Experiments in Technical Analysis

[milind857]

stunning....! Great Initiative... Members will definately learn from it......
All the VERY Best....!

Milind

 

[sarathc]

Fibotrader users: I tried setting up the system Karthik mentioned; just requested Soumya to crosscheck whether that setup is correct. You might want to see the post: http://www.traderji.com/showpost.php?p=52426&postcount=128 ; and Soumya's comments over the setup performed in Fibo.

 

[rajesh.sadhanala]

Thanks Jaykiru for kick starting this thread. I will study and revert back to you again.

Now let us take look at my very first workable trading system. Of course I have come a long way from there. This system though very simple did provide many profitable trades and I hope will help the beginners to get some insight and help them in their path towards their own profitable trading system. Step by step we will cover more advanced systems, Indicator etc. This system, which I fondly called MABIUTS (Moving Average Based Intermediate Uptrend System. Forgive my penchant for funny names) will be a good starting point for the thread. I will talk about the setup and entry only. I will not cover the position sizing and money management part here because each individual has his flavor of MM.

It was a time when I was trying the grasp the intricacies of Technical Analysis. I was looking at various Indicators without really getting the grasp of their working and drawbacks. The indicators gave conflicting signals leaving thoroughly exasperated.

Finally I decided to make a system, which will be a very simple one yet gives me reasonable profits. I started experimenting with simple moving average cross over systems, but was quite unhappy with the frequent whipsaws. Then I decided to approach the problem in an unconventional way different from the normal use of Moving averages. I listed the objective as follows

1. The system should be simple
2. Based on simple moving averages
3. It should be able to identify an Intermediate Up trend ( Ahh I am a big Fan of Saint, you know) and latch on to the trend.
4. The Time frame should be medium.
5. Visual pointer like Bullish, bearish and neural (sideways) on the charts to make an easier understanding.

With these set of objective I set out to make my system. First step was to identify an Uptrend using Moving averages. That time I was very familiar with the 3-13-39 system from the great thread by Traderji. After some experimentation I decided to use just the 13 day EMA with a signal line of a 9 day EMA of the 13 day EMA.

So my setup was EMA(13) greater than 9 day EMA of EMA(13).

Now what about the entry? I wanted to enter on confirmation of starting of Intermediate Up trend. Now my Pivot Analysis studies (Some of you may be familiar with my thread on pivots) came to my aid. So the entry would be when the price crosses the previous High Pivot. (The previous peak)

I kept the exit also very simple. When the he EMA (13) cross below the signal line, I will exit the trade. (Trailing stops etc were a far cry for me those days)

It was a simple and elementary Trading system. But worked well during the bull market. It caught on most of the intermediate up trends and kept one on the right side most of the times. It also gave signals for entry or adding on pullbacks in an uptrend. It identified most sideways movements. It was good for safe, stress free positional trades.

Of course It had its share of drawbacks. Some entries were signaled at the top which proved to be loss making. The system also was unable to handle big drops.

Overall it was very satisfactory system in a bull market and of course in a bear market the system will fully keep one aside. The system with its simplicity may be a good one for beginners.

Let me reiterate the rules again.

Setup: EMA(13) of close > Signal Line
Entry: Close crossing the previous peak
Exit : EMA(13) crossing below the Signal Line

Signal Line : EMA(9) of EMA(13)

I had implemented the same in Metastock and has now recreated the same in Amibroker. It has the following features.

Buy and Sell indications Arrow and B/S Texts. Amibroker is more flexible hence has the price also.
Chart Bars color coded with green for Bullish, Red for Bearish and blue during pullbacks and sideways movements. The blue indication puts one on alert.

Color-coded ribbons in Metastock for Bullish, Bearish and neutral zones.

I am enclosing the two charts for your reference (one from Metastock and the other from Amibroker).

Comments welcome. Also effort to improve could be thought of.

The Metastock Expert and Amibroker AFL will be posted in their respective sections (Just to avoid clutter here)

Warm regards

Karthik

The Metastock code and Amibroker AFL can be found at

http://www.traderji.com/52339-post21.html

Hi Uncle,

Excellent piece of thread and u know I m waiting for this from a long time. Planning to build a mechanical trading system and u gave an excellent start. I came back on right time.

Really excited on ur new thread and lot of learning for me as usual. Sorry to congratulate late as u know I am "Late Latif".

Kind Regards
Raj (ur nephew)

 

[sivavkm]

Dear Karthik,

till now, couldnt understand much. But eagerly following, at present using FiboTrader

Regards
Siva

 

[cemcompusoft]

Hello Seniors,

I does'nt have much experience in technical analysis but I want to share my todays experience.

Today at about 10.10 when reliance was trading at 950 I received a message from my friend to short sell with target of 939. I immidiately do the same, but when I see order book quantity, it was about 550000 in Bid & 48000 in Sell. This alerts my sixth sense & immidiately buy at 946 (More then shorted). Later I sold them at 965 & 970.

Although I make profit, But I want to know whether I was technically correct? When there is abnormal difference in order book quantity of 'bid' & 'sell', can we buy (if bid qty is more than sell qty) or short sell (if bid qty is less then sell qty).

Is the above formula exists in any technical analysis?

Regards,

K S Kachhwaha

PS : This was my first trade on my own decision. Generally I trade as per guidance of my friends & I rarely do intraday trading.

 

[AJAY]

Dear kachhwaha,
first the order book values are not that reliable. There could be very large orders sometimes at a very low points, which generally mislead when we look at the buy sell strength.
And to be honest with you, the trade what you did doesn't come under technical trade for the following reasons.
A)The trade was initiated at the message from a friend, the basis of which is unknown.
B)The stop was not mentioned by you. So presuming there was no stoploss price, it can never be called a technical entry.
C)And you squared up your short position and went long only by looking into the orderbook. Technicals never expect you to look into the order book.

FInally you made money only by chance. So, i suggest you not to initiate such trades which have no stoploss price and also suggest you not to initiate trades basing on order book.

And one more suggestion. you didn't mentioned whether it is cash segment or derivatives that you looked into the order book. If it's cash, there is further scope for bigfish to mislead by keeping a hidden order(in size). So be cautious.

The general tendency of a daytrader is to look into the orderbook, though most of the traders know that what they are looking is not worth. So, please hereafter never initiate trades based on order book strengths.

Final suggestion is follow the post by Saint, Karthik, Amitji etc. and improve your technical skills and take trades which fall into the purview of the mechanism discussed by these veterans.

happy trading

AJAY

 

[cemcompusoft]

Dear kachhwaha,

.
.
And one more suggestion. you didn't mentioned whether it is cash segment or derivatives that you looked into the order book. If it's cash, there is further scope for bigfish to mislead by keeping a hidden order(in size). So be cautious.

Final suggestion is follow the post by Saint, Karthik, Amitji etc. and improve your technical skills and take trades which fall into the purview of the mechanism discussed by these veterans.

happy trading

AJAY

Hello AJAY,

Thanks a lot for your quick reply & such guidance. I am regularly reading the posts of all the seniors. I am also reading the tutorial from http://stockcharts.com/education/IndicatorAnalysis/index.html As I have not come across such formula, I asked such silly question.

BTW the trade was of cash segment.

Thanks again for your guidance.

K S Kachhwaha

 

[Disciple]

Hello Cemcompusoft,
Before posting your message,please do consider in which thread you are posting your message and is there any relevance between the contents of that thread with your message.And pls do not kill this good thread where good TA systems are being analysed.
May God shower you with COMMON SENSE.
God Bless You.
Disciple.

 

[karthikmarar]

Milind, Raj

Thanks. Nice to see that you find this thread interesting. Hope others will also come forward and share their experiments and experiences.

warm regards

Karthik

 

[karthikmarar]

Fibotrader users: I tried setting up the system Karthik mentioned; just requested Soumya to crosscheck whether that setup is correct. You might want to see the post: http://www.traderji.com/showpost.php?p=52426&postcount=128 ; and Soumya's comments over the setup performed in Fibo.

Dear Sarath

Thanks. Very good initiative. Many will benefit from this. Keep up the good work.


regards

Karthik