Everybody, especially in Indian context, from 9:15 AM to 3:30 PM, wants to trade in BankNifty. And even 15m is Too Big timeframe for The Great Indian Options buyers. Everyone knows how potentially BankNifty (& FinNifty on Tuesday and Sensex on Friday) can show dance within 15m.
So there always been an overarching longing among traders to have something in shorter timeframes. And this 5m timeframe, looks like a universally (sic) accepted Standard Timeframe for Indian Options traders.
So here is this.
What?
The time we are publishing this public indicator Indian market (Nifty) is in ATH at ~22200. In any such super trending market it's always good to wait for a dip and then in suitable time, enter the trade in the direction of the larger trend. The reversal trading systems, in such a situation, proves to be ineffective. Of course there are time when market is sideways and keeps on oscillating between +/2 standard deviation of the 20 SMA. In such a situation the reversal play works perfectly. But not so in such a trending market.
So the question comes up - after a dip what's the right point to enter.
Hence comes the importance of such a crossover based trading system.
In this indicator, it's a well-known technique (nothing originally from ours, it's taken from social media, exact one we forgot) to find out the 8EMA and VWAP crossover. So we learned from social media, practice in our daily trading a bit, actuate it and now publishing it.
A few salient points
It does not make sense to jump into the trade just on the crossover (or crossunder).
So we added some more sugar to it, e.g. we check the color the candle. Also the next candle if crosses and closes above (or below) the breakout candle's high/low.
The polarity (color) of both the alert (breakout/breakdown) and confirmation candle to be same (green for crossover, red from crossunder).
Of course, it does provider BUY and SELL alerts separately.
These all we have found out doing backtesting and forward testing with 1/2 lots and saw this sort of approaches works. Hence all of these are added to this script.
Nomenclature Here green line is the 8EMA and the red line is the VWAP. Also there is a black dotted line. That's 50 EMA. It's to show you the trend. The recent trade is shown in the top right of the chart as green (for buy) or red (for sell) with SL and 1:1 target.
How to trade using this system?
This is roughly we have found the best possible use of this indicator. Lets explain with a bullish BUY positive crossover (means 8EMA is crossing over the daily VWAP)
Keep timeframe as 5m
Check the direction/slope of the black dotted line (50 EMA). If it's upwards, only take bullish positions.
Open the chart which has the VWAP. (e.g. FinNifty spot or MidcapNifty spot does not have vwap). So in those cases Future is the way to go.
Wait for a breakout crossover and let the indicator gives a green, triangular UP arrow.
Draw a horizontal line to the close of that candle for next few (say 6 candles i.e. 30m) candles.
Wait for the price first to retest the 8EMA or even better the VWAP (or near to the 8EMA, VWAP)
Let the price moves and closes above the horizontal line drawn in the 4th step.
Take a bullish trade, keeping VWAP as the SL and 1:1 as the target.
Additionally, Options buyer can consult ADX also to see if the ADX is more than 25 and moving up for the bullish trade. (This has to be added seperately in the chart, it's not a part of the indicator).
Mention The concept we have taken from some social media. Forget exactly where we heard this first time. We just coded it with some additional steps.
Statutory Disclaimer
There is no silver bullet / holy grail in trading. Nothing works 100% time. One has to be careful about the loss (s)he can bear in case of the trade goes against.
We, as the author of this script, is not responsible for any trading or position decision one is taken based on the outcome of this.
It is our sole discretion to change, add, delete the portion or withdraw the whole script without any prior notice or intimation.
In Indian Context: We are not SEBI registered.
Phát hành các Ghi chú
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Updates:
On the places where you see the triangle-up and triangle-down as the potential confirmed breakout/breakdown, added horizontal line from the high/low of the breakout/breakdown candle for next 10 future candles. This number 10 is configurable in settings.
If any of the 10 future candles closes above/below this triangle-up/triangle-down it will show a green/red diamond sign to indicate Strong chance of the movement now.
Phát hành các Ghi chú
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There was an issue (defect) that the confirmation happening after long time of the crossover. E.g. the crossover happened at 10AM. And the confirmation coming at 3:00PM. It's showing trade as well.
So introduced a lookback (default: 14), such that if the breakout/breakdown confirmation happens withing 14 candles of the crossover/crossunder, then only flag the entry. Naturally the trade signal now moved to the confirmation, than the cross-over/cross-under.
There was a request that to introduce a re-test. But honestly: I have seen that defining re-test is really difficult. Like should it drop a bit? or touch the EMA or like what? As not yet clear, so just keeping it as-is.
Can u add adx to display as number...vwap mean deviation 1nd 2 nd if possible
pradipandsuvra
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@ZEROToHERO88, Thank You for the 100 coins. Ok. So basically these two you are looking for: 1. Mention ADX as the label. Possible (as dmi is a built in function) 2. VWAP band (default: 2 SD, one can customize).
Will add.
pradipandsuvra
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@pradipandsuvra, Can you please confirm if these are the two things we are looking for? Then next iteration shall add it under a special flag (default off).
Nice i checked in the chart, momentum picking from your after retesting to VAWP/8EMA once crossover is done
pradipandsuvra
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@manis12345, Correct. One should ideally wait for the price action confirmation. Like crossover, then re-test and then again breaks above the crossover line (hence added the horizontal line). It ensures N pattern. (Similarly W, M etc). Look at today Nifty and BN. Without this N pattern, if one trades just on breakout, the probablity of profit will be much less.
pradipandsuvra
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There is another one interesting way one can use this indicator as an expiry trade tool. In case of the trade conditions satisfied, especially on retest after the crossover/crossunder, just sell the 0.20 delta Options with a 0.05 delta hedge. That way, on expiry day, roughly you can take position in 4/5 lots with 1L capital. Just sell the hedge and sit peacefully to enjoy the ~15 VIX decay. Make sure the ADX <= 20 (died down momentum) and PVT (price volume trend) is more or less flattish. Sell happily and sit tight with the day low/high as SL.
Do it on Tuesday (FN), Wed (BN), Thursday (Nifty), except monthly expiry Thursday. And please leave Monday (MidCp) and Friday (Sensex). Those are mad index :)