Wouldn’t it be nice if you had a trade setup that helped you figure out the trend in advance?
Of course it would.
Because it will help you enter into a trade quickly and exit when the others are getting in.
This is one such system. Here are some facts about the system:
FACTS, CONDITIONS, CAVEATS
Success rate: 60%-70% if you are checking MANUALLY.
DO NOT WRITE ANY ALGO ON THIS STRATEGY WITHOUT INCORPORATING MACHINE LEARNING. IF THE ALGO IS PROGRAMMED IN A SYSTEM LIKE ZERODHA’S STREAK, IT WILL FAIL as there will be many whipsaws and you will end up losing money on brokerage.
Time Periods: It will work well on 30-Minute and 1 Hour Charts. On lower periods, it did give a few unreliable signals, but you can always experiment.
Trend: This strategy works very well if the trend is known (even knowing the trend for a couple hours is good enough).
TECHNICAL INDICATORS USED and STRATEGY
Super Trend (7,1) – This is the faster indicator that works by giving an advance warning. Color Codes: Green for Up arrows and Red for Down Arrows; trend lines in white so that the user is not confused.
Super Trend (7,3) – This is the slower and indicator that confirms the trend. This is the usual signal at which many traders take a position. Color Codes: Black for Up and Down Arrows; trend lines in white so that the user is not confused.
VWAP – Sends out a profit booking signal. Line in Pink
DMI (7,7) – Confirms or denies the Supertrend (7,1) signal. DI+ in green, DI_ in red, ADX in black. If you don’t know how this signal works, please read this article.
Now open the following image in a new window and read the strategy below:
EARLY WARNING SYSTEM STRATEGY
When SuperTrend (7,1) gives a buying (green arrow) or selling (red arrow) signal, and if the signal is confirmed by VWAP (price crosses above VWAP) or DMI (DI+) rising, then it confirms a buy trade.
In the chart above, SuperTrend (7,1) gave a buy signal when Nifty was in 10620’s. DMI DI+ also rose and DI- fell confirming higher highs and higher lows. Price crossed above VWAP.
This was all systems go, and Nifty was a buy.
Now look at the traditional Super Trend (7,3) – it gave a signal after 4 candles (4 Hours), which could have been the time when people would have jumped in. At this time Nifty was about 10680. You could have sold off at this stage. Let the herd jump in – you get out.
The Supertrend (7,1) Sell signal on 2-7-18 was confirmed by rising DI- and falling DI+ and with the price crossing below VWAP. This was a sell signal.
Note that the regular Supertrend (7,3) confirmed it after 2 hours.
The Supertrend (7,1) Buy signal on 2-7-18 (green arrow) was NOT confirmed by rising DI+ and falling DI- BUT the price did crossing above VWAP. This was a buy signal confirmed by 2 indicators. At this time the Nifty was 10650. We still don’t have a sell (except when the price dropped below the VWAP at 10,700).
Note that the regular Supertrend (7,3) has yet to signal a buy, and it’s been 14 hours.
Had you waited for Supertrend (7,3) to send a signal, you’d have lost out on 60 points of gains.
This is how this strategy gives you a signal in advance.
Now that you know the strategy, apply it to indices and FNO stocks and check results. Backtest, do paper trades, tabulate results, etc., before you are comfortable or sure. Good luck.