iCharts Discussions

[ProTrader]

*-Posting on behalf of lazy Speculator for the benefit of SSPS followers-*.

Trading rejections

It's been more than an year since the "Swing trading the Speculator way" was posted. I still get basic questions in the shout-box such as "Is this a valid rejection ?". So i thought i will revisit this subject again.


Trading rejections is a way of trading with the trend. Rejections are based on the concept of mean reversion. Once a trend change occurs, the prices cross the 34 ema. Once this move gets overextended or overbought, a mean reversion to the neutral level occurs. 34 ema and 55 ema are generally the neutral levels on 15-min and 30-min timeframes. One can choose either 34 or 55 ema and both are equally valid. I personally use the 34 ema on both 15-min and 30-min timeframes for Nifty. Depending on the volatility of the stock and the timeframe, this neutral level can change. For instance on the 60-min timeframe, 13 ema happens to be the neutral level. I only trade 15-min and 30-min of Nifty generally. So let's focus on that.

Traders get anxious that they will miss a move, once a trend change occurs. But i would go to the extent of saying that a mean reversion to 34 ema "always" happens, except in some rare scenarios where a parabolic blowoff move occurs. Anyway trading parabolic blowoffs is a dangerous sport and rare occurrence, which does not merit out attention. So in a normal market environment, 34 ema acts a magnet pulling prices towards it after a trend gets overbought. Trading rejections is basically participating in the trend after a correction is over. The rules of rejection are very simple and unambigous

For a Bullish rejection, the stock/index is trading above the 34 ema, comes down either close to the 34 ema or touches the 34 ema or undershoots the 34 ema and reverses. For the rejection candle (trade entry candle) , the following rules must be satisfied:

1) Candle close should be above 34 ema
2) Candle close should be above the high of the prior candle.
3) 8 EMA should be rising (that is the 8 ema of the current candle should be higher than the 8 ema of the previous candle)

I added the rule #3 as a refinement (or filter) to avoid taking weak rejections. If 1) and 2) are satisifed and 3) is not satisfied, then it means the correction is still in progress.


For a Bearish rejection, the stock/index is trading below the 34 ema, comes up either close to the 34 ema or touches the 34 ema or overshoots the 34 ema and reverses. For the rejection candle (trade entry candle) , the following rules must be satisfied:

1) Candle close should be below 34 ema
2) Candle close should be below the low of the prior candle.
3) 8 EMA should be falling. (that is the 8 ema of the current candle should be lower than the 8 ema of the previous candle)

Here are some visual examples of rejections on both 15-min and 30-min charts which have occurred over the last few weeks. SL level for rejection is shown with a pink line and the valid rejection candles are shown in pink circles. Invalid rejections are shown in black circles.


15-min - nf1_15.gif, nf2_15.gif, nf3_15.gif



#1 - Invalid rejection. Rule 2) not satisfied.
#2,#3,#4 - Valid rejection. All rules satisfied.
#5 - Invalid rejection. Rule 2) not satisfied.
#6, #7 - Valid rejections
#8- Invalid rejection. Rule 2) not satisfied.
#9 - Valid rejection
#10 - Invalid rejection. Rule 2) not satisfied.
#11 - Valid rejection
#12,14,15,17,18 - valid rejections
#13 - Invalid rejection. Rule 2) not satisfied.
#16 - Invalid rejection. Rule 3) not satisfied.

If one had traded the valid rejections, most rejections made money except #6 and #17.

#6 occurred at the final stage of the trend, just before the trend reversal. But one has to take all the signals bcoz we never know for sure when the trend reverses.

#17 was a case of failed rejection.

So out of 12 valid rejections, there were only 2 failures. That's an 83% odds of success !


30-min - nf1_30.gif, nf2_30.gif, nf3_30.gif


#1 - Invalid rejection. Rule 3) not satisfied.
#2,#3, #4, #5 - Valid rejection. All rules satisfied.
#6 - Invalid rejection. Rule 2) not satisfied.
#7, #8 - valid rejection.


#8 although a valid rejection is hard to trade as the SL required is very huge. I would put that in the category of untraedable.

#7 is a case of rejection failure and would have lost money.

So out of 5 valid rejections, there was one failure - That's 80% odds of success !

- Speculator

[sonila]

Thnx sir.

[psalm]

.....Thanks a lot....PT...

[bharatpatel]

Dear P T Sir,

The guys who posts charts and levels of SSPS regularly never specify anything about 8 ema. you have explained really very well, new members like me can now trade as per SSPS.

Actually you have simplified the SSPS.

Thanks a lot for the post

Regards,

Bharat Patel

Ahmedabad.

[chetan83]

Good one PT,

But the Charts in gpf is every small and cannot be magnified, its better viewed in jpeg.

Chetan.

[ProTrader]

[mbj]

I am late entrant to the topic, I have few more doubts, sorry to bother u again ..

(1) How to decide the S/L?
(2) Before trading, do we have to confirm the rejection in 15mins as well as 30 min chart?

[sonila]

Pt sir, in ur personal opinion, how effective ssps method is ? As u r much more experienced, so i m asking. My intention is nothing else and plz excuse me, if i have raised some irrevelent thing. Thnx.

[ProTrader]

Sonila:

I haven't tried it, but people discuss a lot about it in SB (When are you taking Sub? ). Also, with any strategy or set up execution is the key. How true you are to the strategy. In general either folks don't have the patience to understand it fully (like me, never read it fully till date) or are looking for result from the first try it self or mix their own TA fundas in it.

As the saying goes..Samaj mein aaya toh changa, nahi toh punga .

Regards..PT

[sonila]

Thanx, pt sir.

[amitkbaid1008]

क्या पीटी सर
क्या चार्ट्स पोस्ट किए है तारीख भी समझ नही आ रही है

कम से कम तारीख तो बता दो

[ProTrader]