Stock trading strategies pdf

When both opposite forces, beta and D-E ratio are combined, it is important to see which factor dominates and generate higher returns. It is an empirical issue to be established with the historical data.

For an investor, it is difficult to consider multiple factors and strategies. Again an investor is not rational in his behavior of chasing risk. This is largely confirmed by Keynes many decades back and still largely true. The main reason for the failure of the efficient market hypothesis EMH is that investors rarely satisfy the requirement of objectivity.

Intra-day trading takes place looking at the momentum of the stock and hence is usually based on technical analysis. In addition to technical analysis, there is scope for considering the occurrence of events, developments in the other related financial markets, etc. There could be release of inflation and output data, corporate announcements, settlements in the derivatives markets, et cetera. Trading strategies are usually based on both fundamental and technical analysis of the stocks under consideration.

Technical strategies take into consideration the mean-reversion, momentum of stocks, and also the events. The technical strategies are usually verified by back-testing with scientific method. Usually the performance of a trading strategy is measured on the risk- adjusted basis and probably the most known risk-adjusted measure is the Sharpe ratio.

However in practice one usually compares the expected return against the volatility of returns and or the maximum drawdown. Normally, higher expected return implies higher volatility and drawdown. For any trading strategy, it is important to pick the right stocks to trade, and right time to enter and exit. A cursory look at the data shows that in months stock market provides fairly good returns. This hints at carrying out technical analysis of positional trading in the stock market in the months.

Also considering that the derivatives market is active over the nearest one to three months helps. In positional trade, not always right but on the average more right than wrong, helps to cut loses and run profit. It is difficult to find the bottom, only in hindsight would one know about it. Mean reversion is one of the great truisms of capitalism. When an investor focuses on short term investments, he should observe the variability of the portfolio, not the returns.

An investment and trading operations are one which upon thorough analysis promises safety of principal and a satisfactory return. We are replacing complex analysis with beta, debt-equity ratio, and mean reversion trading, and yet we believe that it will not undermine the result especially for investors given the reasons stated above.

All scientific theories are unrealistic simplification. It is by breaking down the complexity of reality to unrealistic models that science progress. Thus no absolute law or theory is being proposed but a plausible guideline for investment and trading strategies is suggested.

In investment it is important to play a test match of the Sunil Gavaskar caliber. Lots of patience, respect for the bowlers and the pitch, and not losing your wicket capital in case of investment. Trading is T match where you take probabilistic decision on each ball and on the average try to score or make some trading gains. The free float market capitalization data and one year beta are collected from the official website of sharekhan, whereas debt-equity ratio is collected from moneycontrol.

The prices series for all the stocks under consideration are adjusted to splits and bonus uniformly. The sample period is five years, a period where the world economy was attempting to emerge from one of the worst financial crises. Also, taking into consideration 92 of companies individually the diversification of stocks enhances the power of analysis. The study sticks to the basic and uses very simple methods like trend analysis, simple and weighted averages, CAGR, standard deviation, et cetera.

Empirical Analysis and Discussion of Results The list of 92 companies considered for empirical analysis is provided with broad indicators, viz. The estimate of the beta of each stock is a potential candidate for inclusion in a portfolio.

The error in measuring the true beta and the possibility of real shifts in beta over time may justify the limitations of beta under consideration in the present study. We have profiled the stocks on the basis of beta and debt-equity ratio from highest to lowest respectively in table 2 and table 3. It is clearly visible that there is positive correlation between beta and debt-equity ratio.

The study considered beta and debt-equity ratio as important factors explaining the returns of stock. The average beta and D-E ratio of these stocks are 0.

Therefore, we have carried out a separate exercise for this sector and presented the result in table 5. Barring three stocks, all others have beta value greater than one indicating high risk stocks.

This is presented in tables 4 and 5. The CNX generates 0. The stocks in of first category generate on an average return of 0. The stocks with low beta and low debt-equity ratio category 1 generate around 16 percent return based on 5 year CAGR with range from The stock CILPA generates negative returns in the short run one year but in the long run 5 years it generates positive return of over 7 percent.

The average return of the stocks in the second category stands at 0. The return based on 5 year CAGR ranges from The NTPC generates negative returns both in the short run and long run.

The third category of stocks with high beta and high debt-equity ratio generates very low return of 0. See table 4 c. There are respectively three and four stocks generating negative return based on 1 year and 5 year CAGR calculations. An average stock provides negative return based on 5 years CAGR though 5 companies out of 9 are generating positive average returns.

The financial services sector generates very low but positive average return of 0. There is the evidence of stocks generating positive returns in the short run and negative returns in the long run, and also negative returns both in the short run and long run.

An average stock provides positive returns both in the short run and long run though based on 5 years CAGR though 8 stocks out of 22 are generating negative returns. The result reinforces the fact that it is better to invest in low beta and low debt-equity ratio. However, on an average, stocks in this category provides 50 percent return from their all time low values and takes about 69 days to generate 50 percent return from their all time low points during the study period.

See table 4 a for the detail. In the second category, the UBL bounce back very quickly to generate 50 percent return from its lowest point in only three weeks. This stock generates On the other hand, IDEA generates only It is interesting to see that MCDOWELL-N generates the minimum return in 50 days in the group but surprisingly takes only 26 days to provide 50 percent return from the minimum point.

It is to be noted that NTPC price was lowest on 3rd March and hence we fall short of 50 days to calculate its return from the minimum point, but it has not generated 50 percent return till 31st March , the end period of our study. The average days to generate 50 percent return from the minimum point are only 54 with standard deviation of See table 4 b for the detail.

The analysis of category three, the high beta and high D-E ratio stocks are presented in table 4 c. The average stock takes about 50 days with standard deviation This stock also takes the lowest number of days 16 days to quickly bounce back from the bottom and generates 50 percent return.

This is followed by IDFC taking only 18 days to generate return of 50 percent from its bottom and also generates almost percent return within 50 days. The BPCL provides In 50 days from the bottom relatively medium time period , TECHM from first category generates very high of The table 4 shows that, average stock with high beta and high D-E ratio takes less time to recover from the bottom to generate 50 percent return even as compared to average stock from other two categories.

We also find that from the bottom, in 50 days stocks with high beta and D-E ratio generate high average return followed by stocks with low beta and D-E ratio. This is not in the general line and needs thorough examination. There is no guaranteed trading performance. Company names, products, services and branding cited maybe trademarks or registered trademarks of their respective owners and the owners retain all legal rights.

Trading is risky. Affiliate Disclaimer Trading Setups Review seeks to provide you with the best trading resources. As a result, we always include useful links in our articles. Some of these links are affiliate links. It means that we might receive a commission from your purchases made through those links.

But you do not pay more. However, we include links affiliate or otherwise in our articles only if we feel that they provide value to you. You can find out more about me by clicking here. In this Master Edition, I have selected 10 articles that build on the concepts mentioned in the Kickstarter Edition with a focus on intraday trading. They cover in-depth analysis of trading tools and trading concepts that are applicable for price action trading.

I hope you find this eBook a friendly companion for your offline learning, and I wish you all the best in your trading career. I pondered over this popular bar pattern. Armed with my Ninjatrader software, I decided to peer inside the inside bar and find out what makes an inside bar tick. We will examine if the following factors affect the performance of inside bars.

This is the benchmark in our evaluation. Volume No. The smaller the range, the more agreeable the traders are. When traders agree, prices stagnate and breakouts tend to fail. We computed the range of the inside bar as a fraction of the range of its preceding bar. Range No. However, the samples sizes are relatively small, especially for narrow range inside bars which gave only 32 trades.

It means that neither the bulls nor the bears are winning. On the other hand, if the open-to-close spread is wide, it means that the bar, despite being an inside bar, is relatively directional.

I could use some candlestick terminology here. If the body takes up more than half of the entire candlestick, it is directional. If not, it is considered a doji for our purpose. Spread No. The performance of both directional bars and dojis does not differ too much from our benchmark.

If an inside bar closes higher than it opened, it is a bullish bar suited for long trades. This is because it shows momentum in our favor, confirming that the trend is with us. Hence, we restricted our long trades to only bullish inside bars, and short trades to only bearish inside bars, in order to have our signal bars support our trades.

The reverse is also tested. Choosing inside bars that support our trades is a better trading strategy. These are bars that barely make it as inside bars and represent only a slight contraction. We also found that inside bars that closed in our trade direction seems to have an edge.

Inside bars that support our trades did considerably better than inside bars that did not. The other two factors open-to-close spread and volume did not show significant improvement. We focused on wide range inside bars that closed in the direction of our trade, and ran our test again on several other futures contract to see if our results are robust. This is a significant edge in the competitive field of day trading. Of course, I must emphasis the naive and simplistic assumptions we made.

This includes the risk to reward ratio and using the period EMA as a trend filter. Our results are not meant to be used in isolation as a complete trading system. However, this is a good start to understand more about inside bars that occur in day trading time frames.

Looking Inside the Inside Bar for Day Trading 6 At the very least, for my trend trades, I am going to pay more attention to wide range inside bars that closed in my direction. I am not a quantitative finance buff.

So this is not a rigorous academic paper. I am just a curious price action trader playing with his Ninjatrader back-testing function. Or the daily chart? But why are we constrained by time bases? Are there other ways to visualise price data?

Do they offer valuable perspectives? Here are 10 types of price charts to satisfy your curiosity. They might turn your trading perspective upside down. For easy comparison, we are using the same two trading sessions as examples for each chart type. One chart shows a clear trend while the other will shows a trading range.

Line Chart 2. Bar Chart 3. Candlestick Chart 4. Volume Chart 5. Tick Chart 6. Range Bar Chart 7. Renko Chart 9. Kagi Chart It means that each data point on the chart comes from a fixed time period. For instance, if the time base is daily, each data point will represent price level s of each trading day. The charts below show the 5-minute time-frame. Study of price charts began before technology was able to send market tick data instantaneously. Building charts with continuous price data was not possible.

Hence, charts with a time base have become the standard in technical analysis. However, these three chart types are not always plotted with a time base. You can also plot them with a tick or volume base as we will discuss in the second section. Mark out the closing price of each time period 2. However, line charts are cleaner than other chart types. These four pieces of data explains why some traders call them OHLC bar charts.

Armed with a bar chart, we can study the relationship between the highs, lows, closes, and opens of different bars to derive a whole host of bar patterns. Look at the examples. Bar patterns are nifty timing tools that offer us trade entries with controlled risk.

They are similar, except for an enlarged region between the opening and closing price. The range between the opening and closing price of each candlestick is the body of the candlestick, which is its defining feature. Candlestick Chart Trend Trading with a Candlestick Chart It is not surprising that candlestick charts have become the preferred choice for most traders. Other than being able to add various candlestick patterns to their arsenal, a candlestick chart does not dilute our ability to spot bar patterns.

A rare chance to get the best of both worlds. The relationship between the bodies of candlesticks is important to candlestick patterns.

A slight drawback of candlestick chart is that candlesticks occupy more space than OHLC bars. In most charting platforms, the most you can display with a candlestick chart is less than what you can with a bar chart. This poses a problem to time-based price charts. As time passes, regardless of the level of activity in the market, the chart continues to print new bars or candlesticks.

In such cases, time-based charts present an inflated impression of market activity. To address this issue, some traders use the level of market activity measured by volume or ticks instead of time as a basis to sample price data. There is an important caveat for activity based charts. This is due to filtering of the market data by your feed provider, and possible issues with your internet connection and computer performance. However, whether these issues outweigh the potential benefits of using tick and volume charts depends on your trading style and evaluation.

In particular, be careful if you intend to use volume or tick charts for spot forex trading. Thus, the volume or tick data might not be representative of the entire market for the instrument you are trading. It is the most direct way to measure the amount of market activity. Hence, on volume charts, each bar candlestick represents a fixed volume. For instance, a volume chart will display the OHLC of a volume block for each bar. You can plot volume charts in the style of a bar chart or candlestick chart.

Not sure what setting to use for your volume chart? A simple starting point is to use the average volume of your usual trading time-frame. For instance, we arrived at volume charts in the examples by measuring the long-term average volume of 5- minute ES bars.

Hence, it tends to show smoother price waves that are conducive for trading. This is the main advantage of a volume chart. Generally, you can still rely on bar patterns and candlestick patterns in volume charts. However, using a volume chart has major implications on tradi- tional volume analysis. For instance, to find high volume breakouts, look for price thrusts with consecutive bars moving in the same direction.

Naturally, a basic volume overlay is useless. Instead, consider using a time overlay that shows the time taken to complete each volume bar. Volume Chart Range 2. Like the volume traded, the number of transactions also measures the level of market activity. However, the volume of each transaction differs. Hence, a tick chart does not replicate the volume chart. When starting out, measure the average range of your usual trading time- frame. Then, adjust the tick setting to get a chart with similar volatility.

Fibonacci numbers like tick and tick are also popular choices for tick charts. Tick Chart Trend Trading with a Tick Chart As with volume charts, short-term price patterns are still effective with tick charts.

The example above shows that tick charts work well in trending markets. Do not take that as a sign that tick charts offer the Holy Grail. Many trading methods work like a charm in trending markets. While volume analysis is possible with tick charts, you will find less variation in the volume of each tick bar as both tick and volume are measures of market activity. Simply Price Charts The next five price charts are simply price charts.

They share a simple characteristic. They move only when price moves. If you are a price action purist, you will enjoy exploring the following chart types. However, out of the five chart types below, the range bar chart is the only one that is plotted without any regard to time. This is hardly surprising as traders developed them back in the days when continuous updating of prices charts cannot be done.

For the examples below, we used a 5-minute bar chart as the underlying time-based chart. Hence, only the range bar chart shows the exact price action.

In a range bar chart, every bar will end once the range between its high and low equals the chosen range. Thus, every bar will have the same bar range. In addition, every bar will close either at its high or low. Range Chart Trend Trading with a Range Bar Chart Due to the forced break after a fixed bar range, many bar and candlestick patterns disappear from a range chart. For instance, Harami patterns and inside bars will never show up on range bar chart.

As every bar has the same range, you can easily pick up the bars that attract a high volume. These bars are potential support or resistance levels. Look at the example below. Range Chart Range 2. How do we know if a market has reversed? We need to decide on a reversal amount. The standard reversal amount is 3- box.

This means that for a rising column to end and a falling column to start, the market must drop by 12 ticks 3 box times 4-tick box size. Our examples are based on the closes of 5-minute bars.

It means that we update the chart using the closing price of 5-minute bars. While they are simple break-out patterns, you will need some practice before you can pick them out.

Refer to the following books to learn more. To begin, we must choose a brick size. The chart prints a new brick when the market moves more than the brick size away from the preceding brick. This means that a Renko chart does not display the exact price action. It filters away whipsaws that are smaller than the brick size. Hence, we can use Renko charts for two purposes. Renko Chart Range 2. However, a Kagi chart does not need a box size.

All it needs is the reversal amount that you can specify in absolute price range or percentage change. Once price heads in the opposite direction by the specified reversal amount, the chart will change direction.

A distinguishing feature of a Kagi chart is the different line width. When price breaks below a previous swing low waist , the line thins Yin line. Hence, it is unwise to rely on it in a sideways market in which most break-outs fail. Refer to example below. However, it is especially useful for tracking the market structure of swing highs and lows. These lines are plotted according to the closing prices of the underlying time chart. In the first example, the underlying chart is the 5-minute chart.

A new line in the same direction is made when the underlying time- based chart closes beyond the preceding line in the same direction. A new line in the opposing direction is made when the underlying time-based chart closes beyond the last three lines in the opposing direction.

This is where it got its name from. While bar and candlestick patterns are not applicable, Three-Line Break charts offer a unique trading signal made up of three lines black shoes, suits, and necks.

A white suit means buy, and a black suit means sell. Look at the chart below for examples. We had to change the underlying time base to 1-minute for the trading signals to surface. It explains how to construct each chart type in detail together with practice examples.

Make sure that you understand the consequences of fac- toring it into your market analysis. Remember that the bulk of technical analysis was, and still is, designed with time-based charts in mind. This means that their effectiveness might be undermined in alternative chart types.

Of course, you might also find pleasant surprises as you try them out. A sound way to start exploring a new price chart is to use it as a complement to your current chart type.

In addition to getting a second opinion, you are able to compare their efficacy. Initially, it might even look like a promising candidate for the Holy Grail. However, eventually, you will realise that every chart type has its drawbacks.

Check the Implementation of Alternative Price Charts in Your Charting Platform While most charting platforms offer time-based charts, the avail- ability of other chart types differs among platforms. Furthermore, the implementation of these alternative chart types might not be consistent, given their relative obscurity. Ensure that you understand how your charting platform builds the chart and are comfortable with the formula that goes behind the chart plot. Have fun! It is the rising tide that lifts all.

For day traders, the intraday trend makes the difference between a session of windfall profits and one of major losses. By trading along with the intraday trend, we are following the path of least resistance to day trading profits. As the trend is the big picture, it seems removed from current price action. Hence, many traders are tempted to leave price action out of the trend equation. They rely on a distant moving average to define the market trend and do not factor in price action.

These traders are missing an important confirmation tool. Using indicators to identify the intraday trend is reasonable. How- ever, if we link them up with price action, we are able to enhance their prowess. Hence, in the first part of this two-part series, we will focus on using indicators with price action to track the intraday trend. In the second part, we will discuss two other methods to find the intraday trend. Essentially, we are looking for a shallow pullback followed by a new high low to confirm a bull bear trend.

To confirm a bullish intraday trend, look out for the following conditions. The rationale for each condition is in brackets. Price touches the moving average. Establishes baseline. Use- ful for sessions that open with a gap. Price stays above the moving average for at least one bar. Moreover, there is a lot to know about each market but one cannot start trading unless you choose your trading market. Even with the right market context, you need to trigger entry and exit points.

Few useful triggers like bars, candlestick patterns, RSI, oscillators, and indicators help to identify entry and exit triggers. Thus, causing you to decide with confidence.

Once you define entry and exit trading rules, you can now limit your risk. Primarily you need to position sizing for a given setup. Your position trade defines how much money you can put in to take a risk. Subsequently, doubling your position sizes will double your risk. Technical analysis is another stock trading strategy. Many technical analysts highly favor a technical approach to determine price movements.

Moving Averages most commonly used technical indicators for validating market movements. Other indicators have proven to be definitive, practical, and unbiased. Moving average prices can be found in many trading platforms like Stock Screener. Typically, it is used to analyze the total flow of money in an asset.

Simply, it is the measure of money going in and out of the share market. Nonetheless, this is true for cryptocurrency trading strategies. Fundamental analysts observe fundamental indicators of the economy. As a result, to understand whether a currency is overvalued or undervalued, and how it is related to another asset class.

Nevertheless, fundamental analysis is complex as it involves a diverse study of economic elements that indicate future trade and investment trends. As a stock market beginner , start small with basics by analyzing securities inflows and outflows. Moreover, an analyst may rely on data releases and news from the contrary future trend.

Fundamental analysis is used for reading assets where supply and demand balances are critical factors that alter the trend. For example crude oil, where you are required to read oil price action. The performance of a trading strategy is measured based on risk. There are several risk management performance measure strategies like Sharpe Ratio. However, to compare expected return against return volatility you can use Maximum Drawdown. The selection of risk-reward trade-off certainly depends on trade risk preferences.

The performance is measured against the benchmark. This is a common exchange-traded stocks fund on a share index. Backtest trading strategies are a process of applying a strategy to historical data to evaluate trading performance. The method offers analysts, investors, and traders to determine their trading strategies and analytical model.

Paper trading is a simulated approach. It allows investors to practice securities exchange without risking real money. An intermediate trader can make a paper trade and record them to measure their hypothetical trading positions. Similarly, help in portfolio management. Day trading also known as Intraday Trading is an act of buying and selling securities within the same day.

Taking advantage of fluctuating price movements is a lucrative game. If played correctly, it can yield a huge profit. While for beginners, it may lead to losing money. Some popular day trading strategies include trend following, contrarian investing, trading on the news, and scalping. Day trading is hard to master. It requires skill, time, and knowledge. This online course is taught by Manish Taneja, a senior research analyst who has experience trading at Wall Street.

Options strategies are a little different from other assets. It includes many strategies that limit risk and maximize return. However, a trader with little effort can learn to take advantage of power and flexibility. Traders often jump into trading options with little understanding of options strategies. There are many strategies available that limit risk and maximize return. With a little effort, traders can learn how to take advantage of the flexibility.

It is a simple practical-based course to learn options trading for beginners. An effective approach to master share trading is through learning an easy way out. IFMC institute offers unique stock trade courses for beginners to advanced traders. Uni-Directional Trade Strategies is a systematic approach for traders. The trading strategy is a detailed and definitive set of rules. UTS approach defines 6 sets of rules and regulations. Help a trader to increase the probability to win stocks.

Traders have countless strategies at their disposal. Aforementioned, trading strategies must be employed by both active traders and day traders. Indeed to interpret price movements and take advantage of trading positions. Some traders approach the market exclusively. Only a few incorporate hybrid strategies mentioned above. UDTS offers guaranteed success. Traders can familiarise UDTS to build an arsenal of tools available for adapting market conditions.

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