Jiiiiiiiii !!!!!!!!!
(just to confirm I am talking to the same old buddy - old ID = satya_pinku, please correct me if i m wrong)
I just backtested last 5 days charts which have been put up on this thread. I am unable to backtest more - I feel forward testing would be fine, as this is unlike Dhiraj's 2652, which is tradeable solely off excel - no need of any charting tool)
Except for 1-2 trades of Ankit (which he himself said is not exactly as per system), others were fine.
There's a phenomenon called "Revision to Mean" - you put on any TF chart, and any period SMA on it, and just observe the price behaviour around this MA. It tends to move back towards this MA over a period of time (depending on the TF of your chart), if it wanders far away from this MA.
Video on this MA Magic
MA crossovers are said to be effective in avoiding whipsaws, false breakouts, etc.
I am noticing that in most cases, EMAs are already bearish (for example) even BEFORE stochs confirm the SELL signal.
I would agree with Ankit that such trades are worth taking, BUT I WOULD VERIFY THAT THE CLOSE PRICE OF THE BAR IS NOT FAR FROM THE EMAs. Else, they might tend to move towards them.
Today, if we stick strictly to the order as given by Pride, then no trades have triggered. But, incorporating Ankit's (who is now well-versed with most TA concepts - observing his posts since long time in other threads too) suggestion of observing gap between EMAs, he took two trades.
The first one (in yellow) turned out to be decent enough, but the second one (in purple) did not.
The reason is the same - in theory - price had moved too fast and too far from the EMAs, and there was a possibility of coming back towards them.
Hence, if:
5min stochs give same signal as 30min Stochs (let's take, sell signal as example)
and
the two EMAs are already in bearish crossover
many bars before
then, for going short, I would see:
1. the gap between the two EMAs should be visibly less
and
2. the gap between the closing price of the particular bar, and the EMAs should also be less.
Continuing the illustration, if the EMAs make the bearish crossover,
just one bar before the stochs confirm sell signal, I would go short immediately near the closing price of that bar.
Yesterday's last trade is good example...
as aforesaid, I would take such trades where EMAs are already bearish (for example) the stochs gave signal, but would not want the gap between the closing price of the bar, and these EMAs to be wide.
As it is, we are not supposed to take such trades where EMAs do not cross AFTER stochs give signal.
So, a small precaution is needed, when pre-empting such trade where EMAs do not crossover after stochs have given a particular signal.