Unnoticed simple Trading System

I am C T Ramesh Raja, trading in Indian stock market in India. I have a found a method for swing trading which is very easy to follow by looking at price action. This system works invariably in any financial market across the globe. The system is as follows:

There are many patterns in candle sticks which are used to identify the trend for the Index or scrips. I am interested only in looking at mere closing price of an Index compared to Open price. If the closing price of the Index is lesser than open price then its a black candle and I call it as bearish close. When the closing price of an Index is greater than open price I call it as bullish close.

Now I trade based only on this critierion, taking into account weekly charts.

I am interested to trade only if the bullish close low is broken for shorting the index and when it crosses the high of Bearish close, then I will go long in the Index. The SL for going short will be the high of Bullish close high and for long SL will be the low of Bearish close. When we take trades based on this system we invariably make a big money by this method. Incase of shorting the market, our trailing SL will be the high of bearish close when trade is in progress when every week ends. For long its vice versa.

In certain cases, a week might have bullish close and in the subsequent week, it will cross the previous week high and break the previous week low. In that case, we have to keep SL of the highest high of the previous two week' high.

To make it more understandable by way of figures, I give below the weekly OHLC figure of S & P 500, which is taken from yahoo finance:

17-Nov-08 873.23 882.29 741.02 800.03 7,227,040,000 800.03
10-Nov-08 936.75 951.95 818.69 873.29 5,812,934,000 873.29
3-Nov-08 968.67 1,007.51 899.73 930.99 5,296,816,000 930.99
27-Oct-08 874.28 984.38 845.27 968.75 6,460,596,000 968.75
20-Oct-08 943.51 985.44 852.85 876.77 6,035,936,000 876.77
13-Oct-08 912.75 1,044.31 865.83 940.55 7,306,794,000 940.55
6-Oct-08 1,097.56 1,097.56 839.80 899.22 8,403,357,900 899.22
29-Sep-08 1,209.07 1,209.07 1,098.14 1,099.23 6,205,326,000 1,099.23
22-Sep-08 1,255.37 1,255.37 1,179.79 1,213.27 5,319,894,000 1,213.27
15-Sep-08 1,250.92 1,265.12 1,133.50 1,255.08 9,328,214,000 1,255.08
8-Sep-08 1,249.50 1,274.42 1,211.54 1,251.70 6,883,584,000 1,251.70
2-Sep-08 1,287.83 1,303.04 1,217.23 1,242.31 5,017,530,000 1,242.31
25-Aug-08 1,290.47 1,300.68 1,263.21 1,282.83 3,530,036,000 1,282.83
18-Aug-08 1,298.14 1,300.22 1,261.16 1,292.20 4,063,548,000 1,292.20
11-Aug-08 1,294.42 1,313.15 1,274.86 1,298.20 4,534,404,000 1,298.20

In this data, you will observe on 11.08.2008 the closing was higher than open and its a bullish close. In subsequent week, when it broke the low of 1274.86, it became short and SL would be 1313.15. Had the position been rided till date, 17.11.2008 it made a low of 741.02 and gave a neat profit of around 533.85 points for SL of 38.29 points.

This system works in all time frames in any financial markets across the globe, be it stock / commodities / Forex market or anyother asset class which is traded in good volume.

I would further give my view how whipsaws can be avoided subsequently, after inviting critical evaluation of my method from honourable members in this Forum. I request the owner of this site and senior members to give their opinion about my method and I would further input about this system if it interest you all.

Best Wishes

C T RAMESH RAJA

For a 'simple' system- you make your explanation a little complicated.

Just to clarify... are you saying that:-

Trade LONG if a previous bearish candle's open is exceeded. Stoploss trails the previous candle's low.
Trade SHORT if the previous bullish candle's close is exceeded. Stoploss trails the previous candle's high.

I have included a chart here to try to make it clearer. Have i got the interpretation correct? Perhaps if not you will care to include a chart also to show us, as looking at a list of written data makes analysis incredibly hard.

On my chart i have just shown 4 instances where i think there is a trade- are they right? I know there are many more there also. Another thing- is the second one i have drawn, a short, correct- even though the price didn't break the previous bullish candle until two days later?

A problem i foresee also is with your stops. At the moment the daily range is huge in a lot of markets. Perhaps we could work around this a little?

Something else i wanted to add. I think this strategy could wipe you out in sideways markets. It will work well if there is a trend though.

rameshraja,

Do you have an exit strategy? Or do you just let it run until the stoploss is hit?

UKtg.

This looks to me like a variation on the TRO strategy! Except the random line is replaced by previous candle high/lows.

You have to buy crossing black candle high with SL at black candle low.

You have to short breaking Bullish candle low with SL at bullish candle high.

Take weekly chart of S & P 500 and see or any stock for that matter. Once you understand clearly in weekly chart, then any time frame will be easier to understand.

Hope I have clarified your doubt.

Hello Mr North5

I have been prevented for many years by many traders to whomsoever I have discussed about this method, not to disclose in public forum as it works fantastically. Today, I have done this since I want to improve this system by taking opinion from other traders. I have a stong feel, that market is all about this support and resistance and its way of functioning.

I pullout my profit when I make a decent one by using fibonacci expansion values or by the same system to takeout my SL. If you have any suggestion to improvise this system , please let me know.

Regards

C T RAMESH RAJA

rameshraja said:

Hello Mr North5

I have been prevented for many years by many traders to whomsoever I have discussed about this method, not to disclose in public forum as it works fantastically. Today, I have done this since I want to improve this system by taking opinion from other traders. I have a stong feel, that market is all about this support and resistance and its way of functioning.

I pullout my profit when I make a decent one by using fibonacci expansion values or by the same system to takeout my SL. If you have any suggestion to improvise this system , please let me know.

Regards

C T RAMESH RAJA

Click to expand...

I'm getting a sense of deja-vu here.

Raja,
The only reason why professional traders would want to stop you from disclosing this 'secret' is because they are trying to save you from embarrassment. What you are saying is nothing new or revolutionary. Infact, it is about as simple as it gets. Which might be OK i'm not saying it doesn't work- it might. If it works for you then great.

If you feel the market is about support and resistance- then why don't you incorporate that into your strategy?

I think your strategy can help you to catch a nice big trend- and that's great. It is not good however during weeks when the daily bars will be swinging back and forth in a range... bull, bear, bull, bear, etc. (you will end up entering a trade right on the reversal point) It will only work really well if you get quite a few candles in a row eg. bull, bull, bull, bull. (i.e.during a trend).

Since the market trends only 20% of the time- it is important you work on spotting when to use it- and even more important at working out when NOT to use it.

Good luck with your trading.

Seeing as he is trading the opposite direction as the preceding bar, getting in at a reversal is not a bad thing.

Simple is good.

"Since the market trends only 20% of the time" - What does this mean? Define a trend - markets have trends intradyear, intramonth, intraday, intraminute, depending on your timescale any market can be trending at any time.

RE support/resistance, an daily/weekly high or low being broken is trading s/r - the breaking of it.

If he is trailing his stops and has profit targets he doesn't need a well defined trend, all he need is for price to move


Here is my take on your chart, btw I don't believe your second short is valid, I may be wrong.

http://img.skitch.com/20081123-jmja9g6i2649rc7wuga6mjg3rb.jpg

Depending on where he takes profit. the last long and second short would have shown losses, considerably smaller than the profits he would have from the other entries.

Point being that no matter how arbitrary your entry and exit points are, so long as on balance your risk is less than reward you will make money.

First of all, I would like to thank you all for your opinion.

The whipsaws are eliminated if long term period is choosen like weekly and monthly.

Secondly, in smaller time frame when this system is taken, all I would suggest is draw Moving averages of 4/17/ 50 simple and 34 EMA to Index. When averages point towards downside, I always prefer to trade on breaking bullish close low than taking trades on long when bearish close high is crossed. Vice versa for long.

This way we can eliminate the whipsaws and take only high probable trades.

C T R

rameshraja said:

First of all, I would like to thank you all for your opinion.

The whipsaws are eliminated if long term period is choosen like weekly and monthly.

Secondly, in smaller time frame when this system is taken, all I would suggest is draw Moving averages of 4/17/ 50 simple and 34 EMA to Index. When averages point towards downside, I always prefer to trade on breaking bullish close low than taking trades on long when bearish close high is crossed. Vice versa for long.

This way we can eliminate the whipsaws and take only high probable trades.

C T R

Click to expand...

Hello Mr.Raja,

As per your system, do we need to LONG the index ,
a. AS SOON AS the bearish candles high is crossed ? OR
b. wait for next candle's timeframe to finish and make sure that it is crossed to go long?

Also, this trading system rule is applicable ONLY in 2 consecutive candle which are RED-GREEN (long) or GREEN-RED(short)?
Can it be used in the situation where we have the candle formation as follows:
candle1: Big <GREEN>
candle2: small <RED> (which didn't break the low's of prev <GREEN>)
candle3: small <RED> (which didn't break the low's of prev <GREEN>)
candle4: Big <RED> (which breaks the the canldle1's low)
Now, can i go short from 'Candle4' where the low of the previous <GREEN> (candle1) is broken?

Please clarify.

(please take <GREEN> as bullish candle and <RED> as bearish one)

Thanks,
...B

Hello summasumma

Immediately on crossing black candle high, you can buy.
So also breaking the low of Bullish candle you can short.

Immediate next candle when it breaches either high of black candle or low of white candle will only work.

C T R

rameshraja said:

Hello summasumma

Immediately on crossing black candle high, you can buy.
So also breaking the low of Bullish candle you can short.

Immediate next candle when it breaches either high of black candle or low of white candle will only work.

C T R

Click to expand...

Thanks Raja sir... !

One more doubt is,
Which of the following time-frame this system works well based on ur experience with it?
Per-day candles or Weekly candle or Monthly candle?
Your help is really appreciated!!!

Hello Mr Jonnyy

I just posted this system to improve further if any suggestion is given. I am for certain and sure, one can make a huge money with this, if higher time frame is taken and used for trading.

Any suggestions from your end ?

Regards

C T R

rameshraja,

Thanks for sharing your strategy. Please could you post a chart with example of where you might use this trade, Thank you,

Sam.

Hello Ramwshraja

Rameshraja,

I came across the system you explained quite a long time ago. I now understand theexact mechanics of it. I have one question, do you actually make NET profit at the end of the month using this system?


Regards

Ahmad