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REPLY 1:
VS asks:
Your ‘trading the dips’ using oscillators is interesting. A few queries.
1. Do you need to consider volumes while taking the decision?
2. Is there a good real time source in the open public domain for intra-day volumes at script and group (say an index) levels?
3. In the case of an index (say nifty) what is the importance of Advance/ Decline ratio?
4. Of the two – A/D ratio and volumes – which is of more importance?
5.How will you resolve cases when the signals are contrary to perceived trend?
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These questions are well thought out. I am giving my views on them.
1. Do you need to consider volumes while taking the decision?
I do not use volume. The problem I face is: soemtimes volume or volume oscillators will diverge from momentum. Then, there is confusion. Also, I never could derive buy/sell signals from volume. Traders may consider using an oscillator which includes volume as part of its calculations, like Money Flow Index.
2. Is there a good real time source in the open public domain for intra-day volumes
at script and group (say an index) levels?
Not that I know off. Other readers may help with any sources they are aware of.
3. In the case of an index (say nifty) what is the importance of Advance/ Decline ratio?
The A/D line, ratio and all its derivatives can add value to your analysis of the Nifty, mainly by pointing out divergences. They can also be used as part of a well defined trading strategy.
4. Of the two – A/D ratio and volumes – which is of more importance?
By this time you know what I am going to say – the A/D ratio is significant.
5.How will you resolve cases when the signals are contrary to perceived trend?
Readers should understand the depth of this question. For example, the perceived trend on Monday & Tuesday was up. So, I planned to take only the buy signals. But what happens if the buy signals generated whipsaws while the sell signals provided momentum. By taking only buy signals, i would be standing on the wrong side of the market.How do I resolve it ?
Now, there is no easy answer. Oscillators are not automated methods that can be followed blindly. So, if your perception of the market and the actual moves are more or less same, you continue with the oscillators. If the actual market moves differently, you take you loss, stay out for the day. Sometimes your perception may change because of indications on the charts, by the A/D lines or sector specific moves.
REPLY 2:
Pi asks:
Hi, One question. Lets take an example. Two set of figures at different times in the same trading system. Max equity = 100,000, Drawdown = 20,000. Drawdown % = 20%Max equity = 1,000,000 Drawdown = 120,000. drawdown % = 12%.
So max drawdown % would be 20% or 12%. I guess 12%, but still confirming.
My Notes:
Max drawdown will be Rs 120,000. But it should be a percentage of max equity before the draw down occured. It is possible that max equity was recorded much later, but you suffered the drawdown on a different equity value.
Mr Sudhin Batheja asks:
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How mcuh will the eps of your company go up as you are being paid for the ads. Can’t help it as I track the eps of tech companies to arrive at the targets, cheers have a nice trading day.
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My Notes: Currently I get enough from google to have two dinners every month, for four people, in a moderately priced South Indian restaurant. If I add a movie to this list, I will know whome to thank.
Mr Bathija also asks:
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Based on the intraday setup what percent of the set up were you successful in getting, and how do arrive at the entry and exit levels. Also a word on setting the stop loss for the above.
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My Notes: If I understand correctly, ‘percent’ successful refers to the hit rate. Now the ‘hit rate’ – percentage of trades that were profitable, is an absolutely meanigless idea. Suppose I have 90% profitable trades that make Rs 1 each and 10% losing trades that lose Rs 10/- each – the system wil be a loser.
Entry is when the oscillator moves up after a sustained decline. I usually enter on signs of strength (above the high)
Exit is after a range expansion. I move my stops below the last low.
Stop loss is below the swing low which is visible when I take the trade.
This is NOT a mechanical system. The first requirement is to have a view on the market. But, like most profitable trading methods, this one works because it is based on a common sense idea – buy dips in an uptrend.
You get better in trading this or any other method by practice. lots of practice. The Americans say it takes about ten thousand hours of practice to reach a level of success.