Sharing a good idea.

In comments to one of the previous post , Krishna has given a remarkable insight into the use of easy and simple ideas to develop great systems. The system is explained, so go ahead and read the comments. (opens in a new window). Thanks, Krishna.

Krishna’s system is a variation of the ‘opening range breakout’ idea. Day traders will wait for the opening range to be set up. (First 5 minutes, or first 15 or 30 minutes ). Once the high and low points of the range are established, day traders will only go long if prices move above the range high. They will take only short positions if prices move below the range low. Inside the range, generally there is no trading. The core idea here is to set up a benchmark for deciding the direction. The benchmark is the high – low range of the open. Traders should focus on a number or range to improve their decision making. There is no ‘magic’ number. The numbers are useful only in context of what we want to do – buy, sell, stop loss.

On a weekly, monthly or yearly time frame, using the close alone is a sensible idea. The range may be too large to be of any value, so the bechmark for taking decisions is the closing price. Traders who trade this concept will slowly become experienced. Then the shifting of time frames will allow participation in most trends. As an example, Krishna explains that the benchmark for Nifty Futures is the 2008 close – 2959.15. So far 2009 trades below this number, there is no buying opportunity. Fine. Now let me add more. Suppose the Futures fall to 1800, eventually during 2009. Then they start a rally. Perhaps, at some point the trader should shify the time frame from yearly to monthly. Otherwise the rally from 1800 to 2915 may be missed.

Traders should read the comments, this post and then think about what’s going on. It is a trend following system. Thats’ what makes money in the long run – Trends.