AW, Can you please guide me to select SMA & EMA and one indicator to create a system...I am looking for a crossover based system whose trade signals will be confirmed by one indicator.....
WOD, In my viwe, you shdn't start with name of indicators in your mind and approach to design a system.
Your quesiton should - I want to trade trend (/breakout, /range / time of the day etc).. so which indicators can help me in that ?
Then you pull out the right indicators to help you. Each indicator has its own +ive points and own limitation. Hence it is important to understand that before using them.
There are few good threads that I have come across (one of that is suggested by scorpio)
1) Range market - Stochastics based trading - Pride's thread
2) Trading Reversal - Bollinger band based thread by columbus / Rajendrani's thread on trading patterns where he has mentioned about Gimmie bar.
3) Trading price action and market flow - 60m / or mini flow thread..
4) Breakout - use can use BB for this purpose as well.. (if you remember yesterday's commentary by Sunil where he mentioned that BBand should open the mouth now..etc..)
5) and many more options are here..
So it is your decision, dear. Make up your mind and lets discuss it more..
My approach to design a system is
a) first identify what u want to trade (eg somethign from the list above) [system theme]
b) Decide on how are u going to identify the right time for that situation [setup conditions]. That means , without these condition in place, we can't go to next steps.
Indicators /patterns etc can help u in identify the setup..
c) Precise Entry conoditons like buy above high of current bar + x point [Entry rules]. I prefer to use price action / PH-PL/ bar H-L etc for this. Because they are easy to see on chart
by all market participants and hence more significant then any indicator.
d) Precise Exit points like sell below low of current bar - x point [Exit rules]. You can further classify them in Stoploss exit / trailing exit / Target exit
At this stage, I will go down to backtesting it on old data and log atleast 30+ trades (I have already attached a sample backtesting sheet in this thread).
Look at the results in terms of what is average risk above rules have ? How much of average profit can I expect ? Does these rule really give me profit on long run ?
How many loosing trades can come in continuation etc etc..
e) Money Management and Position size - Depending on the analysis of backtest result.. now I am in better position to decide how much of my account should I risk here and
how many contracts I can buy. Bottomline is - I should remain in business so long term survival is the mantra of money mgmt.
.also can you tell suggest me the timeframes (5/10/15/60 min) to trade with these tools.....
WOD, Each time frame has its own profit potential /volatility / trade risk / #of generated trade/ stress level generated for trader etc
Hence , the answer should come from you. You are unique trader in this world. Your requirements - in terms of time that u can give to monitor charts / amount that u can risk on a trade / do u want
to book quick profit or have different mindset to handon to a trade and leave paper profit on the table../ how frequently u want to trade (5 trades a day or 1 trade in 5 days)
Answer of these factors will help deciding the timeframe selection.
I know I am asking for kind of spoon feeding but your guidence will really show me the path.....
Don't worry, I am not going to spoonfeed... but will prefer to guide you.. (As I attempted to do in this mail)
On top of all this - You are getting into trading business.. This is business of accepting mistakes and correcting them.. It is business where we have to jump in and make mistakes.
Thats what traders do.. They are not afraid of mistake.. So don't think that your decision has to be perfect . and u can't change it. Even if u picked up wrong indicator / wrong timeframe..
what the heck.. You can always correct it.. Let market prove that your decision was wrong..
Analysts have to be perfect in their recommendation.. a trader need not.. Trader need to take calculated risk and execute the trades..
Happy Trading