NIFTY Futures Mechanical Trading
- Thread starter nadodav
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Bought Nifty @ 3490.65..... just didn't get time during the day, I lost the 100+ point rally to getting stuck in meetings and working my ass off other things till it finally dawned on me that in the morning I had seen a 8% fall, by the time I got to the screen my order got placed it was too late, but none the less I'm playing for the next 100 points I see by friday 10th Oct, and mayb will hold on till Monday. Looking for the rally to fizzle out somewhere bet. 3700- 3800 short term levels.
Correct me if I'm wrong but wouldn't this strategy have bene short through this fall? It's a remarkable strategy - and would have likely made over 600 points.
I think the 500 point stop is too narrow for it. I would put a higher stop on it. How to calculate stops? It's usually a function of how much you allocate to it per lot. One lot of nifty exposes you to Rs. 2 lakhs (at 4000 nifty). typical margins required by brokers are only 20K, but you should allocate more for things like drawdowns. Assume you have 2x leverage, you should allocate Rs. 100,000 (One lakh) per lot.
The total money earned then, for one lot, is 1600 x 50 = 80K. That's an 80% return. Max drawdown is, let's say, was 600 points. That is 30K. You get 80K return for 30K risk, which is a "bliss" factor of 2.66. Typical blisses of even 1.5 are considered good.
But this means you have to increase the drawdown risk - I would say keep it at 800 points. that gives you a 2x bliss. And if you back test it further you can find out if 800 points would have been violated too.
Further you can do position sizing and manage risk. Position sizing is applicable at higher money levels. Say you have 10 lakhs. You would initially take 10 lots. Then let's say you have a 200 point drawdown. You will then have lost Rs. 1 lakh, so now you will take on only 9 lots. The subsequent 200 points you lose on 90,000, then you take on 8 lots, etc. That way you keep reducing exposure naturally on a drawdown, and increase when you scale up.
A system will consist not just of entries and exits, but a comprehensive back test, a reasonable position sizing method, and a way to keep the system parameters stable (retesting).
When you do this, a 100 point stop and reverse is not big. For a 1 lakh allocation, a 100 point stop loss is Rs. 5000 - a 5% stop loss. Which looks much smaller than if you think of a 20 k margin per lot (there it looks like 25% stop loss!)
Perhaps this system should not be tried without 1 lakh capital because then it becomes too risky. But overall it's looking quite good - I hope you continue.
I think the 500 point stop is too narrow for it. I would put a higher stop on it. How to calculate stops? It's usually a function of how much you allocate to it per lot. One lot of nifty exposes you to Rs. 2 lakhs (at 4000 nifty). typical margins required by brokers are only 20K, but you should allocate more for things like drawdowns. Assume you have 2x leverage, you should allocate Rs. 100,000 (One lakh) per lot.
The total money earned then, for one lot, is 1600 x 50 = 80K. That's an 80% return. Max drawdown is, let's say, was 600 points. That is 30K. You get 80K return for 30K risk, which is a "bliss" factor of 2.66. Typical blisses of even 1.5 are considered good.
But this means you have to increase the drawdown risk - I would say keep it at 800 points. that gives you a 2x bliss. And if you back test it further you can find out if 800 points would have been violated too.
Further you can do position sizing and manage risk. Position sizing is applicable at higher money levels. Say you have 10 lakhs. You would initially take 10 lots. Then let's say you have a 200 point drawdown. You will then have lost Rs. 1 lakh, so now you will take on only 9 lots. The subsequent 200 points you lose on 90,000, then you take on 8 lots, etc. That way you keep reducing exposure naturally on a drawdown, and increase when you scale up.
A system will consist not just of entries and exits, but a comprehensive back test, a reasonable position sizing method, and a way to keep the system parameters stable (retesting).
When you do this, a 100 point stop and reverse is not big. For a 1 lakh allocation, a 100 point stop loss is Rs. 5000 - a 5% stop loss. Which looks much smaller than if you think of a 20 k margin per lot (there it looks like 25% stop loss!)
Perhaps this system should not be tried without 1 lakh capital because then it becomes too risky. But overall it's looking quite good - I hope you continue.
ucalegon,
Ok but the problem is if you got a couple of swings in between BUY and Stoploss...
Then the result will be Reducing exposure from 10lots...then increasing when goes up...
Think that will eat a alot money as loss and as brokerage as well.
I will be better to consider that too.
Hope I have said it from my understanding. If not please advice.
Hari.
Ok but the problem is if you got a couple of swings in between BUY and Stoploss...
Then the result will be Reducing exposure from 10lots...then increasing when goes up...
Think that will eat a alot money as loss and as brokerage as well.
I will be better to consider that too.
Hope I have said it from my understanding. If not please advice.
Hari.
Yes, you will reduce exposure automatically. Funda is you trade smaller automatically in drawdowns, and larger when you're winning.
You always have to look ahead. If you are losing, why trade more until you know you are winning? If you win one and lose one, that is fine - but a trend following system will have some big wins, and some small losses. Usually if you notice, the big wins will come one after the other. So you compound properly as you scale and book profits.
If you trade fixed lots then either you will run out of money if you over leverage, or you will never take advantage of compounding.
The funda is: First figure out how mcuh capital you will allocate per lot. If you decide on a 2x leverage, then you can take only 1 lot per lakh. That is even if your broker takes only 20,000 as margin - that doesn't matter.
If you have 10 lakhs, you take 10 lots. A lot of people take on 40-45 lots with 10 lakhs, to maximize margin - but that is ridiculous leverage.
Brokerage will actually reduce, if you work on this perspective rather than margins because exposure is lesser.
- Deepak
You always have to look ahead. If you are losing, why trade more until you know you are winning? If you win one and lose one, that is fine - but a trend following system will have some big wins, and some small losses. Usually if you notice, the big wins will come one after the other. So you compound properly as you scale and book profits.
If you trade fixed lots then either you will run out of money if you over leverage, or you will never take advantage of compounding.
The funda is: First figure out how mcuh capital you will allocate per lot. If you decide on a 2x leverage, then you can take only 1 lot per lakh. That is even if your broker takes only 20,000 as margin - that doesn't matter.
If you have 10 lakhs, you take 10 lots. A lot of people take on 40-45 lots with 10 lakhs, to maximize margin - but that is ridiculous leverage.
Brokerage will actually reduce, if you work on this perspective rather than margins because exposure is lesser.
- Deepak
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