ATR based High Probability Experimental AMO Trading Strategy

GuluGulu

Well-Known Member
#1
I am trading this Live on experimental basis for some days. This strategy is my brainchild. Although got some idea from other people's strategy. Improvement and critics are welcome.

ATR = Average True Range
AMO = After Market Order

Some Pros:
1. No Screen watching everyday. Place order only after markets. You can do your office work during market hours. Although you can squeeze more profit if you can watch the market. Otherwise require just half-an-hour every night to place those AMO.
2. High quality money-management built-in.
3. No fear of everyday market fluctuation.
4. Adjustable capital as per one's capacity as we can purchase only one share of any security.
5. Profit in ranging and up-trending market.
6. No guess-work about target and stop-loss.
7. Works beautiful for low brokerage firm like Zerodha.
8. Difficult to defeat by operators on everyday basis.

Some Cons:
1. Only Equity market - No FnO or Options.
2. Get rich slowly.
3. Stop loss in down-trending market only, as we are dealing with equity and can not short.
4. Less profit for high-brokerage firm.
5. Everyday you have to look at your Contract note and calculate your Buy/Sell and quantity of security - although easy if you do it in excel sheet.
6. Must need to access tools like Amibroker or Metastock on an EOD basis. More on this later.

So if there is three types of market, i.e. Up, Down and Sideways, you will make profit in two types whereas make loss in only down-trend market. Although if you simply buy equity, you will make loss in downtrend market.

This strategy has many components - it will be discussed part by part.
 
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GuluGulu

Well-Known Member
#2
Suppose you have 1 lakh of total capital to invest. Take 60% of it. This is the first step of MM (= Money Management). You now have 60K. Divide it, say in 6 parts each of 10K. This is 2nd step MM. Now you have 10K to invest in 6 different scripts. Up to this point...this looks conventional. Later, I shall modify this MM rule as required.

Now the first job is I have to buy 6 different securities. Now the big question is:

A. Which one should I buy?
B. At what price should I buy?
C. At what price should I sell?

Say, I buy SBIN with 10K valuation. (Why SBIN and what PARTICULAR price, I shall discuss later.) But I shall try to answer first...If I buy SBIN at a PARTICULAR price, where should I sell it.

Now fire up the EOD chart of SBIN in your Amibroker. Add a ATR(14) indicator. Visually scan the ATR for last four months for a rough Highest and Lowest value. So, see the ATR(14) of SBIN for July, August, Sept, October. High is 74.22 on 26th August, and Low is 52.22 on 22nd July.

Now make average of this. So 4 month Average ATR(14) of SBIN is 63.22. I name this value simply as ATR.

So, once I buy SBIN at a PARTICULAR price, my 1st target would be ATR/2 or roughly 32/-. Now, say, I bought SBIN @ 1915. (This is my actual trade. I bought SBIN @ 1915 on 17th Oct, 2011).

And subsequent target would be each ATR/2 step.

I assume this PARTICULAR price of 1915 as CENTER price. So for SBIN, the price range would be like below in both side:

1819 < 1851 < 1883 < CENTER 1915 > 1947 > 1979 > 2011 > 2043

Study the above table very carefully. I have given 3 values, 1883, 1851, 1819 which are ATR/2 step-by-step less than my buy CENTER price of 1915. And 4 targets of 1947, 1979, 2011, 2043.

Now the main formula of this strategy is what to do and how to do with these price levels.

This I will describe later.
 
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GuluGulu

Well-Known Member
#3
The method relies on many thing...Everyday market volatility, Money Management and some sort of GOLD Hedging that could introduced. Now first, Buy/Sell using market Volatility. I am giving real example which I traded actually. So it will be better to understand.

So, on 17th October, I bought 10K equivalent of SBIN @ 1915. I bought 4 SBIN. So, I bought 7660/- of SBIN which is less than 10K. So some money is still there. Keep it safe. I can only buy in multiples of 4, so next level is 8, which is 15,320/-, greater than 10K, so I can not buy at this stage as per MM.

The CENTER price buy quantity has to be divisible by 4

17th october at night, I put the following AMO, to be executed next day.

Sell 25% SBIN or 1 SBIN @ 1947
Sell Next 25% SBIN or 1 SBIN @ 1979
Sell Next 25% SBIN or 1 SBIN @ 2011
Sell Next 25% SBIN or 1 SBIN @ 2043

Buy 25% SBIN or 1 SBIN @ 1883
Buy next 25% SBIN or 1 SBIN @ 1851
Buy next 25% SBIN or 1 SBIN @ 1819

So, I am expecting a range of SBIN from 1819 to 2043 (Or 3.5*ATR) for few days which is a very much acceptable range.

If next day, instead of selling SBIN, price drops and buy executes one after another till 1819, the investment amount will come from your rest 40K capital which you kept safe at the very first stage.
 
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GuluGulu

Well-Known Member
#6
Many things can happen next day and subsequent day. My job would be just ... if higher level is executed ... buy the lower level....

So, next day, if 25% or 1 SBIN sells at 1947, immediately place BUY 25% or 1 SBIN @ next down level 1915, or if 25% or 1 SBIN bought @ 1883, immediately place SELL 25% or 1 SBIN @ next up level 1915

Below is my actual trade for SBIN:

18 October, SBI corrected, I kept on buying 1 each SBIN @ 1883 & 1851 level. immediately after buy, I placed sell order of each @ just ATR/2 up level and 1 SBIN which bought @ 1851, sold @ next up level 1883. SBIN remain in hand = 5. Profit 32/-

19 October, 1 SBIN sold @ next up level 1915 which I bought @ 1883 the day before. Profit 32/-. SBIN remain in hand = 4. This is the point to note. See, I still have 4 SBIN @ around CENTER price, same quantity and price as of 17th October - but already made a profit of 64/- due to the volatility in SBIN.

20 October, No trade, because my first sell would be @ 1947 or first buy would be @ 1883. SBIN moved between 1886.7 & 1940.

21 October, 1 SBIN sold @ 1947. SBIN remain in hand = 3. Profit 32/-

24 October, 1 SBIN sold @ 1979. SBIN remain in hand = 2. Profit 32/- Later that day SBIN fell and I kept buying at those levels and end up buying @ 1947 and 1915. SBIN remain in hand = 4 in the CENTER price band.. Made a profit of 32/-. Total profit made 128/- and still in the CENTER price band.

25 October, RBI day. When the 25bps hike news came. Nifty as well as SBI spiked up briefly and 1 SBIN sold @ 1947, which was bought @ 1915 on 24th October. Then again bad day for SBIN, SBIN falling like a dagger, kept on buying 1 each @ 1883 and 1851 level. Profit 32/-. Total profit made 160/-. SBIN remain in hand = 5

26 October, Muhurat day. Nothing happened...because SBIN didn't touched either 1819 or 1883 level. SBIN remain in hand = 5
 
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GuluGulu

Well-Known Member
#7
My last buy level is at 1819. SBIN till now has not reached there. One level below this level is 1787 which is the STOP-LOSS level for this entire SBIN thing.
So, lets assume SBIN tomorrow reaches 1787...what would have happen:

Case 1.
If I would have just buy and hold 7 SBIN @ CENTER price 1915/- and stop lossed @ 1787/-, total loss would have been 896/- out of my total investment of 7 x 1915 = 13405/-

Why I am assuming 7 SBIN I could have bought @ 1915/-? Because, at the very initial stage when I have 1 lakh capital, as a layman investor, I could have divided them into 6 parts each worth 16667/- and bought equivalent shares of SBIN, INFY, LT, SAIL, GOLDBEES...etc....whatever six I wish. Still not a bad MM.

But In our case, I have taken different approach as outlined above, lets see what happens next.

Case 2.
BUY DATE PRICE QTY
17.10.11 1915 4
18.10.11 1883 1
18.10.11 1851 1
24.10.11 1947 1
24.10.11 1915 1
25.10.11 1883 1
25.10.11 1851 1

Total Buy Qty 10 @ average 1899/- each.
 
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vinst

Well-Known Member
#9
Suppose you have 1 lakh of total capital to invest. Take 60% of it. This is the first step of MM (= Money Management). You now have 60K. Divide it, say in 6 parts each of 10K. This is 2nd step MM. Now you have 10K to invest in 6 different scripts. Up to this point...this looks conventional. Later, I shall modify this MM rule as required.

Now the first job is I have to buy 6 different securities. Now the big question is:

A. Which one should I buy?
B. At what price should I buy?
C. At what price should I sell?

Say, I buy SBIN with 10K valuation. (Why SBIN and what PARTICULAR price, I shall discuss later.) But I shall try to answer first...If I buy SBIN at a PARTICULAR price, where should I sell it.

Now fire up the EOD chart of SBIN in your Amibroker. Add a ATR(14) indicator. Visually scan the ATR for last four months for a rough Highest and Lowest value. So, see the ATR(14) of SBIN for July, August, Sept, October. High is 74.22 on 26th August, and Low is 52.22 on 22nd July.

Now make average of this. So 4 month Average ATR(14) of SBIN is 63.22. I name this value simply as ATR.

So, once I buy SBIN at a PARTICULAR price, my 1st target would be ATR/2 or roughly 32/-. Now, say, I bought SBIN @ 1915. (This is my actual trade. I bought SBIN @ 1915 on 17th Oct, 2011).

And subsequent target would be each ATR/2 step.

I assume this PARTICULAR price of 1915 as CENTER price. So for SBIN, the price range would be like below in both side:

1819 < 1851 < 1883 < CENTER 1915 > 1947 > 1979 > 2011 > 2043

Study the above table very carefully. I have given 3 values, 1883, 1851, 1819 which are ATR/2 step-by-step less than my buy CENTER price of 1915. And 4 targets of 1947, 1979, 2011, 2043.

Now the main formula of this strategy is what to do and how to do with these price levels.

This I will describe later.
Plan looks good but hinges on what is bought and when. e.g., why was SBI bot on 17-oct?
 

GuluGulu

Well-Known Member
#10
SELL DATE PRICE QTY
18.10.11 1883 1
19.10.11 1915 1
21.10.11 1947 1
24.10.11 1979 1
25.10.11 1947 1

Total Sell Qty 5 @ 1934.2

So, Effective 5 SBIN in hand till date is bought @ average 1863.8/- considering the 35.2/- average profit made in the BUY-SELL process. (1899-35.2=1863.8)

Now lets consider next day on 28th October, 2011 SBIN kept falling, touched all three levels up to stop loss: 1883, 1851, 1819 & 1787 SL level.

As per rules, I have added 25% or 1 SBIN @ each level and booked loss @ 1787.

At 1819 last buying level, I shall have 5+1+1+1=8 SBIN in hand with average buy price of 1859/-

Did you noticed how the buying level was lowered in Case 2 compared to Case 1 where buying level was directly 1915/-

So, the stop-loss amount would be 1859-1787= 72/- in case of Case 2 and 1915-1787= 128/- in case of Case 1.

So in Case 2, we are winning by 56/- for each SBIN for same initial buy and final stop-loss level.

Someone has asked why SBIN on 17th October....if you or he could have read the post attentively, you would have noticed that I mentioned I shall answer this question later at a particular point.

Disclaimer: I want to tell everybody, this method is experimental, and not for everyone passing-by. This is a very large process. You have to understand every minute detail of the total game-plan step-by-step with cool brain and then decide to apply. You are always responsible for your own trading deceission.

There are many flexibility in the methodology I am going to discuss as per one's own choice. (For example, as per your own appetite you can modify stop-loss and take-profit level to ATR/3, ATR/4 etc. if you can not tolerate huge stop-loss that will ocur sometime. If one is very brave, he can even change this to 2ATR or 3ATR.)

Whatever I have discussed till now is just 20% of the methodology.
 

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