How to trade with an oscillator

[Smart_trade]

I am facinated with idea of using EMA crossover with stochastics. I was trying ema5 and ema21 crossover with 21,13,5 stochastics on 5min chart for more aggressive intraday trading. Please comment if u can on this.

EMA crossover is the method suitable for trending markets and stochastics is an oscillator for sideways markets...if you use ema crossover with stochastics, I am afraid by the time you get a signal on ema crossover,half the move will be over....it will be better to enter on entry critaria listed out by me in 3rd or 4th post of this thread....

Smart_trade

 

[learningcurve]

the oscillator entry qualifiers for short tradeare as under :

1) the oscillator should have gone to overbought zone.
2) wait for a bar where the oscillator flips...ie comes out of overbought zone and comes in neutral zone....
3) in doing step no 2 the oscillator should not have stayed in overbought zone for 5 bars and more
4) wait for a downclose ( meaning close less than earlier day's close)
5) ensure that by that time oscillator does not go very near oversold region
6) sell when the low of the downclose bar is broken on downside.....

If you observe all 6 qualifiers you will see that there was no shorselling opportunity in this uptrend.....our trader friend is home safely....and made money in longs....

Oscillator went into overbought territory and stayed there for 9 bars.....so no shortselling ideas to be entertained....


Smart_trade

dear smart trade,

i have been following your this thread silently and i am appreciating you for this knowledgeable thread. I have few doubts.i would be happy if you clarify these.they are

1)what happens if stochastics has stayed in the overbought zone for 5 bars or more and then stochastics goes to neutral zone?

2)what to do when stochastics fluctuates in the neutral zone?

3)which parameter is better for stochastics 8,3,4 or 15,3,5 and why?

With regards,

learning curve

 

[Smart_trade]

dear smart trade,

i have been following your this thread silently and i am appreciating you for this knowledgeable thread. I have few doubts.i would be happy if you clarify these.they are

1)what happens if stochastics has stayed in the overbought zone for 5 bars or more and then stochastics goes to neutral zone?

2)what to do when stochastics fluctuates in the neutral zone?

3)which parameter is better for stochastics 8,3,4 or 15,3,5 and why?

With regards,

learning curve

Dear Learning curve,

I am happy that you found this thread useful....thanks...
Answers to your questions in the same serial order are as under :

1) Stochastics in overbought zone and drifts to neutral zone...market pauses a little....then again climb back to new highs and stochastics going to lower high giving negative divergence ,stays there for less than 5 bars and comes to neutral zone and if all qualifiers are satisfied,that presents a good sell enrty.

2) Stochastics fluctuates in neutral zone...nothing to be done as we would like to trade overstretched conditions...and overstretched conditions yet to take place...

3) Stochastic parameters depend on the timeframe and the stock you trade...experiment with various parameters and if a particular parameter catches most of the turns...that is a good parameter...no hard and fast rule here...

Best Wishes,

Smart_trade

 

[MurAtt]

ST Da,

Another great day today wrt Stoch in overbot for more than 5 days. We seem to be having these days very frequently nowadays and hitting the nail on the head.

Whereas earlier (say maybe 1-2yrs back) when Stoch/RSI used to stay in overbot (oversold) for much more time then we used to to take short (long) trade for profits!!!!!

What would be the reason for this particular change of behaviour of the Nifty or is it that we (I) did not - at that time - know abt this particular condition and were (was) ignorant of it!!!

 

[bsrao]

Stochastics in overbought zone and drifts to neutral zone...market pauses a little....then again climb back to new highs and stochastics going to lower high giving negative divergence .............

Dear SA
will you please explain what is new highs prefarably with a chart

 

[Smart_trade]

ST Da,

Another great day today wrt Stoch in overbot for more than 5 days. We seem to be having these days very frequently nowadays and hitting the nail on the head.

Whereas earlier (say maybe 1-2yrs back) when Stoch/RSI used to stay in overbot (oversold) for much more time then we used to to take short (long) trade for profits!!!!!

What would be the reason for this particular change of behaviour of the Nifty or is it that we (I) did not - at that time - know abt this particular condition and were (was) ignorant of it!!!

Hi SM,

Yes it is always dangerous to sell when stochastics is in overbought region for 5 bars and above...irrespective of the timeframes and whether it is now or 2 years back.....it will continue making new tops 80% time...and 20 % time it may come down...but we always trade 80% chance of a thing happening.

I have been trading on these and I remember my trader friends blindly following the OB/OS and selling in extreme OB areas...but finally taking their losses most of the times....with these qualifiers we stack the odds in our favour....

Best wishes,

Smart_trade

 

[Smart_trade]

Stochastics in overbought zone and drifts to neutral zone...market pauses a little....then again climb back to new highs and stochastics going to lower high giving negative divergence .............

Dear SA
will you please explain what is new highs prefarably with a chart

There are many examples of the above in this thread....I am posting a link to one such case :

http://www.traderji.com/day-trading/30182-how-trade-oscillator-13.html

Here you will see Oscillator in OB region for more than 5 bars,then drifting to neutral zone,again climbing to OB region but makinh lower high while price makes a higher high...giving negative divergence....

Best Wishes,

Smart_trade

 

[manojkch]

Manoj,

If you had observed the market action around 4644-42 it was showing tremendous resistance for going down...I remember 2-3 times bears tried hammering it but it bounced back....this indication you can get only if you are a good screen reader....but there are other factors apart from what the screen was showing you....

1) 30 min in OS area

2) 5 min showing reversal,it also showed a positive divergence.

3) NF breaking the downsloping channel.

4) Market Profile indicated possible bottom for the day as 4645-50 area,it went down a little more and reversed

It is always amalamation of 3-4 factors which give us reliable reversal...but the signal one can get on break of downward channel....4644 was a level corrosponding to I had once talked about cotton being pressed into a gunny bag....at some point it refuses to take any more ....

Cannot explain this phenomenon....only screen time and experience will teach you that....but it happens and one can see it in the live market.....

Hope I have answered your querry....

Best wishes,

Smart_trade

I am really VERY SORRY ST Sir! You have taken so much effort to answer my query and I totally missed / forgot it even to look at it..( due to some tensions in my day to day life). Sir.. ********** !! Really it is very shameful. Please forgive me for my blunder.

And Thanks a ton for the crystal clear explanation. Somehow I really missed tracking this wonderful and educative thread. Now looking at all posts .. realizing it. You are taking so much efforts to educate us and I am making such blunders. Sorry Once Again.

Best regards
Manoj

 

[Smart_trade]

I am really VERY SORRY ST Sir! You have taken so much effort to answer my query and I totally missed / forgot it even to look at it..( due to some tensions in my day to day life). Sir.. ********** !! Really it is very shameful. Please forgive me for my blunder.

And Thanks a ton for the crystal clear explanation. Somehow I really missed tracking this wonderful and educative thread. Now looking at all posts .. realizing it. You are taking so much efforts to educate us and I am making such blunders. Sorry Once Again.

Best regards
Manoj

Never mind manoj,it happens as we sometime get busy handling personal and family matters. Take care of them...they are more important than trading....trading can wait but family matters are to be give our time and attention.

Best Wishes,

Smart_trade

 

[manojkch]

Thanks a lot ST Sir !. So nice of you!!
Best regards
Manoj