Losses जाओ भूल, सीखो Nifty और BankNifty के Systematic Trading Rule
Hello and Greetings, I am your friend Vivek Bajaj. Friends, in the previous face-to-face videos you all must have noticed the occurrence of Rule-based trading. If you look at it then you will think that trading is simple, but when you will do it you will realize the stress of investing your own money When money is incoming then it gets booked easily, but when it is getting invested then our blood pressure rate is worth watching. However, one problem faced by everyone and they keep asking me is that they don’t know how to manage their emotions because they know the technique. But they do not know how to execute various strategies like RSI without stressing. When they try to do it practically then they start feeling their heartbeat. Their brain stops working and they are not able to perform.
I just have one answer, make your trading process rule-driven and make it robust as much as possible. For example, if you want to make Maggi in 2 minutes then it has a fixed process for it. So, rule-based trading should be like 2 minutes Maggi. My friend Vivek says that rule-based trading should be like a 2-minute Maggi.
So if you make a rule based trading, then I can assure you that you will be the black horse of the race. And I am carrying forward the same concept and finding speakers who can teach you the same in simple language. Friends, today we have another speaker with us who will teach you about this theory. So, this video will go on for a long time, but you have to see it till the end. This will be a full course, which will teach you rule based trading, systematically with examples. I would like to welcome Vishal Mehta.
Hi Vivek, how are you? All well, fantastic! My heart feels bliss when I see your smile. Thank you Just keep smiling like this. Thank you Mr. Vivek and thank you for inviting me for face2face. I have seen many of your face2face webinars, which was a good learning journey for me as well. So I am really happy and thank you to your team for setting this all up, which is very important. Thank you. Thank you so much for your kind words, but you are also a trader in this market and you train people, so you must be understanding the hard work in the backend for such outputs.
So, I appreciate your good words for the team. Thank you, Vivek. So, my format is simple, I will ask about you and your background and then we will drive into rule-based trading. Today, even I am excited to learn from you but for that, I should know more about you. I am a CMT, which is a chartered market technician and it is a dedicated course on technical analysis.
Like people do CFA, I am a chapter head of chartered market technicians, so I have done a course on technical analysis and studied it in detail. My background is interesting, I come from a broker family. My father was a broker and he started a brokerage house with his brother. I heard all these words in my childhood, so it was not new for me. In 1992, we had some business that we shut down. But that was very interesting for me, so we had to open and work on it again. My dad sent me to do the technical analysis course, so I learned a moving average of 200 days.
If prices go up then we earn money but if it goes down then we lose money. I started my journey from there and then I joined many companies and learnt technical analysis, which all the viewers want to know about and I could have worked with all of them. I worked in spider software, I was one of the first marketing people. Then I also worked in Reliable software that give falcons, then I also got many opportunities to work for multinational companies like Thomson Reuters and Bloomberg. Where I also dealt with big bi-side. I remember Rakesh Jhunjhunwala was my accountant and I have dealt with his accounts as well. I went to his office, and then I also went to Prashant Jain and I have interacted with all the fund managers on the bi-side.
So, I got this interesting experience that a retail person and an institution. To my surprise, everyone uses technical analysis, but no one says it. Everyone has a different method, some people call price exchange a price exchange, which is a type of technical analysis. So, that is my journey, my maternal uncle named Bharat gave me 10 lacs when I was a young trader and this is very important for me to share.
This is because that helped me learn a lot, which will help your viewers as well. Hello, I hope you are liking this video. If you want me to record more such videos for you so like and share this video with your friends. And if you want to connect, then subscribe to this channel. Thank you. After a long time UCO bank had a listing, so I bought some shares just like other young traders. I purchased them in 20 rupees, which was 10,000 shares in total.
It increased to 30-35 rupees. So, people told me that it is gaining a lot of money, so sell it. So, I said I will purchase a high end maruti car with this money. And at the same time, the market crashed, which was the bottom of my career, so I sold them in panic. It was all discretionary trade, but doing this I realized that there is something known as systematic trading. So, doing all this I went ahead with my journey and over a period of time, I moved from a discretionary trader to a systematic trader. There are very good discretionary traders also, and I have very high respect for them because everyone has their own pitch.
So they all started their journey. This is our background in a nutshell. This is so good, so trading is in your blood, so naturally you were going to a trader. You created an ecosystem from your experiences here and there. So from when did you start trading? I started in 2002, but it was a journey that included earning and losing money. But, professionally I left my job 2 years back for full time trading. So I am an independent algorithmic trader.
I have my rules that I define systematically and put it in trading, which helps in buying and selling. So, even if you call me during market hours then I can talk because there is nothing much to do. This is what people should learn because many people ask me how to earn money without doing anything. So today Vishal will teach how to earn money without doing anything. So Vishal, what I learned about you is that you have learned everything from your experience by talking to big traders and retail investors. This is a holistic experience in the market, which is good and I think now you appreciate rule based trading probably much more than how you were doing it earlier.
Very true Vivek because what happens in discretionary is that I can say I am a very good analyst but a very bad discretionary trader. So these two are different things, and doing the analysis is one thing but doing trading is another. So I am able to analyse well and able to predict the fall of the market, but when the emotion rises then it all goes down the drain. As you said it is really important to know about rule-based trading. As you said I appreciate them.
But I also have high regards for the discretionary trader because discretionary trading is more difficult than rule-based trading So let's dive into the concept of rule based trading, and I will make you the presenter. Just let me know if you are able to see my screen. I will just set it up. This is what I call a strategy and we will discuss this in a lot of things.
So I will take a particular strategy, and will talk from the hypothesis to the execution, which is the most important. So I will take you through the full journey. So, the name of this strategy is Directional Option Selling using technical analysis (DOS). For a disclaimer, I am not a CV registered advisor or a financial advisor. So only add that money in the market that you can lose because it is risk money. Don’t put your hard money that you cannot afford to lose, which is difficult to get back. So get into savings and investment because trading is a different thing. As I said, I have worked in various banks, so technical analysis has given me various exposures to various countries such as Bangladesh, Nepal, and Sri Lanka, and also taught various central banks to extend the knowledge analysis.
Today is women’s day, so how can I forget I have been training my little one and she knows how to put stop losses and targets. She understands when she talks to me. You gave the example of Maggi, which I discussed with her that she likes Maggi, so which company makes Maggi? She actually figured it out that Nestle makes it and she went to google and search for Nestle stock prices. This is how we empower women and make our kids learn about stock market and trading and become a good trader. It's in their blood also so they should do it One tip to all the viewers is that they should put their own money into trading and that is so important, but what is more important is that they should learn from people who have experience. These are the collections of my books and I highly recommend these books because they have interviews with the world's best top traders. Stock market wizard, hedge fund wizard.
They have interviewed top traders. You will understand that even they have loses. You need to know how they used psychology and trade tricks to become multibillion-dollar hedge fund guys. What really helped me was a CMT, so if anyone wants to be acquainted with technical analysis then CMT course is a gold standard.
Because of this I have been fortunate enough to interact with world’s legendary traders like Gerard Appel who founded MACD. When I was in New York, I got a chance to interact with him. If you have heard about technical analysis then you must have come across books by Martin Pring. I got to interact with him. Then JC Parets and then Toni Saliba, who was the only option trader featured in the original market wizard book.
We never talked about indicators or systems, he only talked about how trading was a business and not a hobby. That changed my perspective about how trading should be handled. I am not just a trainer, I trade for myself as well as fully systematic. So what happens is that a brokerage house named FYERS conducts this 30-day challenge to see whether you are profitable or not after every month.
So I have opened up an account to check if the numbers are right, so I have been trading from the past 8 months and been a consistent winner. And that’s a business, which is not up and down. It is the consistency that I am looking for. Maybe my M2M might not excite a lot of people. But it is good enough for me to run my household and get a consistent income from the market. That’s what I look for in my system.
Lot of people would be aspiring to reach where you are today, Vishal. We are now jumping to the real crux of systematic trading, I am sure everyone who is listening can benefit. Everything has a fundamental philosophy. A very good friend of mine who also worked as a technical analyst for Rakesh ji, said that your trading system should be an extension of you and your life. So it is very important to have a fundamental philosophy that should be converted in market observation. After this, make rules around it. You will be able to enter like Abhimanyu through those rules, but you also have to come out. So risk management plays a very important role, stop losses.
Let’s talk about risk management, when we define the rules by risk management it does not mean that the journey is complete. You have to take that for backtesting with software like python or amy broker, whichever is good for you. Do backtesting because if it was used in the past, then it has a higher probability that it will also work in the future. It is higher probability and not a certainty. When you are backtesting then you can also do tuning, but do not super optimize it. Whichever is comfortable for you. For example, if the moving average is between 50 to 200 days and if I run it in a software with a combination. It will tell me that if I had used 3 to 350 moving average, then it would have given me more profit, which is wrong because it is optimization.
I want to talk about strategy optimization and what is my draw down. I will tweak the parameter according to the loss I can take then I will forward test it and take it to the live market. When you complete the whole journey, you will realize systematic rule based trading. Let’s start with rule-based trading, first of all your ‘why’ should be clear. If your why is clear, Vivek ji, you will be surprised to see so many answers unfold. First few slides I will talk about why you should do this.
Vishal, I don’t know if people are understanding this but what you said are golden words. If people started asking why for everything in life such as why should I eat this or why should I do trading. And if they know the answer then half of the problems will vanish. What you said is so right Vivek ji. And I read a book, which said that if we ask ‘why’ 5 times for any solution, then only you will know about the real problem.
If someone is answering your question for the first time, then it is not solving the root cause of the problem. For example, if you ask an employee why are they not performing well, they will say that they are not trained well. Then you will ask why your training was not well, then they will say that the trainer was not good.
Then why was your trainer not good, and if you will ask the 5 whys then only you will know the real reason. That’s what I have heard. This is so good. I will use this. Thank you. Okay, I have a question for you Mr Vivek, who are all these people. They are casino traders. Are they happy? They are very happy. They are laughing just like our day to day traders. Just like how our call goes, we say it in the twitter world that we had our dot com. But do you think, when they will leave the casino world, they will still be smiling? No. Not at all.
So who will laugh? Only one person will laugh and that is Sheldon Adelson, who is the owner of Venitian casino. I highly recommend people to watch a webinar you conducted with Vivek Gadodia, which was on rule-based trading. He talked about 7 up and 7 down and he said that the probability always stays with the casino owner. That’s why they give you free food, free entertainment, and whatever you want for free. So if you stay for the longest time, then you will be able to make money. I am not comparing casinos with trading. I am talking about trading from a business point of view. Casino owners are running them but they are looking at it from a business perspective.
So the first advantage in rule based trading is that you have probability in your hands. Historically you have seen that probability is in your favor, for which you will make money. So let me move further so I can cover more. So, options buying or option selling? What do you prefer Vivek ji? See, I do selling because my risk appetite is high and I make money through that. But it depends on the individual risk appetite.
Yes you are right, everyone has a different appetite and I will tell you about mine. But if you go anywhere and see a book, then amazon will say that it is a best selling book. They do not write best written book, they write best selling author, which I learnt. India’s richest man and a billionaire also sells. There is a saying that buying will not make you rich. Get rich by selling stuff. Again, I can be wrong but this is my philosophy, and I try to build my rules around it. Vivek ji, do you swim?
I am a district champion. I love swimming so much that I feel happy whenever I hear about it. I know less about swimming but you are a district level champion, so you can definitely vouch for it. If someone is an average level swimmer and he is swimming, if the water current comes from behind and he is going in the same direction where the water current is going. Do you think he will do well? Because the water current is behind him, so an average swimmer can also swim well. But if you are a great swimmer and the water current is against you, then you will be able to swim but the difficulty will increase because the water current is against you. We will bring the same philosophy in market observation, and my colleague said something very important that if my view is bearish so as an option, I can buy the put option or I can sell the call option.
These are the only options if my view is bearish about the stocks or index. So I bought the put option and sold the call option. As an option buyer, If the market is going up, so the option buyer of a put option will lose money. If the market is going down then option buyers will make money, but if the market is sideways, the buyer of a put option will lose money because of theta decay. Similarly, if I am a seller of a call option, I will also make money if the market is going up,, which a buyer of a put option does. But if the market is going down, I will also make money because I sold the call option, the market is going down, so the call option will deteriorate. But a differentiator will come here and the market remains sideways. As the market remains sideways, theta decay is happening every day. As an option seller, I will still end up making money.
I am not choosing sides, I am just stating the facts and fundamentals of both. Ones in thrice I am making money, and if I am an option seller, the current of water is behind me, even if I am wrong about the direction of the market. There is an edge to making money. The chance that I will make money. Another question, can you guess, one of India’s largest cash-rich company doing options selling? It should be reliance, but I am not sure. It is LIC. Why? Do you take insurance? Always remember, when LIC is selling you insurance or term insurance. Then they are not taking the risk, they are managing the risk. If the option seller is smart then they are managing the risk, which is different. When LIC is selling you a term insurance policy, it means that if you are alive for 5, 10 or 20 years then your premium goes 0.
And they also reinsure themselves many times, which is basically hedging. Not always they keep selling the option to everyone, they see your age, digital coverage, area, and then the premium is decided. Same thing if we bring to market observation. Vivek ji, this is bank Nifty’s chart on 25th february, 2021. The future bank nifty closed at 36,550, which will be equal to spot as well because on the expiry date, future and spot are the same. What do you think the value of 36,550 call will be, which is out of the money? 0? It’s correct. 36700? Even that will be 0. And similarly, if I see this in put option, then? 0? I still don’t believe you, so I will check the charts. Call for 36600 on 25th february, for the 550 was 0.
Call for 36700 for 400 was also 0. Put for 36,500, which was 100 rupees also turned out to be 0. And the put option for 36,400 also became 0. You are doing googly on me, Mr. Vishal. But did you notice what we are trying to do? We are working like a business. We sold the term insurances and tried to figure out where it will not close. So the premium will be in our pocket. So let me just move forward, another question, who is the fastest animal in the world? Cheetah? Yes. But if I ask you what is the success rate of this animal? It is very less. Must be 3-4%. No, google says that it is 40-50% rate. The interesting part is, they are on the lower end of the success rate of the big African cats. They being the fastest animals in the world, 40-50% is still lower. But have you ever seen cheetah running after the fastest deer?
They wait because they know that their speed is not fast for a longer period of time. Deers can run for the fastest period of time. So he is waiting for the weakest of the weak. This is an observation like a fundamental philosophy. Let us see how we will convert that in the market. There is a saying, in this world nothing can be said to be certain, except death and taxes. Our version is, in this world nothing can be said to be certain, except death, taxes, and theta decay.
It is a fact, not a probability. On an expiry day all the options will become 0. If I am plotting the option premium for the payoff. How many days remaining to the time value. So you will see one day previous to the expiry or on the expiry day, the theta decay is the maximum. I am waiting for the weakest time, where I should be trading. I am not trading every day. Many people ask me, why I don’t do option selling on friday, monday, or tuesday. I don’t do it. Because I know that the highest probability of me making money is on wednesdays and thursdays. Other days I use other strategies, but option selling, I only do on wednesdays and thursdays.
What’s the conclusion? We will jump to the system now. We will bring the fundamental philosophy to the market observation. You remember the casino example? That is a conclusion why we should do rule-based trading. Remember the swimming example, where the water current will not justify your swimming because chances are that you will be saved. Option sellers come with a risk, but if you know how to risk management then this will be the LIC example. What were they doing? They sell the term insurance according to different factors. Now I will take all this and make a strategy.
I am a CMT and a technical analyst, so I will use some technical indicators. But I will only use one indicator and not more than one. I can use more and do a session on that, but I will use the super trend. This will be fun! I really like this indicator. That’s great, we will use this indicator. It is available in zerodha kite, fyre, trading view up. You can take any trading platform. The period I have taken is (10,3). So people who do not know about super trends can google it. I will teach one on one, but it is very important because it is a volatility-based trend following indicator.
What is option directional option selling? You should know the trend because you need to know the direction right? So it is a trend following indicator too and it is also incorporating volatility. That’s why it is a very important tool for option selling. People who do not know, for them one on one on super trend. Basically, it finds the average of the last 10 days and the closing of that period It checks the status of the high to low. If the movement of bank nifty is 500 points in an average. In the last 10 day period if you are seeing the chart everyday, then 10 days, and if you are seeing the chart of the last 5 days then it is the last 50 minutes.
Average true range is the status of the high and low. It gives a multiplier of 2-3 to the average true range. If it is ranging in 500 points, then the stop loss will get triggered. Then we complain that this operator is triggering our stop loss and it is going up. You wanted to increase the position size so you decreased the stop loss, which is wrong. You are not giving time to volatility because there is so much movement.
If we are taking three times, then it means that we are keeping the volatility 3 times away. Even if it is going down, it means something wrong is happening. So whenever the line of super trend is going up in bank nifty future, it is bullish and when it is below the line and super trend is above, it is bearish. So if I am bullish and the trend is going up, will I sell, call or put? I will sell put, right? I am not taking nifty, I am taking bank nifty because it is an instrument. Now I will come to rules, now you have to concentrate here, I agree that strategies should be simple so that you can write it on the back of an envelope. 0:36:38.743,1193:02:47.295 This one is a little complicated so pay attention. It is just the bank stock, so if a movement is happening, it trends.
My intraday strategy is to sell it on wednesdays and thursdays, but it should not be taken overnight. Now if it has an expiry date or if there is a holiday on thursday, so you can also see this strategy on tuesday. Time frame will be a chart of 5 mins. And the expiry date we are taking is weekly because it had the most theta decay. The rules are very simple, when the supertrend (10,3) is positive or crossing up, (BNF Fut>ST) at 9.20 am or later. First 5 minutes you will only wait and not do anything. 9:20 or later you will check if the bank nifty is up, you will sell the put. But which put you will sell is the most important question, which is the strategy all about. You round to the nearest 100 strike of the value of the super trend.
For example I will show you charts, which will make it easy. So if the value of the super trend is 35519, so what will be the nearest hundred? 35500 PE. So I will see the put of 35500 and sell it. The value will be taken from super trend and not bank value. If I have entered, then I also need to come out of it. Stop loss is very important and in options I chose 2 types of stop loss. One stop loss is longer and the other is trailing, when the market is in my favor I will keep trailing that stop loss. That is also very important for me. One is initial stop loss and the other is a trailing stop loss.
First we will talk about the initial stop loss on wednesdays. Option premiums are high on wednesday, I cannot have 100% of my option premium, which is very high. If I am selling 300 so it will become 600. If I sold something in 300, then it’s 50% will be 150. So 450 is my initial stop loss. If the market is going in reverse, then I should book my stop loss in 50%. If I use the same strategy on Thursday, and I am selling something for 60 rupees, so the 50% returns usually. In that time I keep the initial stop loss at 100% of the premium sold. If I sell something for 100 rupees, the stop loss will be 200. Second comes the trailing stop loss, which closes above the super trend value of short PE, which is very important.Once you have taken your trend in put, then forget about bank nifty.
Now go to put chart and place 10,3 as a super trend. Now start trailing, whichever is lower. At the end of the day, on Wednesdays we book 70% of the premium options because all the 70% is not decaying. It is better not to confuse yourself with too many rules. We are just putting at this right now. Just a small question, if people are trading on wednesday morning then they need to square it up on that day, and if they are doing it on thursday, then they will square it up on that day, right? 100%..no overnight position. Let’s take wednesday, March 3rd. The gap up of bank nifty opened at the 35,900 range, and closing. You can see the line of super trend, what was the value of super trend? 35519. So what we learnt is that the closest 100 has to be chosen for the strike, which is 35500.
So my algo will automatically go to 35500, if the market has gone above then the put option will go down. Here I got my signal, at 9:20 I sold it in 205.9 because the super trend was going up. Because it was a wednesday. So my initial stop loss will be options sold premium, 50% of 205. The option chart has a super trend line. That was my initial stop loss, and it was very far. My initial stop loss is very important because even if the market gets reverse, it can settle. Whole day the market was up, and this option did not recover at all. At a point the trailing stop loss took over the initial stop loss. So when the market started coming in my favor, it started going down, almost at close because the super trend never gave the closing above it.
If at the time of option closing, super trend had given the line. I would have squared off my position. So let’s take a side by side view. Bank nifty opened with a gap up on wednesday, and I saw that the super trend was positive. Found the value of super trend, I took the nearest 100, 35500. I saw the put for 35500 and sold it in 205.90 Saw the initial stop loss and added the trailing stop loss of super trend. If the market goes down, we will see a lot of examples now. When the market was going down, the super trend was also going down. Here my position is covered. Let’s take another example to make it crystal clear for us. Forget about this part, if the market opened and we sold our call we would have concentrated on call.
Market recovered and it closed on super trend. BNF greater than super trend. What was the value of super trend that time? 36867, so my closest 100 will be 36900. Immediately the algo will go on the side of 36900. I saw the put of 36900, 90% of the time if it is not Thursday, then both the signals will come side by side. The buy was visible, at the same time the signal showed up and I sold the put of 36900 at 207.45. I added the initial stop loss because it was wednesday. Then stop loss was trailing because of the super trend when the market started going down. The important thing happened here was when the super trend gave a buy, the value of bank nifty was around 37200.
And when it gave exit, if you buyed exit. You will get an exit in 37100, roughly you would have lost around 50 points in future. If you take the same thing in option, then the exit you will get for 207 will be 194. Why? Time value. Because the water current was behind like theta decay. This is why it is important to understand the importance of philosophy while working. Bank nifty is above super trend in the side by side view. Put option went down in super trend. So if we learn how to sell put option then we also need to do mandi. In the near future, we will be required to do that. So reverse the same rules when the super trend turns negative 9:20 or later. In the near future, we will be required to do that. So reverse the same rules when the super trend turns negative 9:20 or later.
We will round up to the nearest high call option and sell the call option. All the remaining things will remain same. Let’s go to the next example and proceed. I am just giving some examples, now the market has given the closing here. Let’s go to the next example and proceed. I am just giving some examples, now the market has given the closing here. As per our first philosophy, is the situation bullish or bearish from a directional point of view? It is bearish because it went below the super trend. When I found the value, it was 37124. Nearest 37000. I saw the call of 37100, usually both are side by side when the bank nifty gives a signal, which will also come in your option. But that day the signal came very soon because the current of water was behind. What is the martingale system, if we buy a stock and it is going down then we buy more stocks. We have many examples for that such as Yes Bank, we buy more to improve our average.
Lot of people increase their position size, which is very dangerous and I do not believe in averaging stocks. Take a stop loss and get out of it. But I know that it is not wednesday and thursday, and option will be 0. So, martingale will help in increasing your position size. On an average, it fluctuates thrice up and down. We will not take for more than thrice, which is a rule. Do not give trading, but don’t do it more than thrice.
I’ll show you the backtest result because the water current is behind, it is better to increase our position size. Throw the stone in water and check how deep it is, check if you can make money or not. If it does not happen then put one feet and then the other. Never put both the feet together. Martingale says keep the position size if you win. It helps you to recover from chances when you are losing money. After every trade, we increase our position size be it profit or loss-making. Similar range bound day on an expiry. Market opened gap down, so I found the value of the super trend 37316, nearest us 37300. So I will take a call and sell it.
This was my initial stop loss and this was my super trend value because I also wanted to trail. As the market was decreasing I was selling the call, it was in my favor. The market closed at super time, so that call option went to a loss. I made an exit after seeing options chart. You shot at 170, so it must be 100% stop loss or super trend. We see a closing at super trend.
Now here the market went up and I saw the value of the bank nifty, which was 36867 and that is 36900 put. It has 36900 PE and that time it gave the signal. I did not sell 1 lot, I sold 2 lots. I sold it in 207.45 and when the market started going in my favour and the exit came at 194. Then I took an exit, then the market gave a closing below the super trend. After the closing, I searched for the value of super trend, which was 37440, and the closest was 37400. I sold 3 of them, not double but 1,2,3. 151.8 was the selling price of the 3 lots, which was excited at 68.
How did it end at 68? Because it was my day end. 320-325 was my day end. So let's take this with an example. In the first trade we lost 69 points, in the second trade we made 13 points, we sold put and in third trade we made 83. When we make a system, the drawdown is also like that. When the probability is higher in your favor, we try to do your maximum. In the second trade, I lost 26 points and made 13.45 and in the third trade I benefited 208 points.
When there is too much fluctuation in the closing market, then the exposure is very high. That’s why risk management is important, I will also show you the back testing, and because I am trading I will also see some live trading as well. Just not theory, practical. As you mentioned, risk could have been bigger, so let’s look at the live trades. Sir, you are giving your 1 lac course for free.
I might be very anxious after this, but it is what it is. I have started living with it. I will show you the live trade that we got through accounts, which is on the third of march. It just happened last week, so I recorded it. That is why it is edited and it is cut, so that I can show you in real time. Market gaped up in 35780, and I am waiting for the 5 minutes to get closed. Here I have the value for super trend, trading view trend and chart IQ trend is usually similar, which I will tell you practically. In coding, chart IQ matches exactly with the library, but it does not match with trading view.
Roughly, it shows the trend. According to us the trading view should be 35500, but the algo shows 35400 as a put option and sold 4 lots. How do you have a trading view in your put option chart? There is a broker named Fyre, they help to plot in such charts. So I trade through fully automated systems See my stop loss, charts and the PNL that is working inside. So as I fast forward the market, you will see that the market is going up. My super trend is going and I have also added an initial stop loss. You will ask me why I have added 50 rupees. I did not want to complicate it, it was wednesday, so the 70% of the premium I sold was my target price. Okay. Because it was not going to be 0, if it was zero, I would have taken it till the last. It is logical, market took the trend and the trailing. My stop loss started turning in money.
Market is picking more trend, and the options are going down. I am not doing anything, just standing with my stop loss and other things. Almost around 2 pm my premium got decayed. I pocketed enough for me. And I am waiting for my target prices to reach. It was a clear trend day, everyone made money. Then I made an exit. That is one trick. Now let’s look at the difficult one. Should not show that I only made money Gap up took place on wednesday, and it had a nice trend day. If we did not carry over, then I don’t think we will trade. 36500 gap went down to 35700. We had a system so we squared it off, but next day the market gapped down.
The super trend was far and we added stop loss here. We found some slip edges, which you can’t see because there was a big gap down. So let’s see what was the value of super trend that time, somewhere around 36100 CE. So I took a shot of 36100 CE. I added my initial stop loss, 35% of the auction premium into the target prices. Let’s see how the day progressed, so the market started going up again. It was near the stop loss area. As we say sometimes that the luck is with us, with a rule based trader. We lost a stop loss through a whisker. We never miss a stop loss, it is what it is.
We missed a stop loss within a margin, and we were happy about it that we saved ourselves. I will take a pause here, it is very important to know that rule based traders have to work without emotions. As a trader even I get emotional but it is a rule based trading, you need to control emotions that I was not able to do in discretionary. If it came near the stop loss, then I would have left after the profit. Now bank nifty started recovering back and the super trend started going up. And it got closed. Super trend was at 600, I was just waiting for the closing. Remember, I said that super trend should also have a closing at the option.
That was not happening, it just touched. So I was waiting for the closing and in the meanwhile I sold it. I exited at a loss. So you sold put without squaring up call? Yes. Because this happens on thursday usually. Theta decay happens and my call and put is both working. This is all practical, I can’t put everything in the PPT. You will go through it when you practically experience it. This is 35600, so how many lots did I sell? 2. If you remember, before I sold 8 lots, but now I sold 4 lots. Okay.
As the market is now progressing, so we will wait to see how the market will perform. I sold put, so how is my market performing now? I sold the put as well and the trailing of my stop loss is also going on. So I am already pocketing 93000 rupees. Let’s take it more forward. Now we are almost coming to the near end. I will give another tip because I did not want to confuse the audience When we were selling our put, the market was here. And when the market came down, then the 36400 call was below 10 rupees. It did not really make sense for our algos. No need to sell below 10 rupees because the expense will also increase. Interesting thing is that the market dropped after that. My put became almost 0, even after the market was correcting back
As you can see the market in a few seconds. I made the loss-making trade into an almost done. Don't forget to remove your stop loss. What all I showed you is also used by us as trader. It is very important for the viewer to take note of many things. There is something known as execution range error that many do not talk about. Retail trader who go to option trading should read this circular. It is the highest in bank nifty. When you are doing options selling, and you put stop loss then you think you can make an exit. Then you come back and realize how negative your M2M is.
Calculate the exchange, if the options start moving for a small period of time. And if it has taken out a range. If any stop loss order is outside the range then it cancels it. This is very important and that is why I have seen many of my friends taking losses. Was wondering why my broker did not execute the stop loss. That’s why I said options selling with risk management. So you can’t leave the screen, that is how we have kept it. The algos are like that, after 10 mins another stop loss is added. But if you are doing this manually, then remember this risk that not broker but they can cancel exchange.
Option selling has Gama risk so when you are coming close to expiry, even the smaller move can end up big. So execution mismatch and skip top losses never allow this to happen. The opportunity cost of ideal money because we are doing this on wednesday and thursdays. People ask what to do with the money on the other 3 days. I feel that not doing anything with the money on those days is like making money. Only on exit I took the return. Jim Rogers says that I took money lying on the exit , I just go and pick it up. I only do trading when I know that money is lying on the action and I can pick it. Trade only where you have the highest probability. We not only did the theory, we took the fundamental philosophies, rule-based, risk management, and we took a back test It is very important to take the back test and add 2% of the slippage, brokerage, and expense. Many people never do that. They think it is a very good system, so how much expense it will require.
This makes the casino owners and brokers happy because they get a large chunk. And we calculate only 2%. If you ask any option trader about 2% being low or high, then you will know it is high. this is the equity curve of how the system has performed. If I am the viewer and I see that curve then I will think it is an optimization because why does it have such a big curve. The bigger spike was in march 2020 because the option volatility was so high that it was getting decayed. It was going in 0, even the 500 ones were 0.
As a trader, we do not consider this, we have removed those march and april months just to get a realistic equity curve. If I take out the money, which I did not trade this month, then how much money did I make. Because that time everyone was in a mess. This is real, this is how the equity curve would have performed with charges.
I could have shown this strategy in a better way. These are the total points. Introduced by 12494, on an average I am making only 27 points. And we are thinking how much money we will make, but we are only making 27 points.
Now the difference in casino is marginal, 7 up and 7 down. So we need to understand how much money we can make. I am deeply engrossed in this session So I am winning 68% because I am also doing 3 lots in total. My winning percentage is too much. When I am losing, on an average point when I am winning or an average point when I am losing then I will notice the -83 point.
I am losing more, but then you have to look with probability at how many times I am losing. I have been a winner for 11 days consecutively. In 4 expiries I took losses on wednesdays and thursdays from 2016 onwards. On an average I am not making much on bank nifty, I am making an average of 2600 As a trader, 2000 annual points are phenomenal. Maximum draw down I have taken is 967 points. Assume that it is coming from above, and it is going in a draw down. You can see the draw down from the 967 points, which falls over CALMAR or Max DD.
The name we want to keep is 2.72. It means that the annual average point that we are making and how much is our maximum drawdown. This is a very important factor to compare the system. If you want to compare the system to know which is better and which is not then I will give an example. If 2 people come to me with different strategies.
One of them showed me a profit of 5000 points and someone showed 2000. Now my maths is weak so you need to help me 5000-3000 will be how much? 1.6. So lets take the same example here, 2630 divided by 967 will give me a 2.72. Many people will go to the system of 5000 because they think it is giving more money. But also see the draw down, from 5000 if you take out 3000 as a real trade.
Then you could have made 1000. So when you are comparing this system, then look over this table. It is very important to compare the system, and if you go near 4-5 then you are near the holy grail. Then you don’t need to do anything, just keep running this. Many people do trading systems but then they stop doing it, why? I know this Madan Kumar who talks about psychology in trading. You should talk to him. He taught me how to look at the systems. I am showing you the numbers. 52 weeks are over and in this time you will see consecutively 3 losses.
So, if a new trader has started seeing this video, he will see that the first week was a loss, second week was a loss, third week was also a loss. He will think that only backtesting was good, nothing happens in real life. You will come to know about this on twitter. But we go very granular. If I see the same number monthly then I will call it sea of red. In the sea of red, if I suddenly go from weekly number to monthly in this system. Then it is again a problem, here people are at losses. So only backtesting was good.
The moment you close the system and see the M2M profit, they will start trolling it You yourself did not follow the system, and you did not practice or confirm to the system. I took the same number in quarterly, where your real benchmarking is a system trader to know if you made money in the quarter. In that system, you only got a loss in one quarter. I am saying after putting all the expense, mind you.
And this is a yearly number, I never had a losing year. That’s the most important thing for traders because we think very small when we are trading. We stop after a few loses, casino people do not close their casino after you win thrice.
They know that in the long run, statistical advantage is in their favor. As they say, we have never seen a bad backtest report. Yes we are trading it live in our live account We can only give you our performance matrix, and we have been trading from the past 69 days. 47 days we are winning and 21 days we are losing. Our expense is very minimal, so we make a decent amount of profit. So I do not put any M2M sort. My M2M will not excite you.
So what is our holy grail. This is how we manage our funds. Holy grail is the diversification of strategies. Look at this story, we talk about taking screenshots. I don’t always use one strategy, if you see then 4-5 strategies are running together. The most important thing is a correlation between the strategies. If you see both my strategies, then it has a negative correlation with the super trend.
Basically selling straddle strategy is neutral and the super trend is directional So when I make money in super trend then I lose money in my nondirectional strategies. And when I am making money on my nondirectional strategies then I lose money on super trends. It is very important because the drawdown negates and the result amplifies. So last 2 slides and we will round up. Look at this story, we talk about taking screenshots.
I wanted to put this in your mind because kirubha did it very beautifully In Greece, there was a man named Milo. They used to have bull lifting competition. everyone had to lift big bulls. But Milo is skinny like me and everyone else is lifting big bulls. Milo does not know that it is getting big, but his strength is also increasing. We start trading seeing big M2Ms and we blow up our account. So it is very important from the psychology point of view.
Last but not the least. We think it is very easy to make money, but all this is an equity curve. The drawdown is the blood. Piyush made it very nicely I won my competition like 7 consecutive times but then I also went through a drawdown and it is not easy to go through one. So you have to really go through a drawdown to become a professional trader. When the bull starts getting bigger in size, then he realizes he is able to lift the bull.
With this I encourage you to visit the blog because we add everything I will keep it fast and no commercial interest by Vivek ji. Lets go to the previous channel because it needs to stay for a long time. I will be visiting this website and I will also stay in your telegram channel forever. What you have done today is selfless and sharing your own strategy on a public forum as a free content is not a joke No strategy remains green forever. Even you know that your strategy might fade out later on. You will have to come out with new strategies, so the more you give out in the community, It will fade more.
But I am glad that you know to create something new every time. So thank you so much for doing that. So glad to help you Vivek ji. You have shared great content with us. 1:25:07.414,1193:02:47.295 Thank you, I bow to you and you deserve to be in a limelight. I will try my best to let people know about you and your knowledge. It was fun to attend and this is great content in itself. Your energy is unbelievable because in between I was eating my snacks but you were still continuing with this.
Vishal has also shared a webinar with us, which is hosted on elearnmarkets. If you get the chance, check it out. So adapt to this. And this was so much fun. Vishal it is so sweet of you. 1:26:31.614,1193:02:47.295 So please don’t complain because this has been taught in a simple language Thank you Thank you. How many twitter handles are you operating? I will be uploading the links. Give him his due share.
2021-03-20 18:14
