The Method

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ENTRY AND EXIT

This is an "always in the trade" type of a method and each Reversal point is an Entry point for the new trade in the opposite direction. We will talk about when and where to enter and reverse in the subsequent paras.

ENTRY and REVERSAL POINTS

A.PIVOTS:-Let us talk shorts,as the case is always to talk in terms of longs……..Lower Pivot Highs and Lows,visible ones,visually obvious ones,………every breakdown to new lows is an opportunity to bring stops down to the latest pivot high.Keep doing this till a previous pivot high is broken.A break of that pivot high and we exit all Short positions—-initial as well as Adds and enter initial positions Long. It's as simple as it can be, just focus on 2 things:a.visual b.new lows,then move stops.REVERSAL is Rs 15 below the previous pivot low in case of Nifty. This Rs 15 is what we call a "Filter" and it varies with each security depending on its price and volatility.

B.2 BAR METHOD:—In a vertical move,where there are no pivots,move stops to the high of 2 bars back in a down move……move stops to the low of 2 bars back in an up move.REVERSAL is Rs20 below/above 2 bars back(taking Nifty as an example).

Why are we suddenly using 2 bars? Well, a euphoric rise or a Panic drop doesn't give an opportunity to move stops, in such cases we take the help of the 2 bar method to place stops. Be careful, we dont want you using the 2 bar after say 3 up bars, We want huge WRB in a vertical rise.

C.VISUAL GAPS:A visual gap is simply a gap that can be seen visually…….and we utilise them in our strategy whether we get them against or in our position.

Gaps Against:
Say you are holding a Short position and the market next day opens against you and beyond your existing stops. You would reverse at the opening 5 min bar high plus a filter of 20points (taking Nifty as an example) to get out of Shorts into Long position.

In case you are holding Longs and the market next day opens below your existing stops, you would reverse at the opening 5 min bar low minus a filter of 20points (taking Nifty as an example) to get out of Longs into Short position.

Gaps In Our Favour:

Scenario 1:You are holding Short positions in NF,and market gaps down visually and below the existing pivots. You would add at the opening bar low less filter (say 7 in case of nifty). The stops then are moved as per the 2 bar method or pivots…whichever gives a closer stop. Wait ideally for a lower pivot to form to get a better Reversal point.

Scenario 2:You are holding Long positions and market gaps up visually on your 60min charts. Wait for the first bar to close. If this bar is Red….meaning thereby it has a closing lesser than the opening……reverse to Shorts at this opening bar low-filter (20points say for Nifty). If the subsequent bars keep going higher, nothing to be done except Adding at the opening bar high plus filter and then moving the stops to the opening bar low.

Scenario 3:You are holding Long positions and market gaps up visually on your 60min charts. Wait for the first bar to close. If this bar is Green….meaning thereby it has a closing higher than the opening……move stops as per the 2 bar method unless a pivot is closer than that. If the subsequent bars keep going higher, nothing to be done except Adding at the opening bar high plus filter. Wait ideally for a higher pivot to form to get a better Reversal point.

D.FAILED BREAKOUT BAR REVERSAL: Supposing a bar takes out a Pivot high and puts us out of Short position into a fresh Long position. Now supposing we are NOT able to take out the highs of this BREAK OUT BAR, we get an indication that the break out was false…and so we reverse to SHORTS again below the low of the break out bar minus the filter. IF we have a breakout in the Direction of the trend, and then it fails, we have ample reasons to reverse our positions. Whether we are sitting with initial positions or with adds, a failure of a breakout/breakdown is a great place to reverse and capitalize on.

E.END OF DAY REVERSAL: Imagine holding a Long position, initial along with adds. A counter move happens, takes out the pivot lows and puts you out of that trade into a fresh Short position. Now, by the end of that trading day, we should have a closing below the pivots which had put us into that trade. Inability to have a stronger close in our favour would mean that the breakout lacked strength and hence we need to reverse our position back to Longs. And when we use the End of day reversal…we reverse with full position…Original as well as Adds which we held before entering this Short Trade. Vice versa for Shorts.

As an example….say we are long 4 lots of Nifty and add 6 more lots on our way. A reversal happens and we enter into Shorts with 3 or 4 lots. Now in case we have an End of Day reversal that day…we will get Long with our original position of 10 lots…..behaving as if the Shorts we took that day did not happen at all.

ADDS

This is the real meat of the system. We keep adding to our winning position while not correspondingly increasing our overall risk. Depending on the nature and trend-worthiness of the security, we can Add 2 to 5 times in a security. Since each Add point comes on the breach of a pivot or WRB, we would be moving our stops up or down. Therefore the overall risk even after the Adds is either the same or is reduced, but certainly not increased beyond a point.

A few points to note in this regard:
(a) While adding, we take into consideration the pivots we make during our current trade. A pivot which occured 2 or 3 days before we entered our current position is of no interest to us and so we dont use it for adds.

(b) In case of an opening in the direction of our trade which is beyond any pivot or previous high of the current trade, we Add above/below the high/low of the opening bar with a small filter. For example, say the previous day high/pivot was at 3000 and next day we have the opening 5min bar high at 3040..we would add to our position at 3040+7(supposing Nifty).

(c) Preferably, we should Add the same quantity as we had in our initial trade. However, care should be taken so as to ensure our Money management system should be comfortable with the size of Adds we take.

(d) As written, we decide on how many times we Add in a security depending on its trendiness. As an example, we would suggest the following number of Adds in a few popular nifty stocks. However, each is supposed to do his own backtests to ascertain the correct number of Adds he is comfortable using:

Nifty: Initial Position+3 ADDS
Aban: Initial Positions + 5 ADDS
RelCap: Initial Position + 3 ADDS
L&T: Initial Position + 3 ADDS
JP Associates: Initial Position + 3 ADDS

CANDLESTICK PATTERN,TECHNICAL PATTERNS,SUPPORTS/RESISTANCE

:-None required or going to be utilised.

ADVICE

More active intervention is required especially on gap days……..but other than the right amount of action,no more than that is required.Don't go around over scrutinisng,over analysing……..once the processes are looked into,your job is to stay out of the way between yourself and the trade.Your job is to get the direction right and allow the Market to do all the hard work and put money in your pockets while you sip your coffee and laze around.


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