SH's 315 Strategy - how to use if effectively

[Class]

Hi Mohan,
Not sure if SH has quit this thread as it is now complete.

EMA is an Exponential Moving Average of the price of the stock. For this strategy the period is taken as 1 day, 1 trading day that is. EMA differs from SMA, Simple Moving Average, in that the more recent day's price has a 'weighting'. Something is added to it to make recent prices more relevant than the stock price, say a month ago.

For this strategy we are adding the 3 day EMA and 15 day EMA to the chart of the price for the particular stock we are looking at. EMA's essentially 'smooth' out the erratic movement of the stock price as seen in the chart by averaging it.

Additionally when these two EMA's cross each other it gives us an indication that a 'trend' is in place. This can be a 'bullish' trend, where the price is going up, or a 'bearish' trend where the price is going down. We trade the trend because it will give us a good indication of the place to buy and the place to sell.

If you want to know more the best place to start is here:
http://www.traderji.com/beginners-guide/9373-new-members-please-read.html

Hope this helps,

Hi Traderwithhunter

I am noew to this trading. I couldnt understand the contcept of 315 EMA.
What is EMA? can u please explain a little bit broadly.
Or else pl. mail me to xxxxxxxxxxxxxxxxxxxxxxxxxx if u r convenient to do so.

thanx in advance.

rgds,
Mohan

 

[sureshciyer]

Hello SH and others,

A couple of questions about this strategy. My questions may show my limited understanding of this subject, pls. bear with me.

-- In many places in this thread you have emphasized that this strategy works fine for EOD but not tested with intraday. However when we talk about the data source, I see the reference of RT EOD. My understanding is that RT or realtime is tick by tick data or data for a given day at a chosen interval of 1 min/2min and so on. EOD in my understanding is the data from the bhavcopy. So what do you mean by RT EOD ? In other words, if we use the EOD after the trading hours and try to see an EMA3 cross over EMA15, how can we place the buy call at around 3:25 pm when we will be examining this post trading hours ?

-- Right now I do not have RT data. I am in the process of getting a DP account and until then thought of learning the ropes. I update my software with EOD data and by writing a small afl (this was my first AFL) I could see lots of stocks meeting the entry criteria. May be not lot, atleast more than 5 - 6 stocks such as dalmia cement, jktyre, apollo tyre and so. Since I use EOD to run this check, I am not sure whether this is the correct interpretation as the cross over would have happened on any time on 11th Dec and though EMA3 is still over EMA15, not sure whether we have missed out the entry. So my question is should we keep watching this over RT data and not EOD data ?

-- My next question is on AFL though in this context.

A typical buy call for this strategy may be something like this I suppose.

EMA3 = EMA(Close,3);
EMA15 = EMA(Close,15);


Buy = Close > EMA15 AND Ref(Close , -1 ) > Ref(EMA15 , -1 ) AND Cross(EMA3, EMA15);

My question is why should we make the first three condition verifications ?

In other words,

In this strategy, it is mentioned that if close is greater than EMA15 and EMA3 crosses over EMA15 then it is a buy call. What is the role of close being greater than EMA15 ? How does it influence this strategy ?

Similarly, why should we check whether previous close is greater than previous EMA15 ?


Thanks in advance.

 

[Class]

Hi Suresh,
I can only answer the first part of your question about RT EOD data.

I believe icharts is being used here. It is free to get EOD data and the daily EOD is updated around 6pm after market closes.

However if you are prepared to pay a monthly fee you can get RT - Real Time data. Yes, that can be tick by tick, but remember that the period is what you set. It can be set at 5min, 30min, 60min or DAILY. In other words for a Daily RT EOD chart, the previous candles will be complete for the days they represent, but the current candle will show a single daily candle which is dynamic during market hours! Thus the 3EMA and 15EMA will alter dynamically during the day also. That is how touches to the 3 or 15EMa occur during the day, and observing the almost complete candle at 3.25pm can let you know if you should trade or not.

Hope this helps.

 

[sureshciyer]

Thanks Class. Excellent. Now I understand this term RT EOD. (though the name for a beginner is misleading)

Can I ask another question ?I realize this question will not have a clear cut answer but am keen to know the thoughts.

What are the pros and cons of using an EOD data to identify EMA3 cross over of EMA15 and trading the first thing the next morning vis-a-vis using RT EOD data to identify the same cross over at the closing hours of trading (for eg. 3.25 pm) and placing the trade (going long) the same day ?

One obvious thing seems to be the amount of profit (i.e if it was a right call and the market is trending) may be limited by carrying over the trade to the next day. Are there any other limitations ?

 

[Hari]

Hi Class!

Great !

Rgds,

 

[Tradewithhunter]

What is the logic behind the 3ema not touching 15ema trade?
A. Is it to take advantage of the pecularity
B. Is it securing of profit?
I know it works both ways, but sometimes brokerage may not let us benefit in first case.

Thanks

Dear Observer,

3 EMA not touching 15 EMA? doesnt sound like the valid question.

In any case, why worry about logic if you know it works both ways.:thumb:

Cheers
SH

 

[Tradewithhunter]

TradewithHunter,

Awesome Just Awesome .... Kudos for your helpful nature first... Your selfless attitude would change a life of many traders who are in loss...

Now , coming to 8/12/09 may I know what made you to book profit.

Neither crossover happened , Nor closed above 3 EMA... Please explain....

Dear unbeatable,

Good observation, I booked the ADD on 8/12/09 just like that at 5101. My intentions was to reduce my risk since NF has been resisted in this 5100-5200 zone multiple times.

So i booked my ADD with small profit and held my original longs.

Cheers
SH

 

[Tradewithhunter]

TradewithHunter,

Thank You so much. I have started to earn only because of 315 method. Wonderful Strategy.

Dear Naveen,

Now thats one statement' I have started to earn' which makes all my effort of maintaining this thread worthwhile. :clapping:

Keep minting.

Cheers
SH

 

[Tradewithhunter]

Dear SH,
Have a query...you booked profits on 02.12.09 but why u re-entered again on the same day i.e 02.12.09. We have to re-enter only when the price touches the 15ema. Please correct me if my understanding is wrong or i have missed some of your earlier posts.

Cheers,
Karthik

Dear Karthik,

The re-entry is based on 'book profits rule'. Please go back to my first post, open the link there under 'book profits' and you will understand.

Cheers
SH

 

[Tradewithhunter]

Nobody or any system can catch the Bottom or Top!!! Yes your understanding is correct, one would go long only on crossover and 'miss' the run during those 4 Green Bars!!

Thanks rkkarnani - for a short, simple and accurate answer to the query.

Absolutely, 315 will never catch the tops or bottoms on the swings.. but it keeps you in the right side of the mkts and makes money consistently over a period of 6 months....

By the way, I actually caught this fall from 5100 and reversed bought at 4600 keeping SL 4550 and then later caught the upswing back to 5100 again .. (not based on 315 but based on some other theory of mine not fit to be discussed in this thread). And based on my theory, 50 odd friends of mine caught this 900 point move with me too

Cheers
SH