Many a times we would have noticed the market trading range bound without much movement, however post 2 PM we have seen many times, market move in one sided direction when the day high or day low is broken.
It could be due to various reason like, the news that comes in during market hours, Geo political events that affect other international markets which in turn affects Indian markets or its the time European markets opens up and fresh inflows occur.
What if we could ignore all the noise till 2 pm, and then trade the day high or low breakouts. It would be much easier for traders, as we don’t need to sit in front of terminal all the time, we just place the orders at 2 pm and carry on with our work.
So the rules of the game is
- Check Bank Nifty day high and day low at 2 PM
- Buy when day high is crossed and Short when day low is crossed, exit at 3:20 PM or when stop loss is hit.
- Place SL-M orders for both Buy(day high as entry ) & Sell (day low as entry) at 2 PM and relax.
When market starts trending after 2pm, it could trigger any of the order and the other order will act as a stop loss. or you can also keep a fixed stop loss of 0.5%. In the above example, on 26th April 2018, Bank Nifty crossed the day high after 2PM, which triggered Buy order and by 3:20 PM, the position has been squared off in profit.
Here’s another example, on March 6th 2018, Bank Nifty broke its day low after 2 PM and ended up with huge profits by 3:20 when we closed the intraday position.
And remember, not every trades end up in profits. Sometimes, you need to face losses as well but those are limited. In the below trade, after initial buy trigger, it hit stop loss and short trade was triggered which ended up in minimal loss by end of the day when position was squared off.
I have tested this scenario with last 9 years of historical data (From 2010–2018).
Here’s the backtest results. The system has given more than 17,000 points in last 9 years. Most of the best successful traders have winning ratio of less than 50%, even in this system we just have 48% winning ratio. But that doesn’t matter.
Max loss in a trade has not exceeded more than -130 points. Risk reward ratio is also good. Out of more than 2200 trading days, only 50% of the time trade has triggered. I haven’t considered transaction cost & slippages, so we need to deduct some % from over all profits and which in turn could increase draw down slightly higher.
Remember Bank Nifty was trading around 10000 few years before, if we face 100 points loss, it is -1% of Bank Nifty value. However, if we face the same 100 points loss now when Bank Nifty is trading around 26000, it is just 0.4%. So maximum draw down, I have calculated in points wise and % wise.
The monthly profit seems to be consistent, where when we have bigger volatility days, profits are really huge.
And look at the yearly profits, seems to be a great result. However, year 2017 seems to be bad, a flat year when index made more huge movement in 2017 and when mutual fund made high returns in 2017, this strategy under performed. Its mainly because of drastic reduction in volatility last year, remember volatility is the friend of day traders, we need huge movements to make high returns. But still in less than 6 months in 2018, the returns are spectacular.
This strategy is good for beginners, day traders with minimal capital, where they can trade with a fixed target and make some quick bucks. However, as a fund manager , we at Squareoff.in would not be able to trade this strategy, as the draw down of 1000 points is way higher and its difficult to handle these down period when we trade with huge funds, as a fund manager I would prefer lesser volatility strategies with decent returns rather than aiming for higher returns.
If you are a aggressive trader with capital less than 50 lakhs, who can handle these fluctuations and consistently enter the traders with strict discipline, then there is some edge out there with this strategy. Go ahead and try it out.
The actual idea to this trading system was posted in a facebook group by a fellow member Mr. Manoj. I just analyzed the info with our historical data sets and published the information here.
We will implement an alert notification for this strategy and send automated instant order alert to our Telegram Channel subscribers, where they can place the order instantly at a click of a button from Telegram itself at free of cost.
Update: We have developed the bot to send Instant order alert, which would send alert at 2 PM to our Telegram channel. User can just click on it to place the order in their trading account. Click on this link to access the bot https://t.me/sqalerts
For more such information related to algo trading, mechanical trading system follow us at our Telegram Channel
Source: www.squareoff.in historical data