SH's 315 Strategy - how to use if effectively

[sureshciyer]

Thanks Class. Actually SH answered my question and I got the explanation I was looking for. Coupled with your explanation of RT EOD, I think I understood the framework of this particular strategy. Thanks to both of you.

Now actually all these triggered more questions in my mind. I was trying to find answers myself before making this post. Anyways, let me share my questions.

-- First of all, how does one start to identify the stocks which may be candidate for this 315 strategy ? Do traders have a set of stocks which they keep monitoring or does one scan all the active stocks to pick the ones which may be passing the eligibility criteria for this particular strategy ?

My assumption was that the pros may be using some kind of backtesting using software to scan the hundreds of stocks and once they identify a likely victim, they monitor it closely to ensure all the indicators are suggesting to go long or short on that particular stock. However, in one of the post in this thread, SH mentioned that he does not use AFL. (It only implies he may not be using amibroker to scan the stocks) but may be I inferred too much. I wondered how does one pick a stock if he/she does not resort to mass scanning which is too tedious to do manually.

-- Second question is the timing of identification. Should one try to identify using the EOD charts the potential candidates who may pass the 315 entry rule or should one try to identify using the EOD charts the stocks already passed the 315 entry rule ? May be I got influenced by an observation in another book (Entry and Exit by Alexander Elder).

<Quote AE>
Another important role of the MA is differentiating between what I call "value trades" and "greater fool theory" trades. If you buy near the moving average, you are buying value. A person who buys well above the moving average is in effect saying --- "I'm a fool, I am overpaying, but I hope to meet a greater fool down the road".
<UNQUOTE AE>
May be this is just his perspective and what is 'near' moving average and what is 'above' is also subjective. However this triggered a thought in me. Whether to scan for stocks which already passed the 315 rule or look for stocks which in very close to 315 rule that it may pass the rule in a day or two and monitor them more closely.

 

[Tradewithhunter]

Fantastic thought process Suresh, I could not resist to jump in and answer the questions.

Q) Do I do a mass scan of stocks or manually check a list of stocks to identify entries.

I trade in futures, I have my set of 20 odd stocks which i track daily and trade based on 315. At no point I open more than 5 positions. So basically in a raging bull mkts you will assume all 20 stocks to be bullish as per 315 and hence I will have 5 long positions in 5 of the stocks.

Now I continue holding these 5 stocks and book profits/re-enter as per rules in them while i continue to track the rest 15 stocks.

Now as the bull mkts matures, I will see some stocks correcting and giving a sell signal while other will stay bullish. I will take the first 2 stocks that give me sell signal and short it (I will close 2 underperforming long positions to keep my portfolio to 5 stocks overall). Now I will have 2 short positions and 3 longs so I am kind of hedged.

If the downtrend continues, I have shorted the weakest stocks already of the 20 stocks ( weakest since they gave sell first than others) and hence my chances of making good money in shorts are huge. I will monitor the rest 3 long positions.... if i get another sell on some other stock, I will short that stock and book an underperforming long to keep my portfolio to 5 again.

If the downtrend continues, I will end up with 5 shorts ... probably the weakest one's from my 20 stocks and hence good chance of outperforming. And the process continues until the downtrend starts getting exhausted and i start getting buy signals.....

I do not have amibroker or any other software to mass scan the universe for signals and i dont want to do it anyways. If you just focus on some handful of stocks that are volatile and liquid, its enough to make you stinkingly rich.

Even if you just stick to Nifty, its enough for you to make you good money. But i like to outperform Nifty by shorting the weakest and buying the strongest and hence have 20 stock watchlist.

Q) Timing of identification

Short and simple answer is you enter at the crossover... forget about buying value and all.... we dont want to buy value but we want to buy a bullish wave or sell a bearish wave.

However my ADD at 15 EMA touch is inspired by AE ( I am an avid fan of Alexander Elder and whatever I have learnt in TA is inspired by him)

Cheers
SH

 

[dil]

Fantastic thought process Suresh, I could not resist to jump in and answer the questions.

Q) Do I do a mass scan of stocks or manually check a list of stocks to identify entries.

I trade in futures, I have my set of 20 odd stocks which i track daily and trade based on 315. At no point I open more than 5 positions. So basically in a raging bull mkts you will assume all 20 stocks to be bullish as per 315 and hence I will have 5 long positions in 5 of the stocks.

Now I continue holding these 5 stocks and book profits/re-enter as per rules in them while i continue to track the rest 15 stocks.

Now as the bull mkts matures, I will see some stocks correcting and giving a sell signal while other will stay bullish. I will take the first 2 stocks that give me sell signal and short it (I will close 2 underperforming long positions to keep my portfolio to 5 stocks overall). Now I will have 2 short positions and 3 longs so I am kind of hedged.

If the downtrend continues, I have shorted the weakest stocks already of the 20 stocks ( weakest since they gave sell first than others) and hence my chances of making good money in shorts are huge. I will monitor the rest 3 long positions.... if i get another sell on some other stock, I will short that stock and book an underperforming long to keep my portfolio to 5 again.

If the downtrend continues, I will end up with 5 shorts ... probably the weakest one's from my 20 stocks and hence good chance of outperforming. And the process continues until the downtrend starts getting exhausted and i start getting buy signals.....

I do not have amibroker or any other software to mass scan the universe for signals and i dont want to do it anyways. If you just focus on some handful of stocks that are volatile and liquid, its enough to make you stinkingly rich.

Even if you just stick to Nifty, its enough for you to make you good money. But i like to outperform Nifty by shorting the weakest and buying the strongest and hence have 20 stock watchlist.

Q) Timing of identification

Short and simple answer is you enter at the crossover... forget about buying value and all.... we dont want to buy value but we want to buy a bullish wave or sell a bearish wave.

However my ADD at 15 EMA touch is inspired by AE ( I am an avid fan of Alexander Elder and whatever I have learnt in TA is inspired by him)

Cheers
SH

Dear SH,

what a crisp and to the point reply. This thing was missing from this thread so far. Suresh also gets credit for asking the question..

Value buying is done by long term investors and who is following this thread is basically a swing or short term trader. So if one wants to buy value then instead of TA he should learn fundamental analysis more than simple TA.

i am following this thread from start and what i feel is except entry point rest evrything has some sort of subjectivity involved so this complete strategy cannot be mechanised completely. And unfortunately i am intrested in that. So dear SH can you help me out i mean remove the subjectivity element completely (i think i am asking too much).But if any one can help.

Thanks,
Dil

 

[karthik_sri]

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

Dear SH,
I checked your previous post link and it says to re enter on when the candle touches 3EMA.

Cheers,
Karthik

 

[Tradewithhunter]

Mkts have corrected to 5103 now... the shorted NF call is now at 114 , I have exited it at 114 and booked 29 points profit in it. My total NF profit now is 291 points. :lol:

One lot NF long still holding (5140).

Cheers
SH

Closed Longs at 5040 and opened shorts at 5040.

Net profit in the bull trade is 191 points.


Cheers
SH

 

[sureshciyer]

Dear SH,

Thank you very much for providing the answers. You seem to read my mind and your responses indeed answer my questions and elaborate on my thoughts. Thanks again.

You also shattered my impression when you said you dont resort to any scanning and just play with a few set of selected stocks. Upon closer reading of this whole thread I realized you had mentioned the same earlier too though I missed this point. However, the significance to me is more on how simple we can make the trading avoiding the complexities of identification, selection, observation and follow up. Quite encouraging.

I must also agree that I have taken to Alexandar Elder. The three books I read all were so gripping and the way he shares his thoughts is simply awesome. A must for every trader, book lover or even just for the joy of reading.

Coming back to the topic, a quick question before I sum up the discussions so far for my own benefit.

In your very first post, you mentioned the criteria for entry wherein you said

"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."

To my question on the significance of this first condition (candle to close above 15 EMA) you said

"My answer is that there is no condition of price > 15 EMA.. the only and the only condition is of 3EMA > 15 EMA ..... but you would find, whenever 3 EMA > 15 EMA... price will automatically be > 15 EMA."

So this first condition of price > 15 EMA is it a prerequisite condition for this strategy (if so, why ?) if not, is this just an add on because it is just natural progression for the given condition ? I am not trying to be picky but want to get my basics right and ensure that I have not overlooked anything.

To ensure that my post is not running too long, I will sum up my understanding of this whole strategy in my next post. Before winding up, I would like to share my perspective to Dil's post. From my limited understanding, I believe the strategy should have some element of subjectivity and should not be fully automated because, if it can be predicted, it will end up as software and this predictability will kill the strategy. Dil, pls. bear with me if I have misunderstood your question.

Thank you one and all.

 

[sureshciyer]

Summing up my understanding:

Dos:

• Apply this strategy to only selected 10 - 20 high volume large cap/mid cap stocks.
• Apply this strategy to EOD charts only.
• Preferably choose futures so that both long and short can be tried.
• Use SL and money management for profit management.

Donts:

• Do not apply this to intraday.
• Do not apply to options
• Do not apply if the entry criteria is not fully met.
• Do not apply to low volume stocks as it can whipsaw.

To Enter:
Apply 315 strategy to the selected high volume stocks and wait for cross over. Enter long or short depending strictly on the cross over.

To Re Enter:
Renter when the candle which moved above the 3 EMA returns back and touches 3EMA.

To Add more lots:
Add second lot when the candle touches back 15 EMA after moving above it and also the candle high is above the previous candle high.

To Exit:
Exit when the candle moves above 3EMA. Also another chance to exit is when reverse cross over happens. In addition to these, exit, when you realize you have made huge profit and huge is subjective. (5% for stocks ??)

Now that I have some clarity on this, I am also keen to know the qualitative aspects of trading such as:

1. What kind of capital is required to do this kind of trading ? Watching 10 - 20 stocks and taking position in 4 - 5 at a time, and that too in futures market and on large cap/mid cap stocks which are normally above Rs 300 per stock and considering M2M cost and others, does one require some substantial amount to start this trade ?

2. In futures trading, should we target only current month and square off at the end of month whether exit conditions are met or not ? How does one predict the duration of the rally/crash ?

3. What is the typical frequency of trade ? The typical duration of holding the trade, the frequency/number of trades one make per month based on this strategy ? Do we see so many cross overs first to begin with ?

4. Regarding protecting profit, one idea mooted here was to place SL when the profit moves up 100 points. If the profit does not move up 100 points but reverses after going up a few points ? I presume this is the case where we can do nothing but still wanted to raise this question just for clarity.

5. How can we protect the capital ? Profits can be to some extent protected by SL. Are there any best practices to protect the initial capital itself ? One option seems to be restricting our 'add' lots to not more than 2. ie. even when we observe a pattern where in we do not get a chance to exit but the candle moves above 15 EMA and comes back and touches 15 EMA, we do not keep adding lots but just stop after adding the second lot. This way we may be able to protect some capital but I am not sure about best practices to protect already invested capital. Ideas are welcome.


Well, these are just a few thoughts which I phrased as questions. Any further elaboration by others is quite welcome. If I get more clarity on these questions, I will try to answer these myself. For now, the simple answer appears to be "It depends" and depends on quite a few factors I suppose.

Thank you one and all.

 

[mayur553]

Hi SH.. i am confused with the entry part... when do u enter.. is it when ur 15ema is not touching the candle and the crossover happens.. or just when a crossover happens.. yesterday bearish crossover took place.. but both ema touching the candle.. and similarly on 27th November bearish crossover happened and both ema touching the candle..

Pls explain.

thanks

 

[Tradewithhunter]

Dear SH,


So this first condition of price > 15 EMA is it a prerequisite condition for this strategy (if so, why ?) if not, is this just an add on because it is just natural progression for the given condition ? I am not trying to be picky but want to get my basics right and ensure that I have not overlooked anything.

Hi Suresh,

It is not a pre requisite but a natural progression. I think i need to go back and change the wordings of my original post to make it clear.

Cheers
SH

 

[Tradewithhunter]

Summing up my understanding:

Now that I have some clarity on this, I am also keen to know the qualitative aspects of trading such as:

1. What kind of capital is required to do this kind of trading ? Watching 10 - 20 stocks and taking position in 4 - 5 at a time, and that too in futures market and on large cap/mid cap stocks which are normally above Rs 300 per stock and considering M2M cost and others, does one require some substantial amount to start this trade ?

2. In futures trading, should we target only current month and square off at the end of month whether exit conditions are met or not ? How does one predict the duration of the rally/crash ?

3. What is the typical frequency of trade ? The typical duration of holding the trade, the frequency/number of trades one make per month based on this strategy ? Do we see so many cross overs first to begin with ?

4. Regarding protecting profit, one idea mooted here was to place SL when the profit moves up 100 points. If the profit does not move up 100 points but reverses after going up a few points ? I presume this is the case where we can do nothing but still wanted to raise this question just for clarity.

5. How can we protect the capital ? Profits can be to some extent protected by SL. Are there any best practices to protect the initial capital itself ? One option seems to be restricting our 'add' lots to not more than 2. ie. even when we observe a pattern where in we do not get a chance to exit but the candle moves above 15 EMA and comes back and touches 15 EMA, we do not keep adding lots but just stop after adding the second lot. This way we may be able to protect some capital but I am not sure about best practices to protect already invested capital. Ideas are welcome.


Thank you one and all.

Ok lemme try to answer them for you.

1. looking at margin requirements of trading in futures, you would need atleast 4 lakhs + another 2 lakhs for M2M to start with. My suggestion is that a new trader should start with just Nifty (capital of 30K margin + another 30K for M2M). Earn for 6-12 months in just Nifty, raise confidence and build the descipline while trading in live markets and then gradually start increasing the number of stocks.

2. This is a swing trade which can last for months. So at expiry you simply rollover your position i.e if holding longs .. you basically close this months futures and immediately buy next months futures. No need to predict anything, the beauty of not predicting and just sticking to teh charts is that you dont attach any ego to your trade. As soon as you start predicting, your ego comes in your way of desciplined trading.

3. Can be many trades in a rangebound mkts (3-4 trades per month per stock) and can be no trades at all in the month if the trend continues and cuts across many months (March 09 to June 09). Depends on the state of market.

4. If it reverses it reverses, be ready to reverse your position as well. The way I reversed to shorts yesterday.

5. Can't answer this question since money management for different people is different. A high risk appetite trader can go 'slam bam' in the markets and a conservative trader might buy options to hedge the future positions. One way is that you start with the capital, make money, once you have made 100% of your capital invested you remove your capital and just trade with the markets profit. Lock your initial capital in a bank's fixed deposit to protect it

Cheers
SH