Moving Average Cross Overs

I received some comments from Varanasi – Mr Vijay who wrote his question using the Roman Script but in the Hindi Language. I have replied to him in Hindi, thanks to Blogger!
Here is the English translation of the question, and, my response.
Here is the comment – translated :
“You always say that everyone should have a trading strategy. I fully agree with you. Trading without a strategy is like catching birds in darkness.
I have a trading strategy based on Moving Average Crossovers. I take a 60 minute chart for the Nifty and plot 50 and 25 period crossovers on it. I trade based on the crossovers but sometimes I have to follow wide stop losses.
What should I add in my strategy that will reduce my stop loss. When the 25 period crossed the 50 period to give a buy signal, I went long around 2790, but if the market were to suddenly fall I may have to give up 150 to 200 points before I get a reversal signal.
Other than the crossover, I do not have any other way of taking profits. If I am long from 2790, then what should I follow to ensure hat my profits do ot wither away.”

My reply, translated from Hindi:

Salutations to Vijay ji,

I am giving the reply to your question in Hindi. Often, prices move up rapidly so that the average lines remain far below. Then, suddenly prices start falling. But the averages take time to fall and cross each other. Often this leads to a wipeout of profits, and, sometimes, even a loss.

Now, we do not have prior knowledge of sudden decline in prices. If we knew about it, we could quickly cut our positions withut bothering about a crossover. Then, how do we protect ourselves ? You should keep in mind the fact that it takes time for the averages to cross each other and this slowness often gives an advantage. When there are small dips, our positions are not stopped out.

But, often when the market turns suddenly, we suffer monetary losses as well as psychological pressure. Therefore, we should have some way to protect ourselves.

First Method: Keep as top below the nearest pivot low. This stop should not be close by. If Pivot Low is nearby then search for a distant stop. It is possibl that a quick decline may stop you out and then the market resumes its advance. Theefore, decide beforehand, the level at which yu will reenter your position.

Second Method: If you see a big move in your favor then take partial profits. There can be many definitions of a ‘big move’. One way is: multiply average true range by 3 or 4. If your profits are equal to this number, then consider it a ‘big move’.