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Old 19-09-2009, 09:42 PM
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Default "The Tunnel" : Scalping Strategy for Nifty/Indian Mkts

Hello Everyone,

For those who dont know me, here is a small introduction first.
I am an Indian FX learner. I dont call myself a trader yet as I believe I am not consistent yet. My prime arsenal in FX is Price Action based trading on Time Frames like H4 and Daily. This helps me keep a balance between my job and trading. However, I have always kept an eye on possible lower time frame trading techniques because of the ease it offers to you for achieving your trading goals.

I have been recently working on one of the intraday systems on FX. I must admit, the basics of the system are not my own. I had actually seen 2-3 successful systems for intraday trading in FX and I kinda picked and clubbed some features of each system to try and come out with a system with which I get comfortable with. Its like trying to build an assembled PC with different components. Thus, this system is my modification of some established systems.

Anyways now coming to the system. I use this on 5 min TF for FX and I use MT4 for my charting. On Fx it is not a scalping technique because market works 24 hours and you have enough time to let it play out.

But on Nifty, we will have to use it on 1 min chart and as a scalping system.

I will post the set up, Rules, Charts, FAQs,results in the coming posts.

Best Regards,
Kittu
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Last edited by Kittu; 20-09-2009 at 07:21 PM.
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Old 19-09-2009, 10:01 PM
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Default The Set Up

The Set Up


Time Frame : 1 minute
Market: Nifty Futures, Stock Futures
Type: Scalping System

Indicators :

EMAs : 34 EMA(Close, Red), 34 EMA(High,Blue), 34 EMA (Low, Blue), 50 EMA(Close, Dark Yellow)
SMA: 89 SMA(Close, Dark Green)
Volume graph(optional)
CCI (63) (optional)

The colors are just my choice and of course no hard and fast rule. You also need the knowledge of Wave Analysis and Price Action to trade this set up successfully.

Note: This is NOT a Mechanical System. It is not a system which will generate a fixed Buy and Sell signal and thus it cant be traded as a Black Box system. Anyone reading this will have to work out a way to trade this set up according to his/her own trading style.
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Last edited by Kittu; 20-09-2009 at 11:13 AM.
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Old 19-09-2009, 10:21 PM
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Default Entry/Exit

Entry

I will first take an example of a Long set up. I will first post the basic entry exit set ups and as we progress, I will post the ways to screen out, filter out the bad trades.

The three 34 EMAs will form a tunnel(and thus the name of the method). As a beginner, keep a rule that never to go short above the tunnel and never to go long below the tunnel.

Now, for Long entry, you will have to see 3 MAs(34(close),50,89) as if generating from the same "POINT". This is to be seen visually and is not an exact science. For a long set up, 34 EMA > 50 EMA > 89 SMA or Red>Yellow>Green.

These three MAs should appear to be originating from the same point or as close as possible. In case the 34,50 cross in right direction and 89 is not below it, the signal is nullified or rather it itself is not a valid signal.

See the attached Pic 1 for two such highlighted instances.It is NF intraday 1 min chart for 16 Sept 2009.

Now here are two Blue arrows in the pic. But there is a difference in Price Action here. At the time of first arrow, the 89 SMA was kind of flattening out...It was going nowhere.Whereas, at the time of second blue arrow, the 89 SMA was rising. As a result, the "Probability" of second trade hitting the success was higher than the first one. No guarantees. Sometimes the more probabilistic trades fail too. Thats because the probability is higher, not a sure shot trade.

Also, the Price/candles should not be far away from the crossover point.Best set ups will have candles touching the EMAs, or the crossover. When candles are far away from the crossover point/MAs, the chances of failure go high.See Pic 2.

Now, after doing this, we have to do "Wave Analysis". As we all know, prices always move in waves. When we enter a Long position, it should ideally have formed a Low-High-Higher Low pattern before triggering the Long. Also, a congestion zone also acts as a good set up. The reason is breakouts with such congestion and supported by the Tunnel and SMA will again have higher Probability of hitting the target.
This is by far the toughest and most important part of the entire set up. The more Price Analysis you do, the better your entries will get. You will not get waves always in the set ups. The reason is we are using a 1 min Time Frame and price moves very fast. See pic 3 of a non Wave based entry. The price rejection was seen and there was a congestion coupled with a falling wedge.

Pic 4 will also show how a successful set up was aided with good Price Action.









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Last edited by Kittu; 19-09-2009 at 11:39 PM.
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Old 19-09-2009, 11:39 PM
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Default When to Enter

When to Enter

For Longs

1) In case of Wave Analysis: We enter Long after the conditions in above post are met at first. A valid wave is the one which will have a closed candle above the Tunnel and then price Pulls back into the dragon,sometimes as close to the crossover point and then starts going up again. We enter once the previous made swing high is broken.The crossover will actually act as our trigger. We will have to see the waves or do wave analysis before the crossover trigger occurs. 8 out of 10 times, the crossovers will occur after the wave conditions are met. In case the crossover occur before the Wave is complete, we should wait for the completion of a valid wave and then enter.

See the attached Pic for one such set up.





2) In case of Non-Wave,Pattern Based entry: When we dont have clear waves to enter the Longs, we will wait for a candle to close above the Tunnel and then enter. However, the pattern should have triggered a Long by then. Take the following example having a channel. Though the candle closes above the Tunnel at the time of crossover trigger, the long will be taken only after the high of channel is taken off.
Example 1


Example 2:

In this set up, the crossover as well as the pattern break occurs at the same time. We enter as soon as the candle closes above the Tunnel.

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Last edited by Kittu; 20-09-2009 at 11:07 AM.
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Old 20-09-2009, 11:08 AM
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Default Stop Loss & Profit Booking

Stop Loss & Profit Booking

Stop Loss

Stop Loss should be placed below the last swing Low on the chart when going Long and above swing High when going short when doing the Wave analysis. When trading patterns, the normal Stop Loss of the pattern can be used.


Profit Taking

I am keen follower of R:R ratio or the Risk:Reward Ratio. Anything less than 1:1 is not acceptable to me. i would not enter a trade where my potential Risk is more than potential Profit. Here in NF if we are using it as a Scalping technique, i would probably not take a set up which has a SL wider than 12-15 points at current level of NF. Thats because on avg my profits would be 15-20 points and thus my R:R will get uncomfortable for me. I may still win as its all about probabilities, but I would only trade in my comfort zone of Loss.

Generally this set up will generate a 1:2 R:R and chances of 1:1 are really high.I leave this area to the traders own mindset when to take profits.

There is not any hard and fast rule to book profits. Round numbers, major S/R zones etc are all good profit booking areas.Sometimes even after a perfect entry, the PA tells you to get out. I do that. its better to net 10 points than to loose 5 points. Sometimes the mkts continue in my direction, but then thats the nature of the beast.
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Last edited by Kittu; 20-09-2009 at 12:40 PM.
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Old 20-09-2009, 07:14 PM
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Default FAQs and Results

Results

I dont have a documented result for Nifty because I havent traded it on NF yet. This strategy is under testing period for FX too. My intent of disclosing this here was only its testing. I dont know programing or automating processes. I dont do scalping on FX and there I use this strategy more on continuing swing basis.



FAQs

I dont think they can be FAQ in real terms as no one has asked me these questions. But it is jst my attempt to answer possible questions about it:


1) Is this a Holy Grail?

Of course YES. If you can work on it profitably consistently, this is THE HOLY GRAIL for you. Holy Grail exists inside us and not outside. We can make anything work as a Holy Grail if we want to.

2)Is this strategy your invention?

Not really. I have gathered some building blocks from different consistent winning systems that I have seen and worked over. I amalgamated some pieces of different strategies to come up with this one. The end rules are almost mine. Especially the triggers.

3)Do you trade it?

On NF, no I dont. I am working on it to be used on FX. Thats where the testing is going on. So far the system results have been promising.I plan to trade it on FX only.

4)If you dont trade it yourself, why have you disclosed it here?

I have been working on this for more than 3 odd months now. After initial hiccups, I feel I am doing good on testing it on FX. It struck me to try it on Indian markets and I tried this on Amibroker. The 5 min version failed. The gaps in our markets made it impossible to trade it that successfully. However, when I dropped the TF to 1 min, i saw consistent set ups and results. I dont trade 1 min and thus thought of explaining it here. There are many good traders here and I hope there would be something to learn from them here. And if this strategy can help someone trading NF, I would be happy.

I hope there is something to take back home from here.


5)Any commercial interests?

A big NO. I have learnt all my trading in this Online world. I dont have any mentor. never learnt it from a live trader. Had there been no traders posting online, I wouldnt have learnt at all. This is just my attempt to give back to the source from where I learnt.
I believe, more I can share, more I can learn. Thats all my motive here.

6)What do you expect out of this thread?

Ideas, Feedbacks, Critiques, Suggestions...Anything that helps in us becoming better traders.

7)How can I test this strategy?

Well that is a concern. Unlike FX, Nifty doesnt offer a RT data based Demo trading. To start, you can test this on FX MT4 platforms to get a feel of the entire thing. But for real testing, there is no other way out but to trade it LIVE with minimum possible capital for yourself.



I will add more questions if they come to my mind. As of now this is it.
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Old 20-09-2009, 07:15 PM
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Default

Failed Trade Examples

Its easy to find winning trades. I thought of posting some failed trades to make sure the readers see some reality.


Example 1:
A failed Long trade. Ideally by the time SL was hit, a short set up was available. Though it was not pure, but if you study PA well, one would have taken the short. Basically a reversal would have been taken, depending on trader's apetite.




Example 2:

A failed short trade.




Example 3:

Another failed Long trade





I can post many more loosing and winning trades. But as I said, this strategy has good probability of getting a 1:2 Risk:Reward ratio. As a result, for every 6 loosing trades, 3 winning trades will be required to break even. As you get more hands on this, you may want to take some impure set ups too, based on PA that you see. As I said, it is not a Black Box, but a customisable strategy.
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Last edited by Kittu; 20-09-2009 at 07:50 PM.
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Old 20-09-2009, 07:24 PM
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Default

I guess I am done for the detailing of set up. It is now open for discussion.
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Old 20-09-2009, 07:52 PM
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Default

Originally Posted by Kittu View Post
I guess I am done for the detailing of set up. It is now open for discussion.

To set the ball rolling, in fact ,both the failed cases
are qualified as areas of indecisiveness?
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Old 20-09-2009, 08:19 PM
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Default

Originally Posted by columbus View Post
To set the ball rolling, in fact ,both the failed cases
are qualified as areas of indecisiveness?

Pretty much. But you will also see a lot of winning trades originating from such Zones. So that alone, cant be a filter IMO.
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