Risk Statement

Trading involves financial risk and author of this blog does not take responsibility of any trading loss it may occur for the reader. This blog is for only educational purposes and should be used only for that. Readers who use the material published here should take informed decision and should have good money management skills and also should know that its their own risk. Author is not responsible for your loss or gain!! Finally, trading does not guarantee profit!!!

Thursday, April 16, 2015

Trade log NF

Sold NF at 8735 with SL at 8790.

As per the combination of indicators (RSI, EMA, MACD) the trend has turned to short from long.
RSI is coming below 70 level (Over bought) and EMA is turning down and MACD is showing weakness. So I took this short trade. I should have shorted at 8757 levels because its below yesterday low but I was waiting for a bounce from that level due to yesterday massive sell off. Bounce did not come so had to short. Anyway the trade worked in favor so carrying it for tomorrow. Let us see how it goes...We can just decide short or long based on price movement and everything else left to market.

Update 17/04/2015:-

I screwed up my position by keeping a TSL at 8701 and it got hit. Then market resumed its journey downwards but today it was bit volatile. Any way I entered short again at below the range and got a fill at 8665. Currently its in 30+ points profit and looks like market has more downside. Holding this position for coming week.  I will try to chase this one on Monday by keeping appropriate SL.

Update 20/04/2015 : Exited the trade at 8565. Around 100 points gain per lot. Still it was an early exit, market gave another 100 pts but I missed it.

Saturday, April 11, 2015

Positional trading using a combination of indicators (RSI, EMA & MACD)

There are many trend indicators which can be used for trading decisions. I'm testing this combination of indicators to make  a trading decision on daily time frame. I will try to explain the idea in few points below,

1) Trading time frame:- Higher the time frame, we get better idea of the direction of the market. That is because it will not have too many whipsaws like in lower time frame like 5 min or 30 min. In this method I use daily time frame

2) RSI (5) :- This is an indicator which shows whether market is over sold or over bought. I use 5 days RSI because I believe the trade will go for 2 - 5 days. We consider RSI value 70 as over bought and 30 is over sold.

3) MACD (12,26,9) :- This is a momentum indicator and I use the default values here. Here we have to consider the MACD crossing signal line for trading decision.

Nifty(Daily) chart example :-

How I use this combination for entry:-

RSI was over sold and it was below 30. We should wait for that to come back again and cross 30 level on upside. This is the first indicator that tells us market is changing the trend.

Along with RSI EMA(5) also turned upside. This is a confirmation for us to enter a long trade.

Observe MACD line and signal sloping upside and make a decision to enter long trade.

One more important thing we can consider here is that there should be a pivot low created below so that we can have a stop loss in case market goes against us.

How I use this combination for exit:-

Like entry, exit also very important in trading. We can not expect market to do what we want. Many times we exit from trade prematurely and lose potential profit. or many times we do not exit the trade in time and make huge losses.

I use any of these two indicators to show weakness to exit. Most of the time its RSI in combination with EMA. If I'm in a good profit, I would trail my stop loss by moving it below the previous candle bar low or previous days low. (For trailing stop loss, we can use 30m, hourly or daily candle)

Pros & Cons of this method :- Patience. Yes you need lot of patience to get this entry and once entered you need to hold the position until the trend changes or your SL is hit. This is needed to get maximum benefit from the strategy. We may not get trade for a long time if we wait for RSI to show over sold or over bought situation.

In this write up I have explained about going long. For short look for RSI coming down from 70 levels and other indicators accordingly.

Thank you for reading and valuable comments are welcome....happy trading!!

Saturday, May 28, 2011

Futeres & Options basics

Futures options are an excellent way to trade the futures markets. Many new traders start by trading futures options instead of straight futures contracts. There is generally less risk and volatility when using options instead of futures. Actually, many professional traders only trade options.
Before you can trade futures options, you need to learn the basics.

What are Futures & Options?
An option is the right, not the obligation, to buy or sell a futures contract at a designated strike price. For trading purposes, you buy options to bet on the price of a futures contract to go higher or lower. There are two main types of options - calls and puts.
Calls – You would buy a call option if you believe the underlying futures price will move higher. For example, if you expect corn futures to move higher, you will want to buy a corn call option.

Puts – You would buy a put option if you believe the underlying futures price will move lower. For example, if you expect soybean futures to move lower, you will want to buy a soybean put option.

Premium – You are obviously going to have to pay some kind of price when you buy an option. The term used for the price of an option is premium. You can think of the pricing of options as a bet. The bigger the long shot, the less expensive they will be. Oppositely, the more sure the bet is, the more expensive it will be.

Contract Months (Time) – Options have an expiration date, which means they only last for a certain period of time. When you buy an option, you cannot hold it forever. For example, a May Nifty expires in May. You will need to close the position before expiration. Generally, the more time you have on an option, the more expensive it will be.

Strike Price – This is the price at which you could buy or sell the underlying futures contract. For example, a May 5400 call allows you to buy a May futures contract at 5400 anytime before the option expires. Most traders do not convert options, they just close the option position and take the profits.