The Expected shorter term weakness in the market is short sustained and market showed strength in the second half of the session. Nifty Autocorrelation on the Daily charts turned positive signalling a trending upmove in the following trading session. One should keep an eye on autocorrelation. Trendy move could end if autocorrelation turns negative.
Nifty Daily charts shows that very recently 10 day auto correlation turned positive and the smooth RSI oscillator indicates trend strength is accelerating. And hourly charts also turned to positional buy trend with hourly supports coming around 8671. One has to exit their long if the autcorrelation turns negative or the Smooth oscillator turn down below 50 on EOD basis.
Nifty Futures 10 day autocorrelation turned negative for the last two days also the smooth oscillator holding near oversold zone which indicates possible mean reversion trades in nifty futures with high probability. Also looks like William VIX FIX is reversing from the peak. So very short term players can play all the long signals in the lower timeframe. And higher timeframe players can hold their longs as long the 10 day autocorrelation turns positive or the William fix started raising on the EOD charts.
Here is a simple mean reversion trading strategy using Autocorrelation and Stochastic osciallator crossover. In the last article we seen about autocorrelation that negative correlation attracts mean reversion trading and positive correlation attracts trend trading. so the whole idea of the trading system is not to take all the stochastic crossover signals. But only the long only positive crossover signals when the autocorrelation is negative.
“Autocorrelation, also known as serial correlation, is the cross-correlation of a signal with itself. Informally, it is the similarity between observations as a function of the time lag between them” – Wikipedia. Autocorrelation value ranges between +1 to -1. Where autocorrelation above zero indicates positive correlation and negative value indicates negative correlation.