Trading With The Flow!!!

Hello All,

First and foremost, I have to thank Saint sir for developing this wonderful method. According to me sharing this method on public forums to educate people is even greater than developing the method itself. With my little experience in life[I am just 25 :)] I am yet to see a person who is so selfless, kudos sir. I would also like to thank ST da, Kapil, and a lot of people from TJ and TraderSaint for having answered soooooo many of my questions :).

What am I referring to in this thread?
I have been paper trading Nifty Futures using the Intraday Mini Flow method. In this method we use the 30min TF charts. After last Friday's trade [March 20 2009], I was not happy with the way I could identify the reversals [It was not a trade reversal but infact the Price reversed, an early entry to such reversals is what i am referring here]. Almost throughout the entire week of March 16th - 20th, there were many days where Nifty Futures price reversed [After having gone high at one point it reversed and formed new lows/ after having gone low at one point it reversed and formed new highs]. Except for Friday on all other days, Nifty Futures reversed after having given considerable profits. close to 20-25 points.

On Friday, we could have used the breakdown/out failure or the move1/2 concepts and could have entered trades, a lot of fellow members did the same and made good profits. However, if one had stuck to the rules there could be profit of only 8-10 points or could have ended in losses. Having said this, I am in no way underestimating the concepts. All my concern is about having to identify this reversal and then confirm the reversal inline with the already existing concepts.

So, while trying to findout some way of identifying this reversal, I experimented with the "Exponential Averages" [EA]. After a lot of trial and error I ended with two EA's. I drew two curves one with EA as "2" and another curve with EA as "5". Now the interesting part was that "whenever/wherever there is a cross-over in the 30min TF of these two curves, on most occasions it refers to the reversal point". Please find the 30 min TF chart for friday attached below:

The cross-over of the WhiteCurve[EA 2] and BlueCurve[EA 5] at the point 2779.54 approximately would have been a good entry.

Another thing I would like to mention is that, the 15min TF can/should also be used to identify and confirm a Reversal. In case of a Reversal, the 15min TF would first show it, however if it is not shown in the 30min TF, then it does not form a reversal point. Please find the 15min TF chart for friday attached below:

As you can see there are more cross-overs identified in 15min TF shown by "Arrow" compared to the 30min TF. It is the 15min TF which initiates the cross-overs, but it should be confirmed with 30min TF as well, else there is likely to be no reversals. However, when we see the reversal in the 30min TF at 2.00 PM Bar, it is confirmed in the 15min TF as well. When I backtested this behaviour for the entire week, the results were positive. I believe we can use this additional method to identify reversals.

Also, please note that I am very new to Trading and I am still a student eager to learn a lot of things. I would want the seniors to comment on this and validate the same.

Regards,
-Sri

Today was another interesting day, where the 30min TF showed a clear cross-over of the EA 2 and EA 5 curves. As mentioned in my earlier post the 15min TF did show more crossovers than the 30min TF, however, there was only one ocassion where it was confirmed in both 15min and 30min TF's.

Please find the chart for the 30min TF below: EA 2 is the whitecurve and EA 2 is the bluecurve.

Please find the chart for the 15min TF below: There were 2 cross overs.

I sincerely hope this would be helpful to a lot of people who are using the Intraday Mini Flow for Nifty Futures :).

Regards,
-Sri

Hi Sri,

Was watching this thread and the idea you put forward…. Good idea, though I am afraid..it runs contrary to the concept and basic premises on which this method is developed.

Let me put forward a few points for your consideration. Please take it in the right spirit…I have myself tested and tried a few tweaks in this Miniflow method:

1. This style of day trading (Miniflow) is suited to the laid back person….who is inclined to sit back and see the markets move in a certain direction, with no itch or urge to take cover action every 10/15 minutes.

2. Stops are always far back by design…..not by any compulsion to get a closer stops…Hope you understand what I m trying to say. Aim is to give price as much leeway as possible to absorb the noise and continue doing thing.

3. EMAs are very scared indicators. The smaller the period….the closer they are to the price. I mean…ask yourself what is the difference between 2/3 and 5 EMA at any given point of time. They cling close to the bars….most of the times…contained in its range. Most times…its too less….lesser than even the filter that we use. So you will keep getting out at a minor pullback..missing those 50-100 point moves. I such missed move will ruin the 10 instances where the EMA crossover wud have saved you a few points.

4. By the way….u didnt mention (or did I miss) whether this is EMA (Close) or of High, Low. You may soon start experimenting/finding EMA of lows and Highs etc depending on the direction of trade. Result…..too much work for this laid back person who avoids calculating so much.

5. So how do we use this tweak..and where?? I will give you a few ideas which you would find better…. but will do so after you make up your mind on this. But please do get back….I am currently not in a frame to devote much time due to some personal issues, so maybe weekends.

I hope you get the import of my post…….the spoke is right, but the wheel is not suitable for it.

Thanks,
Puneet

Hi Puneet,

Thanks a lot for replying to the post, I was wondering whether this post was taken in a bad taste - really happy to see your post. As I have said earlier, I am still a student of this art and eager to learn as much as possible, all your comments most welcome and will definitely be taken in the right spirit.

Ok now coming to the answers:
My main intention of trying out this was to identify a reversal when we have not yet entered the trade, as on last Friday. Agree, when we have entered the trade, we have the stops purposefully far enough to throw away any noise signals. Going long from short or vice versa when we have already entered the trade is only an extension, and I would recommend/follow the original method. I would want to use this as an additional confirmatory tool.

At this point of time when I am replying to you, I really dont know how EMA is calculated. In my ShareKhan TradeTiger terminal, they have only an option for EA. I am really not sure whether EA and EMA are the same :(. I have to read more about this. However my observation based on backtests is that with EA 2 and EA 5 for different "Time Frame" charts the curves get "closer" or "farther" from each other. For example in case of 15min TF the curves are much closer than the 30min TF, because of which there are more frequent crossovers. Similarly with even lesser TFs we would get an increased number of crossovers. And the more important thing I am concerned here is that of a cross-over in the "30min TF" alone. With all the little backtests that i did for only one week of data[I understand this is too small a timeframe to come to any conclusion], I have not seen more than "2" cross-overs in a day in the "30min TF". Hope I have cleared the point that I more interested with the cross-overs in the "30min TF" alone and I am not making any decisions based on how close/far the curves are wrt each other.

Please feel free to reply whenever you find time :) - thanks for letting me know in advance. And yes, I would like to know where this would be more appropriate so that I can really understand, whether I am missing something you are trying to convey.

Again thanks much for your time, really appreciate it :).

Regards,
-Sri

Hello Sri,

Nice to see your expeiments with EMA crossovers. EMA crossovers are a popular way of trading. People try various combinations usually three EMAs on TFs of their own favourite choice. Like 3, 9, 27 or 5, 13, 33 on 5 minute bars etc.

On 60 TF, I use 3 EMA and 13 EMA to see the crossovers when in doubt but that is rarely.

I use Sharekhan Trade tiger — the EMA they have is on close price basis, I think and they do not give choice to change this to open or high or low of the bars. That is only available in charting softwares like meta & ami.

Here we should hone our skills to see pivots and breakouts as per the rules. No harm in exploring various ideas though.

Cheers

Bee