A Moving Average Trading System

[psrikant1978]

Hi TradersEdge/Traderji/Seniors,

I was going through your system and trying to apply it to one of the scrips. I chose Ranbaxy.

I am attaching the chart as JPEG. I have plotted the 3, 13 and 39 SMA on the top. I am using a daily chart.

Can you explain me what does this chart tell you according to the 3-13-39 system that you have suggested?

This would be a good learning experience for beginners like me.

Thanks
Prashanth

 

[psrikant1978]

This is what I infered from the chart that I have attached above. Please correct me if I am wrong.

- The 39 SMA is on a downtrend(This is the intermediate trend).
- The 3 SMA has crossed above the 13 SMA. This does not indicate anything. (Because the 39 SMA is trending down)
- We have to wait till the 39 SMA reverses the trend. (Is this a correct observation?)
- Conclusion is wait and watch.

All these based on the trading system that you have suggested(3*13=39 system).

Inputs/suggestions from seniors are welcome.

Thanks
Prashanth

 

[psrikant1978]

The aroon indicator can identify trending and non trending markets.

When the markets are trending, use a moving average trading system!

When the markets are sideways (non-trending) use a OB/OS oscillator trading system.

Traderji,

How do we use this Aroon indicator in MetaStock?

Thanks
Prashanth

 

[karthikmarar]

This is what I infered from the chart that I have attached above. Please correct me if I am wrong.

- The 39 SMA is on a downtrend(This is the intermediate trend).
- The 3 SMA has crossed above the 13 SMA. This does not indicate anything. (Because the 39 SMA is trending down)
- We have to wait till the 39 SMA reverses the trend. (Is this a correct observation?)
- Conclusion is wait and watch.

All these based on the trading system that you have suggested(3*13=39 system).

Inputs/suggestions from seniors are welcome.

Thanks
Prashanth

Prashanth

Your observation is correct. Just to add..Note the 3 and 13 MAs are currently moving horizontally indicating sideways movement. The direction of the MAs are important. Aslo the slope to some extend indicate the strenght of the trend. Steeper the slope the stronger the move. This chart shows that the immediate trend is sideways and longer term trend is downwards. one has to wait for 3ma to slope upwards and the longer term trend also to start rising.

regards

Karthik

 

[varun_chawla]

Excellent will try to work on them

 

[jamit_05]

I have joined the party late.

I have gone thru ur 3*13*39 system. Its simple, less risky alls well here. I have just made one modification.... chota muh badi baat... if the e13 is below e39, do not buy.

My problem, currently i have set my SL as the e3*e13 crossover. Dull but this is the best. I do not use any great software... just the TT5 terminal 5paisa.com provides, it is really dull but good enough. With the limited resources this the best SL i can think of... any ideas traderji.

 

[psrikant1978]

Prashanth

Your observation is correct. Just to add..Note the 3 and 13 MAs are currently moving horizontally indicating sideways movement. The direction of the MAs are important. Aslo the slope to some extend indicate the strenght of the trend. Steeper the slope the stronger the move. This chart shows that the immediate trend is sideways and longer term trend is downwards. one has to wait for 3ma to slope upwards and the longer term trend also to start rising.

regards

Karthik

Thank you Karthik for your input/suggestion.

You are right. The 3 SMA and the 13 SMA are moving horizontally. But, the 3 SMA has crossed over the 13 SMA, what does that indicate? Does'nt that indicate we have to wait for the 39 SMA to change its trend to go long on this.

If the 3 SMA were below the 13 SMA, then we have to wait for the 3 SMA to cross over 13 SMA and the 39 SMA to change its trend(slope upwards).

Thanks
Prashanth

 

[karthikmarar]

Thank you Karthik for your input/suggestion.

You are right. The 3 SMA and the 13 SMA are moving horizontally. But, the 3 SMA has crossed over the 13 SMA, what does that indicate? Does'nt that indicate we have to wait for the 39 SMA to change its trend to go long on this.

If the 3 SMA were below the 13 SMA, then we have to wait for the 3 SMA to cross over 13 SMA and the 39 SMA to change its trend(slope upwards).

Thanks
Prashanth

Prashanth

Your understanding is very correct. It is nice to see your enthusiam to learn. Keep it up.

On moving average cross over system please not one thing. The MA cross over system works fine when the stock in trending, but gives rise to whipsaws ( 3MA and 13 MA keep cross each other often) when the stock is ranging. ADX indicator is quite useful in deciding if the stock is trending or ranging. I suggest you study the ADX indicator.

warm regards

Karthik

 

[Traderji]

Traderji,

How do we use this Aroon indicator in MetaStock?

Thanks
Prashanth

The Aroon indicator helps to tackle the age-old problem for many trading systems. That is their inability to determine if a trending or trading range market is at hand. Trend-following indicators such as MACD and moving averages, tend to be whipsawed as markets enter a non-trending congestion phase. On the other hand, overbought/oversold oscillators (which work well during trading range markets) tend to overreact to price pull-backs during trending markets—thereby closing a position prematurely. The Aroon indicator attempts to remedy this by helping you determine when trend-following or overbought/oversold indicators are likely to succeed.

Aroon is a Sanskrit word meaning "dawn's early light" or the change from night to day.

The Aroon Indicator was developed by Tushar Chande. Its comprised of two plots one measuring the number of periods since the most recent x-period high (Aroon Up) and the other measuring the number of periods since the most recent x-period low (Aroon Down). The plotted value is on a "stochastic" like scale ranging from 0 to 100. So, for example, if in a time-period of 14 days a security makes a new 14-day high, the Aroon Up = 100. When the security makes a new 14-day low, the Aroon Down = 100. When the security has not made a new high for 14 days, the Aroon Up = 0 and when the security has not made a new low for 14 days, the Aroon Down = 0.

When the Aroon Up line reaches 100 it is a sign of strength. If the Aroon Up persists between 70 and 100, a new uptrend is indicated. Likewise if the Aroon Down line falls to 100, potential weakness is indicated. If the Aroon Down remains persistently between 70 and 100, a new downtrend is indicated. A strong uptrend is indicated when the Aroon Up line persistently remains between 70 and 100 while the Aroon Down line persistently remains between 0 and 30. Likewise a strong downtrend is indicated when the Aroon Down line persistently remains between 70 and 100 while the Aroon Up line persistently remains between 0 and 30.

When the Aroon Down line rises above the Aroon Up line, potential weakness is indicated and expect prices to begin trending lower. When the Aroon Up line crosses the Aroon Down line, potential strength is indicated and prices should begin to trend higher.

When the Aroon Up and Aroon Down Lines move parallel with each other then consolidation is indicated. Expect further consolidation until a directional move is indicated either by an extreme level or a crossover.

You can read more about the Aroon Indicator at:

http://www.stockcharts.com/education/IndicatorAnalysis/indic-Aroon.htm

 

[psrikant1978]

Prashanth

Your understanding is very correct. It is nice to see your enthusiam to learn. Keep it up.

On moving average cross over system please not one thing. The MA cross over system works fine when the stock in trending, but gives rise to whipsaws ( 3MA and 13 MA keep cross each other often) when the stock is ranging. ADX indicator is quite useful in deciding if the stock is trending or ranging. I suggest you study the ADX indicator.

warm regards

Karthik

Thanks Karthik.
I will read up on the ADX indicator. Will post more about it.

Thanks
Prashanth