Suggested Trading System - DRAFT rules
I am providing the rule for the system here. It is for purpose of backtesting. Based on the result, we might have to modify them. The text between < > is for explanation.
Feel free raise your doubts, if any and I or others will try to clarify them. If there is any error / ambiguity then please highlight so that I can correct it (I am human being and do make errors regularly).
Assumptions -
1) After todays market close, we have the system in place to find out whether today was NR7 day or not (i.e. smallest range of last 7 trading days) You can use the excel sheet attached in post 2 of this thread.
2) We have the time to enter the orders during tomorrow market hours (not busy day at office etc)
3) It is SWING TRADING position i.e. we are looking to hold this position for more then 1 day. We will be using DAILY timeframe chart of NIFTY SPOT to take any trading decision.
4) We are going to use NIFTY FUTURES NEAR MONTH to trade. On last week of the month, we will start using NEXT Months NF Contract.
5) Do we want to use FILTER of few points above High/Low or not ?
6) Designing the strategy to go SHORT first. This is to maintain simplicity. The rules can be adjusted for LONG entry by applying the same logic with minor adjustments..
Underlying logic behind why this strategy should work -
Refer to post 1 of this thread..
<If you dont believe in this underlying logic then it doesnt make any sense for YOU to go ahead with strategy. Even if it is profitable, YOU will find it difficult to implement it because of many psychological challenges posed by your subconscious mind. So either get convinced by underlying logic by asking question, reading, research etc or move onto something else.>
Setup Rules
1) NR7 setup is triggered today.
2) Note the HIGH and LOW of today. (Calling Day0-H and Day0-L)
<these are basic condition that should be met. If they are not in place then skip any other action and do something else>
Entry Rules1) SELL below the Day0-L on next day i.e. Day1. (BUY above the Day0-H)
<These rules should be clear enough for even a 10yr old person with basic knowledge of chart construction, to understand else there is chance of improvement>
Exit - Stoploss
1) For Short trades, stoploss is at the Day0-H. (For long trades, stoploss is at the Day0-L).
<if using multiple contracts, then write in details how much of position will u liquidate and at what point>
Exit - Profit taking
1) No plan to place profit taking order for the time being. Trailing stoploss orders will be used to exit the position.
<you can define your rules for profit taking if you want. I generally touch this section after backtesting/some experience with the system>
<if using multiple contracts, then write in details how much of position will u liquidate and at what point>
Exit Trailing Stoploss
1) For Short trade, trail with the stop at HIGH of Previous 2 bars. (i.e. On Day1, stop = Day0-H/ Day2 , stop = Day0-H/ Day3, stop = Day1-H / Day4, stop = Day2-H and so on)
2) If market gaps from trailing stop order level /or for some reason the trailing stoploss order is not executed, then close the position immediately at whatever price is available.
3) Stoploss moves only in the direction of the trade. They are never moved against the direction of our position.
<if using multiple contracts, then adjust this section accordingly>
Following two sections needs to be customised for individuals account size and risk tolerance limit. But the example below will guide u in answering them.
I will certainly like to come back and update these sections as they are the foundation of trader's long term survival and the success.
Position size
<this deal with the question - how much quantity? Best practice is not to put more then 5% of your acct capital on one single trade.>
1) Trade size - 1 NIFTY contract
2) No add-on is considered at this stage. <else write down how will u add-on to the position>
Money Management
1) Initial risk of < 150 NIFTY points
2) Once in a trade, not to leave more then 200 points on the table.
<This might result in overriding your trailing stoploss section but it is important for you to be comfortable with your open profit and not fear about loosing the profit
Best practice - not to Risk (difference between entry point and stoploss) more then 2% of your acct capital on one single trade. If the risk in more then this then either skip the trade or accept the fact that you are taking higher risk and ready to face psychological roller-coaster ride when trade is open>
Following two section are not specific to this strategy but they are basic for successful trading
Mental /Psychological setup 1) Clarity in the underlying concept of this strategy. Know your strategy as much as possible.)
2) Not to confuse your mind with other exit rules.. that are not being backtested.
3) Focus on EXECUTING the trade RIGHT, not on result. YOU can only control your EXECUTION, it is upto market (which is beyond your control) to give u profit or loss.
When not to trade this strategy -
1) When u are not comfortable with the market conditions
<this section is one of the most important section for professional traders. They know the environment when this strategy will not work or produce poor result. You may not know at the beginning but as you backtest or start using this strategy, you will learn it gradually and can fill this section later.>
===================
Happy Trading.
I am providing the rule for the system here. It is for purpose of backtesting. Based on the result, we might have to modify them. The text between < > is for explanation.
Feel free raise your doubts, if any and I or others will try to clarify them. If there is any error / ambiguity then please highlight so that I can correct it (I am human being and do make errors regularly).
Assumptions -
1) After todays market close, we have the system in place to find out whether today was NR7 day or not (i.e. smallest range of last 7 trading days) You can use the excel sheet attached in post 2 of this thread.
2) We have the time to enter the orders during tomorrow market hours (not busy day at office etc)
3) It is SWING TRADING position i.e. we are looking to hold this position for more then 1 day. We will be using DAILY timeframe chart of NIFTY SPOT to take any trading decision.
4) We are going to use NIFTY FUTURES NEAR MONTH to trade. On last week of the month, we will start using NEXT Months NF Contract.
5) Do we want to use FILTER of few points above High/Low or not ?
6) Designing the strategy to go SHORT first. This is to maintain simplicity. The rules can be adjusted for LONG entry by applying the same logic with minor adjustments..
Underlying logic behind why this strategy should work -
Refer to post 1 of this thread..
<If you dont believe in this underlying logic then it doesnt make any sense for YOU to go ahead with strategy. Even if it is profitable, YOU will find it difficult to implement it because of many psychological challenges posed by your subconscious mind. So either get convinced by underlying logic by asking question, reading, research etc or move onto something else.>
Setup Rules
1) NR7 setup is triggered today.
2) Note the HIGH and LOW of today. (Calling Day0-H and Day0-L)
<these are basic condition that should be met. If they are not in place then skip any other action and do something else>
Entry Rules1) SELL below the Day0-L on next day i.e. Day1. (BUY above the Day0-H)
<These rules should be clear enough for even a 10yr old person with basic knowledge of chart construction, to understand else there is chance of improvement>
Exit - Stoploss
1) For Short trades, stoploss is at the Day0-H. (For long trades, stoploss is at the Day0-L).
<if using multiple contracts, then write in details how much of position will u liquidate and at what point>
Exit - Profit taking
1) No plan to place profit taking order for the time being. Trailing stoploss orders will be used to exit the position.
<you can define your rules for profit taking if you want. I generally touch this section after backtesting/some experience with the system>
<if using multiple contracts, then write in details how much of position will u liquidate and at what point>
Exit Trailing Stoploss
1) For Short trade, trail with the stop at HIGH of Previous 2 bars. (i.e. On Day1, stop = Day0-H/ Day2 , stop = Day0-H/ Day3, stop = Day1-H / Day4, stop = Day2-H and so on)
2) If market gaps from trailing stop order level /or for some reason the trailing stoploss order is not executed, then close the position immediately at whatever price is available.
3) Stoploss moves only in the direction of the trade. They are never moved against the direction of our position.
<if using multiple contracts, then adjust this section accordingly>
Following two sections needs to be customised for individuals account size and risk tolerance limit. But the example below will guide u in answering them.
I will certainly like to come back and update these sections as they are the foundation of trader's long term survival and the success.
Position size
<this deal with the question - how much quantity? Best practice is not to put more then 5% of your acct capital on one single trade.>
1) Trade size - 1 NIFTY contract
2) No add-on is considered at this stage. <else write down how will u add-on to the position>
Money Management
1) Initial risk of < 150 NIFTY points
2) Once in a trade, not to leave more then 200 points on the table.
<This might result in overriding your trailing stoploss section but it is important for you to be comfortable with your open profit and not fear about loosing the profit
Best practice - not to Risk (difference between entry point and stoploss) more then 2% of your acct capital on one single trade. If the risk in more then this then either skip the trade or accept the fact that you are taking higher risk and ready to face psychological roller-coaster ride when trade is open>
Following two section are not specific to this strategy but they are basic for successful trading
Mental /Psychological setup 1) Clarity in the underlying concept of this strategy. Know your strategy as much as possible.)
2) Not to confuse your mind with other exit rules.. that are not being backtested.
3) Focus on EXECUTING the trade RIGHT, not on result. YOU can only control your EXECUTION, it is upto market (which is beyond your control) to give u profit or loss.
When not to trade this strategy -
1) When u are not comfortable with the market conditions
<this section is one of the most important section for professional traders. They know the environment when this strategy will not work or produce poor result. You may not know at the beginning but as you backtest or start using this strategy, you will learn it gradually and can fill this section later.>
===================
Happy Trading.
in first post as per table we calculate nr7 days simply by subtracting high minus low but here i n this post u suggest to subtract opening minus high and opnening minus low to arrive at nr7
gurpreet