Experiments in Technical Analysis

[rpc]

hi karthik
yesterday could not post as I was getting late.

you have said "1.It is difficult to Estimate the adverse CO movement."

Yes you are right CO does not estimate whether movement is favourable or adverse.It just predicts
one day in advance at what price would the two MA's would converge.I agree in this sense CO
does not help us in determining our SL.If CO is low below SL we would be out after hitting SL.
I think where CO could be useful is where CO lies between Entry price and SL.Thus we would be
out of trade before SL being hit and save the loss (difference) between CO and SL.This would be useful
for traders with deeper SL.Traders with tighter SLs would already be protected by SL.

Regarding second point CO is like a jauggernaut.It moves on inertia(up or down) gained from earlier
price action.If the prices are trending up and then decline CO will go a little further before reversing
same applies to falling prices.Yes I agree this will introduce an element of delay.After all MAs are laggging
indicators.

I absolutely agree with you CO can at best be used as trailing SL.The SL for preserving capital would
still have to be based on a % of trading equity.

pls comment

with best wishes

rpc
ps : pls check revised formula as given to Sanjay above

 

[AJAY]

Hi
what if the long trade % stop is hit and the move is back without making any downward rossover? or a short trade % stop is hit and the move is back without making any upward crossover?
Please explain in detail

Thanks in advance

AJAYKUMAR

 

[karthikmarar]

Hi
what if the long trade % stop is hit and the move is back without making any downward rossover?
AJAYKUMAR

What if the move continues without reversing? You will end up losing much more when the actual crossover occurs. Moving average systems are much slow in reacting to sudden large market moves especially when we use EMA cross overs. This is very evident from the Implementation exercise which is going on now. Adaptive moving averages fare better in such cases.

The question here is how to protect your capital better and How we can equip ourselves against initial adverse movements with adequate start trade stops or stoploss.

Just sharing a few thoughts...

warm regards

Karthik

 

[kkseal]

What if the move continues without reversing? You will end up losing much more when the actual crossover occurs. Moving average systems are much slow in reacting to sudden large market moves especially when we use EMA cross overs.

Fully agree with that. More so when you consider that our mkts don't correct they crash (due to the high levels of leveraging). BTW you can try out a 3-day/weekly low of the Parabolic SAR. Or perhaps a 3/5 day EMA of SAR if it can be implemented in your softwares.

To be honest I'm not very interested in SL discussions as i keep changng them according to mkt conditions (like i tightened them on the day the mkts fell 172 pts). But understand since you'll be making a comparative study of various system you need to arrive at a standardized rule for fixing SLs.

Good Luck.

Regards,
Kalyan.

 

[AJAY]

Dear Karthik,

pl. don't come with cross questions . if you can answer my question, it will be more appreciated.

the best way to protect your capital is being away from the markets, in case such a stop fear is there. I am not at all finding any reason to keep the % stop except the one which is always said - to protect capital. I wonder what for a stop is. it is to protect against higher losses only. but as per my experience what i have i know that a stop is a point where the direction fails. or the trend move disturbs. but never heard that a 1% or 2% or say x% move against the entry will disturb the trend. i really wonder.

atleast i heard a 4% stop where in indices if 4% up or down happens on weekly charts, then it can be presumed that the trend is reversed.

really not happy the way my question is answerred.

thanks karthik

AJAYKUMAR

 

[kkseal]

hi karthik
CO is like a jauggernaut.It moves on inertia(up or down) gained from earlier
price action.If the prices are trending up and then decline CO will go a little further before reversing same applies to falling prices.Yes I agree this will introduce an element of delay.After all MAs are laggging indicators.

This is where i was hoping that a linear regression analysis of the EMA itself would take some of the lag out of it & give us earlier signals of the trend & its momentum. At the same time the base dataset being smoother than raw prices (i.e. less scatter) will yield surer, more reliable results. (So that we get the best of both - EMAs & linear regression).

EMAs are the best regression type for fluctuating datasets (that's possibly one reason why they have been preferred to linear regression & have found much wider usage in analysing stk mkt data). Moreover linear regression does not lend itself too well to very short timeframes (Like if you were using Auto sales data for a year and trying to make future projections of sales through linear regression, then the seasonal fluctuations in sales figures may be mistaken as and/or mixed up with the overall trend). Whereas EMAs work reliably for all timeframes.

This is off course off-topic from your current discussions on SLs. Sorry for butting in.

Regards,
Kalyan.

 

[kkseal]

Dear Karthik,

I wonder what for a stop is. it is to protect against higher losses only. but as per my experience what i have i know that a stop is a point where the direction fails. or the trend move disturbs. but never heard that a 1% or 2% or say x% move against the entry will disturb the trend. i really wonder.

This is where the Parabolic SAR can be useful (& more logical) as its intrinsic build is one of fixing SLs & gives early signals of trend reversals. Only its too early, sometimes.
So a 5 day EMA of SAR would smoothen things a bit and introduce an element of delay for surer SL levels.

Just my thoughts.

Regards,
Kalyan.

 

[karthikmarar]

Dear Karthik,

pl. don't come with cross questions . if you can answer my question, it will be more appreciated.

the best way to protect your capital is being away from the markets, in case such a stop fear is there. I am not at all finding any reason to keep the % stop except the one which is always said - to protect capital. I wonder what for a stop is. it is to protect against higher losses only. but as per my experience what i have i know that a stop is a point where the direction fails. or the trend move disturbs. but never heard that a 1% or 2% or say x% move against the entry will disturb the trend. i really wonder.

atleast i heard a 4% stop where in indices if 4% up or down happens on weekly charts, then it can be presumed that the trend is reversed.

really not happy the way my question is answerred.

thanks karthik

AJAYKUMAR

Dear Ajay,

Apologies for the annoyance caused. I just presented the more possible, worst case condition to bring out my point. We always try to protect against worst-case conditions rather than a more comfortable condition. But this does surely answer your question.

" ..but as per my experience what i have i know that a stop is a point where the direction fails. "

This, I agree with you for stops when in a profitable position. This is a condition where we close the profitable trade.

I was taking about a start trade stop / Initial stop / stoploss. Pardon me...Since I am novice I may be using the incorrect terminology.

Looking forward to learning much more from you.

warm regards

Karthik

 

[SGM]

hi Sanjay

I sincerely apologise for the formula which I gave earlier.Yes it is wrong.The correct formula
is as follows.

(EMA13y*(Sc13*Dc13-1)+Sc13*(EMA13y-EEMA13y)+EEMA13y)/(Sc13*Dc13)

I had actually worked on EMA(C,5) and EMA(EMA(C,5),13) and mearly plugged in variables for your
requirement.In my hurry I did not check it.I have now checked the above formula.I am getting the
CO line crossing at the precise point of EMA COs.The 3 lines cross at same point.
Pls check and inform if it works.
sorry for the inconvenience caused by earlier formula.
with best wishes
rpc

Hello rpc

Thanks for the formula. I will try this out.

I require help on another afl. I was trying to combine the 3 Money Management stops into a single SL. This SL should adjust dynamically with the price.

Lets say we are using the following values

Initial SL = 4%
Trail SL = 8%
Profit SL = 16 - 20%

While using a Trailing SL we always trail the price by specific percentage, it means we will always close the position a certain % below the highs. On shorter time frames it may also use Profit Stops.

This is how it should work

Initially Stop is -4%, if the position moves in favor by more than +4% we trail the price and start shifting the stop up at a distance of 8%, at a certain point the stop would move faster, than the price so as to converge with the price at +20%.

In other words, the slack for noise will grow from 4 % to 8% and again reduce to 0% when the Profit stop is triggered.

All the numbers used are examples, we can use any other set for e.g 2,3,10 etc. Have tried it on excel, am attaching the chart.

Regards
Sanjay

 

[rpc]

hi sanjay
the chart looks like a PSAR implementation.I have not fully understood your explanation.Perhaps the excel working might clarify certain things.
with best wishes
rpc