Trading Systems Using Technical Analysis

[SwingKing]

As I am infamous in other thread for challenging general opinion, here I am with one more. Please please please, dont feel offended with it. I dont mean to hurt anybody's opinion. Just like to get into discusssion further when my thoughts are different.

Divergence:
Does it actually have significance? In my opinion, hardly 50% times price reverse when we have divergence.

My reasoning:
When indicator is on extream high, it is very difficult to push it to higher level whereas with the small down jerk indicators turn down easily. Same with when indicator is on lower side. It is internal structure of Indictor or in other words indicator declines or flattens after extream because rate if increase in momentum is decreasing. I m using rate of increase in momentum not rate of increase in price or rate of price change... here it is not always that rate of price change or rate of momentum is decreasing when rate of increase in momenum is decreasing. It is increase in momentum with each up bar is decreasing.... I am focusing on increase in momentum which does not mean momentum is decreasing... this is lil confusing to jot down in words but i tried my best.

Also what if divergence is there on hourly chart but not on daily chart? Price may have lil daily down move but daily indicator is still pushing it to higher level.

Per Walter J Baeyens, divergence is nothing but one way of indicator to get rid of mathematical constraints...

Yes, if divergence on all the time frames telling me same story, i wud surely give importance to it. But this is very rare scenario...

No offense, just my thoughts...
Apurv

Apurv,

I dare say that "Yes" divergence is more of a hype than a 'holy grail' trading technique. It fails more often than it works, but when it works, results are very good. Sounds familiar ???? Well yes, this applies to each and every technique. Similarly, divergence in itself cannot deliver what expectancy we set. In the end, its all about 'us' using divergence and not 'divergence' dictating the outcome of trade.

Coming back to your second point, there is no doubt that higher time frames have more validity and hence when divergence or for that matter any technique is supported simultaneously by multiple time frames should yield higher returns and higher probability.

In the end, a very well written post with some very valid points put forward. I enjoy reading what you write. Reminds me of when I used to question EVERYTHING !!

Tc

 

[Apurv7164]

Hi

All wanted to trade the momentum , So want to find the high momentum time or Run Way Time for nifty on Daily time frame So that we trade for quick moves , ST Da (Smart _trade) had discussed about stochastic indicator in this thread , so tried to used that concept in Nifty Future


Plan is Once %K of 14 period stays above overbought zone (80) or below oversold zone (20) at least for 3 bars then we are in a momentum phase on daily time frame and we will switched into 60 min time frame and and start trading from next opportunity , until %K of daily time period cross the center line(50)

Seeking different ideas on this concept ........

Here is the chart attaching

I'm sorry Satyen your point of discussion totally went out of my mind... below are my thoughts.

Very first thing I would like to make clear is I am neither Stochastic trader nor NF nor momentum. However, in your case I wud wait for lil retracement and get aboard on retracement pivot.

My Logic is - once we get momentum phase as per your described method, we are sure that it is getting into strong hands. Now at the same time retracement is well expected coz of last run and stock going out of steam. It has to go into retracement or consolidation for gaining further steam.

One more thing I wud do is have a look on move before last upmove (When I say last upmove, i mean the move which has taken it into momentum). This will give me idea whether or not stock had gathered strength or power or fuel for going up enuf. If it had been in consolidation for sometime, I wud get aboard as soon as I see momentum phase as per your method. If it did not have consolidation, I wud get aboard on retracement after momentum phase...

I usually trade with this strategy with other indicator.

Bests,
Apurv

 

[Satyen]

I'm sorry Satyen your point of discussion totally went out of my mind... below are my thoughts.

Very first thing I would like to make clear is I am neither Stochastic trader nor NF nor momentum. However, in your case I wud wait for lil retracement and get aboard on retracement pivot.

My Logic is - once we get momentum phase as per your described method, we are sure that it is getting into strong hands. Now at the same time retracement is well expected coz of last run and stock going out of steam. It has to go into retracement or consolidation for gaining further steam.

One more thing I wud do is have a look on move before last upmove (When I say last upmove, i mean the move which has taken it into momentum). This will give me idea whether or not stock had gathered strength or power or fuel for going up enuf. If it had been in consolidation for sometime, I wud get aboard as soon as I see momentum phase as per your method. If it did not have consolidation, I wud get aboard on retracement after momentum phase...

I usually trade with this strategy with other indicator.

Bests,
Apurv

Thanks Apurv for your reply , Yes in this methodd the move which has taken it into momentum has enough strength otherwise it would not remain in OB/OS area for 3 or more bars , Now point is retracement, most of time it continues in the prev direction after completion , but some time it goes into tight consolidation my point is how to identify that now the retracement has no strength to countinue in prev direction and we should get out ??

Hope it clears my Doubts

 

[Apurv7164]

Thanks Apurv for your reply , Yes in this methodd the move which has taken it into momentum has enough strength otherwise it would not remain in OB/OS area for 3 or more bars , Now point is retracement, most of time it continues in the prev direction after completion , but some time it goes into tight consolidation my point is how to identify that now the retracement has no strength to countinue in prev direction and we should get out ??

Hope it clears my Doubts

Bro, somehow I never understood this entire concept of momentum and strength.... I always analyze indicator in this way - when we get into momentum phase (as per ur term), we know that stock is going in strong hands. Now for further advancement I analyze previous move to understand whether or not it had enuf steam left...

If previous move was consolidation, it can go further. But if previous move was down trend or something, it wud go in tight consolidation after momentum phase....

My trading strategy is, i wud not buy it right away, I will wait for it to go in tight consolidation and buy on pivot reversal. I wud like to place stop loss buy limit on breaking xyz point.

Somehow i m not able to put into words or explain my style. Or it may be that my style is not correct enough. I wud surely love to learn more.

Bests,
Apurv

 

[Apurv7164]

Friends,

While having discussion with Satyen (in this thread) on his method, I got into one particular thought process - Internal (deep) understanding of any Indicator is more important or Well defined trading setups?

Kindly let share your view and opinion on this.

Bests,
Apurv

 

[SwingKing]

Friends,

While having discussion with Satyen (in this thread) on his method, I got into one particular thought process - Internal (deep) understanding of any Indicator is more important or Well defined trading system?

Kindly let share your view and opinion on this.

Bests,
Apurv

That's absolutely true.

Understanding even one concept (indicator, methodology) is enough for a trader to move into a different zone. Understanding different indicators or there methodology is not sufficient. THe application of that understanding is necessary. Facts about RSI or Stochastics or MACD are so well documented. But yet, why aren't there so many millionaires around ? It's only because application is of utmost importance.

Statistically, less than 10% of traders do that.

Tc

 

[stumper]

Friends,

.......understanding of any Indicator is more important or Well defined trading system?

Let me put it this way. You need to know WHY you are trading. Then understand the Associated RISK. Unless you get the this concept of risk -- Embedded, you cant very well work on your System. Best of Indicators and Systems , are of no use, unless you have Risk Mitigation in place.

 

[Apurv7164]

@ Raunak - Very true that application is more imp. But can we not apply indicator in more effective way if we are aware of internal structure, behavior and formation? Many times it may happen so that indicator is not forming any particular pattern or not behaving in a way we can define it as setup but with the study we can feel that price will go in certain direction. May b gut feeling with the help of deep knowledge of indicator and price structure...

Whereas, if we have couple of well defined setups, those setups may or may not get formation, those setup may or may not work in certain market scenarios.

Most of the time, we fail in using indicator because we never take care to go deep into its structure and structural behavior. We just read or try to learn use of it and that too the style of author of the book or material. Do we ever try or care to use indicator in different way? Do we try to think why developer of the indicator had used this formula?

Not sure about general public but I always read indicator use whenever i m reading any book or material. This is the first time I am actually going deep and doing ACTUAL research on ADX. And this is the reason i wanted to get into this discussion because many people wud be like me who has just read or read a lot about different use of indicator rather than getting into structure of it.

@ Stumper - I agree that disciplined is required in terms of risk/reward, money management and risk management. That is what I did not mean by trading system. No offense towards your opinion, it was actually my bad that I have mentioned trading system. I shud have mentioned setup. I have corrected it now.

 

[Apurv7164]

To the extention of above point - Here is what I am researching on currently...

I have read particular points about +DMI and -DMI in all the books.

1. If +DMI is above -DMI it is direction is up and vice versa.
2. Dominance should be gained and proven by +DMI or -DMI crossing 20 or 25.
3. On breakout DMIs should cross.

I am asking myself - what if +DMI or - DMI is below 10 after strong upmove or downmove... shall we wait for them to cross level of 20 or 25 for valid reversal signal? What if price range is not so wide on the day of breakout? certainly DMI crossover or jump is difficult... why can we not use it as signal when -DMI is way below 10 and we r getting little jump on +DMI? relatively speaking -DMI is way below 10 is bears are very weak... just looking at the calculation and asking myself...

I wud greatly appreciate any help, ideas, thoughts and opinion on this...

 

[Satyen]

Friends,

While having discussion with Satyen (in this thread) on his method, I got into one particular thought process - Internal (deep) understanding of any Indicator is more important or Well defined trading setups?

Kindly let share your view and opinion on this.

Bests,
Apurv

Hi Apurv

In My Veiw "Well Defined Trading set Up" is the later part , if we dont know the indicator well enough like how it represent different price action through its calculation then how can we build a well defined Set up ,

I think we can trade for some time thru a set up rules but if we dont know the internal logic of set up then we may not get enuf confidence to trade

This is my veiw only

Regards