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Wednesday, 10 April 2013

Intraday Trading System – Simplified Technical Analysis

In this course, I am introducing a intraday trading system which is primarily based on MACD indicator used in conjunction with EMAs and Stochastics. This system is intended for scalping, which means – taking small and quick profits. There are certain strict rules to be followed to enter a trade. Following the system religiously can significantly improve the success ratio of intraday trades. 

Trading Strategy

Trading system trigger is an MACD bullish or bearish crossover. Stochastics and Moving averages are used in combination with the MACD signal to enter the trade.
    1. Buy when MACD gives a bullish crossover.
    2. Sell when MACD gives a bearish crossover.
PLEASE NOTE THAT THE ABOVE SYSTEM IS GENERIC, THE RULES BELOW WILL MAKE IT A SPECIFIC SYSTEM. IF YOU ARE FOLLOWING THIS SYSTEM, PLEASE FOLLOW ALL THE RULES FOR BUY / SELL STRICTLY.


General Rules -  Applicable for both Buy and Sell

  1. 5 min and 20 min EMA, MACD and  Slow Stochastics are the indicators used.
  2. Stock should be showing a trend. This will be evident from the slope of the EMAs. If EMAs are horizontal, then no trade is possible.
  3. Dual Time Frame Confirmation: 15/30 min chart is in the direction of the trade.
  4. Do not buy near resistance or sell near support. Resistances and Support levels  are - pivot points, days high/ low, previous swing highs, lows etc.
  5. This is a scalping system, so profits should be booked very quickly unless there is a highly bullish or bearish trend .
  6. To give an indication of scalping points assuming the trades are done in F&O in NSE.
    1. Lot size 1000 – take profits when the stock moves by 1 point.
    2. Lot size 250 – take profits when the stock moves by 3-4 points.
    3. Lot size 125 – take profits when the stock moves by 4-5 points.
  7. Which stocks to trade
Trade only on highly liquid pivotal stocks (L&T, Reliance, SBI, ICICI Bank, Axis Bank, Tata Steel, DLF, Hero Motors, Bajaj Auto, Maruti, Infosys, TCS, ONGC etc)


When to Buy

  1. 20 min EMA is sloping upwards.
  2. MACD gives a bullish cross over.
  3. 5 EMA should be above 20 EMA line.
  4. 5 min candle should close above the 20 EMA line.
  5. Stochastics should not be in overbought condition.
  6. If Stochastics is in buy mode already, enter the trade.
  7. If Stochastics is not in buy mode, wait for the stochastics to give a buy signal and enter the trade.
  8. If Stochastics is overbought, a fresh buy signal can be used to enter if the MACD is still positive.

Where to keep stoploss

Previous Swing low is the stop loss. Previous swing low is the low made in the just previous up move. Please see examples to understand stoploss points.

When to book profits

As indicated before, this is a scalping system. Book profits immediately on seeing profits and exit immediately when the stoploss is hit.
Book full profits , when one of the below conditions occur
  1. MACD gives a bearish crossover and 5 min candle closes below 20 EMA
  2. Stochastics is overbought; %K crosses below %D and moves below the overbought line and 5 min candle closes below 20 EMA.


When to Sell

  1. 20 min EMA is sloping downwards.
  2. MACD gives a bearish cross over.
  3. 5 EMA should be below 20 EMA line.
  4. 5 min candle should close below the 20 EMA line.
  5. Stochastics should not be in oversold condition.
  6. If Stochastics is in sell mode already,  enter the trade.
  7. If Stochastics is not in sell mode,  wait for the stochastics to give a sell signal and enter the trade.
  8. If Stochastics is oversold, a fresh sell signal can be used to enter if the MACD is still positive.

Where to keep stoploss

Previous Swing high is the stop loss. Previous swing high is the high made in the just previous down move. Please see examples to understand stoploss points.

When to book profits

As indicated before this is a scalping system. Book profits immediately on seeing profits and exit immediately when the stoploss is hit.
Book full profits , when one of the below conditions occur
  1. MACD gives a bullish crossover and 5 min candle closes above 20 EMA
  2. Stochastics is oversold; %K crosses above %D and moves above the oversold line and 5 min candle closes above 20EMA.


High Probability Trade Setups

  1. A brief period of consolidation occurs just before  the trade entry.
  2. Buy signal occurs above a key support/resistance level.
  3. Sell signal occurs below a key resistance / support level.
  4. Trade is in the direction of higher time frame charts (15 min /30 min).
  5. Overall market is moving in the direction of the trade.

Note: For the purpose of simplicity, RSI is not included as an indicator. There are other uses of RSI which will be covered in separate lessons.

Intraday Trading System – Simplified Technical Analysis: Examples (Nifty stocks 05 April)

  1. Axis Bank – Intraday Trade
  2. Hero Motors – Intraday Trade
  3. ONGC – Intraday Trade
  4. DLF – Intraday Trade
  5. DR. Reddy – Intraday Trade
  6. Coal India – Intraday Trade
  7. Cipla – Intraday Trade
  8. Reliance Capital – Intraday Trade

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