I trade in the weekly Bank Nifty in the options market and stocks in the cash market. Many traders approach a strategy as trend following or one that is a reversal to the mean and then try to fit the back-tested data to the strategy. I, because of my statistics background am more comfortable dealing with data and deriving a strategy based on the output.
In Bank Nifty, I trade by selling options. It is known that selling options lead to money making two out of three times. So, I decided to work around options because of this bias. I downloaded around 14 years of data from the NSE site and got down to designing my strategy. I am basically a day-trader, so I was looking to design a system where I would make money in most days and lose only a small amount in days where I am wrong. I looked at the daily range but slightly different than how it is conventionally viewed. Rather than looking at the difference between high and low of the day, I looked at the difference between open and low and open and high.
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I plotted the data to get a normal distribution curve. What I found out was that in most cases, Bank Nifty does not move beyond 1 percent from their open. The data corroborated with the conventional wisdom that says that the market stays in a range 70 percent of the time. Using this information as the basis I designed my options strategy around it.
I also found out that I will make money by selling call and put options if I select strike prices beyond these one percent range. However, there was a problem. If the Bank Nifty goes in one direction and beyond the range, the strategy would lose months of profit in one day. I looked for other data points to protect myself.
I looked at open interest data to see where there is a position build-up and sell my options around them. In this strategy, which I currently trade, I have three stop losses conditions which take me out of the trade if I lose around 1. Using these stop losses, the strategy is now posting around percent annualized return.
Drawdown has never extended beyond 15 percent. Irrespective of the volatility level, the strategy has made money. The period when this strategy is making losses is when there is a volatility shift from a low volatility phase to high volatility. I start off the week with strangles but as the week progresses I take short straddle trades — selling call and put options at the same strike price.
I do not use option Greeks for my entry or exits, nor do I do any adjustments to my original position as that would require me to sit in front of the screen. What I have observed is that when Bank Nifty moves beyond one of my extremes, it can continue to move in the same direction. It is better to accept it and exit rather than firefight it. In the case of stocks, I trade in stocks which are in the derivative list.
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This way I do not have to worry about circuit filters preventing my exits. Here, my data analysis has gone against conventional wisdom. What I have found is that if a stock gaps up at the opening, irrespective of the trend, the price tends to come down. Similarly, if there is a gap down, its price tends to go up, irrespective of the trend. There is, however, a caveat here.
I optimize the gaps — for example, I will weed out stocks where the gap opening is only 0. Another strategy that I trade is by looking at the volatility file that is updated by NSE on its site during trading hours. I look for stocks where the volatility has gained the most but the stock is among the top losers. Such stocks tend to give explosive moves the next day or within a few days.
It is better to trade in these stocks than a fixed set of stocks. In positional trades in the cash market, I trade by buying high and selling higher. Here I look for stocks that are touching new all-time highs or week highs. I run a query at the end of the month to check out for such stocks. I then rank them based on the distance between the month end close and the 52 high levels.
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Suppose a stock made a high of but closed at , I divide the two to get a ratio of 1. I calculate the ratio of all such stocks and buy the five strongest ones and balance them on a quarterly basis giving them enough room to perform. This strategy is similar to the ones where relative momentum is used but here I enter a stock only when they were making week highs. When the market crashed in , there were no stocks touching week highs from February to April Relative momentum would have given some whipsaw trades. A: The Bank Nifty option strategies I trade have generated an average return of percent, without including the liquid bees which I use as margin.
Including Liquid Bees, the return moves up to 40 percent. In positional stocks also, the return is between percent. The trades are generally profitable 55 percent of the time and the average loss to win ratio is between The gap based strategy has a slightly higher return. A: My team and I have automated trading using the mobile app — Telegram. This way it becomes simpler to use for a retail trader. My site www. When you subscribe, you get a trading bot which essentially does the trading for you.
These are Black Box strategies. Rather than following the advisory method, we decided to use the trading bot route. When you buy an advisory service and get trading advice, by the time you enter the trade along with many others, you notice that price has already moved up. In the case of trading bots, you will get a link at am which you have to click, and enter your login and password. Then, one needs to enter his trading capital, risk percent, and profit percent and send the message to the broker.
Say if someone has a trading capital of Rs 1 lakh, he can enter that and mention a risk or stop loss level of 1 percent and a profit target of say 1 percent. The trade will be executed and if any of the two levels are hit, the trade is closed. Our trading bot is presently connected to two brokers — Zerodha and Upstox.
The Bots are available at a nominal one-time charge, plus there are many free trading bots available on the site. We have a team of five members who support the site. Subash Hundi, who heads the technology part of the business, used to be a branch manager with Karnataka Bank, which is just across the road from our office.
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A BITS-Pilani graduate, he is very strong technically and offered to work for free in order to learn the market. That's the level of passion in our team which works on something new continuously. A : We are working beyond price and volume by using alternate data sets. In a developed market, some large funds are using satellite images of the car parks outside Walmart to get an idea of how the company is doing. We have started using machine learning in our trading. Presently, we scan the stock exchange announcements. A company in India has to first notify the stock exchange before it is released to the media.
Recently, we saw that the breakup between Amararaja Batteries and Johnson Controls put up on the exchange and was covered by media after a lag.
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The stock plummeted only after the news was flashed on TV channels. If you are attentive and manage to do it faster than when it is made public there is a good opportunity to trade profitably. A: I prefer Quora over Twitter because it helps in explaining a concept clearly without having word count restrictions. Further, the Twitter world is too crowded and noisy. In Quora, I get the benefit of the experience of other traders and experts.
There are occasions when famous authors have come and corrected me or helped in clarifying my doubts. On Quora, I post strategies that I have back-tested. Even the ones that do not work have been posted so no one wastes their time behind it. I have posted over articles on Quora which has seen 5 million views.
A : For an aspiring trader, I would say always have a clear set of simple rules. Do not trade if you cannot explain in two lines.
The more you complicate, the less likely the strategy would work. Simply Save podcast: Home loan rates have fallen, but borrowers may not get the benefit. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express writtern permission of moneycontrol. Know More. Kirubakaran Rajendran: An options trader who chose the automation route to success It takes a lot to be a consistently successful trader.
Few traders have made it to the level where they can quit their jobs and trade on a full-time basis. Taking this freedom by many notches higher is Kirubakaran Rajendran, who designed bots to do his trading for him. Shishir Asthana. Related stories Shishir Asthana. Sushil Bhagat: An all-round investor, options trader and successful corporate executive.
Watch more Heat's up, so are the sales of AC companies. All followed these simple steps:. Step 3: Those two steps are of no use unless the trader is willing to put in the effort to achieve their trading goals. Another statistic is that learning to trade the stock market is a two-to-five-year experience.