Research on optimizing PARASAR

Its almost a week, I was doing a research on Parabolic Stop And Reverse (PARSAR) indicator; the objective of my research was to identify what parameter (step and maximum) will suit for Nifty and on what timeframe (likely M1, M5,M15,M30,H1 and D1).

Before going to the result of my research just an Intro about PARSAR.
Parabolic SAR was developed by J. Welles Wilder Jr. The indicator's name derives from the shape it takes on the chart. When SAR first gives a buy or sell signal, its slope is relatively flat. PARSAR take the shape of a parabola, at times rising at virtually a 90% angle.

PARSAR provide useful entry and exit points
Long when PARSAR below the price and Short when PARSAR is above the price. The PARSAR will move along the price when price and PARSAR meets its wise to exit your direction of trade.


Important Note:
Many people blindly jump into trade when PARSAR change the direction, which is completely a wrong idea. If you want to long from short the PARSAR dot should not form below red candle, means if the current candle is red and PARSAR dot is below the candle we need to wait for the next candle. If next candle is also red we need to wait still the PARSAR dot from under green candle, to get a very effective good profitable  trade. On the other hand its same for short too, PARSAR should form above red candle then only confirmed short signal.
 

Optimizing PARSAR for NIFTY on different time frame:

By default PARSAR setting are step as 0.02 and Maximum as 0.2, I want to change this default setting to explore more profitable trade.

Now lets move to my analysis, i have changed my setting as below,
Aqua color dot PARSAR settings Step=0.1 and Maximum = 0.3

Blue color (my favorite color, since my 2year old son keep saying it as bu-ka-color)Step=0.03 and Maximum = 0.5

Yellow color: Default PARSAR setting: step=0.02 and Maximum as 0.2
 

Below is one minute(M1) chart of Nifty:

M1 hold good for scalp trading which give quick and small profit, to do this a trade need to be very discipline, assertive and aggressive.
As we see over this chart compared to Blue and yellow color, Aqua dots are very close and tight to price, in between it gave a wrong signal for the trader as I shown in red rectangle and those green rectangles are good profitable trade.
Result: on M1 – blue PARSAR setting is very effective

Below is 5 minutes chart:

5 minute was preferred by most of the traders, since its gives more profit compared to M1 and also gives very short term trend direction

Result : Aqua color PARSAR is effective, it gave many good early signal, but at the same time some places it trapped my trade, so here too I prefer Blue PARSAR.

Below is 15 minutes chart:

There is not much difference between compared to M5 as aqua react to price action very fast, some places it gave wrong signal

Result: Blue PARSAR setting is very effective when compared to Aqua and Yellow

Below is 30 minutes chart

Result: Bit confused, either we follow Aqua or Blue PARSAR, since Aqua is very close to price any fall or raise will exit the trade very safely

Below is Hourly chart 

I prefer hourly trade since I am bit lazy crock I least bother about small swings

Result: Aqua is the best

Below is Daily chart 

Result: based on Aqua and blue its not advisable to trade on daily charts. We get easily trapped if we carry our position for couple of days, so on daily chart Yellow setting is the best. 

In simple

	Aqua	Blue	Yellow
M1		good
M5		good
M15		good
M30	good	good
H1	good
D1			good

Please feel free to send your comments on about this research to niftyreport@gmail.com


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High low channel breakout system

High low channel breakout system

Setup:

• 15 Exponential moving average of close
• 40 Simple moving average of high
•  40 simple moving average of low

40SMA of high and low forms a channel which serves to delineate the price bars in such a way that we know when to make right attempt to enter trades.

15 EMA of close is used to filter out flat spots in the price action. When the 15 EMA line is flat we do not attempt to enter any trade. The idea behind this technique is to keep us on the correct side of the market all the times.

Simple technique: if price are outside the channel, as long as the 15 EMA of close is not flat, we will attempt to enter trade either long or short.

WHENEVER PRICE IS IN THE CHANNEL WE DO NOT TRADE OR 15 EMA IS NOT FLAT OR 15 EMA IS NOT AGAINST THE DIRECTION.

LONG-WHEN PRICE ABOVE THE CHANNEL

SHORT-WHEN PRICE BELOW THE CHANNEL

click on the image to view enlarge

is it really simple? :)


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3 simple moving average system

This is a very simple system based on 3 SMA close breaks 7 SMA high or low the entries and exit are based on below rule.


Long

when 3sma close touched and bounced above 7sma low, target or exit when price touches 7sma high. OR price fall below 7sma high

Short

when 3sma close touched and fall below 7sma high, target or exit when price touches 7sma low. OR price raise above 3 sma low

I have circle all convergence of 3sma close either on 7sma high or low. This can be used for swing trading too. IS IT SIMPLE?

2 period RSI

Little Intro of 2-Period RSI

In early 2005, TradingMarkets published RSI-R2 strategy which quickly became one of the most popular strategis. This strategy was presented at "The Traders Expo" in late 2006 and also in the "Moneyshow.com" it was voted as the number one strategy under "Best for Traders" category.

Thanks to Mr.Sameer who made this strategy popular in India. There are many sites which give live 2-period RSI of NIFTY.
I have seen many of my friends blindly flow the RSI(2) and most of the time they get confused and caught on wrong side.
Based on my research over a period of time there is more statistical profit if you flow the below rule.

Strategy setting:

Simple changing the default RSI(14) value to RSI(2).

When we shorten the RSI period to a 2 or 3 or 4 the test result is significant. By using the 2-period RSI you can see back-tested result is above 75% in NIFTY from 2000-2009.

Rules
Nifty or any stock is above its 200-day simple moving average.

Day 1 - the 2-period RSI is below 65. This tells us that the market is in a neutral to possibly oversold condition.

Day 2 - the 2-period RSI closes lower than Day 1.

Day 3 - the 2-period RSI closes lower than Day 2.

Buy the market (Nifty or any of your favorite) on the close Day 3.

Exit when the 2-period RSI closes above 75.



Detailed view of 2-period RSI

Using a EOD timeframe, first, get the closing value of RSI three days ago (RSI_Day_1), the closing value of RSI two days ago (RSI_Day_2) and the value of RSI one day ago (RSI_Day_3) . Also, get the closing value of a 200-day simple moving average one day ago (SMA200_Day3). This is our primary buy/sell trigger.


BUY SIGNAL
If the value of RSI_Day_1 < 65 and the value of RSI_Day_2 < RSI_Day_1 and the value of RSI_Day_3 < RSI_Day_2 and the value of Closing Price from one day ago is SMA200_Day3, we have a Buy signal

SELL SIGNAL
If the value of RSI_Day_1 35 and the value of RSI_Day_2 RSI_Day_1 and the value of RSI_Day_3 RSI_Day_2 and the value of Closing Price from one day ago is < SMA200_Day3, we have a Sell signal

EXIT SIGNAL
If we have an open Buy order in progress and the value of RSI_Day_3 75, we close the order because RSI is entering extreme overbought status (reversal coming?) If we have an open sell order and the value of RSI_Day_3 < 25, we close the order because RSI is entering extreme oversold status.

Note: We don't need any charting application to calculate 2-period RSI which can be easily done by Microsoft EXCEL programming. I will explain how to calculate this using excel sheet little later.


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13,31 EMA trading

Intraday Trading

A simple method of trading which ensures decent returns and low risk.

I select stocks for both Long and Short on EOD basis based on 13,31 EMA (thanks to my friend VEERA who introduced this 13,31 EMA to me).

1. Morning before market opens everyday i add these stocks to my terminal
   
2. I watch Nifty trend till 10:30 AM
3. If trend is positive I decide to trade long side stock else short side
4. I also check for open high and open low of stock along with 13,31 EMA
5. Long stocks with open low and above all EMA
6. Short stocks with open high and below all EMA
7. Exit all position before 3:30, its safe and we start the next day without any tension and no need to worry about overnight positions.

Important Note: if you are not in profit after entering the trade in 30 mins please blindly close the trade. (thanks to Mr. VASU to who gave this idea of exiting @ 30 mins if no profit)

Open high having both in cash and futures has the good probabilty of shorting and open low for long trade.

How to draw trendline

[Note to see,and learn everyday NIFTY trendline please visit my friend blog Shiva-Nifty chart]

An important concept in technical analysis is the determination of the trend of the market.

This is a classical technical analysis with a detailed study of trend lines. Trend lines in addition to help indentifying the prevailing trend and also clearly shows the support and resistance level of the price.

As a trader or an investor I personally feel by drawing trend lines one can easily identify key support and resistance levels for effective and successful trading indentifying support and resistance levels are important.

Support: A support level is a price level that has strong buying strength that can absorb all selling strength.
Resistance: A resistance level is a price level where sellers have upper hand they prevent further increase in price.

Now I will move to

• construction of trend lines (how to draw trend lines)
• use of trendlines in support and resistance and
• Extending a trend lines.

How do draw trendlines
Trend lines are straight lines drawn by connecting two or more price points and extending the line to show its support /resistance of the price movement in either an up trending or down trending market.
To draw a trendlines in an up trending market,

• Identify two nearby lows where the second low is higher than the first low
• Connect these two lows by drawing a straight line and extend it to the top

To draw a trendlines in an downtrend market

• Identify two tops (high) where the second high is lower than the first top
• Connect these two tops by drawing a straight line.

Note: Some uses only close price to draw trendlines.

Use of trendlines in support and resistance analysis
Now we know how to draw trendlines, we will now see why they are so important in technical analysis.
Trendlines not only show the direction of the trend but also show the levels of support and resistance.
An uptrend line that is drawn by connecting the lows (as supports) of the price movement, we expect the price to be moving above the trendline. On the other hand , a downtrend line that is drawn by connecting the top(high) provides resistance to the upward movement of the price, here we expect price to move below the downtrend line.
Important: Any breaking of either the uptrend and downtrend lines indicates a possible change in trend, it’s a very good warning for the trader to adjust their position accordingly.

Strategy: A simple strategy can be devised by,

• Buy near the uptrend lines
• Sell or short near the downtrend lines

Strategy: A second strategy is where the price breaks the trendlines successfully; this can be determined by at least one or two candles or bar lines completely break (below or above the current trendlines). When an important uptrend line is broken, the trader may decide to sell part or all of his holding and can also take a short position. Similarly the bullish signal will be generated by the breaking of a downtrend which invites trader to take long.

Note: While the above strategies are simple, but their effectiveness depends on identifying strong and dominant trendlines. We can also draw multiple trendlines

A simple thumb rule to identify the most important ones is the lines that have the most contact points (lines touching most number of lows or highs) and extend over a longer timeframe. Those important trendlines provide very good indication whether a trade has a good risk-reward ratio.
Below chart shows how trendlines provide support and resistance to the price movement. Notice how the breaking of the important trendlines indicates a turnaround in the market sentiment.

Extending trendlines
When trendlines are broken, such lines should not be discarded as they retain much importance in future price movement. Extending a broken trendline to determine future levels of support and resistance is termed extended trendlines.
Below chart shows such an example of extended trendlines.

With the extended trendline briefly resisting upward price movement (shown by the red arrows). When the prices again went above the extended trendline, the line is once more providing support to the price movement.

This chart illustrates why it is important to extend a major trendline with the line initially providing support to the price movement, then resistance and then support again.

The use of trendline is a very important component to build a successful trading strategy. While some traders use trendlines alone to trade the market, it is advisable to combine the use of trendline with other facets of technical analysis such as price and volume indicators to determine the price momentum and money flow when prices are near the trendlines or when a trendline break occurs.

Simple Moving Average using moneycontrol.com

Here is a pretty simple strategy to trade without any technical chart. I follow this strategy for short term trading.


Strategy

1. Launch http://www.moneycontrol.com/technicals/movingavg/viewsecind.php [this link will launch and list all 50 stocks on S&P CNX Nifty
2. Check the current price of all stocks with 30,50 days SMA
3. If the current price of any stock is greater than the 30, 50 SMA, I make a note on those stocks everyday night for long and if the stock is below 30,50 I note those name for short.
4. we should also compare and make a note on yesterday's volume and open interest with today volume and OI, which will filter some more stock from the list
5. As the market open next day, visit nifty heatmap on buzzingstocks or bazaartrend website
6. Go long or short based on heat map colors

This system is very simple to follow and we don't need any technical knowledge which most of the times give a good profit, there are days I get more then 5% profit on intraday.

Place the stoploss based on your risk percentage or place it lower to 30days SMA.

Please feel free to post your comments if you have any. We can also enhance this system over a period of time if anyone is interested.
 
-umamaheswaran