Are you looking for perfect trade set up to trade in the stock market? Crossover day trading strategy is one of the trade set up that I use to churn some quick profit.
You may find many trading strategies. However, the crossover day trading strategy is what I like most. Basically, I use EMA’s along with indicators and oscillators.
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I tried to find an intraday trading opportunity using a crossover day trading strategy. Intraday trading is very risky as we all know. So, you need multiple confirmations before you entered into a trade. Multiple confirmations are very crucial and important for us to take any trade decisions.
You need to have that conviction, whether you get into a trade or not. Here, in a crossover day trading strategy, I will use three oscillators and EMA’s.
Before you plot into a chart, make sure you do it in trending stocks, futures, or any other securities. Just remember, you will earn a great profit if the stock is trending.
You can choose stocks from the top gaining and losing list for the day. Moreover, you can trade on index futures like Nifty and BankNifty Futures.
So, we will take MACD, RSI, and ADX as oscillators. Exponential Moving Average will be 9-EMA and 21-EMA. Now just plot all the oscillators and EMA’s in your stock chart.
You can do so by plotting in your trading terminal. I use Zerodha trading platform to trade as charts are clear and clutter-free. Moreover, I can trade very easily right from the chart itself.
Crossover Day Trading Strategy – Intraday Trade Set-Up
So, you need to select the candlestick chart type and set the time frame to 5-minute.
EMA or Exponential Moving Average Set-Up
After that, let’s plot EMA‘s or Exponential Moving Average in the chart. You need to select two EMAs of 9-EMA and 21-EMA of a different colour.
9-EMA will have a period of 9 and 21-EMA will have a period of 21.
MACD or Moving Average Convergence Divergence Set Up
Now select MACD and keep all the parameters as default. Here, the black line is the MACD line and the red line is the signal line. So, when the MACD line crosses the Signal line from below, we go long. The moment MACD crosses the signal line from above, we go short.
Keep an eye on the crossover, as it needs to be wide and clear enough before you trade. The gap between the black line and the red line must be clear and they must go away from each other.
RSI or Relative Strength Index Set Up
Next is RSI which is also known as the Relative Strength Index and is an oscillator. We keep the period as 14 and just update the overbought zone to 60 and oversold to 40.
You can change these settings as per your needs and risk appetite. Moreover, you can change the region colors as well so that you can distinguish between oversold and overbought territory.
So, we go long once the RSI line crosses 60 and entered into the overbought territory. When the RSI line crosses 40 and entered into the oversold region, we take a short position.
ADX or Average Directional Index Set Up
Now moving on to ADX oscillator and plot it on the chart. Here, keep all the parameters as default. You will see three numbers of the line. One of them is the black line which is the ADX line. The green line is known as the +DI line and the red one is the – DI line.
You need to know some more key facts about ADX before you start trading. ADX is mainly used to know the strength of the trend. As we all know that trend is your friend. So, if you are trading with a strong trend, then it will be a high probability trade.
So, if you see the ADX value is 0 to 25, then you can consider the strength of the trend is very weak. If the value in between 25 to 50, then you can ride the trend. You can consider it as a strong trend.
Moreover, if the value is 50 to 75, then the trend will be very strong. If you see the ADX value around 75 to 100, consider it as an extremely strong trend.
You need to keep these ranges in your mind while trading. So, you can go long when the ADX line is above 25. Moreover +DI line that is the green line must also cross the -DI line which is the red line from below. However, when the -DI line crosses the -DI line from below then you can short the stock.
Volume Set Up
Lastly, but the important one is the volume. You need to keep a hawk-eye on volume as well. If you see the price is rising along with volume, you can go long. Whereas if you see the price is coming down and volume is increasing then you can go for short.
Trade Set Up – BankNifty Future [Dec 26, 2018]
For your reference, I have done a trade on 26th Dec 2018, in BankNifty January Future. So, as per our trade set up, we will not trade when BankNifty was trading in a narrow range.
You see the below screenshot for that day of BankNifty Future. So, you need to enter when all the indicators and oscillators fall in one place.
You can clearly see that 9-EMA is crossing 21-EMA from below and the gap between them is also good. Moreover, the volume is also rising with the price. RSI is also moving to the overbought region along with a clear crossover between MACD and Signal line.
One more confirmation is the trend which is also strong as suggested by ADX. You can see the ADX line is going up above 25 and the +DI line is also crossing the -DI line.
So, the chart suggests that everything looks good and you can enter into a trade. This is the highest probability trade and your success in intraday trading is assured.
Risk Management
Suppose you have entered into the trade and buy the BankNifty Future lot at around 26750-26760. So, now you need to put the Stop Loss at 0.25% and set the target for 0.5%.
However, if you can take some risk then you can trail your stop loss as well. You can remain on the trade till you get a crossover between 9-EMA and 21-EMA.
As intraday trading is a risky business, so I suggest you set your targets and exit as soon as your target met. Risk-reward management is yet another key to successful trading.
Conclusion
Remember the last key things that you need to avoid trading in a range-bound or sideways market. So, you must trade in a strong trending market only. Furthermore, make sure that all indicators and oscillators align with each other. Only then you can consider entering into the trade.
If this crossover day trading strategy is used properly, then you will feel intraday trading is working on your way. However, before you put it into live trading, make sure you backtest it.
The crossover day trading strategy is one of my high probable trade set up. All you need is to be very disciplined and follow the rules blindly. Some trading sessions may not be your way. However, I suggest you stick to the rules.
I hope this intraday trade set up expanded your view a bit and showed you how easy to trade and make money from the stock market.
Will, you use these tactics while trading? Do you have any other day trading trade set up?
Let me know your views in the comments.
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