Nifty Trading - Trying to Anwer a few Questions.....

I got a few questions from one of my readers. For the benefit of all, I am posting the questions and answers here.

The reader wrote:

"""
I have few queries w.r.t. to slow stochastics indicator which you seem to be using for intra-day trading:

1. What kind of chart is appropriate for using slow stochastics as a intraday trading indicator - 2 min or 5 min chart?
2. Do you only use slow stochastics or use it together with RSI, MACD or Bollinger bands?
3. I understand that one can get a entry point using slow stochastics. But how do you decide exit point and stop loss? Please try to help me understand this.
4. Finally, isn't slow stochastics a good indicator in range bound markets and not in trending markets? What indicator you use in trending markets?

"""

My answers:

1. What kind of chart is appropriate for using slow stochastics as a intraday trading indicator - 2 min or 5 min chart?

I typically use 5 minute charts. But Yahoo charts allow me to update the chart as often as I would like. So, even while using 5 minute charts I might update/refresh the data every two minutes - I have written a three/four line code that does this for me automatically so that I need not hit refresh button manually all the time, and instead focus on the market.

2. Do you only use slow stochastics or use it together with RSI, MACD or Bollinger bands?

I personally find it confusing to use so many indicators at the same time. Which indicators to chose is a very personal decision. It is like having friends vs. acquaintances - there is nothing wrong with people who are your acquaintances but you select only a few friends.

Recently, I have begun to use Moving Average ( EMAs) cross over systems along with slow stochastic. For me, MACD and two moving averages convey almost similar info. Therefore, I would like an independent oscillator type indicator such as RSI, Stochastics. I have a hard time acting on RSI, hence my PERSONAL choice is Stochastic. Why slow stochastic? because the fast one is too jumpy for my taste/ability to deal with the information.

Bottom line, I like to work with simple systems which rules out using many indicators and I chose two moving averages and slow stochastic.


3. I understand that one can get a entry point using slow stochastics. But how do you decide exit point and stop loss? Please try to help me understand this.

I try to decouple entry from exit. The simple reason is once I am in, my entire focus is on managing the trade, trailing stop loss OR ( on those days when trailing SL too tight is not the right strategy because it might hit ) on getting out with a profit. Of course, my SL has already been decided before I took the trade. On trending days, I move my attention to one of the two moving averages as trailing SL. I still keep an eye on the slow stochastic to see if there are indications of trend reversals.

Deciding on SL is an art. In my blog, I have already posted few articles on this. I will continue to return to this topic.

BUT BOTTOM LINE IS: focus on minimizing losses.

4. Finally, isn't slow stochastics a good indicator in range bound markets and not in trending markets? What indicator you use in trending markets?

I believe Slow stochastic is an excellent indicator to use in strongly trending market as well - though in a rather subtle way. First of all, the fact that the market is strongly trending is indicated by Slow Statistic as it remains in the overbought/oversold zone and refuses to come out. But then it does come out, and one can wait for it to go to the other direction. So, for example from overbought it goes to oversold. This is an indication of a DIP in the original trend, and can indicate a entry/rentry point.

Ok so there it goes. Please remember to use your own judgment while using my responses in your trading. Trading is a very individualistic activity. What might work for me might not work for you and vice-versa.

On a lighter note, all the above might give an indication that I am a big DADA in trading. Hardly. I have been trading for about 9 months now, and I lost so much in the first five, that I am yet to break even. MY most recent goal is to have two positive months in a row! ( Now you might think twice before asking me anything !!!) Please wish me luck AND DISCIPLINE.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

Like this post? You can receive it free by subscribing. Just click on this link

Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.