Trading strategie: Rocema and RocemaTrend

Description

ROCEMA is short for Rate Of Change and Exponential Moving Average. ROCEMA is a complete day trading strategy which can be applied in different time frames. 15 Minutes, however, is the most frequently used time frame. ROCEMA can be used for trading shares and market indices. The strategy was originally developed in the Netherlands for trading on the Amsterdam market index AEX. It is a robust trading strategy which has its fans.

ROCEMATrend is an evolution of the ROCEMA strategy. ROCEMATrend does not replace the original strategy. Both strategies can be used depending on circumstances and personal preferences. In addition there is the possibility to combine elements of both strategies into a single strategy. This combined strategy is also detailed below and is shown in the films as it appears to be the superior strategy.

 

  
Suitable for : Market indices (FTSE, CAC, DAX ...)
: Shares
Instruments : Futures and CFDs
Trading type : Day trading and Swing trading
Trading tempo : Medium - Indices, 2 to 3 signals per day
: Low - Shares, 2 to 3 signals per week
The strategy : Video
Using NanoTrader Full : Manual or automated Video

 

The strategy in detail

When to open a position?

Open a 15-minute chart. Ad an exponential moving average (EMA) over 16 periods. 16 Periods on a 15-minute chart equals 4 hours. This EMA smooths the chart. Calculate the rate of change (ROC is a momentum indicator) on the EMA. This has already been programmed into the ROCEMA indicator by WH SelfInvest.

Either the ROC is positive (above the zero line) or negative (below the zero line). If the ROC is positive the trader buys a long position. If the ROC is negative the trader opens a short sell position. When the ROC changes from positive to negative a long position is converted into a short position. When the ROC changes from negative to positive a short position is converted into a long position. Thus the strategy always has an open position, either long or short.

This example shows a short sell signal. Subsequently the market changes direction and a buy signal appears. At this point the short position is switched into a long position.

When to close a position?

In addition to closing out the position when there is a direction change (as explained above) ROCEMA uses a target of 10 points for the AEX market index. When the market moves sideways positions are frequently closed with a small loss when the ROC changes from positive to negative and back. The target of 10 points is nevertheless reached on a sufficient number of occasions so profits can be accumulated.

Traders can also base their exit on the ROCEMA line itself. When the line changes colour it heralds a slow down of the price movement. A slowdown of the price movement usually occurs before a change in trend. It is a good moment to close an open position. There is no target price or stop. The position is simply closed on the basis of the ROCEMA.

ROCEMATrend – a useful evolution

ROCEMATrend fine tunes the original ROCEMA trading strategy. Two elements are added:

The first addition is a second EMA over 100 periods of 15 minutes. This equals 2-3 days depending on the instrument’s trading hours. The 100-period EMA serves as a trend filter. If the market price at the time of a signal is above the EMA only buy signals are valid. Short sell signals are ignored. If the market price at the time of a signal is below the EMA only sell signals are valid. Buy signals are ignored. The additional EMA is useful. It ensures that only positions in the direction of the trend are opened.

The second addition in ROCEMATrend is a stop at the same from the entry price as the target. Losing positions are closed sooner, reducing losses in the process. A stop equal to the target results in a return/risk ratio of 1. This is fairly low for a return/risk ratio.

Combining ROCEMA and ROCEMATrend

It is also possible to trade with a combination of both strategies. This combined strategy appears superior. From ROCEMA the exit based on the color change of the ROCEMA indicator is retained. From ROCEMATrend the 100-period EMA as trend filter is retained.

In this example of the combination strategy there are three signals. One buy, one short and, again, one buy.
The first buy signal occurs when the ROCEMA indicator crosses the zero line upwards. At that time the market price is above the 100-period EMA (yellow dotted line), validating the buy signal. The trader buys a position (+1). The open position is closed when the ROCEMA indicator changes color (0).

The second signal, a short sell signal, occurs when the ROCEMA indicator crosses the zero line downwards. However, at that time the market price is above the 100-periode EMA. Only buy signals are valid, short sell signals are to be ignored. The trader does not open a position.

The third signal is a buy signal. The market price at that time is above the 100-period EMA, validating the buy signal. The trader buys a position (+1). The open position is closed when the ROCEMA indicator changes color (0).

ROCEMA and WHS TechScan

It is also possible to apply the ROCEMA strategy on the basis of a 1-day time frame. The WHS TechScan scanner identifies on a daily basis all shares and indices which have either a ROCEMA buy or sell signal. The signals are in the "Trading Strategies" section.

 

Conclusion

ROCEMA and ROCEMATrend are good strategies for day trading and swing trading. It is, however, the third, combination strategy which appears to be the best. Applied to market indices this strategy gives about 2 to 3 signals per day.  Applied to shares the strategy gives 2 to 3 signals per week. So every day some trades can be done based on this strategy.

Practical implementation

In NanoTrader Full follow these steps:
  • Choose the instrument you wish to trade.

  • Open a chart with the study "WHS ROCEMA".

  • The strategy is set-up for position exits based on the Slow Stochastics.