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Posted on November 28, 2018 12:59 pm
Trading is a Mental Skill. It has actually very less to do with the strategy. Yet most people look out for new strategies. I have been testing almost different types of trading systems and found that Price Action is more effective. It’s not that Indicator trading is bad, But then the Indicators was Developed by Individual traders for their own Use. The values they gave as inputs were for trading certain markets and certain time frames. It has to be used with a certain context.
If you want to be successful with Indicators, you have to constantly adapt the input of indicators on a weekly basis to adjust itself to the market volatility and structural parameters. Unfortunately most retail traders don’t have this infrastructure, Programming Skills and servers to test the variable input vs market scenarios. Without knowing this retail traders stick to the Default input value and get into drawdown mode. There is much I can discuss about Algo trading and Systems , but not today. I have jot down the different kinds of Trading Systems available. Enjoy Reading !!!
1) Moving Average Based System:
This is a widely used Trading system. Traders use the MA crossover to generate buy and sell signals with a filter to confirm Trend. The parameters to test in this strategy is the Different back length for the 2 MA’s we are going to use, The challenge is to find the MA Value to catch the trend and same time not chop you in sideways market. The second testing is the type of the MA itself like are we going to use Simple, Exponential, Weighted , DBL exp, triple exp etc; Its actually a huge task to test different values for a certain market. The values which works in Bank nifty may not work in some stocks. It looks easy on the surface, as most people see it in 2 or 3 markets with 2 values and without backtesting and out of sample testing jump to trade that System only to loose in the End.
2) Volatility Breakout systems:
This system focused on the increasing and decreasing volatility to take the trade. Volatility can be the average true range (ATR), which is the average of the bars High - low ranges, over some past number of bars. The ATR is added to or subtracted from the current bar’s price to determine the breakout price. If ATR is decreasing that signals a possible breakout.
3) Time Based Trading:
We have time based trading systems like the Opening Range Breakout, Closing Range strength based BTST. Prices tend to be more aggressive during the opening and closing of the market. Algos tend to take advantage of these systems. This is pretty easy , but what works In NSE may not work in commodity. Time based trading system work in market with lesser operating time. Lesser the time, more better the Opening range and closing range trading.
4) Support and Resistance
These days computer detects automatic support and resistance. So there are algos to buy and sell at these levels. Money management plays a major factor in support and resistance trades.
Oscillators are technical indicators which have range from 0 to 100. There are used to detect overbought and over sold conditions. Some computer Algos use this to trade Range bound conditions. Again the Period as input has to be tested and adjusted to the underlying volatility of the instrument.
Volume based systems are very rare. They use the Market direction and look for consistent volume Increase to confirm the Direction. The Main Indicators used here are OBV ( On balance Volume ) and Accumulation Distribution Line.
7) Pattern Trading:
Computer programs detect price pattern like Head and shoulder also. This they do by taking swing highs and lows into consideration. The functional of this is better in Higher time frames more than 1H.
8) Price Band based System:
The Price Band is drawn on the highs and lows respectively. Markets are supposed to trade within this. Excessive volatility and rejections are easily found using the Bollinger bands , which calculate the width of the envelope from the standard deviation of price. Buy / Sell signals are triggered when the market touches or passes through either the upper or lower band.
Market forecasting uses mathematical methods to predict the price of the market at some time in the future like the Wave analysis and gann trading. Forecasting is qualitatively based on repeated market tendencies or patterns.
10) Price Action Trading:
Under price Action trading we don’t use any indicators or Moving average or RSI , Divergence Etc: We use Raw Candles to identify Potential setups based on price movements. The Major advantage of Price Action system is its very Simple and Powerful, not complicated like the Indicators as we don’t need to adapt input values based on the market volatility and so on. You can Deal with the market movements Directly than applying some secondary tools / Indicators. its Bang ON !!!
Traders can choose any of the major methods to suit his/her personality and style of trading. I teach price action strategies to trade the markets. In case you are interested do feel free to call / watsapp at 7373339777 for more details.
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Happy Learning and Trading...
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Technical trader is born out of passion. Passion to learn, Trade and share about Technical analysis of the Stock Markets. We all know context is the important aspect of technical analysis. The Sustenance of a big move or a breakout of a particular stock depends on the context in which the breakout is happening. As a Traders coach we teach you how to develop context and trade the stock market. Especially the Nifty and the Bank Nifty.