315 Strategy for swing trading

315 is a simple swing technique which tries to identify a trend very early. In this strategy we use only
EMAs name EMA 3 & EMA 15 (hence the name 315).

People ask me why EMA 3 and EMA 15 .... for me last 3 days define the immediate average price ... to
find the slightly longer term trend i use the factor of 5. This is becuase 5 has an interesting relevance to
markets.... we have approx 5 hours of trading everyday, 5 trading days in a week, almost 5 trading weeks
in a month .... So I simply multiple 3 by 5 to get my 15 EMA which defines my medium term average
price.

Now in simple terms, if our immediate average price is higher than the medium term average price that
means we are entering in a bull swing ... and visa versa. Hence the strategy entries are:

1 Enter Long when 3 EMA goes above 15 EMA
2 Enter Short when 3 EMA goes below 15 EMA

Advantages of following 315 strategy

1. A simple technique using just 2 EMAs, no other oscilattors or indicators required. NO advanced charting
softwares required.

2. System is based on following the ULTIMATE indicator available i.e price action.

3. Keeps a trader in the trend, lets the full swing to complete. Never gets a trader against the trend.

4. Since we are just following price action, we dont need to worry about divergences etc.

Disadvantages of 315 Strategy

1. Works brilliantly in a trending market but can whipsaw in extremely ranging markets. However this can
be overcome by certain rules and money management to be explained later in this thread.
Also note that the recent bearish crossover was ON the budget day not before. so basically the current
swing is bearish on Nifty.

I am also putting up RIL's EOD charts .. see how it has crashed from 2150 levels to 1800 levels after
giving a sell signal in the current swing (please see red arrow).

Please do not buy RIL for delivery unless 315 gives a buy

As i said earlier, I will be back with some rules which will make 315 strategy a more PROFITABLE
proposition.

Entries

Entries are simple, you wait for a candle to close above 15 EMA, next candle to open and see if 3 EMA is
above 15 EMA or not. If the answer is 'Yes' you go long. For shorts you need an exact opposite setup.

Position Sizing

Since in this system SL cannot be defined as a 'level' your initial position sizing has to be small. Depending
on the trading capital, you dont want to put more than 25% capital which you want to put in this trade in
as the first trade i.e assume if you can trade a total of 4 lots max, you will start with 1 lot. Rest 3 lots we
will add later as our position moves into profit.

Pyramiding

Pyramiding or 'adds' are obviosly done once our position has 'swung' into profits. The rule is we add when
the markets correct after a swing, price comes and touched 15 EMA again (but 3 EMA hasnt crossed over).
This means that we add very close to our SAR hence keeps the risk small and also ensures that even if
SAR is triggered we still end up in net profits (since our initial position is in profits hopefully now).

Exits

Yes, we do exit at certain points even when our SAR is not hit. These exit points are obviously when our
position is suddenly in deep profits becuase of an extreme rally or crash in our favour. The exit points are
where you find our 'current' EOD candle is not touching 3 EMA at all. On this candle, we book profits and
wait for markets to correct back and touch 3 EMA again. As soon as 3 EMA is touched we jump back into
our initiaal position. So in a way we stay with our position, we just exit it once and get back in after a
small correction.

I would let you guys analyse, examine and apply these rules to some of the trades which you have
identified. I am also posting an NF chart below showing entries, Pyramids or 'adds', Exit and jump back in
and finally SAR.

Please do post any questions you have here.

In the end, I would try and touch the most important piece which is 'how to protect capital from whipsaws'
.. but thats later.....

Please see first red up arrow .. a buy on 16th March, before the days close you can see 3 EMA clearly
above 15 EMA you take your first lot long position before market closes on 16th March ie around 2770
(please note how we need to wait till the last moment of EOD candle close to ensure we have a confirmed
crossover on EOD charts).

Wow - we have a secular bull swing going from that day which takes markets to 3500 levels.

Please see second red up arrow on 28th April. Markets corrects on this day and EOD candle touches (or
gets very close to) 15 EMA. This is the point we 'Add' one more lot long just before th day closes at
around 3350 levels. Now the fact is that our average price has become 3060 for 2 lots so even if next day
we again have a down day and 3 EMA crosses and closes below 15 EMA we will still be able to get out at a
level above 3060 and hence book profits. See how even after our 'Add' we have not increased our
risk overall.

Wow - but markets go up next day and both our positions are in profits.

NOW, please see 4th May candle... Nifty gapped up by 5% and closed at 3658.This is our Exit candle
since 3 EMA is not touching the body candle at all.

So we basically book both lots before market closes on 4th May at around 3650. So we have made 590
points profit per lot or total 1180 points profit.

We now want to renter again with 2 lots whenever EOD candle touches 3 EMA again. If you see on 6th
May that happens and we again go long 2 lots before market close at around 3630.

Now, please see the third up arrow. Markets keep correcting and EOD candle again touches 15 EMA on
11th May. This is where we 'add' our 3rd lot at around 3550. NOw we hold 3 lots NF long with avg price
3600. We have already booked 1180 points so that is still acting as a buffer we have in case markets go
down next day and our SAR is hit. We will still have overall profits.

But as luck had it .. our SAR is not hit since markets are rangebound waiting for election results.

Now please see 19th May Candle .. opened way beyond 3 EMA so clearly a profit booking zone right at the
open. It was a volatile day, opened at 4600 and kept crashing to 4200 ...assume we exited at 4300. We
made 700 points profit per lot on 3 lots or total 2100 points profit. Add that to 1190 points profit and we
have made 3390 points profit.

As you can see, we reenter again after a couple of days as marked on charts.... Finally on 18th June we
exit all longs and enter shorts (again 1 lot as start).

We add shorts at 25th June... we have a small whipsaw on a day before budget but after budget we get
another sell signal and now we are short.



1. I have used EOD charts so this week we got only one entry signal on Tuesday the day after budget.
The signal was to enter short since that day we could clearly see 3 EMA bearish crossover before
the day closed.

2. Yes better not to wait for next day but to take position today itself before market closes.

3. We basically add as soon as we see candle touching the 15 EMA during the day. We dont wait
for EOD closing time. This is becuase, lets say you are long, you will sometimes find 15 EMA
supported the fall and markets moved up later closing and giving a bullish hammer on EOD,
meaning you added at the days low. You dont want to miss that.

4. Yes, for EXIT we dont wait for EOD.. if we see the current price is way above the 3 EMA, we
immidiately exit without waiting. Usually you may find you exited on highs of the days since
markets corrected to come down and touch 3 EMA. As soon as this touch happens, its a signal for
you to get back into the position. If markets dont correct and keeping moving away from 3 EMA ..
you do nothing .. you are position less with some profits booked. You will wait until price touches 3
EMA even if it means waiting for 2-3 days.

5. Yes big gaps or sometimes Wide Range Bars against your position can spoil the party. You
cannot control overnight movements but the good thing is most of the times you will find these
gaps in your favour with occasionally going against your positions. If you see on Friday before
budget day 315 gave a buy signal so we jumped on longs. On budget day morning it went up, but
later came crashing down .. we couldnt do anything.. we held our longs until another day and
shorted only next day when we could see a clear crossover. But these whipsaws are few and far in
between.

6. I will post the zoomed charts tomorrow, though you can also see them clearly on whatever
software you use. you just need to plot 3 EMA and 5 EMA.

7. Yes I trade based on 315 for swings/positionals and results are very good. Thats why I chose to
post it here on TJ.

8. If someone misses the SAR, the best point is to get in at the first possible opportunity. Dont wait
for the 'add' point to come.... what if the add point comes after Nifty has already moved 200-300
points as per 315? you enter next day even if you miss .. and normal add whenever the add
opportunity comes. worst case you will short too low .. add higher .. get whipsawed but its worth
the chance. If reversal happens and your SAR is hit .. so be it .. you hop on to longs.
so seems we have digested the 'basics' of 315 and its time to move to advanced '315' which takes care of
how to avoid whipsaws and protect capital.

I will first give you an example of the most painful trade that you can come across in 315. please have a
look at below example. The EOD candles are from 4th Feb to 17th Feb with 3 EMA (red line) and 15 EMA
plotted.

Now as you can see, 315 generated a buy on 6th Feb since EMA crossover was almost confirmed so we
entered longs at around 3.25PM on 6th Feb at 2830.

Now, Nifty swung up until 13th Feb and made a high of 2974 on that day.(If you notice that day was
actually our Exit day since again candle body didnt touch 3 EMA). However, for sake of this example,
please assume for a moment 3 EMA did touch the candle and we stayed with our longs.

However next trading day (16th Feb) it crashed and touched 15 EMA at around 2850. This is technically
where we 'ADD' as per the strategy. So if we add at 2850 we then have 2 lots long at average price 2840.
The day ended at 2831 but since 3 EMA was still above 15 EMA we will hold as per the strategy.

Now next day it gaps down against our position, opens at 2800 and finally closes at 2753. Thats when our
SAR is hit since 3 EMA crossover is confirmed and we jump into shorts. We have lost a hefty 100 point per
lot or total 200 points overall.

As a trader, the first thing I ask from myself here, what could i have done to avoid this whipsaw
completely? The answer comes back - NOTHING.

The second thing I ask from myself is - what can i do different to reduce the overall loss in such
situations? The reply comes back - well I can be slightly less greedy and delay my 'ADD' to a point where I
have some confidence that the correction is over and the markets are swinging back in the main trend's
direction.

So I amended the ADD rules slightly. I said I will add only if below 2 conditions are fulfilled:

1. 3 EMA is still below 15 EMA for shorts and visa versa AND
2. The current candle breaches previous day's lows for shorts (previous days highs for longs)

This means that I add longs when i see fresh buying has started after the correction. This is slightly high
probability add though it means I dont add exactly at 15 EMA but slightly away from it.

So coming back to the example below, I actually dont add on 16th Feb becasue I am waiting for 17th
candle to go above 16th candle which never happened. So I just had 100 point loss instead of 200.

This is how I protect capital by 'ADDING' effectively. In coming days i will talk about 'effective SLs' and
'effective' profit booking.

For the time being, please absorb and post any questions. We will see in live soon how we will do an
'effective' ADD if markets start to fall again.