Nifty Futures Trading Part 2 (Positional)

[Sunil]

i am right now going thru various EMAs & SMAs combinations, in different TFs...
like EMA (5) & EMA (10)
EMA (5) & EMA (20),
etc...

inputs on this would be appreciated.... this will act like some mechanical trading, which we all can follow for nifty positional trading....
i'll post the results of some crossovers as per 30 min & 60 min TF

 

[columbus]

i am right now going thru various EMAs & SMAs combinations, in different TFs...
like EMA (5) & EMA (10)
EMA (5) & EMA (20),
etc...

inputs on this would be appreciated.... this will act like some mechanical trading, which we all can follow for nifty positional trading....
i'll post the results of some crossovers as per 30 min & 60 min TF

For POSITIONAL trade an EMA(9) as signal line ,I found OK ;but for INTRADAY I prefer higher EMA with high value say EMA(15) because its is highly volatile with lot of NOISE.

 

[orderflow13]

Alex, even I am missing your point....
First to clarify at which chart we are looking at for discussion...

Czar has posted two Sensex charts - first one (I) is a weekly chart from 2006... second one (II) is the daily chart of 2008, with czar's & mine FAvourite but controversial TL...

Since alex is asking about red & green lines, I presume we are all looking at the I chart..
In I chart, czar has below the actual price chart,
1. Price Exponential moving averages of two periods 5 & 20
2. MACD
3. RSI (14) green line + ....9EMA of RSI line (in red)

[though, for me, this is something new -> using Moving averages for RSI figures]

now, alex, in his chart, has presented the reverse....
he has taken RSI (9) + 14EMA of RSI level
though, he has wrongly mentioned it's RSI (7)


ALL THIS IS WHAT CZAR HAS REPLIED IN THE ATTACHED POST....

And in both cases, result is similiar.... RSI will have more spikes than EMAs....
That's the job of the EMAs.

BTW, was goint thru those Kolkatta meet videos (mainly to find Mr Don - SatDa)...
came across this comment by Asish Da where he says he prefers RSI (9)

and czar, I have seen this at many websites... if one wants to use EMA crossovers for entry-exits, then it's EMA (5) with EMA (10)....
ofcourse, one will have to define his TF first....
for intraday trading, it should be 5 min chart (though, I am experimenting with 2 min)
for swing trading, 30 min or 60 min
for positional trading, dailiv chart
{one will have to verify the result in each case}

ok lets clear or add the confusion now

First thank you for pointing out typo of rsi 7,
second, we r looking at czars first chart,
third, why lines smoother far left ? bcua chart is using log scale, in log scale imp given to right side of chart than left.
copy pesting investopedia

Investopedia FAQs Icon
What is the difference between a simple moving average and an exponential moving average?
The only difference between these two types of moving average is the sensitivity each one shows to changes in the data used in its calculation.

More specifically, the exponential moving average (EMA) gives a higher weighting to recent prices than the simple moving average (SMA) does, while the SMA assigns equal weighting to all values. The two averages are similar because they are interpreted in the same manner and are both commonly used by technical traders to smooth out price fluctuations.

The SMA is the most common type of average used by technical analysts and it is calculated by dividing the sum of a set of prices by the total number of prices found in the series. For example, a seven-period moving average can be calculated by adding the following seven prices together and then dividing the result by seven (the result is also known as an arithmetic mean average).

Example
Given the following series of prices:
$10, $11, $12, $16, $17, $19, $20

The SMA calculation would look like this:
$10+$11+$12+$16+$17+$19+$20 = $105
7-period SMA = $105/7 = 15

Since EMAs place a higher weighting on recent data than on older data, they are more reactive to the latest price changes than SMAs are, which makes the results from EMAs more timely and explains why the EMA is the preferred average among many traders. As you can see from the chart below, traders with a short-term perspective may not care about which average is used, since the difference between the two averages is usually a matter of mere cents. On the other hand, traders with a longer-term perspective should give more consideration to the average they use because the values can vary by a few dollars, which is enough of a price difference to ultimately prove influential on realized returns - especially when you are trading a large quantity of stock.

 

[Sunil]

columbus, on which TF u apply EMA (9) for positional - 30 min or 60 min or Daily...
and similiarly for intraday EMA (15)
?????????????????????????????????

 

[orderflow13]

Exponential Moving Averages

If you have followed the SMA concept, youd have realized that it takes the previous days market prices into consideration. That is why it is termed as a lagging indicator. Many technical analysts would like the moving average to be more representative of the current prices and Exponential Moving Averages (EMAs), also referred to as Exponentially Weighted Moving Averages, help them do precisely that by including in the calculations a weight factor that lends the current price carry more weight compared to the previous days price. EMAs thus help cut the time lag factor in the MA curve. The shorter the EMA period, the higher is the weight the current price carries in the MA curve, and vice versa.

EMAs are considered more relevant than SMAs, and the MA curve obtained using EMAs is more in sync with the current price trends. Though calculating EMAs is much tougher than SMAs, it is not a deterrent as you dont have to work on the calculations yourself appropriate technical chart software makes the job very simple.

And this is how the current EMA is calculated:

Current EMA = [(Current price Previous Days EMA) Weight factor W)] + Previous Days EMA

The weight factor is given by

W = 2 divide by (1 + N)

where N denotes the number of days for which the EMA is to be calculated. Lets illustrate this by calculating the 5-day EMAs for the period January 1016 for the previous example of XYZ Ltd. using the above two equations and the following table (In these calculations, the first Previous Days EMA is taken as the SMA itself):

When to use SMA and when to use EMA?

Short-term traders/investors and day traders prefer to work with EMAs as they yield a moving averages curve that is more representative of the current market prices. Medium- and long-term investors can rely on either EMAs or SMAs, as they believe that market prices smoothen out over time (30-day and above).

Remember, an EMA curve gives out more signals, but these may sometimes turn out to be false, especially for very volatile stocks. On the other hand, SMA curves may not give a signal before its too late. Ultimately, which MA curve you follow depends on your trading strategy.

 

[Sunil]

ok lets clear or add the confusion now

First thank you for pointing out typo of rsi 7,
second, we r looking at czars first chart,
third, why lines smoother far left ? bcua chart is using log scale, in log scale imp given to right side of chart than left.

adding confusion...
RSI chart in log scale.................????????????!!!!!!!!!!!!!!!!!!!!!

nahinnnnnnnnnnnnnnn
kabhi nahinnnnnnnnnnnnnn

ki pharak pendha hain, yaar...........
rsi main trendlines thodi na banana hain....


BTW, alex, can u suggest any period for EMA or SMA for our mechanical positional trading...
or 2 periods, whose crossover would guide us in enter/exits...
(as i posted in the prev. post)

 

[orderflow13]

 

[Czar]

My god !!! my chart is being torn in pieces

 

[Sunil]

first, let me confirm this....
in RSI, only the period has to be specified... 9 or 14 or whatever... let's take RSI (14) for eg.
now, there are no two methods of calculating RSI (14)... it will have one common result... there's no simple moving average method or exponential moving average method for calculating RSI (relative strength index)

Now, that GREEN line is RSI (14) and not SMA (14)

 

[orderflow13]

Linear vs log chart

An important aspect of technical analysis that most traders miss is the big difference between linear and log scale on charts. Sound like math mumbo-jumbo?

Well, it is, but it can also make a big difference in your charting, and success in swing trading.

What we're talking about here is how the Y-Axis (the up and down one) is scaled:

Linear Scaling:
Y-Axis scale is based on dollars (or points). This is a very simple charting method--how you were taught to graph in high school. In Linear scaling, a $5 move in a stock will always take up the same vertical distance, no matter if it is from $1 to $6 or $100 to $105.

Log Scaling:
Y-Axis scale is based on percentage move. This is far more complicated and nearly impossible to do by hand, but simple with today's charting software. In Log scaling, a move from $1 to $6 will show up MUCH larger than a move from $100 to $105, since the first is a 500% increase and the 2nd is only a 5% increase.

First, here is the linear scale:

Compared to the log scale of the same time period:

Key points of difference to notice:

* Both charts cover the exact same stock over the exact same time period
* Notice the horizontal lines marking the Y-Axis. On the linear scale they are all evenly spaced. On the log scale, they get closer and closer the higher you go.
* Notice the HUGE spike in the linear chart in the middle. Notice that spike basically doesn't exist on the log scale.
* Notice the big pop in the beginning of the log scale chart. Notice that is basically flat on the linear scale.

What you need to know about linear vs log:

* Log shows % moves, linear shows point moves
* You will only notice a difference on charts with large moves. You usually won't be able to tell when looking at 1-5 day charts.
* Log is preferred in all instances, since it shows % move, which is more important than $ move.