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[SwingTrader]

Trading Levels for 10.09.2009

[SwingTrader]

Today's 5 Min NF chart with relevant levels and EMA filters based explanation:

Strong bullish move this morning, EMA13 was above EMA34 for most of the day so only longs are to be considered (if you are using EMA filters as described in a post yesterday).

The regular long trade above R2 in the morning was risky but still a valid trade as it was in the direction of trend because the price was far away from the EMAs (especially the 34 EMA). If the bullish move in the morning were a fake, this trade would have failed soon after the entry. But it did turn out okay if you had a good strategy to capture profits (somewhere near R3).

Continuation trades in the direction of trend can be done using many other strategies. One idea is the trade bounce off a level IF the level is close to an EMA (especially the 34 EMA). Such a probable trade was at around 12:00.

The regular short trade around 1:30 PM would be ignored if one is using the EMA filters and EMA13 is above EMA34 indicating strong uptrend.

Trend is sideways when price closes a couple of times below the 34 EMA in an uptrend but 13 EMA would still be above 34 EMA (vice versa for downtrend - price closes above 34 EMA a couple of times but 13 EMA would still be below 34 EMA). The best idea during this time is to wait and watch. Don't be too rigid about this, don't start counting closes above/below 34 EMA. A sideways move would make itself clear once the 34 EMA flattens out and 13 EMA slopes downward even though it would be above 34 EMA, a quick check with DMI (ADX) indicator also would confirm it.

[SwingTrader]

One user had called me with a query - I had suggested EMA(5) & EMA(34) whereas I have used EMA(13) & EMA(34) below. Why? It doesn't really matter too much. We are using EMAs only to identify reliably the current trend of the market. The important thing is that the longer EMA must be at least about three times the shorter. 13/34 just about fits the bill. 5/34 is extending it a bit too much but I use it a lot.

NOTE: If a trading system depends a lot on the EMA parameters then it is faulty. The system I have suggested here doesn't care too much about the choice of EMAs. Such trading systems are known as robust systems in trading system development lingo.