The Ultimate Momentum Signal

 Frequently Asked Questions and the Answers

• What is this blog all about?  This blog discusses the position trading of the Nifty Futures and Options by use of the "The Ultimate Momentum Signal", a proprietary multi-factor trading system and  it's risk management rules. This blog will also comment about Nifty heavyweights, markets, trading, psychology, risk management etc occasionally.
• What is "The Ultimate Momentum Signal" ? 'The Momentum Signal' is an oscillator which travels between -100 to +100, wherein -100 indicates maximum downward momentum and +100 the maximum upward momentum.
• What is the purpose "The Ultimate Momentum Signal" ? "The Signal" is primarily a momentum direction finder. It can be used as a single indicator to find (a) momentum shift, (b) continuation of momentum and (c) neutral momentum.
• What is the benefit of finding out the above three states of the market ? These states can be used for (a) the entry trigger of a trade, (b) the management of the trade after the entry and (c) exit from the trade.
   
• When does "The Signal" indicate an entry ? "The Signal" indicates the initiation of a trade only when the momentum shifts to the opposite side of the immediate past momentum or it shifts from a neutral to a strong momentum.  If the Nifty Future was showing a negative or neutral momentum for the past one or two weeks ( neutral momentum is explained later) and at the close of the day "The Momentum  Signal" is showing a value of +50 or above a long trade can be initiated. Similarly, if the immediate past momentum was upward or neutral and at the close of the day "The Momentum Signal" is showing a value of -50 or above a short trade can be initiated.
• How does 'The Signal' indicate the prevailing momentum ?    A 'Momentum Signal' value of +50 to +100 shows upward momentum. Values between -49 to +49 show a pause or neutral momentum. A 'Signal' value of -50 to -100 show downward momentum.
• How is the The Ultimate Momentum Signal calculated and disseminated ?  'The Ultimate
   Momentum Signal" is calculated by use of a spreadsheet  on the basis of the last traded price of the day and the front page of the spreadsheet showing the updated signal will be published daily on this blog. (For more detailed information and examples, please read the pages "About" and   "The Signal ".)
  
• Which is the recommended time of a trade entry ? The recommended time of the entry is just before the daily closing of trade. 
• How is it possible to enter the trade on the basis of a "Signal" to be calculated later using the current last traded price? As the "Signal" can be calculated only after the daily closing of the market,  the projected levels of closing values required for a momentum shift, neutral momentum and/or continuation momentum as on the close of the next trading day will also be published daily as part of the update.  Therefore, 'The Signal' value applicable to the current close can be referred from the daily update. ( For more detailed information and examples, please read the pages "About" and   "The Signal ".)
• How is a trade entered in to when a momentum shift is signaled ? A trade can be entered in to in four different modes in accordance with the trader's personal preference.  They are (a) Straight buy or sell in the futures, (b) Buy or sell position in the futures plus short calls or short puts leading to covered call or put position, (c) Short option position and (d) Long option.   (For more detailed information and examples, please read the page 'Entries & Exits').
• How does the Risk Management work in the trading system ?  "The Ultimate Momentum Signal" system has extensive and  multi-layered Risk Management rules which consists of customized exit rules applicable to each mode of trade entry. (a) It starts with the allocation of risk capital to each trade as a proportion of the trading capital. (b) Then it matches the allocated risk capital to a reasonable market determined stop loss by calculating the position limit. (c) The trades are also protected by absolute stop losses and trailing stop losses. (d) The trades are also exited when "The Signal" indicates neutral momentum where positions consists of any futures. (e) All positions are exited when 'The  Signal' indicates a shift of momentum to the opposite side. ( For more detailed information and examples of the exit rules, please read the page 'Entries & Exits'.  Also read the page named Position Limit  for detailed information on Risk Capital allocation and the calculation of the Position Limits. ) 
• How can the Position Limit Calculator be downloaded ?  Please follow this link and when the page is fully loaded in your browser, click "File", inside the spreadsheet and then click "Download as" and click  "Excel" to start the download. Open Office users may choose "Open Office" format for the download.
• Is there any chance of the system making very large losses ?  In spite of the multi-layer Risk Management rules,  the system  may not eliminate  the risk of unanticipated event risks.    (For more information on the such risks and an analysis, please read the page "Risk Analysis"). 
• Is it an always in the market system ? No, it is not. It recommends trades only when a positive or negative momentum shift is indicated from the prevailing momentum. However, the system allows holding of some options positions even when the market is pausing or in  the neutral momentum.
• Who can use "The Ultimate momentum Signal' trading system ?   The system is designed for the use of traders who are prepared to hold positions overnight and which may extend to a week or more. 
• Can day traders use "The Signal" ? Day traders may also use the signal as the higher time frame market direction finder and may allocate more capital to trades in the direction of the signal subject to their usual rules and risk return trade offs. They may also avoid taking trades against the signal's direction at least immediately after the indication of the momentum shift to increase the probability of profits and to reduce risk. In addition, the momentum of most of the Nifty stocks would be in alignment with the index momentum.
• Is this a holy grail kind of a system ? Absolutely No. This blogger does not believe in the existence of any system which can be a holy grail when it has to deal with any trading market. The trading markets have no steady structure or form and therefore any system can do is to try to take advantage of certain structures when they are present and to preserve capital at other times.
• Is it easy to use the system ? No, it is not easy to follow the system. It is said that we do not trade the market but our opinions. Therefore, sometimes it is difficult to believe in "The Signals" as and when it is generated and to enter in to the trade mechanically. 
• Which is your preferred way of entering in to the trades ? The first method of straight buying  or selling of the futures and the third method of  shorting the options are the preferred modes of entry.
• What is the reason for the above preference ? The first method offers high rewards which on theory is unlimited. The second and the third method offer more or less equal rewards but the former suffers more commissions and it's management involves more efforts. The last method of long options also offers unlimited rewards on theory but on the ground, it suffers from the loss of option premium due to the passage of time and volatility collapse. 
• How is the profitability of the system? According to the experience gained in developing and  using the system, it is observed that the system has  strong positive expectancy. However, change of the market conditions may affect the system both positively or negatively.
• Is there any performance record of the system ?  As the system  consists of extensively different modes of entry and stop losses leading to different risk reward outcomes, no performance record is provided.  However, a spreadsheet showing the five year history is available for free download in Excel, Open Office, PDF, CSV or Text formats from the Google document page. Please follow this link and when the page is fully loaded in your browser, click "File", inside the spreadsheet, then click "Download as" and click  on your chosen format to start the download.
• Can anyone do a detailed analysis of "The Signal"  and it's performance ? Absolutely Yes. Visitors are welcome to download the five year history of 'The Signal' and make any kind of analysis as they deem fit. Such feedback would be highly welcomed.
• Is there any other Risk Factors associated with "The Ultimate Momentum Signal" system ? There are some risk factors associated with the system. They are described in detail towards the end of this page.
• Why is this site offering more Risk Factors than other sites which even assure very high rates of accurate predictions (Example : 99 % accuracy of predictions.) ? First of all, we would like to be truthful. The second reason is, "The Signal" indicates only the higher probability of  the futures and the index moving to the direction of the signal and nothing is predicted. The Market may or may not move in the indicated direction.
• Is there any subscription to access this site ? Are there any paid services ?  There are no subscription charges or paid services offered at present. However, if you find this site and it's services are useful, please tell it your friends so that more and more people can learn and enjoy the benefits. 
• What is your best advice to a new trader ? Any profession in the world requires a certain level of learning and training. However, trading requires even more self learning and training than other professions because of the personal nature of risk tolerance levels and the absence of any reasonably successful educational methods. Try to learn as much as possible and gain some edge over the other market participants and use that edge to make profits in the market. Paper trading helps but putting  up the real hard earned money on the line of fire is much difficult than the paper trading experience.

Other Risk Factors

1.   No mechanical system will ever be perfect for trading the markets and therefore, "The Ultimate Momentum Signal" may also make losses. The purpose of the Signal is as an aid to  the trader to  find the probability of momentum changes and its direction on the basis of the daily closing prices.

2.   "The Ultimate Momentum Signal" does not consider any support / resistance and / or trend lines. It is neither optimized nor curve fitted and therefore may not be able to achieve its purpose in all kinds of markets and in case of ordinary stocks.

3.   Since the system is based on a set of fixed parameters, "The Signal" may lag in indicating momentum shifts in very fast and volatile markets. 

4.   It is also seen that even if the momentum signals a downward shift by signaling -50 value, in some cases, especially in strong long term bull markets, the momentum shifts again to the opposite within a very short time. In strong bear markets, the opposite may also happen.

5    In spite of the multi-layer Risk Management rules,  the system  may not eliminate  the risk of unanticipated event risks.    

6.   It is advisable to run only very light positions which are fully hedged (Example : Trade mode number (4) which consists only of option buying) or absolutely no positions at all just before major anticipated events like general election results, central budgets etc because of the extreme event risks. (For more information on the such risks and an analysis, please read the page "Risk Analysis").

7.   We, the human beings are the least equipped to trade the markets profitably because of our emotions, biases, opinions and beliefs. ( Well one may ask who else is equipped to trade the markets ! And the answer is that the mechanical systems like this one with the built in risk control measures are generally better than the discretionary trading systems).  Therefore the trader is the most riskiest part of any trading system as he/she may not, in the first place, believe in the momentum shift signals as and when it happens and as a consequence may not enter in to the trades or close the existing trades, thereby avoid profitable trades and / or make big losses on the existing trades in spite of the system rules.

Cheers and Prosperous Trading and Investing !!!

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Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy.