In
Stock/Commodity/Forex the moves on Intraday, short-term, medium-term dependant
on long term trend. Trading in intraday, short-term, medium-term time frames in
the direction of long term trend results in consistent profits. For this
purpose, we have identified the following setup with Moving Averages.
Here
in this set up, we will first follow 2 years (2Y) chart, where 1 days = 1 tick/
1 candle) of Nifty and plot 50, 100 and 200 EMA lines on the charts. Click
here to see the chart
Now,
on the chart click on Technical Indicators, select Exponential Moving Averages
and enter values 50, 100 and 200 (10, 20 and 50 for short term and 20, 50 and
100 for medium term) as shown in the following picture
This
will add 3 lines on the chart for 50 day EMA, 100 day EMA and 200 day EMA on
the chart.
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Click on Image to enlarge |
Once
the EMA lines are added, repeat the steps and add MACD also. After both EMA and
MACD added chart will look as follows
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Click on Image to enlarge |
Click
here to go directly to link that is already pre-configured with this set up
Once
the set-up is done, note the EMAs values on the top right corner of the chart.
Rules for Long
Term Trend Trading Game:
1.
In
the long term (2Y Chart) note 50, 100 and 200 EMAs. If the values are 50EMA>100EMA>200EMA
the long term trend is up and vice versa for down trend ie 50<100<200
EMAs
2.
In
the above scenario (if 50>100>200 EMAs) we should always look for long
opportunities in the intraday, shorter or medium term trading. And vice versa
for short opportunities.
3.
If
the price is too far (ie over 5% from the nearest EMA) there are two
possibilities to be noted
a) Wait for the Price to re-trace
towards EMA and enter trades in the direction of Moving Average Cross Over.
b) Look at MACD for divergence and
take counter trend trades with targets at EMA lines.
4.
If
trading with MACD cross over/divergence there are 2 types of trading
opportunities can be identified
a) Enter first position on MACD
cross over (Long positions if cross over is far below “0” and vice versa for
short) and enter the second position on the MACD lines crossing “0” line (Long
if crossing from below to above and vice versa)
b) Do not take position at first
cross but wait for the MACD lines to cross “0” line to take position in the
direction of cross over.
5.
The
trend following long trades occur when 50>100>200 and the price touches
these EMA lines with SL placed at next EMA line.
6.
Continuous
close above farthest line from the current price is required for the trend
reversal.
Example:
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Click on Image to enlarge |
In
the above example, since April 2012 the trend has been down for Nifty and
arrows marked in green on MACD are counter trend long opportunities and arrows
marked in red are trend following short opportunities. Circles marked in black
are EMA –ve cross over shorting opportunities. Circles marked in Green are long
trading opportunities in +ve trend and circles marked in red are short
opportunities in down trend.
Rules for
Trading intraday, short or medium term based on long term trend:
1.
Identify
the Long Term Trend on 2Y chart and move down to 5D chart where 1 tick/candle =
5 minutes.
2.
From
the above example we knew that the trend has turned to +ve on 31st July
2012 when the Nifty Price closed at 5230 (Last green circle on the right side
of the chart), so we should practically look for only Long Opportunities from
the start of August month!
3.
After
identifying trend on long term chart ie Long as of now, we shall move to 5D
chart by clicking 5D at the bottom of the chart. Note: The EMA lines drawn on
2Y chart will remain of 5D chart also (5D = 5 days price chart)
Example
of Trades:
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Click on Image to enlarge |
In the above chart circles &
arrows drawn in green are trend following Long Opportunities and Circle and
arrows drawn are counter trend short opportunities in Intraday.
Note: It is always advisable to
avoid counter trend trades in Intraday & short term as Stop Loss hit on
these trades will be more than the profit potential. Hence, as far as possible it
is better to stick to major trend and trade accordingly in Nifty. If Nifty’s trend
is clear even most stocks’ trends will also be the same. Stick to rules and
profits will follow…. Team MTT