In this series of articles we will take you through some basic technical indicators and how they have performed in last four years, during these four years we have seen Indian stock market touching all time highs and then correcting to about one third of their peak value and again gaining to late 2007 levels.
Part one of the series is dedicated to a very common yet powerful indicator class called Moving Average, which is more popularly known in two derived forms Simple moving average(SMA) and Exponential moving average(EMA) latter as the name suggests gives more weightage to recent values. Historically it has been proved that 20 days moving average, which is average of 4 weeks of price of the stock or index under study, is a significant support and resistance for market and it can be very well used to make trading decisions.
This study has been done taking into account following considerations most important of all is the trader here is a part time trader who can invest 1-2 hrs every day for trading. Investment capital is adequate to buy 2 nifty contracts (roughly `50000), and invested in current month’s nifty futures, rollovers have been done during contract expiry whenever required.
Let’s begin our study and follow two simple rules:
1. Buy nifty futures whenever spot price (Close price) moves above 20 EMA
2. Sell nifty futures whenever price (close price) drops below 20 EMA
Note: Reader can conduct similar study by taking 20SMA as well.
The charts shown below from jan-2007 to dec-2008 and jan-2009 to jan-2011 shows trading opportunity and the nifty points earned following the rules listed above. The total of these comes to approx 15020 points, considering two nifty contracts traded the total earning comes to `1502000. These returns for some may look exuberant but this is how our stock market has moved in last four year
Reader can conduct similar study on other index like bank Nifty, which will give similar results. This may look fascinating to the reader but is possible only when the indicator is followed religiously i.e. trading decisions should follow the market and not expects market to follow your trades. One more important point to notice here is to wisely close the position to get maximum return with lesser number of trades this can be achieved with the knowledge of momentum indicators which we will study in next article of this series.
Part one of the series is dedicated to a very common yet powerful indicator class called Moving Average, which is more popularly known in two derived forms Simple moving average(SMA) and Exponential moving average(EMA) latter as the name suggests gives more weightage to recent values. Historically it has been proved that 20 days moving average, which is average of 4 weeks of price of the stock or index under study, is a significant support and resistance for market and it can be very well used to make trading decisions.
This study has been done taking into account following considerations most important of all is the trader here is a part time trader who can invest 1-2 hrs every day for trading. Investment capital is adequate to buy 2 nifty contracts (roughly `50000), and invested in current month’s nifty futures, rollovers have been done during contract expiry whenever required.
Let’s begin our study and follow two simple rules:
1. Buy nifty futures whenever spot price (Close price) moves above 20 EMA
2. Sell nifty futures whenever price (close price) drops below 20 EMA
Note: Reader can conduct similar study by taking 20SMA as well.
The charts shown below from jan-2007 to dec-2008 and jan-2009 to jan-2011 shows trading opportunity and the nifty points earned following the rules listed above. The total of these comes to approx 15020 points, considering two nifty contracts traded the total earning comes to `1502000. These returns for some may look exuberant but this is how our stock market has moved in last four year
Reader can conduct similar study on other index like bank Nifty, which will give similar results. This may look fascinating to the reader but is possible only when the indicator is followed religiously i.e. trading decisions should follow the market and not expects market to follow your trades. One more important point to notice here is to wisely close the position to get maximum return with lesser number of trades this can be achieved with the knowledge of momentum indicators which we will study in next article of this series.
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