Alpha Trade (Nifty and BankNifty)

[rebeck10]

Currently banknifty/nifty = 2.05 .

This clearly indicates the banknifty is overbrought and should be sold and nifty brought , inorder to return to the historic static mean of 1.9 .

I am gonna sell 1 lot Banknifty future 29 May and buy 1 lot of Nifty future of 29 May contract.
I am expecting a gain of 10 K , currently banknifty 14800 and nifty 7200 , imbalance of 400 pts on banknifty side.
My stoploss would be if the ratio tends towards 2.2.

Require your views on it.

 

[cloudTrader]

Currently banknifty/nifty = 2.05 .

This clearly indicates the banknifty is overbrought and should be sold and nifty brought , inorder to return to the historic static mean of 1.9 .

I am gonna sell 1 lot Banknifty future 29 May and buy 1 lot of Nifty future of 29 May contract.
I am expecting a gain of 10 K , currently banknifty 14800 and nifty 7200 , imbalance of 400 pts on banknifty side.
My stoploss would be if the ratio tends towards 2.2.

Require your views on it.

Can you mention some source of information about this method of trading ? How to decide the upper & lower boundaries for entries and exits ?
I have felt quite interested in this type of trading but not able to get any good information on the subject.

 

[rebeck10]

Can you mention some source of information about this method of trading ? How to decide the upper & lower boundaries for entries and exits ?
I have felt quite interested in this type of trading but not able to get any good information on the subject.

Check this article out, hope it helps
http://www.moneycontrol.com/mccode/news/article/article_pdf.php?autono=975810&num=0

 

[rebeck10]

Can you mention some source of information about this method of trading ? How to decide the upper & lower boundaries for entries and exits ?
I have felt quite interested in this type of trading but not able to get any good information on the subject.

If you see all the banknifty stocks are near their 52 week highs and in overbrought region. Generally there is a correlation between various indices . Using standard deviation of more than 10 years data , the correlation of nifty and bank nifty is determined to be 1.9 . When the ratio gains more or less than that , market arbiters jump to offset the imbalance. Due to this election rally , an imbalance was created and hence the situation has arisen.

 

[cloudTrader]

If you see all the banknifty stocks are near their 52 week highs and in overbrought region. Generally there is a correlation between various indices . Using standard deviation of more than 10 years data , the correlation of nifty and bank nifty is determined to be 1.9 . When the ratio gains more or less than that , market arbiters jump to offset the imbalance. Due to this election rally , an imbalance was created and hence the situation has arisen.

Today i.e. 19th May '14 , BNF had risen more than 2 % whereas Nifty has gone up just 0.33 % . So the correlation must have risen today . You mentioned in the first post that the stop loss could be at the ratio of 2.2 . Has it reached 2.2 today ?

 

[rebeck10]

Today i.e. 19th May '14 , BNF had risen more than 2 % whereas Nifty has gone up just 0.33 % . So the correlation must have risen today . You mentioned in the first post that the stop loss could be at the ratio of 2.2 . Has it reached 2.2 today ?

It around 2.09 , rise in PSU banks has pumped the rally. I am just waiting for the rally to dry down. Its already a 1000+ points up from the election day, there has to be some correction soon.

 

[cloudTrader]

It around 2.09 , rise in PSU banks has pumped the rally. I am just waiting for the rally to dry down. Its already a 1000+ points up from the election day, there has to be some correction soon.

As the Trend is highly Bullish , if suppose the ratio does not reduce considerably and your profit target is not met in this series and also the stop loss is intact as the difference does not increase as well then do you plan to rollover the positions to next month ?

 

[rebeck10]

As the Trend is highly Bullish , if suppose the ratio does not reduce considerably and your profit target is not met in this series and also the stop loss is intact as the difference does not increase as well then do you plan to rollover the positions to next month ?

If required , I might rollover. But if you see today's market, banknifty has already started falling down :clap: . Hope the ratio to correct in the next two days.

 

[amitrandive]

If you see all the banknifty stocks are near their 52 week highs and in overbrought region. Generally there is a correlation between various indices . Using standard deviation of more than 10 years data , the correlation of nifty and bank nifty is determined to be 1.9 . When the ratio gains more or less than that , market arbiters jump to offset the imbalance. Due to this election rally , an imbalance was created and hence the situation has arisen.

Great observation, can you post some charts on this ?

 

[rebeck10]

Great observation, can you post some charts on this ?

I have attached the snapshot . I had spotted the imbalance on friday. Monday morning, I didn't initiate the trade, cuz the market was quite buoyant but did it towards the end of the day. In the coming few day I will try to share backtesting results of this , so that someone can code an afl