SLA approach for NIFTY50 Index

[Insursi]

Very recently, I have come across your thread---"If you can draw a straight line" by dbphoenix. He has written very well and to the point without any distraction on the matter.

I have been fascinated by SLA approach after reading dbphoenix thread. Since I do trading mostly on Nifty50 index and worthwhile to apply SLA concept hereon.

Let me start with monthly chart of Nifty50

If we look at the monthly chart of Nifty from 2009 —its in nice uptrend and periodically undergone correction, though from April 2014 its undergoing severe correction from 9170 level.


Weekly: Wonderful LH and LL —continuously occurring in a channel

Daily: Downtrend - currently stays at SL of the channel line

Hourly: After making low of 6870, price is consolidating in the range of 7150-7250 (nothing but 50%(little above) retracement of recent fall). Since Nifty50 consolidating for last three days, not able to guess which direction it could head further on… though based on today closing, I could speculate that the trend line is broken on hourly--it may head lower ....

As I am new to this SLA approach, suggestion and advice are welcome for the better understanding.

 

[Gring0]

Hi Insursi,

Your trend channels (TC) on the monthly and weekly seem to not be parallel. They seem to be getting wider with time.

Gringo

 

[dbphoenix]

As Gringo points out, your lines must be drawn correctly, particularly at the beginning. Otherwise everything gets thrown off.

Also, avoid squashing your charts so much. Doing so can make the swings more difficult to see (your hourly chart is closer to what the ratio should be).

 

[dbphoenix]

Hourly: After making low of 6870, price is consolidating in the range of 7150-7250 (nothing but 50%(little above) retracement of recent fall). Since Nifty50 consolidating for last three days, not able to guess which direction it could head further on… though based on today closing, I could speculate that the trend line is broken on hourly--it may head lower ....

Your solid blue line and my black line (on the daily) are correct. There is no need for anything else. Plot only what is necessary.

Given that, your entry should have been on the test (the circled portion). According to AMT, price should rise to the upper limit of the channel (your solid blue line). It may not. It may fail and return again to the lower limit. What you must do is determine what you're going to do in each case, which will be determined in part by whether or not you're currently in the trade. The best entry was the reversal off the lower limit of your channel (my black line). If you didn't take it, then you have to decide what interval you're going to trade. The hourly is fine, but don't ignore the context, that is, how price got to this point.

Db

 

[Insursi]

Hi Insursi,

Your trend channels (TC) on the monthly and weekly seem to not be parallel. They seem to be getting wider with time.

Gringo

As Gringo points out, your lines must be drawn correctly, particularly at the beginning. Otherwise everything gets thrown off.

Also, avoid squashing your charts so much. Doing so can make the swings more difficult to see (your hourly chart is closer to what the ratio should be).

Thanks Gring0 and dbphoenix for pointing out the TC channel as I have not drawn correctly on monthly and weekly. So far I assummed that the TC should be drawn by connecting each and every swing lows and swing high---this makes TC channel to broaden some extent. Here I have redrawn the TC -FYI

 

[Insursi]

As Gringo points out, your lines must be drawn correctly, particularly at the beginning. Otherwise everything gets thrown off.

Also, avoid squashing your charts so much. Doing so can make the swings more difficult to see (your hourly chart is closer to what the ratio should be)

.

Is the number 1 2 3 on the chart denotes HH (1) HL(2) and LH(3)? if not could elaborate a bit...

 

[Insursi]

Your solid blue line and my black line (on the daily) are correct. There is no need for anything else. Plot only what is necessary.
Given that, your entry should have been on the test (the circled portion). According to AMT, price should rise to the upper limit of the channel (your solid blue line). It may not. It may fail and return again to the lower limit. What you must do is determine what you're going to do in each case, which will be determined in part by whether or not you're currently in the trade. The best entry was the reversal off the lower limit of your channel (my black line). If you didn't take it, then you have to decide what interval you're going to trade. The hourly is fine, but don't ignore the context, that is, how price got to this point.Db

Sure, from now I draw whats necessary. Yes I was long from the red marked region (though with call option not on future) and got exited around the upper trend line range on Feb18th. from 18th Feb to 22nd Feb no trade as I was not sure of the direction based on the chart since price was in the range of 100points. But today I am on short around 7225 range because yesterday the trend line broke on upper side but not follow up run on upside (seems breakout failure), nevertheless today index opened gap down and price in the trending channel sofar --now looking for lower TC as target with trailing stoploss on the position because on smaller time frame (15mins chart) swing high is not taken out (index looking very weak).

I have a question---Why 50% retracment level is so important because in other SLA thread I came across that traders give significant importance ..why so?

 

[Insursi]

Latest chart

After touching the down TC channel--look at the reaction on smaller time frame ... getting more confidence on SLA approach..

 

[dbphoenix]

Is the number 1 2 3 on the chart denotes HH (1) HL(2) and LH(3)? if not could elaborate a bit...

No, they refer to the swing points that are used to determine the channel. See pp 5 & 6 in the pdf.

Beginning at the beginning, the trend channel is drawn using the first two swing highs and the intervening swing low (or the first two swing lows and the intervening swing high, depending on which direction price is taking).

The more squashed your charts are, the more difficult it is to see the swing points, and following the waves and determining the swing points is a key element in drawing the lines, and one of the chief purposes behind drawing the lines in the first place is to locate the shifts between demand and supply. So, again, beginning at the beginning, once you have your first two swing highs/lows, connect them with a line. Then draw a parallel line using the lowest intervening swing low/high (if the line isn't parallel, then the channel fails to provide you with overbought and oversold information; without that, there's no point in drawing the lines). Getting rid of the colors will also help as they serve no purpose.

When price breaches these lines, more easily seen on the daily, and it becomes clear that price is taking a different direction, then the lines are adjusted to this new reality (for onlookers who didn't see the original charts, the faint lines are yours). See again pp 5 & 6 in the pdf.

​

(The rules about drawing these lines seems silly to some, but given how many people have so much trouble determining trend, much less its direction, not to mention whether price is overbought or oversold, the individual who understands this will leave skeptical traders far behind.)

If you look now at the far right, you'll see how this oversold (meaning outside the channel) state tells you what to do when buyers rally behind price, push it back into the channel, then test the lower limit of the channel the next day. If you don't buy there, then you're stuck with trading the hourly or smaller, but at least you know what the players with the money are doing and can trade with them rather than against them.

Db

 

[dbphoenix]

I have a question---Why 50% retracment level is so important because in other SLA thread I came across that traders give significant importance ..why so?

The SLA is based on Wyckoff, and he noted that rallies which could not reach at least 50% of the previous downmove, or reactions that did not reach at least 50% of the previous upmove, denoted weakness or strength, respectively. It's not a 100% guarantee, but it provides a measure of strength and weakness to a surprising extent, even to the point of being able to trade reversals at that level once one understands how demand and supply interact, particularly when volume is a component (volume is not addressed in the pdf).

I also initiated a Wyckoff thread which cuts down his 500p course to a little over 80p. It wouldn't hurt to study it.

Db

 

[Insursi]

I also initiated a Wyckoff thread which cuts down his 500p course to a little over 80p. It wouldn't hurt to study it.

Db

I hope you meant to say Wyckoff Method, The: In The Original. I do it right away.

 

[dbphoenix]

I hope you meant to say Wyckoff Method, The: In The Original. I do it right away.

Correct.

 

[Insursi]

Update-24th Feb

Weekly & Daily- Clear Downtrend TC(not able to cross 50% of last fall --7250 level). Currently, price is in the range 6900-7250.. Cautiously looking at 6950-6900 SL region now.
Hourly- Nearing first SL 6950-7000
Today -15mins- Downmove, RET (50%)- again downtrend continued.

Overall conclusion, Nifty50 in clear downtrend and nearing first SL.

I have attached 5mins chart, where I have given the numbering for first few swing high and low. Is it correct?

Attached 15mins chart separately, where I marked in the attempted counter trend exited with small profit, though my short positions are intact which was created yesterday.

Sorry my context chart may not good as you present. I have to play around in terminal to get good view (soon I do it.)

 

[dbphoenix]

Weekly & Daily- Clear Downtrend TC(not able to cross 50% of last fall --7250 level).

You can't calculate that level until the fall is over. The current focus of interest is the halfway level of the previous upswing, which is just over 7000.

I have attached 5mins chart, where I have given the numbering for first few swing high and low. Is it correct?

Yes. Anything outside those lines is either overbought -- in which case one can anticipate a return to the channel -- or oversold, in which case one can anticipate the same thing.

Db

PS Thanks for getting rid of the colors.

PPS Your "countertrend trade" is a retracement, not a countertrend. As long as your trend is intact, any adverse incursion should be treated as a retracement.

 

[dbphoenix]

Incidentally, it's not necessary to post your weekly and daily chart once you have your trading opportunity spotted. In this case, it's 7250 in both the daily and weekly, at which point you can switch to whatever interval you're using to trade. If you're trading the 15m interval, your trade would be as shown below:

 

[Insursi]

You can't calculate that level until the fall is over. The current focus of interest is the halfway level of the previous upswing, which is just over 7000.

Last upswing means--6950 range to 7250, so the halfway level to this is around 7050 range. Do you think that I should have covered some of short positions around this level?

Yes. Anything outside those lines is either overbought -- in which case one can anticipate a return to the channel -- or oversold, in which case one can anticipate the same thing.

Ok. I misunderstood because when the TC broke and did not reach the channel line anytime soon, so assumed that the trend is over and new one started though I was with short until it reaches the 50% mark--from there it back to TC.
How do we know that its not breakout and sitting confidently that price will revert to TC Since I started reading the original thread of Wyckoff, sofar I haven't come across this chapter (may be it present at the later part).

PS Thanks for getting rid of the colors.

PPS Your "countertrend trade" is a retracement, not a countertrend. As long as your trend is intact, any adverse incursion should be treated as a retracement.

sorry to ask, whats meant by PS and PPS?
Thanks for the explanation about the counter trend. Until now I assumed wrongly. Heres my understanding about counter trend now

 

[dbphoenix]

Last upswing means--6950 range to 7250, so the halfway level to this is around 7050 range. Do you think that I should have covered some of short positions around this level?

You said "fall" so I assumed you were referring to a downswing. As for covering short positions, that would depend on where you went short and what interval you're trading. Are you trading hourly? 15m? 5m?

Ok. I misunderstood because when the TC broke and did not reach the channel line anytime soon, so assumed that the trend is over and new one started though I was with short until it reaches the 50% mark--from there it back to TC.
How do we know that its not breakout and sitting confidently that price will revert to TC Since I started reading the original thread of Wyckoff, sofar I haven't come across this chapter (may be it present at the later part).

Well, it depends on what interval you're trading. You have five different intervals going simultaneously from 5m to weekly with multiple trendlines and channels and supply/demand lines. Mix all of that up and it's like being blindfolded and spun around.

Exactly which interval are you trading?

Are you in a trade?

Where did you enter?

sorry to ask, whats meant by PS and PPS?

Post Script and Post Post Script. It's something that's added after one thought he was finished. "Post" means "after".

 

[Insursi]

Exactly which interval are you trading?

Are you in a trade?

Where did you enter?

short on 7200 . I usually follow 15mins interval for trading.

 

[dbphoenix]

short on 7200 . I usually follow 15mins interval for trading.

That's a problem. The SLA pdf doesn't address anything less than hourly. Wyckoff is only daily. You can try to apply the principles detailed in the pdf to a shorter interval, but it may be difficult. If you had, you would not have entered short on the 15m until 1130 on the 23rd and you'd already be out, at 1430 or 1445, same day.

Db

 

[Insursi]

That's a problem. The SLA pdf doesn't address anything less than hourly. Wyckoff is only daily. You can try to apply the principles detailed in the pdf to a shorter interval, but it may be difficult. If you had, you would not have entered short on the 15m until 1130 on the 23rd and you'd already be out, at 1430 or 1445, same day.

Db

I entered at 7200 because the chart on 23rd, nifty opened high and did not even attempted to go up- continuously sliding which broke previous day low as well. So thats why I entered aggressively (this is something similar to price action method which I followed earlier).As you said, I too closed some and carrying few lots as swing still.

Let me stick with pure SLA from here...probably on hourly timeframe.