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!!
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!!
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