Before we proceed with further exploration of the K-Trend Indicator let me share with you my Trading system based on the K-Trend Indicator. It was one of my early Indicators developed during my early days of TA journey.
The system is a simple Reversible one. The rules are follows
When the momentum turns positive from negative, In other words when the K-Trend Indicator is negative and changes from negative to positive.
Buy setup = KT < 0 and KT (today) > KT (Yesterday)
The setup condition remains active for 6 Bars
Enter when the value is above the High of the Buy setup Bar+0.5 times a 5 bar Average True range.
Buy = High(Buy setup bar) + (0.5 x ATR(5) ) . In fact the value 0.5 is adjustable.
When the momentum turns negative from Positives, In other words when the K-Trend Indicator is positive and changes from positive to negative.
Exit setup = KT >0 and KT (today)<KT (Yesterday)
Exit when the value is below the Low of the Exit setup Bar-0.5 times a 5 bar the Average True range.
Exit = Low(Exit setup Bar) – (0.5 x ATR(5))
After experimenting I found that many trades were missed because the Ktrend quickly crossed above or below the zero line in less than 6 bars and the value was still less/more than the entry/exit threshold values and the stock went on to make big moves. So I added further conditions to take care of these opportunities as well. The revised Entry and Exit condition are as follows
Buy = High(Buy setup bar) + (0.5 x ATR(5) ) OR KT cross above +40
ExitExit = Low(Exit setup Bar) – (0.5 x ATR(5)) OR KT cross below -40
I found that the system was able to catch the big Trends and losses were quite limited in the sideways moves. The system was useful for stocks which had the tendency to have some trends and useless for stocks which moved sideways most of the times.
The system has the facility to set the ATR multiplication factor which has a default value of 0.5. Also one can set the traded quantity so the current Profit/Loss situation is indicated exactly.
A quick backtest on the Nifty (The Indian stock Index) is provided below.
The System can be downloaded and tested if one likes from the below link. Looking forward to feed backs..