Example Trading System
Trendshikari NTS can be used to design your on trading systems. Here we disclose an example trading system. This is the trading system that our directors use to trade in their individual trading accounts. We stick as close to possible as the backtester rules as possible. We deviate only where our use of options for risk limitation prompts us to add some extra rules on top of the backtester rules.
1. Each day the system gives you a Long and Short trading level. Go Long on Nifty when the Daily Long level is breached and go Short on Nifty when the Daily Short Level is breached. If a position from the previous day is held, keep holding it until the reversal signal is generated on any given market day.
2. Trade using Weekly Nifty Options, In the Money calls, one strike below the nearest strike price for going Long using Call Option or one strike above the nearest strike price for going Short using Put Option. For example, if Nifty spot is at 11356 and a long signal is generated, buy Nifty 11200 Call Option and if a short signal is generated buy Nifty 11500 Put Option. By only buying options maximum risk per trade is limited to the premium amount of the option bought.
3. Preset the exit and entry orders of appropriate option contracts every day before market open using After Market Order. To set the levels see the difference in Nifty spot price and the trading levels given by system and then multiply it with 0.92 to give an approximate option price correction (OPC) factor. Subtract the OPC from the LTP of the option held to find the exit trigger price of that option. Add the OPC to the LTP of the next option to be traded to find the entry trigger price of that option.
4. Book profit when Nifty moves significantly along signal direction. Enter a trade in the next strike price option, in the same direction when the option contract moves Rs.100 in the signal direction. This helps to protect the profit made and reduce the downward risk. This is because the new strike price option will have a much lower intrinsic value.
5. Rollover before expiry. Its important before expiry to rollover Option contact positions by exiting the current week contract and taking a new position in the next week contract of the same type and strike price. Otherwise we loose the market position something which should be avoided.
6. Trade only Nifty using this system. Also Daily Chart has to be used for trading. System parameters have been tested and optimized for Nifty Index Daily patterns only and hence is likely to give stated results with Nifty Daily Chart Only.
7. Trade with same number of lots for one full financial year. Increase / Decrease lot count depending on trading Profit / Loss every new financial year. Each lot of option should have a capital of at least Rs.200000. This is a rough amount to keep the drawdown around 30%. Only an amount of around Rs.7500 - 25000 may be needed to open one lot position in the market. The balance amount is the margin of safety in the trading account to cover for drawdowns in trading.