Dear Friends,
What I am about to share below is a swing strategy by which a trader can estimate the approximate time by which the market would start correcting against the current trend. This comes in very handy on deciding when to start booking profits and also one can start building a opposite position to the trend in the anticipation of the upcoming correction. PLEASE NOTE THIS A SWING STRATEGY AND TIMEFRAME APPLIED TO IS 'DAILY'.
This is not based on any complex calculations (like Gann/Fibo/EW) but based on a common sense approach and a belief that history 'repeats' itself. (Thats the underlying assumption of TA anyways).
I use this strategy on Nifty futures, once can derive a strategy from it for any particular stock they trade in through some trial and error.
This Strategy is highly inspired by the concept of
'Market Reversion to mean'.
Reversion to Mean rules for NIFTY
- Nifty futures price has to revert to 3 EMA within a maximum of 3 days before it goes anywhere else.
- Nifty futures price has to revert to 15 EMA within a maximum of 6 weeks before it goes anywhere else..
- NIfty Futures price has to revert to 34 EMA within a maximum of 16-18 weeks (4 months) before it goes anywhere else.
- NIfty Futures price has to revert to 100 EMA within a maximum of 28 weeks before it goes anywhere else. (7 months)
How to apply the above rules in Trading
- Look out for any daily candle where the candle body is not touching 3 EMA. Thats a signal for booking any profits and wait for 3 EMA reversion for entering again. If candle body doesnt touch 3 EMA for 2 days, one can open an opposite position and aim for 3 EMA as target price. This is something I extensively use in my 315 Strategy as well.
- Look out for a trend on daily charts where 15 EMA has not been retested for 4 -5 weeks in continuation. This is a signal that markets should correct now (target 15 EMA). One can start booking profits in 4-5th week and can actually open an opposite position in 5th-6th week aiming for 15 EMA.
- Similarly, look out for a trend where 34 EMA has not been tested even once in the last 14-15 weeks. Book any profits in 14th-15th week and one can open an opposite position in 17th week aiming for 34 EMA.
- Similarly, if you see 100 EMA not being tested in last 6 months, start building a positions aiming for 100 EMA retest in next month or so.
This I have found is a very strong tool to predict corrections (price correction or time correction). In my tests the success ratio is above 90% however I am ready to be corrected by anyone who finds otherwise.
PLEASE NOTE THAT THESE TIMEFRAMES ARE FOR NIFTY FUTURES ONLY.
Happy backtesting !!
Cheers
SH
