In this post I will be talking about the bank nifty buying system based on momentum.
Instrument: Bank Nifty CE and PE weekly option which is trading near to premium of 100 point at 0935
Entry: Enter once only into CE and PE when their premium becomes 15% more than that at 0935.
E.g. say at 0935, 39500 PE is trading at 103.8 (closest to 100 point) and 41900 CE is trading at 108.5. So we will buy 39500 PE once it price reaches 1.15 * 103.8 ~ 119.4. 41900 CE will be entered once it reaches 108.5 * 1.15 ~ 124.8
Stop Loss - 25% of entry price
Trailing Stop Loss - Trail stop loss by 1% for every 1% increase in profit
Exit - Exit at 1515
Capital Needed: Assuming we will be buying option at average price of 115 and both CE and PE option can be traded at a given point of time so overall money need to buy the positions for 1 Lot of CE + 1 Lot of PE will be 115 * 2 * 25 = 5750. Now the drawdown for this strategy is 10k so thrice of that will be kept as buffer so trading capital for 1 lot should be around 35 K
Few traders decide the capital based on % of draw down or risk % they want to take. Capital in this case will be different. Few examples given below:
1. Based on drawdown % - Say I want to have a maximum drawdown of 10% only for a buying setup. In this case I will reserve a capital of 10 times the maximum drawdown for trading 1 lot of strategy so in this case the capital for this system will be 1 Lakh per lot
2. Based on risk %. Say I do not want to risk more than 2% of my capital in a trade. Lets calculate the risk on one trade on average. Assuming 115 as average entry price and on a given day both SL of CE/PE can be hit, maximum loss per lot (not considering slippages) can be = 0.25(SL) * 2 (CE & PE) * 115 (Premium) * 25 (Lot size) = 1437.5. So per lot capital which I need to have so that risk is 2% even in case of max loss = 1437.5*100/2 = 1437.5 * 50 = 71,875
Slippage considered: 0.5%
Note (24-12-2022): If you see the back testing results for this strategy you can find 2-3 months in an year > 4k which are mostly giving returns in this strategy. Other months are either negative or slightly positive. In actual trades these slightly positive months can become negative months because of slippages. Same can be seen by comparing back testing vs actual results as provided below.
Note (28-01-2023): I have made a change from 23-Jan-23 to trade only first entry. This is done to minimize drawdown.
Note (04-03-2023): Moved to trading both entries from 16-Feb-23
Note (30-04-2023): Trading only first entry from 17-Apr-23
Note(18-Jun-23) Stopped trading from 15-Jun-23 onwards
Quantiply Setup
(Updated as on 1 Sep 23 end of day for entry in first trade only)
Historical Trades
Note: The returns shown here are without any brokerage and charges.
Super analysis !!!
ReplyDeleteThanks
DeleteAs the stockmock backtest result works on close of the candle, can we set the quantiply setting of trailing frequency to 1 min instead of 7 seconds?
ReplyDeleteYes 1 minute trailing frequency should be good. I will try 1 minute only for actual trades and see how close they are coming to back test
DeleteSir, I have been observing some other buying systems followed in groups.. same strategy same algo giving profit in one account & loss in other account.. how this is possible.. if we run selling systems no such difference from account to account.. why variation from backtest to real & variation from account to account is more in only in buying.
ReplyDeleteIt all depends on kind of system being run. If it is a target based strategy then there are always chances of few people hitting target and few people hitting SL. This can be observed in selling strategies also. Also as most of the buy strategies are momentum or range breakout based, when that event happens the instrument is in a momentum and high slippage can be there. Some people might get a good price here and some not so good which can make the difference b/w hitting the target or SL in markets when trend is not continuous.
DeleteAwesome!
ReplyDeleteThanks
DeleteHow did you do the backtesting ? Which platform ?
ReplyDeleteAll of my back tests are from Stock Mock
DeleteThis is a good one to have in the bucket of strategies. Thanks Arun!
ReplyDeleteThere is a limit to how many times an algo can modify an SL order. Don't you think it will make sense to keep market order for exit in quantiply because we are trailing very aggresively?
ReplyDeleteYes that can be done. Is there any limit in Quantiply side on how many times it can modify SL order?
DeleteYes there is a broker level limit for modifying SL orders again and again. After too many repeated attempts, broker stops you from modifying that particular SL order. In this case, quantiply will just turn it into a market order whenever tsl gets hit.
DeleteHi Arun I have also backtested it and found that Major profits are on Mondays and Fridays........... However, max loss has been incurred in the strategy on a thursday.......... so is it okay being a systematic trader to not to deploy option buying setup on a thursday.........love to hear your view on it....
ReplyDeleteIf we have a trend following set up with open target then it has to be run on all days as trend can come on any day. However to minimize decay effect on Thursday, trade can be taken on next weekly expiry on Thursday. Few traders do like that. However this cannot be back tested on common algo platforms
DeleteAhh.... Yes.... That is a nice solution
DeleteNice strategy. Instead of trailing leg SL, if you use stockmock lock and trail feature, then the results may be better. For. e.g. if profits reaches Rs. 3000 then lock profit at 0 and thereafter trail Rs. 100 for every Rs. 100 profit.
ReplyDeleteTried that. It increases drawdown and returns are same only. In case some one wants to take take more risk, SL can be taken when instrument price closes below supertrend(10,3) on 5 minute candle time frame. This will act as TSL also.This week (19th Sep 22 - 23 Sep 22) it would have given good returns but not sure about other weeks.
DeleteI think that can now be tested on tradetrons new engine.., .. albeit they r charging now 🥹🥹🥹
ReplyDeleteany help in Tradetron coding the parameter for finding strike of 100 premium and increase in % premium would be grateful
ReplyDeleteSure. Will share a template to execute this kind of strategy in Tradetron also
DeleteIs there any template available?
DeleteThis comment has been removed by the author.
ReplyDeleteHI Arun, are you following the 25% SL with 1% trail? because most of the days if we use a target we would have got 50 points + , I am personally running this after seeing your post, and do you think it would be wise to capture that or just follow the system? Would like to know how you are keeping the SL
ReplyDeletehello, are you still using
DeleteYes I am trading it daily. Daily updates about strategies are available in my twitter profie -> https://twitter.com/arun1Bhatt
DeleteOne of the momentum setup also works good for 300 points, if price increase to 360 then with SL of 60 points which is MTM of 1500 can be entered and trail SL then. Exit is 1500
ReplyDeleteAnd if IV of calls are greater than puts then it good chances of going either sides.
ReplyDeleteSir,How is the returns now for this buying strategy in current VIX environment?Any updates?
ReplyDeleteToday was bumper return day for this strategy 14k per lot
DeleteSir the recent update on TRADE FIRST ENTRY - what does this signify ?
ReplyDeleteDoes this mean that if there are 2 legs of close to 100 premium and only CE side gets executed, we don't trade the PE side of leg and continue with the same trailing method of 1v1% ??
Yes it means only 1 leg will be traded. So if CE leg is entered first then PE leg will not be entered even if entry condition is satisfied for it. I have moved back to both legs entry as that one is more suitable for keeping draw down at lower values for my strategy basket
DeleteTHATS GREAT !
ReplyDeleteAlso could you please amplify on 1%vs1% TSL - does this mean that if BNF moved 1% from 9.35 entry the option should be trailed 1% from 9.35 entry.
Now in case of further upmove is the 1% TSL on option based on 9.35 entry or then new trailed value ??
Lets say that at 100 my entry triggered with 25% SL at 75
now BNF moved 1% so from where should we trail the SL from ??
75 OR 100?
Another doubt, the case where bnf moves 2% the TSL on 2nd instance will be from 75 or 100 ?
So I got to know fully about significance of 1% vs 1% TSL today only as today was one of those days where the option became 3x in price and I was monitoring how the TSL works. As my starting SL is 25% at each leg and then TSL is 1% vs 1% at 1 min interval, what it means that at any point of time the SL will be 25% below option max price observed at minute end. E.g. if at entry the option price is 100 and it moved to 300 at a minute end then when it is at 300 the SL will be set at 25% of 300 which is 75 point below 300 i.e. 225. Now if option price goes to 225 from here it will hit the SL at 225. However if Price moves to 400 then against SL will be set to 25% below 400 i.e. at 300
DeleteBut arun bhai one thing to notice here is.
DeleteThat TSL for SL is Calculated on last SL
And trailing of spot prices is calculated on spot ..
Both can be diff
Like 100 rs option bought and SL is 75
1% of 100 is 1 point
1% of 75 us 0.75 point..
You can check stockmock's TSL explanation video on YouTube for this
Yes that way only SL will always be 25% of high made at minute interval. E.g. in above case 100 rs option went to 200 which is 100% increase so SL will also increase by 100% i.e. 75 will become 150 so at this point SL is at 50 point from 200 which is 25% of 200
Delete1% trail i have monitored in live its gets thrown out in minor pullbacks before the trend starts and it happens quite often
ReplyDeleteYes it is there that in most of the cases before a solid trend is identified the strategy will be out of market. However this helps in minimizing the draw down. TSL can be moved to 10%/5% also but then draw down will increase
DeleteHi sir if I want to trade only on first entry what changes need to be done on quantiply setup
ReplyDeleteThere is a box before "Trade first entry only". Check that box and only first entry will be traded
DeleteBN LE 100 WT 2 PTS RE-EX-2 TSL 0919 MTM SL 900 ... is this the same strategy
ReplyDeleteNo. BN LE 100 PT Strategy link is -> https://arunstrategy.blogspot.com/2022/10/bank-nifty-100-point-strangle-re.html
Delete