Wednesday, July 6, 2016

Part2- How and When to adjust the Oscillators such as RSI or Stochastics with market momentum

In the last post How and When to adjust the Oscillators such as RSI or Stochastics with market momentum, we adjusted our Oscillator settings at this point in the circle after market rhythm changed. Working with new adjusted settings of 34,13, 20, 5 we would have captured the upmove around 8315 and got exited at 8340 a profit of 25 points with very low risk of 10 points as the stop was at 8305 a bit below the first swing low so that we don’t get stopped out at fake break out.
NIFTY - Alternate 5 - May-28 1502 PM (1 min)
While, we were entering in this position we might not be aware of Risk: Reward Ratio (if would have been using Elliott wave or Fibonacci we would have known our targets in advance and hence Risk Reward) still we knew one thing how much money could we loose in this trade and that is sufficient to consider if we will enter in the trade or not? Knowing the Stop in advance is a very essential part of trading because knowing this helps us to plan better and do proper money management, so that our capital is preserved, which will help us to trade in many other profitable setups and if you don’t put and decide the stop in advance and remain in a losing position you will be kicked out by market, so the option is within you, weather to get out with the stop hit voluntarily or the market will kick you out brutally.
There is a difference in you getting out yourself than the market kicking you out. When we come out voluntarily we have sufficient capital to again earn profits because opportunities are always there in one stock or the other, but when you fight with the market and keep on holding a losing trade it spoils your capital which could have been otherwise used to reenter into 100s of other new trades and would have helped you gain experience in the market and not letting you say bye bye to markets forever.
The trade that started at 2 pm and you would have kept revising your stops at every Reversal in the oscillator and would have stopped out either at a Fibonacci target or got out voluntarily since, a 1 minute trader should never carry his position next day.
Now lets see the second Chart. You can see that Oscillator overbought at 10 am did not matched the actual top, here is when you should open another chart and start adjusting the settings so that they can correlate with actual tops and bottoms as well as reach the Oversold and Overbought zones properly.
NIFTY - Alternate 5 - May-28 1936 PM (1 min)

Next top at 11 am correlated exactly with the oscillator reversal but did not read overbought zone, which can create a doubt in taking a position. Which, is why in order to not miss out on such chances one needs to adjust the settings. I am talking a 1 minute example, so it has to be done quickly and shows that one is a day trader, his trading is his living and if he delays to adjust oscillator he will miss out moves or get in wrong moves.
The top at 12 noon again not catch-able as the oscillator did not reached the overbought zone properly, adjusting the setting is the key. Now, if these were say 15 minutes or higher time frame charts you could have taken your time.
In the third and last chart you will note that settings have been changed to 73, 8, 8, 4. You need to play around it and you will be able to do it, if you aren’t write me a mail at ruchirgupta2000@gmail.com.
NIFTY - Alternate 5 - May-28 1958 PM (1 min)
There are few points to be remembered for these settings:
1. You would have noticed that once you change the setting it is works for 3-4 moves in future, this could be a great insight on starting to realize that may be the oscillator setting is due and I should look for change in market Rhythm.
2. Remember the old settings, when ever market changes the rhythm first apply the old settings that have successfully pointed tops and bottoms. If they don’t work this time then only use the new setting.
3. Every stock, commodity, currency has its own temperament or rhythm. The setting that is working on Nifty may not work on BankNifty and visa versa.
We, have been given certain default settings and we never bothered to alter these. The change in the settings is one of the keys to identify the trends. For more such articles click on my website Link- www.ruchirgupta.co.in

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