iCharts Discussions

[vinst]

[rk_a2003]

Vinst,

Good attempt.One point you missed.In wave 4 of WW we need 4 or more consecutive Bullish Candles (in this case) shoud be there.Which were missing in this case.

Yes you are right. On the same day when Change of guard taken place We can take a position ( Infact That is more beneficial ).But the problem is we may not be able to get the confirmation of Change of Guard till the final half an hour or so.That's why I sugested for next day position .If one is able to take the position on the same day it's well and good.

[rk_a2003]

Please Go through the following presentation which describes the baisc concepts of the tools used in this Fusion Strategy.This description is intended for giving an introduction of the tools adapted in this strategy and their very use.Each tool is having a potential that meant to be described extensive, but that is not the purpose of this write up.Who ever is interested to know about them in detail may pursue it separately.As far as this strategy is concerned this much understanding is enough.


Wolf Wave

This particular methodology is perhaps the most unique, effective trading technique.It was developed and shared by Bill Wolfe.Bill's theory of wave structure is based on Newton's first law of physics: for every action there is an opposite reaction.This movement creates a definite wave with valuable projecting capabilities.

Simply put, the Wolfe Wave is a natural rhythm that exists in all markets. It is made up of waves of supply and demand that form their own equilibrium.In technical analysis, it is a naturally occurring trading pattern present in all financial markets. The pattern is composed of five waves showing supply and demand and a fight towards an equilibrium price. These patterns can develop over short- and long-term time frames such as minutes or weeks and are used to predict where a price is heading and when it will get there.

There is a separate Thread intiated by Shekhar and running with full force right now in this forum.One can go through that thread and also browse Internet to learn the insights of W.W. This is the core foundation of this Strategy.It always benefits to get hold of the concept of this core tool.

Bollinger Bands, CCI,Candle Stick Pattern and Volumes are used as supporting tools in this strategy.

Bollinger Bands (20):


Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980s.The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.

Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for the upper band and lower band. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average.

They are one of the most powerful concepts available to the technically based investor, but they do not, as is commonly believed, give absolute buy and sell signals based on price touching the bands. What they do is answer the perennial question of whether prices are high or low on a relative basis. Armed with this information, an intelligent investor/trader can make buy and sell decisions by using other tools to confirm price action.

Commodity Channel Index (CCI) (5) :


Developed by Donald Lambert and featured in Commodities magazine in 1980, the Commodity Channel Index (CCI) is a versatile indicator that can be used to identify a new trend or warn of extreme conditions. Lambert originally developed CCI to identify cyclical turns in commodities, but the indicator can successfully applied to indices, ETFs, stocks and other securities. In general, CCI measures the current price level relative to an average price level over a given period of time. CCI is relatively high when prices are far above their average. CCI is relatively low when prices are far below their average. In this manner, CCI can be used to identify overbought and oversold levels.

The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the asset's price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the asset.

The CCI is an excellent oscillator that can help traders identify whether a stock is oversold or overbought. A reading above +100 shows us that the stock we are watching is probably overbought. If, on the other hand, the Commodity Channel Index falls below -100 then the oscillator is suggesting that the stock is probably oversold.

Now after a brief introduction of the above let us get back to our startegy.After identifying the Wolf wave say a Bearish WW we look for four or more continuous Bullish candles ( White candles ) in wave four .The last candle having a topping tail with increased volumes and piercing through the Upper B.B .The next candle should be a bearish candle (Black candle).

Now The Set up is complete We take a short position here.Why?!


First reason..... wolf wave it is a pattern with a success ratio of more than 90%(If Identified properly).A mismatch in Supply Demand Equilibrium is at an extreme at the end of the wave 4 thus pushing it downward will be an obvious move for getting an equilibrium.Think about this point as an extreme end of a simple pendulam.Is it possible that a pendulam go too far at one end away from the center?.No it is not .It has to swing back to the center and may continue to swing away further.

The second... The price has pierced through the upper band of B.B .Think about the B.B like an elastic band.The elastic band can be streched up to a certain point and if the strectching force is weakened it has to retrace back to the center and may jump to other end too.Now we can say that the price of the equity is stretched too far and if the stretching force is weakened it has to move in opposite direction . Still we don't know whether the strectching force( in this case buyers) is weakened or not.

The Third ...CCI is showing the value around +100 which is telling us that it is overbought and at any time price direction may reverse.Whether we reached that point of time .....We don't know yet.

The Fourth...We have a four or more bullish candles with a topping tail at the last candle.What this pattern is saying .Now imagine that ...The four or more bullish candles like this...that bulls completed atleast a four legged sprint and the last candle with a topping tail indicates that they have attempted to rise the price to a new high that too with good volumes but failed and closed at lower levels as the sellers are queuing up( they could very well be the early buyers who bought this stock at low levels).Now it is clear that the bulls are tired and gasping for air.Sensing this bears attacked thus an immediate bearish candle formed for the next day.

Now we got the confirmation.. go back to reason 1 ..equilibrium has to be established and a reaction is waiting for an action that was completed and that reaction will be in opposite direction......and that was started off that is W.W wave 5. Go back to reason 2 The elastic(B.B) is strectched too far and now the force that was strectching it got weakened ...where should it retrace?...and in which direction....You know the answer.Look down... what the CCI is telling you... The stock is overbought and has to reverse it direction at any moment.... and we came to know that this is that moment.

Now you know the theory and dynamics of The Fusion Trading Strategy.In case you are convinced with it.... strike with no fear...I am not kidding I was convinced with it and ready to bet my capital on it..... if not my life.

The Risk Factor ... Is it possible to continue the inequlibrium for further period ?!Is it possible to stretch the B.B further even after out stretching?!. Is it possible to make CCI extreme overbought?! Is it possible that bulls resume there sprint immediately even without taking rest?!....Might be possible.... But only with an application of enormous force .Which can not happen quite often..It only can happen once in a blue moon..... In that rare case let our mother protection stop loss trigger and rescue us.

I expect a success ratio of more than 90% with an excellent Risk/Reward for this Fusion Strategy. A failure of less than 10 % is nothing to bother.(P.S : I described the Strategy considering a Bearish WW.The Theory behind a Bullish W.W can easily be interpreted by the readers... It's just a reverse case. ) (P.S : Posting a Chart for ready reference)


I Wish You All The Best Guys!

RK

[sonila]

Rk, very clear explanation of the strategy. Thanx.

[sumesh_sol]

Hi RK !

Congratulations for attempting something new to ensure higher success ratio of WW setup. I have always encouraged and tried myself to apply logic based filters.

For those who are daunted by applying multiple filters, I would like to say it is not that difficult! First of all, please use them only for eod and maximum 60tf charts, so that you have time for analyzing the setup.

Start off with only plain price chart.. No ema, no indicator.. pure candle chart, to identify the WW first, because that is the soul of the whole process.. Then apply indicators one by one for confirmation.

RK, Please continue testing on your setup. However, I have few suggestions/feedback.

1.)You have suggested for 4 or more CONTINUOUS white/black candles for considering it as bull/bear march which is perfectly fine, but in many cases they may not be continuous (there could be a opposite colored doji for example) but if next candle is in the same trend, still it indicates same bull/bear march.

2.)You have also suggested a hammer/inverted hammer candle with long tail piercing BB to indicate the exhaustion of one sided party . Though, BB part is OK, requirement of a hammer/inverted hammer is not possible always. We may consider other candle pattern (Bear engulfing, tweezer top/bottom etc.) also to consider reversal.

In fact, now that you have talked about fusion method, let me also confess that I was also considering something on the similar line. I was only considering MACD indicator, because this one controls many aspect(direction, momentum, saturation etc.). So , I was stipulating entry when after reaching point 5, you get first macd bar which is higher/Lower than previous bars(as the case may be). I have backtested with my few recent posts (which were quite successful) like IOC, Centurytex, Colpal etc. This is generally followed up by macd crossing over signal line, which makes our case even more stronger.

Here is the example of one such setup(BATA), which is meeting all requirement of fusion system as well as this macd based system. As we are still in "observation" phase, let us keep on fine-tuning to ensure maximum success rates.

All the best !

[rk_a2003]

Thanks Sumesh!

There is always a scope for further developement.Yes We may look for other reversal patterns in candle sticks too.

What I did was made a beta version. Though I was aware of other candle stick reversal patterns, I thought that this pattern will go excellent along with CCI (5).

Even I considered in corporation of RSI Div. But refrained from it due to the reasons 1.That strategy may become too clumsy. 2. I don't have a reasonable hold on it.

I back tested this for a good number of times and I am happy with the results and I am open for further developements/modifications and advancements..

[rk_a2003]

Andhra Bank EOD Chart almost ready with a +WW and with a Fusion Setup . We see a bottom candle piercing through B.B and with its long tail. A bullish reversal Candle formation (Change of guard) is required for our entry. Which may happen on Monday.

Watch out for it ....take long entry after the confirmation. SL marked on the chart.

One concern ....It appears that RSI Div is against us and also the increase in volumes are not very good.Therefore We will set a reduced target i.e UTL of the WW/Middle B.B will be our 1st target.Later we will review the situation.

All the Best.

[rk_a2003]

Andhra bank Trade not triggered It slid further and closed near days low at 108.80.let us wait and watch.


Unitech closed at 25.45 and appears to be reached target.will post chart update later.We were short in this counter around 30.This is the first trade I took up based on Fusion Strategy.

[rk_a2003]

"1.)You have suggested for 4 or more CONTINUOUS white/black candles for considering it as bull/bear march which is perfectly fine, but in many cases they may not be continuous (there could be a opposite colored doji for example) but if next candle is in the same trend, still it indicates same bull/bear march."

Sumesh! I accept this .Even we can consider 3 coninuous White/Black candles as enough.While testing I observed even 3 candles are producing good result.

Regarding your Second point I feel After a Bull/Bear sprint a Topping tail/Bottoming tail has a significance compared to other reversal signals(Doji is perfect but we can't expect it frequently.)Infact I am not so particular about a perfect hammer/inverted hammer.Lower wick need not be two times greater than the size of the body portion of the candle, and the body of the candle need not be at the upper end.I am only concerned about a reasoanable wick formation which can be called as a tail ( topping/botttoming). Only reason for this is we can find a reasonable number of trades with this setup.This tail can be with last Bullish/Bearish candle or can be with reversal candle also.

If we started looking for a Gravestone/dragon fly Doji's .How many trades we can find ?!.Though they are of peaking perfection.

Regarding MACD I will respond later.Keep posting your thoughts.....please.

[sonila]

When u shorted unitech ?

[rk_a2003]

On 2nd Nov. When you people don't know yet about the Strategy.

Click on this link.It was posted by me in ww forum as a plain WW because by that time this strategy was not yet presented in the forum.

Why are you asking this?!

http://www.icharts.in/forum/running-with-the-wolves-t2310,postorder,desc,start,200.html

[rk_a2003]

APTECH Fusion set up.A missed chance (atleast for me).

[sonila]

Rk, u have shorted unitech @ 30 and now it is around 25. So apx. 20percent gain. So i wanted to know in how many days it is achvd. I m impressed.

[Vinodz]

>> Andhra bank Trade not triggered It slid further and closed near days low at 108.80.let us wait and watch.


rj ji, pls explain why andhra bank trade was not triggered on 14 nov
what time frame and what type of candle or any other point
which you use for confirming the trade

thanks

[rk_a2003]

Yes, 20% gain from simple calculation. But I can not short in equity and was forced to take Futures, which was a highly leveraged trade.Now guess the returns it's almost 100%.Could you believe it .I my self could not believe it.This is a record earning in % terms in few day's in my trading career.I wish I should not get carried away with it.

Is it the pure strength of the Strategy? or luck factor added.Future has to decide.