“What has been is what will be, and what has been done, will be done again; there is nothing new under the Sun.”
The same strategies that existed about a century back are still in play. Yes, of course, with minor modifications. What I share here are strategies that I have come across by reading texts dating back to over a century, these are strategies which have been in use for years and modified to arrive at desired results. These strategies are an amalgamation from various sources, and luckily enough, they’ve worked well. The strategies listed are in no specific order of preferences.
Strategy 1: Moving average channel
On the daily chart, calculate eight bars moving average of Highs and six bars moving average of Lows. The trend is up when you have two successive bars close above the High Moving Average. Similarly, the trend is down when you have two successive bars close below the Low Moving Average. This is termed as a SAR system or a Stop And Reverse system. SAR systems will always keep you in the market either on the long side or short side.
Please note the eight bars and six bars period is just for explanatory purposes. Please do your research with various periods and see whether it has a positive edge or not with the other conditions mentioned in my previous article being met.
Strategy 2: Three higher highs
This is a simple strategy, whenever a stock/index makes three consecutive days of higher highs then you enter on the fourth day when it breaches past the last high of three days. The stop loss in such a case should be ATR (Average True Range). As it keeps moving higher, keep trailing it with an ATR stop loss.
The same rule is reversed when a stock/index makes three days of successive lower highs & lower lows, the entry is on the fourth day when it goes below the low of the third day, stop loss is ATR.
Strategy 3: 10 EMA
Plot a 10-day EMA, add/subtract an x% band to the 10 EMA, the buy signal is triggered when it closes above 10 EMA+x% the stop loss in this long trade is if the price closes below 10 EMA.
Similarly, if the price closes below the 10 EMA less x%, go short, with stop loss if it closes above the 10 EMA.
Please note, I have used 10 EMA just for explanatory purposes, please do your research and see which EMA along with the percentage band works well.
Strategy 4: Momentum strategy
M (Momentum) = Price (Today)- Price (today less price “N” days back). For example: Subtract today’s closing price from five days ago, if the result is a positive number it is bullish, whereas a negative number is bearish. Here again the system is purely the Stop and Reverse system, which keeps you always in the market either on the long side or on the short side.
Strategy 5: Volatility breakouts
Calculate the average true range for the last “X” number of days. For explanatory purposes, let’s say the ATR is 100 points, if on the next day the ATR moves up by 150 % i.e. 150 points from the previous day’s close, go long. Similarly, if the ATR goes down by the same amount, go short.
Strategy 6: Higher/Lower close
If today’s close is greater than the close five days ago, and the close five days ago is greater than the close ten days ago, and the close ten days ago is greater than the close fifteen days ago, then go long. Reverse the rule on the short side.
Today’s close > close 5 days ago> close 10 days ago> close 15 days ago = BUY.
Today’s close< close 5 days ago< close 10 days ago< close 15 days ago = SELL.
Once again, I reiterate that the period (i.e. Number of days) I have taken is just for explanatory purposes only, you need to try various permutations and combinations to arrive where the final outcome is a strategy with a positive edge. Trading is not easy. It is up to you to keep putting in the effort needed to find the positive edge in your strategy.
Follow the entire series here.
Kirit Manral is a professional trader, and has been running a mentorship program in trading since 2019, with mentees from around the globe. He can be found on Twitter at @KiritManral