SH's MArket Correction Prediction Strategy

[anup]

OK dude - here you go.

How to earn 25% to 50% ROI per trade twice every year


First of all, the trades are done in options. If you invest 50K in buying options, you can expect the options to become 60K to 70K within a month (sometimes more!) and hence 25% - 50% returns on investment. Anyone ready to invest larger amounts, My suggestion would be to start booking gradual profits starting from 10% onwards.

Success Ratio is again above 90% (based on my backtest which is usually pretty RAW since I dont know how to build AFLs etc). I am more than happy to be standing corrected if success ratio is lower than that.

This is also a market neautral strategy i.e it doesnt matter whether market goes up or down .. a trader will still earn.


Trade Setup


Ok - I have already explained how NIfty Futures likes to return to some key EMAs within a definite period of time.

One of the key EMA is 100 EMA which Nifty has to retest within 6-7 months. HOwever please note .. Nifty HATES 100 EMA ... i.e it doesnt like to stick around 100 EMA for long. It will either shoot back towards the main trend after getting resisted/supported by 100 EMA or if its a reversal it will shoot off in the opposite direction.

The key word is it 'shoots off' in one direction or the other but in no way it will stick around 100 EMA for long.

Now once we know this, how do we exploit this knowledge to our advantage?? Simple... As soon as Nifty touches 100 EMA ... we buy OTM (out of money) calls and puts both and hold until one of them becomes ITM (In the money). As soon as one of the option becomes ITM .. it will give you 25% to 50% returns over investment (even if the other option leg is expiring worthless).

For eg look at 3rd Nov candle which retested 100 EMA at 4650 odd levels. At that point one can buy 4800 Calls and 4500 Puts and hold. Since it was start of the month these options would not have costed more that 50-60 odd points each or Total investment of Rs 5000-6000 per pair of call and put taken together.

Now since Nifty hated 100 EMA.. it jumped back in the direction of the main trend making a high of 5024 on 11th November. At this point our 4800 call was selling for 200+ points and our puts were almost worthless. If we square off both calls and puts at that stage we get Rs 10000 per pair which is a WHOPPING 100% returns on investment.

I actually did not wait until 11th Nov but I squared off my option pairs on 9th Nov when Nifty touched 4850 levels and was satisfied with 50%+ profits.

Similarly you can check out what happened after 24th March when 100 EMA was touched at around 2990. After 9 trading days Nifty was sitting pretty at 3350 levels again generating awesome ROI.

you see the game plan?? :lol: The thumb rule is as soon as NIfty has moved 5% -6% in any direction after kissing 100 EMA .. your market neautral option strategy should be in 25% profits or above.

Thats how you can get 25% to 50% ROI atleast twice an year (since we know every 6th-7th month 100 EMA will have to be retested).

Happy Backtesting again :thumb:

Cheers
SH

Dear Anil,

Few points regarding the chart posted by you in your previous post:

1.The chart posted by you is weekly chart. As per SH it is the daily chart movement
2.You have taken the DMA instead of EMA. Does the 100 EMA rule holds good for 100 DMA too?

I have quoted the SH's rule. Please let me know if I am wrong

 

[rajesh0000]

Reversion to Mean rules for NIFTY

- Nifty futures price has to revert to 3 EMA within a maximum of 3 days before it goes anywhere else.

- Nifty futures price has to revert to 15 EMA within a maximum of 6 weeks before it goes anywhere else..

- NIfty Futures price has to revert to 34 EMA within a maximum of 16-18 weeks (4 months) before it goes anywhere else.

- NIfty Futures price has to revert to 100 EMA within a maximum of 28 weeks before it goes anywhere else. (7 months)

SH

Is this strategy valid at present ?
The EMA mentioned is on daily closing basis ?

Thanks
Rajesh

 

[timepass]

Is this strategy valid at present ?
The EMA mentioned is on daily closing basis ?

Thanks
Rajesh

As valid for nifty as it was years ago, please read post no. 1 of this thread.

 

[anilnegi]

Dear Anil,

Few points regarding the chart posted by you in your previous post:

1.The chart posted by you is weekly chart. As per SH it is the daily chart movement
2.You have taken the DMA instead of EMA. Does the 100 EMA rule holds good for 100 DMA too?

I have quoted the SH's rule. Please let me know if I am wrong

Hello anup

Though i did not trade on this basis, but as per Sh higher the time frame lesser the whipsaw, so i post weekly chart i think the reaction will be huge, moreover, if you trade on this basis do profit booking as nothing is certain in the market,

Profit is always what u booked not what u saw on screen
thanks

 

[timepass]

Ok, I know that these rules are supposed to be for nifty only, but just noting down that Tatamotors hasn't touched its 34ema since April.

Maybe 350 is a fair target.

34 ema touched !!

Let's keep an eye on the 100ema, though it still has about 2 months more to go.

 

[Riskyman]

34 ema touched !!

Let's keep an eye on the 100ema, though it still has about 2 months more to go.

Lets assume that price from here on doesnt move up nor down and trends only sideways. In this case the 100 ema will start to drop down significantly over the next 2 months. What then? Is it prices reverting to the ema? or ema running to the price? Curious.

 

[timepass]

Lets assume that price from here on doesnt move up nor down and trends only sideways. In this case the 100 ema will start to drop down significantly over the next 2 months. What then? Is it prices reverting to the ema? or ema running to the price? Curious.

Its just the confirmation of a trading technique

 

[Fundootrader]

Any rules to go with these to prevent situations of whiplashes. Doing back testing I have seen number of times reversals very shortly post the crossovers

 

[trade4putuval]

Hi TP,

I have seen worst cases where stocks have continued to evade 100ema for more than 2 months after the expected time duration. You can back test on large cap stocks like Infy, HCL and SBIN. It was kind of pain waiting every day expecting some movement towards 100ema, where in fact, the price always tended to go opposite the 100ema everytime we expect it to go for 100ema.

What I want to say here, is we need to tweak the rule a bit for stocks, maybe make it a longer duration for stocks of course, depending on the kind of stock you are looking into (Specifically mention highly liquid stocks). Otherwise as you said, this rule is applicable only for Nifty and Bank Nifty .

 

[Vijay11]

Sir,
The theory is just wonderful. I am glad to have read it.

Regards.