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Wednesday, April 29, 2009

Did you make money yesterday ?

Did you make money yesterday ? Yesterday was a day to make easy money. How ? Notice how the first two times price reached near the 20min EMA it was pushed back down - sign of weakness. After large upmoves when early on you get a gap down with a couple of test of 20min EMA being sold into, its time to go short. Those who would have shorted and stuck to it through the day would have made money. If you lost money that's cause you were constantly trying to go long and the market was not moving up at all. That's what I did a lot and always lost money, and then realised that the way to make money was to go with the trend rather than against the trend. And intraday trading its difficult to make money. I am not trying to discourage you, but that's just the way it is.

When does one go short on such days? The ideal place is when the stochastics and rsi have crossed 50. If you notice from yesterday's chart - the mild recovery during the day time meant that stochastics and rsi rose, but couldn't reach much beyond 50 - and that is the hallmark of such days of relentless move in just one direction. The stochastics & rsi wont rise beyond 50 on down days and wont fall below 50 on up days. As soon as it reaches near 50, its time for you to follow the trend and enter into trade in direction of trend.

The larger trend has turned down it seems. Visit my other blog niftysetup.blogspot.com to view the mechanical strategy i follow to trade the intermediate trend successfully. What i mean by this is that I dont look at any indicator or support/resistance to time my trades. I have a fixed formula based approach in which my excel sheets, based on data I enter, throw up buy and sell decisions which I just follow blindly. It leaves the emotional roller coaster behind. When the move doesn't go in my direction I get stopped out for small loss. And when it does I make big money - like the last trade which was triggered in early March. I made 650 points on this trade, awesome. I have posted statistics below from this trade system which I have backtested pain stakingly using Nifty data since 1990 to come up with this trading strategy and finetuned it for optimal results.

Number of trades 565
Plus trades 243 (43%, yes 43% profitable trades only)
Minus trades 322 (the other 57% of trades)
Total Profit 1539904

Profit on plus trades 2673264
Loss on minus trades 1133360

Average plus trade 11001
Average minus trade 3520
Avg plus:minus ratio 3.13

Avg profit % 5.5%
Avg loss % 1.76%

Max profit in one trade 84257
Max loss 28852

So what do these statistics mean? These have been calculated assuming that I have done trades worth 2,00,000 of Nifty each time. This is because
a. we didn't have nifty futures before 2000 &
b. earlier the value of nifty was very small thus skewing the results in favour of more recent years

After having done 565 trades on Nifty worth of 200,000 each time using my mechanical strategy since 1990, I would have made a profit of some 15.4 lakhs on an investment requirement of just 50000 (though one really needs only 30000 as margin for nifty is just 15%, but lets assume 25%). That would mean a compounded return of around 19.8% over 19 years, not counting the fact that all the profits notched up in this time would also earn me returns if i invested them somewhere.

AmazonH