Learn Rule Based Options Trading Strategy & Backtesting
hello friends this is vivek i hope all of you are doing good and taking care of yourself friends as you know in couple of previous videos of face to face we have been talking about rule based trading foreign so thank you so much for accepting these contents and spreading it with your friends and friends rule-based trading is extremely extremely important if you want to stay in market for longer period of time previous few videos were purely focused on setting up the process for you explaining how a rule-based trading can be applied and this video is again going to be an extension of previous two three videos except that previous two three videos were on hindi and i gave you an english transcript but this video is going to be in english and this is definitely going to be very very interesting video for people who are interested in setting up the process of rule-based trading for themselves so i thought i should invite someone who has been there done that who understands this process very well who has product which he has developed for people also to adopt that process so i'm very glad that today face to face will be with a person who understand things pretty well so let me invite you kiru as part of today's interaction on rule-based training hi hi how are you doing how are you i'm good i'm good thank you all well all well so i've taken the liberty to use a shorter form of your name i hope it is fine with you not a total problem it's really difficult to pronounce even i prefer that's it thank you so much so kiru uh i don't know how many how many videos of facebook you have seen but if you see for the last couple of videos i've been just focused on rule based trading and you know i recorded a video with vishal uh who happy to be good friend of yours and vishal said that who better than kiru to talk about rule-based trading and how to do it so here we are recording this awesome content with you that's great thanks for having me on this show awakening yeah i've been watching you know face to face for a couple of last couple of weeks and the emphasize that you have given on rule-based trading is really really important because 95 of the traders fail because only because they specifically trade based on random strategies or completely based on news based so the moment people move from news based to rule based everything gets changed so i really like that you have been giving importance to rule based training so and even this session will definitely cover all the important aspects about rule-based trading definitely people will find it useful i hope so absolutely i'm hundred percent confident about it so before we start the content discussions for strategic discussion trends i'm going to tell you that uh ketu has uh has agreed to share some strategies also so in the later part of the presentation you will see some strategies we actually he is using and he's going to share with us so hang on till the end this video can be an extended video so I hope you will stay to the end to take advantage of your strategies but before we get into that here we want to know about you your experience of life and why you are doing what you are doing right now sure actually i started trading in the year 2008 like when i was in the final years of college and that is when i started trading and back then 10 to 12 years before we don't have that much of resources back then the resources were very limited now we have so much of the resources people get confused so back then when i started trading like it all started in the year 2008 when i started going like it was in the final year of my college where i have to travel 30 minutes of my time to buzz like i have to take a government bus basically i am from almost middle class family where my father worked as a plug and my mom worked as a tailor so it was really hard during my early stage to give a proper education so finally when i was able to you know get into loyola college i graduated from loyola college from statistics so that is when i actually started getting into the markets so there was almost a 30 minutes of travel from my home to my college so one day i started reading economic times so that was the first start so i started reading economic times and day one i did not understand anything it was completely new to me i couldn't understand any of the judgments mentioned there then slowly you know this 30 minutes of travel which i do every day from my home to college i started reading more and more this economic times and whichever i do not understand i go back home at the end of the day and started reading about it and that is how it started the complete reading journey started and just like most of us back 10 years back we i opened an account with shaykh and then i started trading there so most of the people when they start opening in a continuous before it was 99 percent it will be a check now it will be with zero at that time it will be with sharekhan so I started trading then eventually I started i mean I was accepted in campus interviewing infosys so i moved to infosys and until then i was all 2008 i was just starting trading and it was just two weeks of time and the big crash happened the global financial crisis that happened in 2008 started just after i you know started trading two weeks and i lost all my capital then i started my journey after i joined infosys so in infosys that is when i started giving importance to automation like how it happened was in a process it was a routine job you have to log in every day and do the same work throughout the day and i was supporting some american client so i was working in the night and then i was known tracking the markets in the morning so that is how it started then what happened was i thought okay if i could automate this routine task i'll get more time reading the markets so i do not know more about computer science and coding because i'm from non-computer science background since i'm from statistics i do not know any coding so i started googling and learned myself all this coding stuff i started automating the normal routine tasks that i usually do so then it gave me so much of time and started reading more about markets then one day i started reading a book called how i made two million dollars by nicolas davos so that was the first book that i read which was completely rule-based book so which now it was all about a dancer who traveled all the way in the all-around world and he was able to make millions of dollars in 1970s 80s and that was a completely you know an enlightenment for me like how a guy who's who does not have any background for markets if he could make money then definitely anyone could make money following a role-based mechanism so from 2000 even though i started trading from 2008 only from 2014 i started getting into a rule based reading from newsbeat social so everything then changed slowly so that is how my complete trading journey started fantastic uh so right now obviously you are not working with any other firm and now you are a full-time trader and obviously an entrepreneur now right right right i've put my job in 2017 so i'll almost work for 10 12 years 90 then i quit my job then started focusing on both the things okay we will focus on algorithm because once you do this alpha trading and you start thinking okay if this is really helpful for one trader definitely it could help all other traders so i started quitting the job and you know focused on this square off spoiler of doubting is my website which you know is completely focused on algo trading so me and one more my partner who know me both started like i was starting up this company and i was running it on my own but this guy was from banking background all of a sudden he quit his job and he was nobody to join me so a guy who i do not know about anyone all of them will quit his job and started joining with me and now we started together that is how square of talking started and that's the your story is like a boy next door uh with a lot of aspirations and doing the right thing at the right time fantastic so let me just share make you the presenter now and you can start that knowledge sharing with the self software sure that'll start fine so as i you know gave an explanation i think the most of the thing i have introduction like we've covered it so we'll start with the agenda of this session so what we are specifically going to cover in this session is how to create a trading strategy and how to backtest it and finally how to automate it and then the list of mistakes that as a trader we should avoid so these are the complete things we are going to you know focus one by one on a slide to slide basis in case if you have any specific questions you can no stop me i'll try to explain that part if in case i'm going fast but i'm quite infamous to do that fine so the first thing is we i can definitely say data is the new oil so even uh no reliance mr mukesh ambani he even would acknowledge that because that is why he moved from petroleum to reliance so most of the things that now currently we are doing and what we were doing earlier is completely different now because when i started trading warren buffett was the only person like most of us whoever started trading at the beginning stage most of us would know definitely everybody knows where in buffer but the main thing with warren buffett was he'll always emphasize on reading about the balance sheets looking into the company's business like only investment in the company if you understood it definitely is a successful investor but it's completely all about fundamentals so 10 to 20 years before people were discussing all about balance sheets fundamental analysis but when i started trading in 2014 now jim simons is one no completely changed my thought process jim simons is also a famous you know a trader come investor who runs an h1 but with reward is what differentiate jim simons from warren buffett is jim simons is the only person 30 years before who started giving importance to quant based trading or investing so he was a piece basically a phd in mathematics who was working with the national security agency in u.s like he was actually worked with intelligence and then he quit his job and started focusing on markets in 1980s so since 1980s he is the only no h1 guy so h1 called renaissance technologies so this one completely focused only on data driven so when he started this h point he was able to collect under 200 years of dow jones and no american historical data and they were able to repeatedly search for a patterns which can appear you know over a longer period of time so they research no basically looking for certain repeated patterns which can happen in large data sets and finally they were able to create strategies out of it so that is how jim simon started his h5 and renaissance technology is h1n the medallion fund is one of the most performing top edge funds in the world because they were able to give consistent positive returns year on year for the last 20-30 years and with very least drawdown and their trading duration no changes from few minutes few seconds to just maximum two or three days so warren buffer who is basically a long-term investor here jim simons who is a short term and trader so this guy gave a belief that okay even trading money and making money and trading is also possible trading money in investing is also possible we just have to follow the right rules so that no it's not like only trading is good or only investing is good both are good if you follow the right approach so then that is when all these data analysis no data analytics and all the importance of giving to data started so then i remember in 2018 i guess yeah in 2018 i could remember s bank and dhfl both of this stock crashed more than 40 in one single day i remember it was i was actually trading that day and i could see in both all the news in all in channels it was only dhf and a stock like dhfl and s bank crashing more than 40 in one single day is a huge thing because until then it was called as a fundamentally you know strong stock but when it crashes more than 30 or 40 percent in one single day like people started panicking and more and more people and since it was not a part of you know i mean since it's a part of effeno stock there was no circuit filter so it started going down rapidly by the end of the day it almost flashed 40 percent and closed so that day what i did was instead of know looking for reasons why it has fallen down or why you know this kind of crash happened i immediately look out the past historical database so what i did was i checked what are the list of stocks which has passed more than 40 percent in one single day and what happened to those stocks eventually three years or five years down the line so if i could get this specific data analysis then i'll have an idea what could happen to dhfl and spec so that was the idea so when i started searching for it then eight to ten stops came in my list stocks like certain computers financial technologies core education so these are the 10 some 10 to 12 stocks which came up in list which crashed more than 40 in one single day then i looked into a chart what has happened to these stocks eventually so after the crash if you could see after the crash all these stocks started going down only it couldn't go back to its previous higher talk for financial technical education gtl so all these stocks which crashed more than 40 percent eventually started trading as a penny stock so i i i was actually i'm very active in quora where i have no keep writing multiple articles and share multiple articles related to trading and investing so i posted this content on the same day stating that this specific data analysis states that dhfl could also fall into the same trap it can eventually get into a penny stock so people know i who know all these followers who are following me on quora i told them it's better to avoid this stock because it's like catching a calling knife so better to stay away from that stock but obviously people add this belief or fundamental thing in their mind because it has a good loan book and all this fundamental part was there but when big institutions and huge fund houses they see some corporate governments issue they'll immediately come out of it as soon as they see a smoke they'll come out of it they don't really wait for the fire but we retail invest is always no wait for the news and then we validate it and then we try to come out of it but by the time we realize that it is not bad the damage would have been already too bad so that is what actually happened with the dhf so eventually both the dhfl and nest bank is completely not down to a penny stock now so this is one simple data analysis where i did not know take much time no coding nothing is needed all we have to do is find out what happened in the past and compare it with you know the current scenario and there is a higher probability there is not a hundred percent show but there is a higher probability that the similar thing could happen so this is why data is really really important when you come with no rule based reading so with a past historical data analysis can now help the retail investors to take a wise decision so whether you were a new investor or an existing investor if someone did this analysis if he was not holding a s bank or the hml plan i mean dhf you would have been out by 50 loss but now it is 90 percent loss so that is why it is not necessary to wait for the news instead we can go and do all this data analysis and come up to our conclusion okay yep and the next thing is with regards to trading why 95 of the traders don't know i mean failed or no not able to make money in the markets is because most of them don't follow trading steps even i was like that when i started trading so when a guy who moves from news base to rule-based trading that is the first part like if even if we ask all these traders who follow trading strategy are they making profits no we can't say everyone is making profit because even though you have a trading strategy you should have a discipline to stick to the steady states so that recipient comes not based on what you're doing inside the market trading hours what you do outside the market us so most people know i would say a guy who is a fitness pig or a guy who's going regularly going to a gym or not guy who's going for a jogging or recycling if that guy is a regular fitness perk he has a higher probability to become no profitable in a trading journey because he's so disciplined outside his life at that same discipline will come to the market also so you can't not be disciplined in market and after the market hours if you don't follow a no strict discipline guidance definitely it will not help so what we are outside the market ask is what going to determine what you can be whether it be successful or not in during the marketplace so why trading discipline is so hard so those things will also cover in the coming slides and finally the position side so trading strategy discipline and question says these three are the most important part with respect to a rule-based trading so i'll explain all this position sizing rules also because in portions even though you have a trading tendency even though you have a right discipline to follow the strategy if you do not follow proper positions like if you are risking too much you are going to blow out if you are risking very low you are not going to make any you know reasonable returns so we should know how much is too much and accordingly we should push in size our roots so i'll explain those so so this one winning accuracy so if i ask you vivek so what would you say so do you think winning accuracy is really important in trading now that i've spent so many years in market i have realized that uh actually winning accuracy is not such an important thing even with a 30-40 percent accuracy you can still make money very very good general number of users after i started the square off and most of the first question most of them ask is what is the winning accuracy and the second thing they ask is how i can make nobody ask how much i can lose everyone asks how much i can gain so the thing with the trading strategy is it's not whether you're right or wrong that is important but how much you make when you're right and how much you lose when you're wrong that determines your overall profitability so that is what george soros also said so when you specifically focus on winning accuracy i will explain with an example why winning accuracy is now least important part so as you could see in this slide we have three different trading systems a system one with 90 percent accuracy system with accuracy and system three with fifty percent winning accuracy okay i'll show you why now this ninety percent accuracy is not really matters see with ninety percent accuracy when you are right you are making thousand rupees profit you are 90 of the time you are making thousand rupees profit and you are happy with it but the 10 percent of the time you are losing 10 000 rupees consider that happens very rarely and most of the people know like say suppose if someone is selling an otm options during the expiry day who is shorting five rupees or 10 rupees negate opm options that is what affected the outcome like you'll be seeing okay market i'm making able to make thousand rupees profit on expiry to expiry basis and ninety percent of the time i'm able to make it but the remaining one percent of the time say suppose it is a brexit day or a demonstration day or any other black swan even could wipe out all his accuracy even though is able to make profits ninety percent of the time after 100 degrees if you check the no the complete outcome after 100 trades is net negative so even though with 90 percent accuracy system you cannot make profits if your average profit is much lesser than your average loss yeah that is not on the longer run so we can forget about the winning accuracy even with ten percent winning accuracy this is the ten percent winning accuracy system where after hundred trades you are right only ten percent of the time remaining ninety trades you're going to lose but if you check the average profit per trade when you're right you're making 10 000 rupees profit and when you're lost i mean when you're making loans you're losing only thousand so after 100 trades it is still a profitable trades only drawback with this kind of least meaning accuracy obviously after three or four so even though statistically the system two is profitable psychologically it is difficult to trade the first like example would be the system three which is only fifty percent accuracy where average profit when you're making profit it is 2000 rupees profit and average loss you are only thousand rupees so after 100 trades if you check the total trading outcome this 50 percent accuracy has given a positive outcome because you are able to make 50 000 rupees profit at the end of 100 trips so 90 percent accuracy at 10 percent accuracy and the 50 percent accuracy but when you can find the total trading outcome after under trades system 3 is the better one because you are making higher profits when you are right and you are making minimal loss when you are wrong so that is what really not the actual winning accuracy yeah so we'll come up and i'll explain the trading strategy part so it is very nice i said earlier as i'm a working professional back then most of my thought focus would be like what a working professional can not trade like our working professional can trade you know managing his day job as well as so most of the trading strategies that i create will be based on their mentality so even this specific energy is an option selling strategy a positional strategy which doesn't need this concert you don't need to look into the markets you don't need to know scan for the prices you don't need to look for oa gamma breaks nothing is here it's completely price based all you need to do is spend 10 minutes of your time and no analyze it that is what i'll this the step by steps along with what the back test results in products and everything so this is an option selling strategy and first thing is you really don't need to monitor any of the charts it is purely price based and it primarily works based on theta decay so the basic assumption between i mean based on in this strategy is we know options expire worthless and it expires faster or the premium leak is faster the closer it is to the expiry so we are going to initiate this trade just two days before the expiry and on the weekly expiry so the rules of the system is we are going to initiate the trade on tuesday and close it on thursday and no trade on any other days and it is a pure positional system and the rules is by tuesday 9 30 a.m find out what is the bank nifty's atm i mean what is the bank it is price at 9 30 and then see what is the atm say suppose by 9 30 tuesday bank nifty is trading at 30 000 then we are going to short 30 000 call auction and 30 000 put option atms travels based on the spot price whatever the price that you shot keep that and based on that you are going to keep a 100 stop loss say suppose you have shorted 100 rupees then your stop loss is 200 rupees if you you're shorted at 200 your stop loss is 400. so based on your entry your stop loss is going to vary and that is going to be 100 percent because we are going to keep a wider movement for the markets to move if you keep 10 and 15 percent those stop hit on a dunk basis itself so we keep a wide margin so that even if there is a slight gap up of slight gap down it will not affect us so we will keep 100 percent stop loss based on entry price and then if the stock loss is not hit we are going to exit by the end of expiry if the stop loss is hit in any of the leg say suppose call option stop loss is hit we will close only the call option not the put option we will continue to run the put option then finally we close the put option by the end of expiry so the rules are straightforward you initiate your trade on tuesday 9 30 am atm strikes of c e and p based on the time empty spot price and as soon as you shorted it plays an hundred percent stop loss and then you will exit it by the end of expiry so when you so this is a live or not trade example for the last week experience if you could see we have shorter thirty one thousand p e and thirty one thousand ce so that was the strike price we have chosen and the 31 000 pe where the 500 options expired worthless it almost went to zero so we made a profit there the ce however it's a stop loss so we shot it at 510 but it closed at 1000 rupees so obviously we ended up in loss but the other two one like the other two expiries we shot it at 450 rupees the 32 800 b 32 800 c which we initiated on t or not tuesday and we closed it on thursday and both the auctions decade it could be because magnitude did not move much during that week so decade and it made a profit similarly the prior week also the same thing the p completely decayed see leak into an extent we shot it at 490 and we did it up on 156 still it was overall profits this strategy take how much capital this strategy would take approximately around 2 lakhs to 2.5 lakhs capital uh when you are selling one lot of call and one lot of put together capital there is no margin because because you're not going to hedge it right so the straight away straddle would cost you around 1.7 lakh so if you're edging it with far away otm options then you can control the the margin could be greatly reduced considering even with two point lags or three lakhs i mean two to two point five lakhs capital this would definitely give a higher returns if you add the hedging part definitely the returns would be much more but i am explaining with only the stop loss part and the most important part that needs to be covered with this one is what if in case of there is a huge gap so we are shorting and keeping hundred percent clause that is fine but what is in case goes down a lot or goes up a lot and that is what happened in this example if you could see last year on may we started you know both c and b but the put option entered almost x y to zero but the call option which we shorted at three rupees was closed at thousand three hundred and fifty two rupees so it almost three hundred rupees of loss so even these scenarios is also considered in the back test so it is not that no there is a bias towards this data so even a data like so with 300 rupees you are shorting it we are not considering it as closing at 600 instead we are checking at what price the market open so we did not even consider 9 15 price we consider 960 because the first minute will be used or huge move so obviously you can't capture it so even considering a worst case scenario still no these kind of losses are considered and overall if you check it ends up in overall profits i'll explain what is the overall year by year profits yeah monthly why is profit source this is what i so i have backed us with it for four or five years but i have taken on data of 13 years and checked how much percentage the market has gapped so we are we are always no use to black friday and black monday but we hardly know listen to uh i mean get used to black tuesday or black hole so most of these huge gaps happens at the end of friday or at the start of monday during this week we initiate a trade tuesday wednesday thursday these are the tickets it could be you know a little silent so when i check the last 13 years of data i could see market did not know gap very huge it stayed between minus six to plus six percent and those e now most of the years where there was a huge gap up and gave them was in the year 2020 so that is obviously covered in our bad test so we still need is and second most important point is we have considered in this position a month not a monthly experience a weekly experience because if you have considered a monthly experience you're going to make only one trade a month so it's just 12 trades a year but with weekly expiry you're just making four trades in one month so obviously your profit takes increase with weekly experience is also much faster than expert so when we tested it with you know the complete data rates of last from 2017 to till date it has generated almost around 5.7 lakhs profit with you know a maximum
loss for a trade is around 23 or 28 000 is the maximum no profit and maximum loss is 23 000 and the consistent winning streak is almost nine expects so nine experience back to back you are able to make profit and there are four only four experience you have lost consistency and the overall winning accuracy is almost 63 percent of the strategy and if we check the drawdown so problem is nothing but what is the percentage of loss that happens over a period of time not just in one trade or two trade it just happens over a period of time so the drawdown is just around 20 or 22 000 so that is the maximum drawdown you have faced during the complete and testing phases so considering all these uh the black family rooms all these coronal gaffers and downtown still your maximum boost did not exceed more than 25 000 for a lot so this is a yearly distribution chart of the no overall panel look like ops for this strategy so we shorted only one lot one lots e and one lot p so back then like in 2017 16 all these years even with 40 000 or 50 000 capital one can trade the strategy but now because of sebi's no increase in rule margin so the capital minimum capital required or the margin required to trade the strategy is almost 1.7 lakhs as of today based on bank nifty i mean based on magnetic price so most people what they think is okay i have two lacks of capital and the required margin is only 1.7 so let me trade with one lot or if i fire four lacks of capital i can trade two lots because the margin required is no 1.7 so i can trade two loads but that is not at all the right way to calculate know the required capital so the first and foremost thing what you have to check is what is the maximum drawdown of the strategy so as per this strategy we saw that the maximum drawdown is 25000 so what we have to do is consider three times of the maximum product if your drawdown is twenty thousand consider sixty thousand as you draw if your drawdown is ten thousand consider thirty thousand stored so we are going to have adequate buffer capital to handle the maximum growth because we have to always remember maximum rhoden happens in the future not in the past so if you see 10 000 that is not the maximum road definitely it could be 12 definitely it would be 15 down the line so we are prepared with 3x of maxed roto so that is how i calculated the you know capital record to trade the strategy so the margin is 1.7 lakhs and the maximum broaderness 25 000 so we are now prepared to have a 75 000 of toronto so all together 2.4 to 2.5 lakhs is that required capital to trade the strategy so even if we considering a 2.5 lakhs of you know total uh capital it has given a decent returns of 29 percent 34
58 and 75 on an average it has given 45 percent yearly returns and that is really really good with consideration of just one trade a week and spending just 10 minutes of your time no needs of chart so with very least minimal interventions definitely we are able to make a no a good returns and second thing is even if someone is having a stock holding is in their account they can simply pledge their long term holdings and just have only this drawdown capital as cash and trade the strategy regularly because you don't need to know even bring in additional capital so uh you know you have explained this strategy it's a very simple strategy but what's the risk it can't be so simple money making can't be so simple say that simple things do wonder in markets but most of the people don't look into the simple things they always want complicated stuff they always want no more number of chance and more number of steps but simple things really do on this but most people don't even test it so even if you test it with you know the right data sets or even if you try to do it with the larger data sets over the long run definitely it is going to be a profitable one so whatever the strategies like i don't tell you at the end of the slide like how the no people who are using the trading boards made profits only following a simple simplified strategies but most of them they tend to ignore it so because when we you know try to explain about a simple strategy the first thing that comes in our mind is this is so simple how could people make money with the strategy so that is the first thing that you know i'm going to do in mind so the best thing is you have to be prepared for the drawdown which would be two or three times and then accordingly you know do your capital and then trade it and i have so this strategy even though i have explained it my blog in my videos i have no got so many messages from guys who have been actually using this strategy and bringing me okay in the last weeks i've made this profit and this week it is a break even so it's not a no a new strategy it's a known strategy but known to only you know a few set of people who have been using it regularly so the main thing is no as you said even though it is a simplified strategy i remember once richard dennis said tomorrow i can explain whatever no i'm trading in a know a plain newspaper but i bet nobody will know follow that strategy so that is what richard dennis said long back because that is what actually happens so once people see you know three or four streaks of losses they'll think this strategy has stopped working and they'll not continue to do that so that is why i said even i can reveal all the strategy in my rules but there will always be certain percentage of people who are not used to the losses they'll quit and move on to another strategy so that you know it is simplified i'm sure this is going to make money if it is completely followed the rules are followed no diligently yep yeah yeah i agree so though so one thing is portion strategy and the other one is intraday strategy i wanted to cover both why i started with position strategy is the margin required for intraday and positional it's going to be same from september 2021 onwards so there is no big difference so i wanted to cover both positional as well as intraday so intraday it's it's even more simplified than positional so positionally we have only one trade a week so with intraday it is a similar concept of short straddle where we shot at the money call option and put option at 9 20 am so we don't need to do anything just log into your trading portal and check what is the actual price bank nifty spot price trading at 920 and then choose what is the ce and what is the pe place the trade with 25 stop loss based on your executed price so if your executed price is 100 your stop loss will be 125. so you place both call option and put option place the trade wait for the stop loss to hit if the stop loss is not hit close the positions by 3 20 in the evening otherwise if any of the stop losses hit in one leg similar to what we did in the positional part here also we'll close only that leg and continue to run the other one because once the stop loss is set market is going to move in your one sided direction so the longer you hold the put option if the market is moving up the put option will keep decaying and going down and down so obviously you'll make money from that but if you are closing both the positions then you will not make money over the longer period so during the back testing slide i will explain all these scenarios so what would be your overall returns would look like if you close one positions if you close two positions altogether or if you vary the stop loss so all these things i will explain in back test part so but the rules are simple but in iron 20 will initiate a trade and close it by eod with both call option and put option with 25 stop loss and only weekly expiry we are not going to trade monthly expense in this one also okay so this is the example where now you take the bank nifty chart at 9 15 no value and find out what is the close price rounded off so it was trading at around 31 495 so the strike price is 31 500 so if you round it off to the nearest hundred it is thirty one five hundred so we will short both thirty one thousand five hundred ce and thirty one thousand five hundred p this is today's trade so this is how we shot both the known call option and put option and we place a stop loss which is 25 percent from this entry price whatever the entry price we have shorted it from the 25 to the stop loss whenever the stop loss is set we are going to exit by eod so this strategy actually we deployed it as a bot one and which has been running live almost for eight months and it has almost generated a good eighty to nine hundred percent returns overall but as you said when the strategy is simple what is known the drawback here right i'll show you what is a drawback so this is the drawback where still people have faced i have faced huge loss following this specific strategy i've lost 15 percent so i'm getting a streaks of losses already lost 30 percent of capital should i continue like i'm facing no more drawdown and my capital is almost lost and also i'm doubling up my capital so whenever there is a drawdown instead of trading two lots i trade four lots so all these scenarios will definitely come up in people's mind so whenever people say algo trading is something which will automatically decide the trend or no completely remove human emotions definitely it will not remove even you know human emotions emotions will always be there so we will tend to override the system even jim simons once said no in 2007 when there was no big volatility even they were able to they did overwrite the system and even he said till date is regretting for that decision because if he is not overrated in the system definitely you know their drawdown would be much lesser they would have recovered fast but nowhere people like even jim simons is overrating the system obviously people like also will do it right but the problem here is so why a same strategy which is given higher returns for some they are not able to handle it for some they are able to handle it because of the position sizing that i explained in the first slide so as you could see this is how now the premium would look like on a day-to-day basis so monday tuesday wednesday and thursday and friday so friday being the start of a new expiry it will be usually 400 or 500 rupees then one day it will be 400 rupees that at the money premium and it will be 300 200 by the near to expiry it will be 150. so we keep a 25 percent stop loss so if you are shorting at 400 rupees 100 rupees is a stop loss so if my stop loss is hit i am going to lose 2500 rupees consider a worst case scenario where both your call option also at the stop cross put option also at the stop loss if that is also done then you are going to lose 5000 rupees so now if a guy who is trading now few months before when there was no mod no peak margin is introduced even with fifty thousand you can trade it right so if a guy traded with fifty thousand if two side of stop losses it is going to lose five thousand rupees but that is ten percent of its capital whereas if the same strategy is no deployed with the two lakhs of capital yes lost only three percent so strategy is same rules are same but based on your capital your percentage of losses differs so that is why we should know i always have a capital which is position size accordingly so that even if the stop loss is hit on both the sides you are not going to lose much so that is why you could see the losses are minimal nearer to the expiry because the premium is lesser so days like tuesdays wednesdays and thursdays you're losing just one percent of your capital so even if both the site stop loss is dead we are losing just one percent so that is how capital should be decided so if you decide your capital based on the broker's margin obviously it is going to affect but if you decide the capital based on the actual strategies back test results and draw down it is much easier to sail through the drawdown phase because rotten faces where most of the people will lose faith in the system either they will quit or they will jump they look for some other strategy and the same cycle will repeat but if you have no chosen the right capital then handling these losses is very very minimal so hitting both the side stop loss is not a big task for you so even if you consider the back test almost 198 days the stop loss is hit on both the sides but 768 days stop losses hit on only one sec so the eating a stop loss on both the sides is very no rare scenarios i mean minimal scenario but still over a long run this particular strategy is almost given you know 7 lakhs of gross profit with the maximum drawdown of 34 000 and winning accuracy is also on a higher scale it is almost given now 67 winning accuracy with 13 days of maximum winning streaks and only four days of continuous losing streaks so here also we are following a same capital requirement strategy so on a year-on-year basis if you check this is almost written positive returns every year almost every month but if you consider a transaction charges obviously there are months like january and february it can end up in losses considering the transaction charges so even with this strategy if you see the maximum drawdown is 35 000 for one lot so we'll calculate the capital with the same scenarios so 1.7 lakhs so i am not considering the intraday margin now so intraday margin our record is just one point two lakhs or one lakh only for two short no short straddle what i am considering a september margin now so considering a september margin of 1.7 plus drawdown of 35 000 no three times of drawdown it would be around 2.7 lakhs so even with 2.7 lakhs this strategy has given a higher average returns than the positional one so this one has given almost 55 percent returns the other one was given 45 percent i guess so both the strategies are really good with respect to no returns to risk ratio so your risks are completely minimal and even with the capital of 2.75 we are still able to
manage the risk because drawdown is 35 and we are having three times of the drawdown capital so it is much easier to you know sail through the jordan faces so strategy wise both are simple only in this strategy if you said 25 is stop-loss so if either of these two stop losses hit then you square up the other other trade also no when the stop loss is said whichever the stop loss is it we are closing only that positions we are not going to close the position of the other one so the other one will leave it we will wait until the stop loss is hit or we close by eod so just like the first track right right exactly the same path this is known as infrared and that one is position and uh so what if in the first strategy on tuesday we sold both and one of the stop loss get hit on tuesday itself do we carry that position for when yes yes we'll carry it because the other position is also having a stop loss right so when that stop process it we are going to exit it so in the back test all these scenarios are considered where if both the stop losses hit on tuesday one stop process it on wednesday other stop losses rate if both the stop losses right we are going to lose both the sides considering all these things still it ends up in profits on the longer run so that is why we shouldn't consider on a trade to trade basis over the law of large numbers it obviously you know gives a positive returns you know please explain us how did you do that that is what i'm going to explain right now so i usually you know use a platform called stock mark where most of all these simplified strategies can be back tested very easily so just like how we used to know backtest um i mean just like how we used to create a website long back five years ten years down the line using complete code now it's completely changed to know drag and drop we don't need to really code to come up with the conclusions so this specific stock platform is not i'm not associated with it but you know it's just a platform which i regularly use so i just go here so here on the left hand side you have all these strategies listed here you could see yeah yes triangle so which is a ready-made kind of a strategy you can just click say suppose we are going to test the strategy that i told you right now the intraday strategy so i have clicked on short schedule here it shows me one lot i can choose whatever the lot size one lot or two lots so i'm going to short one lot which is sell if i click here it will change to buy i'm going to click and i can choose other money options or otm options like if i want to do no short 200 points or 300 points away i can choose that and then i have to mention whether it is a call option output option clicking it will change to call output so our rules is shorting no atm options and our stop loss is 25 percent so we keep a 25 percent stop loss here then our rules is enter at 920 then our exit is 15 20 by what we are going to exit on the same day and we have selected bank nifty so that is where bank nifty and weekly so we you can have we can test both monthly as well as weekly so you're testing only weekly okay and then you just have to give the from date and to rate so here they have a data from 2017 to till date so since the day the weekly option is introduced they have this data since it is intraday i am selected intraday that's all i just have to run start backtest so that would keep scanning all these data and find out what are the list of days that this conditions are met and the total metrics and everything it would scan for you and then it would give you the results in it will display the results at the bottom of the page so you can modify any of the things so there is no coding required here there is no even with anyone who doesn't have any technical background can run the strategy so exactly that is what so you yeah so you get it so you get the overall profits you get all the metrics draw down here and you have you know the ear wise whatever things that know the one that we saw you have a month on month the profitable chart so if you click here since inception it would tell you okay if you could see the rates so it means on a monthly wise obviously the profits are very very you know the more profits are there and you could see the drawdowns also here if you click on drawdown that will tell you what does the drawdown looks like nice so only this march last two months it was really bad for the strategy because the drawdown so that that is why i said see if you could test it till only 2020 by this this particular period the drawdown was only 20 000 correct yeah but 2021 the drawdown has came down to 37 000. so if someone tested the strategy in 2020 and thinking only 20 000 is the maximum product it could be in a surprise because the drawdown has crossed its previous maximum product so that is why we are always prepared for three times of proto you can buy credits i think so based on the number of you know the backers that you run they charge it i don't think the charges is at a very high cost it's very minimal only i think right so it's kind of four credits so it means that if i'm running for one complete year i'm going to spend one rupee if i'm going to not run it for 10 years i'm going to just not spend 10 rupees so it's very very minimal this is very interesting i'm going to see this website myself very interesting definitely definitely it'll help so this is where the conditions you can change the conditions to whatever conditions so i am going to give you a first strategy into this back test first strategy yes first strategy so this is what the first there now you can save the strategy also so my strategy is i'm selling both the call options and the put option and my stop was 100 and i've selected bank nifty and bank nifty weekly weekly here i have selected positional so last time i selected intraday right now i selected position and i can give the entry date where two days before expiry oh and going to exit on the day of expiry as i said in the no 9 30 is my entry time we are leaving it for the expiry till 15 29 so all these conditions whatever we said and run a back test same period 2017 to 2021 for bank nifty so people can customize it as per their need say suppose we have given a strategy if someone finds it okay instead of using this stop loss or i can use this targets so they can completely change it and test it this is it so you get the results so it's 5.7 lakhs profits the maximum profit and all this data matrix you get it so this is completely similar to what we saw in the intraday thing so the drawdown things the overall profits and you also get to see the entry time exit time at what is the overall profit to profit basis on and on expiry to expiry what is the total profits so everything you can get to know the complete data will be available on a click of a button so this is how backtest is done interesting and this is a bad testing stock mark is only for options by practicing or it's for no it's only for practice it's only for back test interesting cool so you can so i'll explain the execution part so how do you execute that's also important because that is that is working that's what we are going to see now and can we automate automate the execution process yes so i'll explain how we are going to execute this specific strategy now so all i have to do is i should go to square of ports what exactly is square off what do we do so whatever the strategy that i explained to you right so my job is to create strategy so i sit and create strategies so much so at one point beyond certain stage of time no they say good trading is boring right so my trading is done so i don't keep no doing any of the stuff but i keep developing multiple strategies and then i deploy it in my own account and test it whether it is really good or not and once i see a satisfactory results then i go ahead and try to run it so so that is what so we will come know we'll get started with this execution part so execution is like now with square of boards it's simplified no trading strategies whatever strategies i develop i try to automate it and provide it to the users so all their users have to do is just log into this box and specify their capital or lot size to them so based on the you know prerequisite strategies that i explained the execution happens in their own account so you just have to log in with your facebook or google and then it would ask you your alice blue user radio password since i've already logged into alice blue is ready password it did not ask me one that's all you just have to log in with your broker credential and authenticate it then you will see all the list of bots equity boards futures boards and everything so you just have to go so the bank nifty straddlebot so that is what it was running so today i opened and gave an input so just have to click the lot size whatever the lot size we just enter the lot size whatever the lot and click on mod mine trade it so once you enter the lot size and run it it will keep running and you could see it in the orders window whatever the orders that are placed by the bot you can see it in case if you are trading on your own you can segregate between the bots orders and your orders there is no specific no requirement as it so we been doing it since the last one year and we post only the live performance so you could see the live performance of all the bots so we have a very limited uses and with this limited uses we were able to make almost 1.7 crores of total profit for all the bot users so we display everything in here so the bots details the bot's profits everything they would be able to see it here they just have to select the respective bots so this is the bank nifty straddle board that i explained right so this is where the returns are so as you said it was still very good till february mid and then it started sliding down this is where people will lose their conviction and stop trading but eventually people who were holding on to it were able to make profit and eventually know it moved up so that is why i said even simplified strategies make money but nobody knows is able to stick to it there are some people able to stick to it but some people know don't be able to stick to it and the next one is the option x platform which you know we just started it's almost ready it should be you know ready by this week to most of the users there is no specific charges for this so it will be completely free of cost because people can just come and log in and this copy paste whatever the respective link that's all so it's i'll just show you so we use the stock mark app right so in stock mark we are able to create a strategy and click on copy and we come here and paste it submit it so this will automatically generate the list of orders that is necessary so if it is your zeroth account you click and place it similarly if it is angel account you click and place it so this is not at open rate but this will definitely help a lot of users who are working professionals who cannot know check their atms or whatever the other money options everything can be done here on a click of a button you just have to copy paste your strategy first you have to backtest it copy the link paste it here click and execute no specific no code is required even if someone is working professional who cannot come and click at that specific time they can also automate the complete strategy so they just have to go and automate it and specify the time so you click on automate and enter whatever the strategy you wish from the drop down whatever the quantity that you want and enter the time at which time you wanted to execute this specific strategy that's it click and it will automatically execute the orders in your account so there is no specific conditions that is required interesting this is quite interesting i think technology is going to a next level for sure yes yes but the only handful of brokers are basically allowing this automatic feeding right yeah very no the thing is most of the brokers are giving api right now but only a handful of brokers are giving free api so brokers like fires allies blue these guys are giving free api so when it is free api the cost is drastically reduced because in 2014 when i started it was i almost spent 100 flags to automate the strategy alone so now it's completely free and more and more people are started know focusing on this automation stuff because once people start focusing on rule based and follow it differently definitely that is when no most of the people will not go bust so as a broker they can acquire the users but as a platform providers like us can help them to retain the users because acquiring is easier task but the retaining is where the actual cash flow comes in for the from for them as well as it helps the retail traders like so obviously you know when people get used to it on the longer run no they can okay these are the things they first need to get educated okay these are the things that is required in order to know what works what doesn't work second we have to make it much simplified so now as i said now the back test is more simplified part where you don't need to do anything click click enter the details you get the results once you get the results copy paste it here and you run it the other thing is more people find out so that was where they go know the trend is going to be so definitely people would love it but the problem with this is finally that holding on to your nerve when the going is tough especially the initial time right right right right right you have to believe your model once you've done the back testing and you know that it is a workable model then you have to believe it and run it for a longer period of time definitely so the thing is no even before when i started i almost quit trading in 2016. so even i had all this trading systems everything automated on its own but i almost quit trading because i was trading on a borrowed money so it was like when your capital is i mean when your salary is 50 000 you will be trading with 5 lakhs so obviously the position sizing all this empty fluctuations you will always relate to it it will be like okay i have lost 50 000 i've lost 1 lakh okay this is my five month salary this is my one month salary so you always get used to that no comparison like people can easily find it and the one guy who can easily find out whether you are in drawdown or not is your wife so you can know easily find out whether this guy is making profit today or making a loss seeing your face so but eventually you know it will get stopped so whether you know they always say a good trader after making a no good profit he feels good but a great trader after making a great trade he feels nothing so that is where the emotion states will come so eventually at one point of time you will not feel anything whether it is a profit or a loss you will treat it wisely but the good thing is as you said one take one strategy trade it for 100 days don't increase your capital or decrease your capital have enough capital trade for 100 days only one strategy and whenever after the trade is done mark it in your exit if you follow the strategy give one mark if you have not followed the strategy give minus one mark after 100 side of the market which is i think very very critical will get developed otherwise uh how would you develop discipline it's naturally you're not a disruptive problem very true where it was that is why the discipline has to be you know developed after the market was not before the markets so the more the moment you know start so if you are not a disciplined trader if you're not a successful trader go for a walk or go to a gym or not start cycling regularly that will automatically bring in you know the discipline to your life start having a screen time or start waking up in the morning by six going to bed at 10 o'clock even if you follow that those disciplines will automatically come into trading life actually i definitely agree to this point and i have to test myself and the change which has happened to me because of this i'm very happy uh that you are sharing the same wisdom so uh fantastic i just loved it very very simple but very effective and as you also said that simple things work wonderful in market just that you have to believe it definitely definitely thank you so much awake for giving me this opportunity i'm sure people would love it in case they have any specific questions if they do not understand it let them post it in the comments i'll come and respond to them that will be so nice of you because i'm sure you will get a lot of comments good as well as that and i will be expecting you to reply to all of them and friends uh you know where to where to connect with him but his speaker handles his blog his telegram camera is right here connect with him feel free to talk to him figure out if this is a product which you want to have it i have no commission interest i just believe that he's doing good thing and if you feel it will help you in long-term video creation go and grab the opportunity and connect the film thank you for this beautiful content i'm sure that will go a long way and become part of the fantastic thank you thanks for giving your time to me and supporting me and my team and uh we have more people lined up for this theory of rule-based trading so stay tuned and keep sharing
2021-04-24 21:46
