From a guy on Quora.
Thank You Anil for Asking me this Question. I have been a day trader for the first 6 years of my Stock Market career. I have worked with Large Financial Institutions as a trader starting with Jp Morgan in London, Invest smart in Mumbai and MF Global (Worlds largest derivatives Stock Broker). My Last job was in a hedge fund as a Global Equity Analyst - Guggenheim Parters. Today i am founder of Stallion Asset , India’s only Advisory company whose goal catch long term trend(bubbles). We were formed to create wealth for our clients and not just beat other classes.
I am a Chartered Market Technician (USA) and backtested atleast 1000+ technical Strategies. The one which i used to personally use was TRADING THE GAP. I have BackTested this strategy in various markets including the Nifty futures stocks, S&P 500 and FTSE 100.
Since i used it a lot in Indian Stock Markets, i will be using Indian data for this for the Answer. The Idea is to find out companies that will have a trend day or a large candle either Black (down) or White (up)
We are Hunting for a Trend Day, which is a very recurring pattern in the Stock Market. This is what a trend day looks like.
9.15 a.m.–9.25 a.m. - Find Stocks that Have opened with a GAP up or Down of more than 2%. Out of 200 FNO stocks, you have cut down your selection criteria to 3–4 stock. There is some news in this stock, or some large investor wants to buy large quantities in this stock and hence the GAP.
9.25 a.m–9.30a.m. - There will be 3 data point available 1) Volume. 2)High 3) Low. Volume has to be higher than previous days volume in 10–15 mins. Now keep a buying Stop Loss above the days High. Example yesterday stock A closed at 100, today it opened at 103 and in the first 10 mins made a low at 102.55 and High of 103.5. As soon as it crosses its 15 minute high of 103.5 buy it.
9.30am–3.30pm - Once the Buy order is triggered, Keep days low, or weighted average price (available on all trading software like zerodha, Sharekhan etc for free) as your Stop Loss. Keep Riding the stock until its 3.15 or your trailing stop loss is triggered.
Thats it, Very easy strategy with mind blowing results . This works on the Reverse Side as well when the stock opens down 2%, thought the results are better if you do it long only.
We have done a blacktest of this strategy taking for 1,000 trades and i have used it extensively when i was a trader.
The Results for the long only data were as follows
Trade Win% after Transaction Cost- 48%
Trade Loss% after Transaction Cost- 52%
Profit per Trade - 2.3%
Loss Per Trade- 0.7%
You have a automated Stop loss which is your weighted average price, as price of the stock increases during the day, so does your weighted average price (Stop loss). Use this system for a month, i never faced a draw down of more than 10% in my trading career.
You might be thinking if i was such a good trader, why did i move to start my company Stallion Asset which is into Long term investments?
This Strategy works only if you have less than 20–30 Lakhs rupees, because after that you start affected the volume of the stock, the stoploss doesn’t get triggered properly.
Incase you have any doubts on the Strategy, feel free to comment below.
Stallion Asset is an SEBI Registered (INH000002582) Independent Equity Advisory Company backed by experts who have huge experience in wealth creation in the Indian Stock Market. We are Specialist in buying high quality midcap companies that are often ignored by the analyst community. We have delivered 288% in last 3 years, and consistently created wealth for our clients.