the month of May and June. I am very much interested in Stock Market and in future I want to make my career in Equity researcher/ Portfolio/ Fund Management. So, please suggest me the area and type of firm should I go for Summer Internship which will help me in long term?

kaustubh said...

Sir, good morning.
i use stochastic and adx for my trading system.do i have to add any other indicator to grab the trend? also i wanted to ask you one question. from 5th march stochastic trading in to overbrought zone and prices are moving up.also prices are trading near to upperband boilinger.so how do i take the decision kindly suggest.

Nitin Gupta said...

Sudarshan sir, thanks for the help , i have developed a moving averages crossover system that is a raw crossover system that doesnot entail any lookback but i have realised that only buying the crossovers when market is above 200 dma helps to increase profits and reduce whipshaws. i wanted to know whether i need to have short lookback and also how is ed seykota ema tsp system to trade ......

Manish.T said...

Sudarshan sir if possible please share with us your day trading system's profit factor for the financial year 2009-10.

Ravi said...

Dear Mr.Sudarshan,
Could you give us your view on Gold again please. It seems to be trapped in a Rs 1000 platform range, maybe even forming an inverted H&S pattern we have a post here about it http://trading-investing.blogspot.com/ with a graph, could you specify any patterns you observe and targets please.
Thanks & Regards,
Neha & Ravi.

i-s.h-f--a--q said...

DEAR SIR,

I WANT TO KNOW WHETHER I TRADE DLF FOR 10 TO 15 DAYS HOLD
WHT I DO BUY AT WHICH RATE AND STOPLOSS AND TARGET..PLEASE GIVE THE ANSWER

kk said...

RESPECTED SIR

REAL ESTATE GIVING BREAKOUT SIGNS , ARE YOU STILL BEARISH???

Imperia Residency said...

Nice Article

PrashantShah said...

Dear sir, Can you pls suggest me some book(s) on Gann theories and his work. It would be very kind of you to help me with that.Thnx.