SH's 315 Strategy - how to make it more comfortable and profitable!!

[vikrit]

Good to knw others are also having similar ideas!! Did you see how would it work if we look at "only contra trends" to EOD trends in smaller TF!!

sir. i am new here. please can you explain this in respect of sh's strategy.

thanks

 

[vikrit]

One can think of taking position in IN THE MONEY options on the day of crossover and switch to Futures later.

sir, also thinking to use options for 315, but how and also not able to fix rules? plz if possible help.

thanks

 

[NTrader42]

Thinking aloud :

We already know at what levels the crossover takes place... can be switch to lower time frame charts with same 315 crossover and enter a trade... we keep the trade if the crossover is confirmed by close or exit!! May be we get an early entry!! I suggest to check 30 minutes TF... we are to look for contra to existing direction in EOD!!

Good thread, great timing for me

Hello RK,

This is a nice idea of entering using smaller TF and carrying position only when the cross is confirmed at EoD. If needed i can help with manual back testing of these concepts once some basic ideas are firmed up. Tests with few years of data should give us a clear idea.

I am currently trying to get my head around the profit booking and re-entry part from the initial posts of TwH, also waiting for your first post on this thread, already thanked it

Thanks

 

[Tradewithhunter]

Best of Luck Rkkarnani and others ...... :thumb:

 

[NTrader42]

Best of Luck Rkkarnani and others ...... :thumb:

Few important posts from the original Thread.

OK - so here we go.

The first step is to understand what is 315 .. its advatages and disadvantages.

The second step is to understand some rules I have derived to use it effectively. Rules are related to effective entries, effective SL management, effective profit bookings, effective re-entries and in the end effective money management or effective safeguarding the capital.

In this post I would focus on step 1 i.e what is 315 etc.

315 Strategy for swing trading

315 is a simple swing technique which tries to identify a trend very early. In this strategy we use only EMAs name EMA 3 & EMA 15 (hence the name 315).

People ask me why EMA 3 and EMA 15 .... for me last 3 days define the immediate average price ... to find the slightly longer term trend i use the factor of 5. This is becuase 5 has an interesting relevance to markets.... we have approx 5 hours of trading everyday, 5 trading days in a week, almost 5 trading weeks in a month .... So I simply multiple 3 by 5 to get my 15 EMA which defines my medium term average price.

Now in simple terms, if our immediate average price is higher than the medium term average price that means we are entering in a bull swing ... and visa versa. Hence the strategy entries are:

1 Enter Long when 3 EMA goes above 15 EMA
2 Enter Short when 3 EMA goes below 15 EMA

Advantages of following 315 strategy

1. A simple technique using just 2 EMAs, no other oscilattors or indicators required. NO advanced charting softwares required.

2. System is based on following the ULTIMATE indicator available i.e price action.

3. Keeps a trader in the trend, lets the full swing to complete. Never gets a trader against the trend.

4. Since we are just following price action, we dont need to worry about divergences etc.

Disadvantages of 315 Strategy

1. Works brilliantly in a trending market but can whipsaw in extremely ranging markets. However this can be overcome by certain rules and money management to be explained later in this thread.



So this is what the strategy is folks, do some chart reading and see how it works on EOD charts. Do post any questions you have here.

I will come back to talk about Step 2 again.

Keep an eye on Nifty charts, 315 is going to generate a signal soon... dont miss.

Cheers
SH:thumb:

Hi Bandlab/Ankit - Sorry for the delay in responding to all your posts and putting my rules here. I just wanted to leave the strategy here for people to digest the 'concept' first before i put forward my money management and other system details.

Its great to see you guys have done some chart reading. Bandlab, great that you have tested it on some intraday time frames as well.

Coming back to my rules... I will talk about Entries, position sizing, pyramiding and Exits (yes, its not always in a trade method) !!

BUT FIRST OF ALL, PLS APPLY 315 TO EOD ... believe me i have thought (and tried) applying 315 to intraday but success ratio is too low. 315 is for traders to trade less and make more money.

Coming to rules....

Entries

Entries are simple, you wait for a candle to close above 15 EMA, next candle to open and see if 3 EMA is above 15 EMA or not. If the answer is 'Yes' you go long. For shorts you need an exact opposite setup.

Position Sizing

Since in this system SL cannot be defined as a 'level' your initial position sizing has to be small. Depending on the trading capital, you dont want to put more than 25% capital which you want to put in this trade in as the first trade i.e assume if you can trade a total of 4 lots max, you will start with 1 lot. Rest 3 lots we will add later as our position moves into profit.

Pyramiding

Pyramiding or 'adds' are obviosly done once our position has 'swung' into profits. The rule is we add when the markets correct after a swing, price comes and touched 15 EMA again (but 3 EMA hasnt crossed over). This means that we add very close to our SAR hence keeps the risk small and also ensures that even if SAR is triggered we still end up in net profits (since our initial position is in profits hopefully now).

Exits

Yes, we do exit at certain points even when our SAR is not hit. These exit points are obviously when our position is suddenly in deep profits becuase of an extreme rally or crash in our favour. The exit points are where you find our 'current' EOD candle is not touching 3 EMA at all. On this candle, we book profits and wait for markets to correct back and touch 3 EMA again. As soon as 3 EMA is touched we jump back into our initiaal position. So in a way we stay with our position, we just exit it once and get back in after a small correction.

I would let you guys analyse, examine and apply these rules to some of the trades which you have identified. I am also posting an NF chart below showing entries, Pyramids or 'adds', Exit and jump back in and finally SAR.

Please do post any questions you have here.

In the end, I would try and touch the most important piece which is 'how to protect capital from whipsaws' .. but thats later.....

NF Chart in next post below.

Cheers
SH:thumb:

OK chart this time.

I will talk you through the chart.

Please see first red up arrow .. a buy on 16th March, before the days close you can see 3 EMA clearly above 15 EMA you take your first lot long position before market closes on 16th March ie around 2770 (please note how we need to wait till the last moment of EOD candle close to ensure we have a confirmed crossover on EOD charts).

Wow - we have a secular bull swing going from that day which takes markets to 3500 levels.

Please see second red up arrow on 28th April. Markets corrects on this day and EOD candle touches (or gets very close to) 15 EMA. This is the point we 'Add' one more lot long just before th day closes at around 3350 levels. Now the fact is that our average price has become 3060 for 2 lots so even if next day we again have a down day and 3 EMA crosses and closes below 15 EMA we will still be able to get out at a level above 3060 and hence book profits. See how even after our 'Add' we have not increased our risk overall.

Wow - but markets go up next day and both our positions are in profits.

NOW, please see 4th May candle... Nifty gapped up by 5% and closed at 3658.This is our Exit candle since 3 EMA is not touching the body candle at all.

So we basically book both lots before market closes on 4th May at around 3650. So we have made 590 points profit per lot or total 1180 points profit.

We now want to renter again with 2 lots whenever EOD candle touches 3 EMA again. If you see on 6th May that happens and we again go long 2 lots before market close at around 3630.

Now, please see the third up arrow. Markets keep correcting and EOD candle again touches 15 EMA on 11th May. This is where we 'add' our 3rd lot at around 3550. NOw we hold 3 lots NF long with avg price 3600. We have already booked 1180 points so that is still acting as a buffer we have in case markets go down next day and our SAR is hit. We will still have overall profits.

But as luck had it .. our SAR is not hit since markets are rangebound waiting for election results.

Now please see 19th May Candle .. opened way beyond 3 EMA so clearly a profit booking zone right at the open. It was a volatile day, opened at 4600 and kept crashing to 4200 ...assume we exited at 4300. We made 700 points profit per lot on 3 lots or total 2100 points profit. Add that to 1190 points profit and we have made 3390 points profit.

As you can see, we reenter again after a couple of days as marked on charts.... Finally on 18th June we exit all longs and enter shorts (again 1 lot as start).

We add shorts at 25th June... we have a small whipsaw on a day before budget but after budget we get another sell signal and now we are short.

I will cover one more important aspect about 'Protecting Capital' in my next post. Please post any questions here in the meantime.

Cheers
SH:thumb:

Hi Friends,

I will start sharing the P&L etc once I complete my entire description of certain rules to make it more effective.

We have talked about the basics & 'effective adds'. The second bit i want to explain under 'protecting capital' is 'effective SLs'.

Learning to use effective SLs is the simplest yet the most powerful piece in 'Protecting Capital'.

The way I use my SLs under this strategy is that once my initial position has moved in more than 100 points profit, I use my entry point as my SL.

Though this sounds very naive to do that but it serves two very important functions:

1. First of all it avoids whipsaws. Ideally, in a good trade, when we make an entry based on 315, I would expect our ADD to happen once my initial position is in good profit. This means that after the initial entry, the market has trended in the direction of our position, corrected to touch 15 EMA and gave us an 'ADD' without touching our initial entry point. THIS IS A STRONG SIGN OF A TRENDING MARKET HENCE MAKES OUR TRADE MORE POWERFUL.

2. It also means that we dont let a winning position become a losing one, a basic fundamental of a successful swing trader.

Please remember : If our initial entry point (or SL) is hit, we enter again based on 'effective ADD' rules i.e previous day highs/lows breached and 3 EMA still in favour. This might mean we end up shorting below our earlier entry point but thats fine.

Please take the current example now, I shorted at 4190, booked at 3930, re-entered shorts at 4040. Now when 4190 was hit again on 15/07/2009 I exited my shorts and waitied for a 'ADD' signal to get generated. 315 stayed bearish even when markets went upto 4236 close on 15/07 & 16/7 (hence no longs) but it didnt generate any 'ADD short' signal by breaching previous days lows.

Hence I couldnt short again once my 4190 SL was hit. so basically made 110 points in short on one lot.

And then on 17th July closing at around 4392 when the 315 bullish signal was confirmed I entered fresh longs. Market has closed at 4510 today however till day end 3 EMA was not touched hence i booked profits at 4508 levels. I am waiting for 3 EMA to be touched again to jump into longs again with SL 4392 (my initial entry point since it has swung up more than 100 points now).

I have now explained all my rules making 315 more effective, please use them as per your money management rules and hopefully you all will make money. to summarise the rules:

1. Build up on winning positions gradually by following 'ADD' rules.
2. Exit on candles where 3 EMA is not touching the candle body using 'effective profit booking' rule.
3. Never let a winning position become a losing one... use 'effective SL' rule.


Cheers
SH

Hi Karthik - I am glad that you like the strategy, hope it helps you too for your positional trading.

Coming to your questions, though i do not trade CAIRN but I will try and answer your questions based on 315. However first of all you will need a charting software that would provide you real time EOD charts (including current day's candle) along with EMAs.

1. Entry would be at around closing time around 202 since at that point your charts will tell you bullish crossover is complete and confirmed.

2. Initially SL is a bearish crossover of EMAs. However I believe that once I have enough M2M profits i would not want to take a loss later on that position. For myself, I have defined enough as 3% for Nifty, for stocks its slightly higher i.e 5%. Once i get this favourable move, I would put SL at my entry point so that if markets reverse atleast I would not have to bear any loss. In this case if we long at 202 and Cairn touches 212 (which it did on 07/05/2009) I would have put my trailing SL to 202 immediately. Apparently this SL would have got hit on 12/05/09.

For re-entry, I would re-enter on when previous days highs are breached and again wait for my position to move 5% above my entry point before i put a trailing SL. Here in this case, on 13/05/09 Cairn breached previous days high (212.45) hence I would have longed at 212.50 again. NOw we would put a trailing SL only once our position moves to 223 (5% up) otherwise we will hold until bearish crossover is completed. apprently 223 gets hit on 18/05/2009 and immediately next day SL (212.50 our entry point) is taken out on 19/05/09 leaving us empty handed again. We again wait for re-entry (previous day high breach) which happens on 21/05/2009 and we long at 232.50 .. and then rest is history when you exit at 270 odd levels as shown on your charts.

Please note : Putting trailing SLs is for conservative traders like me, high risk takers can forget about trailing SLs for higher returns like in this case had we not put trailing SLs we would have held onto longs from 202 to 270 (instead of 232.50 to 270)

3. This has to be known same day at open price and thats why you need the real time EOD candle.

Hope tihs helps, please do not hesitate in asking if you still have any doubts.

Cheers
SH

 

[mangup]

Dear All,

Sometime back Mr.Raunak Agarwal (SwingKing) has posted the backtesting results of this strategy. He has appreaciated the results as compared to other strategies. Also he has asked to improve on the disadvantages.

It's Great that Mr.RKK has opened the thread to improve upon. I am sure lot of our seniors & fellow members will contribute to improve & lot of suggestions will keep on coming.

I just wanted to say is that we have to keep a backtesting result record of basic 315 strategy for a given period (which includes Uptrending, Downtrending & consolidation period). This B/T record will become a base for future improvements. Any new suggestion will go through this backtesting period so as to prove its effeciency against the basic 315 results. If the results are improved vis-a-vis basic, then it will be added to basic rule (Offcourse after clearance from SH).

For this we require experts who can backtest the original 315 & the suggestion which will be coming & will be able to publish the comparative results.

I don't know much on the backtesting front. I use only MS.

Suggestion - We should check whether the prices are in oversold / overbought levels so as to know the reversal points before taking any position. This will reduce trading in whipsaws.

Thanks n Regards,

mangup

 

[mangup]

I am trying to figure out the best possible way to trade this great trading system and to avoid whipsaw i am on with some method once i back test it successfully i like to bring it out... may take some weeks... 315 in itself is excellent trading tool no dispute hats off to the founder

Dear manoharpillai,

Sometimes back i read that you are following MA Evelopes alongwith 315 Rules & you are getting excellent results. Can u please share the additional rules, parameters & how it has improved the results as compared to the basic 315 rules.

Thanks n Regards,

mangup

 

[rkkarnani]

Dear All,

Sometime back Mr.Raunak Agarwal (SwingKing) has posted the backtesting results of this strategy. He has appreaciated the results as compared to other strategies. Also he has asked to improve on the disadvantages.

It's Great that Mr.RKK has opened the thread to improve upon. I am sure lot of our seniors & fellow members will contribute to improve & lot of suggestions will keep on coming.

I just wanted to say is that we have to keep a backtesting result record of basic 315 strategy for a given period (which includes Uptrending, Downtrending & consolidation period). This B/T record will become a base for future improvements. Any new suggestion will go through this backtesting period so as to prove its effeciency against the basic 315 results. If the results are improved vis-a-vis basic, then it will be added to basic rule (Offcourse after clearance from SH).

For this we require experts who can backtest the original 315 & the suggestion which will be coming & will be able to publish the comparative results.

I don't know much on the backtesting front. I use only MS.

Suggestion - We should check whether the prices are in oversold / overbought levels so as to know the reversal points before taking any position. This will reduce trading in whipsaws.

Thanks n Regards,

mangup

Normally a well tested Strategy (like 315) is difficult to improve upon!! Results in a given period may improve and deterirate in some other period. Focus should also be on keeping it simple!! However if we can make it more comfortable by some rules... such as : (As Satyen has posted) some ESL (Entry Stop Loss) , booking of profit at certain level, as suggested by you Oversold or Over bought levels, remember vaguely SH had mentioned about use of MACD somewhere in the original thread etc. etc.
Can you kindly post a link to the Backtesting result posted earlier by SwingKing!!

 

[rh6996]

Analysis of a Tweaked strategy.... courtsey ccmb420 is attached, who was a member here but was banned for breaking Forum Rules : Have a look, seems nice. If it seems good to others too, I will request Shravan (ccmb) to share it here!! RKKarnani may also have some idea about it as he was in constant touch with ccmb. Request him to be more proactive about the strategy of Shravan and share whatever he knows about it!!

 

[manoharpillai]

Dear manoharpillai,

Sometimes back i read that you are following MA Evelopes alongwith 315 Rules & you are getting excellent results. Can u please share the additional rules, parameters & how it has improved the results as compared to the basic 315 rules.

Thanks n Regards,

mangup

MA envelope is for larger time frame to identify sup. and res. levels if i said it anywhere please do not fallow it with 315 strategy i remember i said the combination of 34 ema along with 315 still not concluded my result in this .
Every one have to understand 315 is a system unique in its own way what ever alteration is done based on this system is to be treated as a new system/method let us not confuse it.