Hi,
I was discussing about whipsaws with my friend and blaming automated trading for it.I feel that's not the right way to approach it.Check out the following three points and review your trades
1) Just check the kind of stocks or index you are trading ...are you trading Nifty?...or trying to find a trend in sideways trending stocks like NTPC, ITC, HUL..etc If yes then consider switching over to real estate and bank nifty for better trades or use a trading system meant for sideways market using oscillators.
2) Another issue could be a late entry..like entering around the end 3rd wave or during 4th wave as per Elliott wave principle.Now if you are not familiar with Elliot Wave, no problem..find out a way to screen a stock and enter after a sideways consolidation is significantly over...trend channels / Bollinger bands can also be used.
3) Another problem (most likely one) could be that you are placing your stop loss too close to CMP ( Current Market Price )...or trailing your stop loss too aggressively..If you are carrying positions for a couple of days consider placing a trailing stop at least 1 ATR away from recent highs...( is that too much for you?..then probably you should not be a swing or positional trader ...move to day trading )
Whipsaws in trading are part our business, they should not influence your day to day trading.Too much of thought about failed breakouts/whipsaws can result in loss in confidence and delay in decision making thus affecting profitability
Hope this helps
Cheers
Related Post
How do I calculate SAR
I was discussing about whipsaws with my friend and blaming automated trading for it.I feel that's not the right way to approach it.Check out the following three points and review your trades
1) Just check the kind of stocks or index you are trading ...are you trading Nifty?...or trying to find a trend in sideways trending stocks like NTPC, ITC, HUL..etc If yes then consider switching over to real estate and bank nifty for better trades or use a trading system meant for sideways market using oscillators.
2) Another issue could be a late entry..like entering around the end 3rd wave or during 4th wave as per Elliott wave principle.Now if you are not familiar with Elliot Wave, no problem..find out a way to screen a stock and enter after a sideways consolidation is significantly over...trend channels / Bollinger bands can also be used.
3) Another problem (most likely one) could be that you are placing your stop loss too close to CMP ( Current Market Price )...or trailing your stop loss too aggressively..If you are carrying positions for a couple of days consider placing a trailing stop at least 1 ATR away from recent highs...( is that too much for you?..then probably you should not be a swing or positional trader ...move to day trading )
Whipsaws in trading are part our business, they should not influence your day to day trading.Too much of thought about failed breakouts/whipsaws can result in loss in confidence and delay in decision making thus affecting profitability
Hope this helps
Cheers
Related Post
How do I calculate SAR
For better entries and exits do check the the post below
ReplyDeleteSAR and Volatility
Cheers
Hi AJ,
ReplyDeleteHow are you doing?.. Hope you and RM is taking care of dehradun :)
Just landed here when searching for something.. practical suggestions.
Is it worth to keep 1 ATR buffer for SL in swing and how was the result if you have applied them in real trading?
Btw, what is 1 ATR now for nifty?.
Hi assortZ,
DeleteI am good, hope you are doing great. RM is keeping his new year resolution, not to say "good morning" anymore :(, this is to prove his love for laziness! .I saw your commodity trading related article (slideshow) in OJN, it was wonderful. Just had a look at your blog, excellent posts dude, read a few, will read all by tomorrow :)
Regarding ATR, yes 1 ATR for swing trade is the minimum. Actually it depends on your time horizon or type of trading. For day trading it can be less than one, and for positional trading, some people keep it more than 3 ATR as well. It also depends on your entry, if you enter on a breakout (more ATR i.e wider stops), pullback (less ATR i.e tighter stops). So there can't be one type of stop loss strategy for every trader.
Therefore, 1-1.5 ATR stop for breakout swing trader and .5 ATR for pullback trader. My trading software (Sharekhan Trader Tiger) is currently down for weekend updates and stuff. Can't see nifty's ATR now, will post tomorrow. It is generally 80-100 nifty points.
As you trade commodities, I have observed that if one is a trend trader, equity markets gives better performance. If one uses a sideways system then she/he should choose commodity markets. Commodities are more choppy than Equities (what do you think?).
Yes I use ATR in my trading, my trading is all about Welles Wilder methods and his indicators other favorite being RSI. My trading results are not good, but that is because I am an undisciplined trader, it has got nothing to do with the trading system. I try to jump the gun ,over optimize system etc.
I am sure people must have backtested a system based on ATR, that can give you a good idea about it. Checkout chandelier stops and keltner channel related system, strategies and backtest reports using google.
Do let me know, if you find something interesting. Now I am going to read a very important blog, please don't disturb :)
assortZ, nifty ATR (14 period) is 79.18
DeleteHi AJ,
ReplyDeleteYes, me doing good.Thanks for your reply.
I roughly worked out ATR after reading your post and it was showing around 80. But when i read you mentioning 1 ATR as SL, i had my own doubt as this 1 ATR SL can be afforded ?.. But after seeing your reply, i have again given my thoughts over it and understood that you mentioned them for the swing trading and not for SAR trading. My poor understanding!.. Agree that 1 ATR is fine with swing trading. And, you further added that at the break-out 1-1.5 and for pull back entries 0.5 ATR which is quite practical and good.
reg commodities, we can't tag them as choppy (leading counters such as silver, crude oil, copper etc). But they have rather quick movements due to the penetration of the markets and its corelation with $ index. For every sensitive news and event, it reacts swiftly and deeply. But the excellent part is, sideway movement itself offers you good range to trade.. regarding application of the system, i prefer trend catching system for commodities as it rewards in a great way compared to equities. Sideways system is dangerous to wealth in equities as well as in commodities. Though we spend 80% of the time in sideways mode, 20% of the trends get you 80% of your profits.. sound cliche? :)
Trying to jump the gun - some times ego, sometimes overconfidence and sometime desparation push us. I had very bad experiences due to this. Very hard to quit this habit but once done thereafter "all is well" !
Thanks for suggestion on chandelier stops and keltner channel related system, strategies. Will go through them and discuss with you if i find anything worthy to share.
Thanks for your appreciation on the blog and slideshow.. it's all just kid stuff :) ..
Thanks once again..will keep in touch..take care!
HI assortZ,
Delete"i have again given my thoughts over it and understood that you mentioned them for the swing trading and not for SAR trading"
I couldn't understand the above statement. Let me elaborate what I mean by swing trading and SAR trading.
When I say Day, Swing, Positional trading, I mean classifying your trades based on timeframes. Day trading means trade gets over withing a trading day, Positional trades extend over months ( something like long term investments), what ever comes in between is Swing trading timeframe (basically more than one day and extending till you get stopped out, it can last up to one month in some cases)
Whereas, SAR trading, is just "a method", where your trailing stop loss level is the entry level for your next trade in opposite direction. You stay always in the markets with a position (long or short). This SAR method can be applied in Day, Swing and Positional trading. Your stops and targets are tightest in day trading as compared to swing trading and positional trading (widest stops and widest targets with relatively low number of trades)
I hope you get the difference between two and the way I see the markets.Do you have a different way to look at SAR trading?. I thought so with your above statement. Looking forward to your posts in your blog :)
AJ,
ReplyDeleteno need to worry as both are talking about samething :)
SAR trading - Agree with your view that it's a method. Based on the time frame selected, SAR levels are worked out and trades are managed. We always hold the position. No target and no stop loss too. You just travel with your SAR number.Greater the SAR you reach destination quickly and safely.
Swing trading - Based on set of TA studies, we decide entries and as you said, it can be for any time frame. We are not holding position all the time. We initiate trades only when the set-up or structure appeals good and book out at certain convenient levels which may be judgemental or again based on a TA studies.
When i read your post about whipsaws, I interpreted your ATR explanation wrongly.. I read it as the ATR must be added into SAR level as a buffer to avoid the whipsaws.I roughly worked out ATR and noticed it was 80 for nifty and thought that was huge hence raised a doubt. You explained it quite neatly and it seems i have again stirred it.
Hope i have cleared the puzzle now and you'll have peace of mind :)
Great assortZ :)
Delete