Puneet,
Many thanks for giving a thought to this and would attempt to answer your questions as under:
1. What catagory does this strategy form part of? Short term, long term, fast sniper on daily…intraday….for what TF did you design this for.
As the heading suggests, this is for daily bars primarily based on data backtest for two years and my limited experience of trading the daily bars of Goldmini contracts on MCX. The idea is to formalise a profit taking strategy. Unlike shares and NF where the trading range is much bigger and prices can go beyond the previously reached highs or in case of market’s bad sentiment, the prices can crash also beyond the expected lows, in case of gold, the range is limited and meanders slowly in this range. Please note we are here to be in the trade as much as possible and take profits and also not let our profits turn to losses. Having said this, Gold is always in a range so waiting for higher Pivot lows to shift our SAR is only when we see a situation like in case 3. There too we are willing to give up our gains till bar 3 low or if it is a NRB then we can shift our SAR to last PL. Most of the times Gold will make a new PL near about last PL where our SAR is and then we will loose our gains painstaking got after many days. So even in a flag we make some money not much but we will not loose out. Re-entry is any way at a pivot break again which is a high probability success trade.
The basic difference here from the classic flow method is – we take profits at certain situations, as described. We exit and wait for new entry. No point in being in the trade when prices reverse into the territory already conquered (that is gained by previous upswing) and giving up the gains. This is the main difference.
Now the question arises, are we exiting prematurely? There has to be a trade off. Reliability aspect of daily candle sticks are discussed in the next para but the patterns discussed in the strategy give optimum solutions to my mind.
I would like to emphasis that daily candles are very reliable unlike smaller time frame. Lots of research by Bulkowski and Nison are basically on daily candles as they give very high probability predictive character. Bulkowski’s magnum opus on candles patterns is based on one day TF. So I have taken a leaf from their experience and applied to all situations we are going to encounter as described in the strategy.
The study will extend into finer art of other patterns, which I do not want to bring in at this juncture as it is still under evolutionary stage.
I will not recommend to apply the patterns as described on smaller TF or on 60 min flow method which is already a very well thought out method and all areas have been really hammered out well in this forum and the mother thread plus having the main advantage of Saint’s thought.
This method will work in a trending time is not a point of much debate and also when it is in tight range. Please note any trend in Gold will be of 3 to 4 days and we keep on shifting our stop (not SAR) to the bottom of the bar whose high has been taken out. So you can check for yourself – it will move into green territory fast, it will also not give very high losses plus it will give us a grandstand view point to see if we are walking into a flag formation or not as we are normally not entering the trade again the same day. Daily charts give the advantage of analysis at EOD and entry of a well thought out trade again.
Please back test this for the last flag in gold and you will see this does not loose much money, in fact some minor gain is there. Again as this gives a birds eye view of the situation we can always choose to avoid trading within the flag.
2. Once you answer this question…..you wil realise where can this be modified to suit that tf. Generally…I found that there is very little space given to prices to correct.
This is for the daily candle bars. Not for smaller TFs. Only situation 3 gives scope for higher PL to form and for that we have set a limit to what we are willing to let go of our profits before exiting. Beyond that we look to reenter at pivot break in either direction.
3. This strategy would work wonderfully in a trending market…and fail in a range bound one. Agree with me on this?
I have tried to explain this in my reply to point 1 above. This strategy is basically for range bound commodity like gold — in a tighter range we can either choose to stay out or try this strategy with lesser amount of gains.
4. If you dont agree..great. If you do agree….more relevant to give some more space to the prices to correct.
More space for prices to correct – all possible scenarios I have discussed in the strategy outlined. This strategy takes into account the extent or willingness on our part to let go of profits for prices to correct or form a higher PL.
Hope the above is clear. My idea is to pick the brains of some of the best traders here to see if any flaw in the logic is there or not.
Please bring out more of your points so that I can dwell on those too. My strategy is by no means complete nor foolproof. Lots of scope is there. One area is to bring in more complex patterns for action but that will be a practicing art, which will evolve as we trade along longer.
This is the thought process behind the strategy. I think I should have written this in the file uploaded. Sorry for this omission.
Look forward to your comments
Thanks
Bee
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