NIFTY Futures Mechanical Trading

marcus · #**301** 9th February 2008, 11:24 PM

Quote:

Originally Posted by zeekid

Thanks a lot marcus....sure it helped!

but, can I ask for more? marcus, can you explain with a practical example of how we (vinod) cud have protected the erosion of abt 200+ pts. in nifty on Feb 7? You hv also mentioned :
and, what wud be the cost of this (i.e. hedging with the help of options?

And, I do hope Vinod does not mind, as I am using his thread for different subject (but related).

Nitesh

nitesh i am not able to follow the question

you said erosion of 200 points profit on feb 7 but Vinay didn't take any position on feb7 there has been no claculation for feb 7 and he hasn't given any profit or loss at the end of the day he has decided not to enter a trade and stay out of the markets, do you mean feb 6th?

can you clarify

marcus · #**302** 9th February 2008, 11:41 PM

Quote:

Originally Posted by ravalsb

This is out of the scope of Mechanical Trading as it might be suitable for one of such cases, but cannot be applied as a rule for all trades that we take.

Marcus, can options stragety be incorporated in mechanical trading by rule of thumb. If yes, then only its worth the effort.

Regards

I don't believe hedging is out of the scope of mechanical trading but this is my personal opinion, see it depends on your trading philosophy, my philosophy may be different from Nadodav, Vinod may believe it is better not to hedge against gaps as gaps can be profitable or detrimental and maybe in his experience in the past they have proved to be more profitable than detremental, only he can tell us that.

I believe one should follow the rule in trading which states conservation of capital and never let a profitable trade turn into a losing trade. The reason I believe this is because I first came across it in Elders book and then when I read the three market wizards book the only thing I found all the wizards agreed on was never letting a winning trade turn into a loss (this is different from setting an initial stop), they disagreed on everything else, techniques, analysis, theories et. I found all good systems do not have more than a 25% drawdown at the maximum this is rare generally they are well within 20%. If one studies the effects of drawdown one will understand why. Seeing the time, effort and dedication Nadodav has put into his system it is it is saddening to see him lose 50% of his profits. So its my personal opinion that it is better to hedge atleast against gaps, so what if we loose the chance to make more, atleast we protect what we have, and he has made a reasonable amount in a short period of time. All we have to do is buy an option just before close and sell it next morning and this will protect us from gaps which have so far proved more detremental than profitable.

zeekid · #**303** 10th February 2008, 02:54 PM

Quote:

Originally Posted by marcus

do you mean feb 6th?

can you clarify

yes, I'm sorry - it was the 6th of Feb that market opened with a huge gap-down and not 7th.

Now according to the options strategy that you have suggested, can you explain with a practical example, what option trade should have been taken (on 5th Feb) to keep most of the profit intact that is made till the EoD on 5th Feb? (not knowing ofcourse, how the markets will open on 6th)

Nitesh

nadodav · #**304** 11th February 2008, 08:11 PM

Dear Marcus, Zeekid, Ravalsb

Let me put my thoughts on hedging with options.

Gap-up or gap-down opening will be either in favout of you or it will against you. so overall at the end of say a year, there will not be much impact on your overall results. In case of strong trend, gap-up or gap-down happnes quite few days in your favour too.

We don't know how market will open next day whether it will open with gap-up or gap-down as our market is following purely global markets. So it would be difficult to buy options everyday to protect opening gap losses. but yes, in certain time like this and some cases, it may work well but overall, it will be not of much help. Instead, hedging can work better if we hold options instead of just buying at close and selling at next day open. I prefer to hedge profit and not the losses as in case of losses, we will be stopped out. While in case of profit, we can use options to lock profit whenever we have good amount of profit. but again, there will be two possibilities either you have to suffer of your hedging cost or your profit will be protected. I believe, that options heding should not be done with each and every trade with mechanical trading but should be done only to protect large gains. If we try to protect our positions from the begining of each trade, than it will also eats up your gains considerably.

Thanks & Regards,

Vinod

nadodav · #**305** 11th February 2008, 08:18 PM

NIFTY FUTURE For February 12,

Current position : NIL

Nifty Fut Closed at : 4810.55

Net Profit / (Loss) since thread started : +926

Support : 4772
Resistance : 5002

All new members visiting first time are requested to read all messages start from first one before going ahead.

Happy Trading.

Vinod

arjit · #**306** 11th February 2008, 09:51 PM

Mr.Vinod,When will you take any position?I am waiting very eagerly.Your supp. and resi. are too good.Thanks. Ajay

debdeeps · #**307** 11th February 2008, 10:44 PM

Quote:

Originally Posted by nadodav

NIFTY FUTURE For February 12,

Current position : NIL

Nifty Fut Closed at : 4810.55

Net Profit / (Loss) since thread started : +926

Support : 4772
Resistance : 5002

All new members visiting first time are requested to read all messages start from first one before going ahead.

Happy Trading.

Vinod

Hi Vinod,
My indiabulls terminal is showing that Nifty Fut Closed at : 4781.1
Thanks,

marcus · #**308** 11th February 2008, 11:53 PM

Quote:

Originally Posted by zeekid

yes, I'm sorry - it was the 6th of Feb that market opened with a huge gap-down and not 7th.

Now according to the options strategy that you have suggested, can you explain with a practical example, what option trade should have been taken (on 5th Feb) to keep most of the profit intact that is made till the EoD on 5th Feb? (not knowing ofcourse, how the markets will open on 6th)

Nitesh

On feb 5th nifty closed at 5480.95 assume you were long one lot the next day it opened at 5255.0 so due to the gap down you would have lost 225.95 or Rs11297.5/-

If we wanted to lock in our profits and protect ourselves against gaps then just before the close on 5th we could buy one lot of nifty PE of delta near one(approx) at say strike price 5800 at premium of Rs410/- the next day open due to the gap down the premium is Rs570/- as the option gets deeper ITM so we have made a profit of Rs8000/- thereby reducing our overloss loss in futures position from the gap down from Rs11297/- to Rs3297/-

This is without using options s/w, with options software better hedging is possible if we can determine the value of the greeks and roughly estimate IV

marcus · #**309** 12th February 2008, 12:03 AM

Thanks for your opinion Vinod, the system is yours we are only attempting if possible to improve it if this is possible.

Quote:

Originally Posted by nadodav

Dear Marcus, Zeekid, Ravalsb

so overall at the end of say a year, there will not be much impact on your overall results. In case of strong trend, gap-up or gap-down happnes quite few days in your favour too.

Are you sure at the end of the year gap downs will negate the gap ups?

I'm of the opinion gaps down would be more than gap ups,I am not sure about this is I have not calculated for myself but this is what my thinking tells me may be possible. Because declines are always sharper than rallies primarily because people tend to book profit during rallies and we may not see many large gap ups but during declines especially with short selling not being allowed in India in the past (I know its allowed now) gap downs are more severe and prone due to panic selling.

Generally slightly shorter term MA or rolling breakout period or exponential smoothing work better during corrections and downtrends than uptrends in trend following systems, this is because of the above reason.

Anyway happy trading!

nadodav · #**310** 12th February 2008, 10:17 AM

Quote:

Originally Posted by debdeeps

Hi Vinod,
My indiabulls terminal is showing that Nifty Fut Closed at : 4781.1
Thanks,

4781.1 may be last traded price. as per NSE's Daily Settlement Prices, Nifty Future closed at 4810.55

Vinod