Teach a Man to Fish – "Rise of Machines" version

[ag_fx]

Pre-Market Levels - 08-Jun-2020

Winners:
Indiusind Bank
SBIN
Bajaj Finance
IOC
Hindalco


Losers:
VEDL

No more losers as no stocks are negative in pre-open. My bias for intraday today - LONG

EOD Update

Winners/Longs
1. Indusind Bank - Long at 456. EOD Exit at 452
2. No Trade
3. Bajaj Finance - Long at 2518. EOD Exit: 2508
4. IOC - Long at 93.80 EOD Exit at 93
5. No Trade

Losers/Shorts
1. VEDL no trade


Thought - In the Loser scanner, no stocks that traded negative were taken. However, a market neutral approach suggests that in such a situation, lowest gainers could be looked to short. I haven't testing this hypothesis enough. Had we considered such stocks for shorting, then WIPRO, SHREECEM, DRREDDY,M&M would have been in short universe today.
WIPRO,DRREDDY would have had no trade.
SHREECEM would have made money. But one stock costs 22000 and thus unlikely tradeable.
Mahindra & Mahindra would have made some money.

Overall a flattish to slightly negative day.

 

[ag_fx]

Hi
Very nice thread for systematic trading.Thanks a lot for this thread & for sharing your knowledge.
I have some query for MM.
A) Suppose, OR is 10 points ..we allot 10K for every stock.So, is this 10k is risk of every trade.I meant shall we buy 1000 quantity of that stock for 10 point Opening range?
b) Or do you mean that we buy as much stock which total stock value is 10K.I mean suppose stock price is 1000 rs, so shall we buy 10 quantity , irrespective of OR size?

please tell more about how to calculate risk of trade? shall we not decide it on percentage of capital.?MM & Risk management is most important for that.
Thanks

The money management I suggested in original post was done with simplicity and basic thoughts in premise. The idea was to allocate 10,000 to your each stock. If stock level is 456 (Indusind example today), you look to buy 10,000/456=22 shares of the stock - irrespective of the Open range.

More sophisticated and may be more rewarding way is to manage the position size in terms of the risk. Something to which you alluded. That is, you decide your position size on the basis of your risk % per trade and Open Range. Example, today's Indusind Open range was 10 INR. If your trading capital is 1,00,000 INR and you wish to risk 2% of that on a trade, then your risk trade capital is 2000 INR. So you look to buy 2000/10 = 200 shares of the stock.

Both are valid money management approaches. Even though the system is systematic, different traders can apply it differently to suit their own style. I have provided here a kernel for people to think about systematic trading. There are many ways to come up with your daily bias too. there are many ways to decide on filters, on exits, on SLs.

I am glad people are asking questions and thinking about aspects of the system.

 

[ag_fx]

The money management I suggested in original post was done with simplicity and basic thoughts in premise. The idea was to allocate 10,000 to your each stock. If stock level is 456 (Indusind example today), you look to buy 10,000/456=22 shares of the stock - irrespective of the Open range.

More sophisticated and may be more rewarding way is to manage the position size in terms of the risk. Something to which you alluded. That is, you decide your position size on the basis of your risk % per trade and Open Range. Example, today's Indusind Open range was 10 INR. If your trading capital is 1,00,000 INR and you wish to risk 2% of that on a trade, then your risk trade capital is 2000 INR. So you look to buy 2000/10 = 200 shares of the stock.

Both are valid money management approaches. Even though the system is systematic, different traders can apply it differently to suit their own style. I have provided here a kernel for people to think about systematic trading. There are many ways to come up with your daily bias too. there are many ways to decide on filters, on exits, on SLs.

I am glad people are asking questions and thinking about aspects of the system.

On a second thought - I don't think any broker would allow that sort of leverage. That would mean 200x450=90,000 worth of stock exposure on 1 stock. You have 10 stocks and a trading capital of 1 lakh. Then perhaps in this case your per stock risk could be higher to fit into the leverage space.
The good part about Long-Short system is that it is highly unlikely that you would loose on ALL 10 trades in a day.
Just some thoughts.

 

[siddhant4u]

should it be Lower number between 10000/SharePrice= 22 AND 2000/RiskInvolved ?

because in second you could end up investing most of your capital in single stock!

another issue here, if I risk 2000 (2% of capital) in buying 22 stocks wouldn't be my Risk :Reward goes for toss? (genuine question from me, as I was struggling to find answer for this). Because many books/traders says RR should be 1:2 that means even for 1:1, I should be looking for 90 Rs profit!

 

[ag_fx]

should it be Lower number between 10000/SharePrice= 22 AND 2000/RiskInvolved ?

because in second you could end up investing most of your capital in single stock!

another issue here, if I risk 2000 (2% of capital) in buying 22 stocks wouldn't be my Risk :Reward goes for toss? (genuine question from me, as I was struggling to find answer for this). Because many books/traders says RR should be 1:2 that means even for 1:1, I should be looking for 90 Rs profit!

What I had spelled out was a simple money management technique. You divide your portfolio into 10 parts and invest that within each stock.

While, the second approach is more realistic, it will also lead to very high leverage. You can choose to risk only 0.25% if your capital on a trade. In that case, calculation would become 250/10=25 shares.

With 0.25% risk to each stock in a day and up to 10 stocks to trade, your max loss in a day will be 2.5% and way more manageable.

I dont understand how do you come up with 90 Rs profit with a 1:1 R:R. If your SL is 90 INR away, then only your 1:1 RR would mean minium 90 INR profit. Isn't it?

If you read the rules of the exit, it does say tiered exit at at least 50% at 2:1 R:R, then 25% at 4:1 R:R and 25% at 6:1 R:R. Overall, that maps to 4.5:1 of Reward:Risk.

 

[siddhant4u]

What I had spelled out was a simple money management technique. You divide your portfolio into 10 parts and invest that within each stock.

While, the second approach is more realistic, it will also lead to very high leverage. You can choose to risk only 0.25% if your capital on a trade. In that case, calculation would become 250/10=25 shares.

With 0.25% risk to each stock in a day and up to 10 stocks to trade, your max loss in a day will be 2.5% and way more manageable.

I dont understand how do you come up with 90 Rs profit with a 1:1 R:R. If your SL is 90 INR away, then only your 1:1 RR would mean minium 90 INR profit. Isn't it?

If you read the rules of the exit, it does say tiered exit at at least 50% at 2:1 R:R, then 25% at 4:1 R:R and 25% at 6:1 R:R. Overall, that maps to 4.5:1 of Reward:Risk.

my bad. I was thinking 2000 as risk for 22 shares.

 

[ag_fx]

Pre-Market Levels - 09-Jun-2020

Winners:
TATA Motors
Titan
Indusind Bank
UPL
SHREECEM


Losers:
NESTLEIND
WIPRO
DRREDDY
BHARTIAIRTEL
HCLTECH

 

[ag_fx]

Pre-Market Levels - 09-Jun-2020

Winners:
TATA Motors
Titan
Indusind Bank
UPL
SHREECEM


Losers:
NESTLEIND
WIPRO
DRREDDY
BHARTIAIRTEL
HCLTECH

EOD Update:
TATA Motors - Went Long and SL
Titan - No Trade
Indusind Bank - Long and Break Even exit at EOD
UPL - No Trade
SHREECEM - No trade

NESTLEIND - Went Short. Exit at EOD with 2:1 Reward:Risk
WIPRO - No Trade
DR REDDY - No Trade
BHARTI AIRTEL: Went Short and SL
HCLTECH: No Trade

Overall - BreakEven day with 4/10 stocks triggering trades. 2- SL, 1- BE, 1-2x TP

 

[hari78]

EOD Update:
TATA Motors - Went Long and SL
Titan - No Trade
Indusind Bank - Long and Break Even exit at EOD
UPL - No Trade
SHREECEM - No trade

NESTLEIND - Went Short. Exit at EOD with 2:1 Reward:Risk
WIPRO - No Trade
DR REDDY - No Trade
BHARTI AIRTEL: Went Short and SL
HCLTECH: No Trade

Overall - BreakEven day with 4/10 stocks triggering trades. 2- SL, 1- BE, 1-2x TP

Hi AG,

Nestle short triggered very late in the afternoon. R:R was not favorable.
No long trade in Tatamotors.
Wipro triggered a short trade. It went on to give more than 1:1 R:R
Airtel short triggered late in the evening and no SL. It went on to give 1:1 R:R

Hope I have corrected the errors. If not please explain the trades. It's a bit confusing.

Thanks for sharing a strategy.

 

[ag_fx]

You're right. Thanks for checking this independently. I guess i did not eye ball the correct day's chart. Yes Tatamotors - No trade. Nestle - again correct. Nothing until 14:45 and at that point there was no point taking a trade.

Airtel should have triggered at around 13.30 - so I would say that should be ok.

I will edit the EOD post later today.