nishant bali - investallign · deviations in price, ... tata motors /nifty :- excel ... w. d. gann...
TRANSCRIPT
Nishant Bali
Pair Trade
Gann Square of Nine
Basic of Options
Basic of Program Algo & High Frequency trading
The pairs trade or pair trading is a market neutral trading strategy enabling traders to profit from virtually any market conditions. Pair Trading is a market neutral strategy is meant to profit regardless of whether equities rise or fall.
Types of Pair trade
Algorithmic pair trading:- These strategies are typically built around models that define the spread based on historical data mining and analysis. The algorithm monitors for deviations in price, automatically buying and selling to capitalize on market inefficiencies
Spread
Calender Cross Mkt Intermarket Correlation
Methods of Pair trading
Statistical or Quantitative
Divergence or mean reverting
Technical PT Fundamental PT
Few more examples :-
Current example :- Metal/Nifty based on that Sell JSW Steel/Buy
NIFTY
Tata motors /Nifty :- Excel
Always tries to Neutralize the Pair trade overtrading may run into
huge loses. Ex Silver-Crude pair
William Delbert Gann, is well-known. Gann was one of the greatest
traders in the early twenty centuries.
The accuracy of W. D. Gann's prediction was up to 85%. Gann
claimed that his every forecast was solely based on mathematical
principles.
W. D. Gann said that the 360 degrees of a circle and the numbers
from 1 to 9 were the origin of mathematics. In a circle, there may
place a square and a triangle.
Gann relied heavily on geometrical and numerical relationships.
The Square of 9 is basically a spiral of numbers. The initial value
can be found in the center of the spiral. This value is the increased
by moving in a spiral form.
The numbers that represent a complete turn (0 or 360 degrees) are
4,15,96 , 1/8 of a turn (45 degrees) are 5,17,65 and The numbers
that represent 1 quarter of a turn (90 degrees) are 6,19,69 etc
The numbers that fall on the double lines form what’s known as the
“Cardinal Cross” and the numbers that fall on the single lines
running into the corners of the square, form what’s known as the
“Ordinal Cross” and that numbers act as a significant Support and
Resistance.
Numbers on the grid running down to the bottom left hand corner
on the Square of Nine, you will find they are the square root of odd
numbers E.g. 5x5 = 25.
If you were to look at the numbers running up to the top right hand
corner on the Square of Nine you will find they are the square root
of even numbers e.g. 4x4 = 16
In Square of Nine parlance we say things like 19 is 90 degrees
from15 and we can say that 34 is 360 degrees from 15.
How to calculate a full 360 degree??
The square root of 15 is 3.87. Add two to the square root of 15 and
we get 5.87. Square 5.87 and we get 34.49
Gann Square of "9"
5439.063 5457.516 5476 5494.516 5513.063 5531.641 5550.25 5420.641 5112.25 5130.141 5148.063 5166.016 5184 5568.89
5402.25 5094.391 4935.063 4952.641 4970.25 5202.016 5587.56 5383.891 5076.563 4917.516 4900 4987.891 5220.063 5606.27
5365.563 5058.766 5041 5023.266 5005.563 5238.141 5625
5347.266 5329 5310.766 5292.563 5274.391 5256.25 5643.77 5757.016 5757.016 5738.063 5719.141 5700.25 5681.391 5662.56
Suppose LTP is 5152
Enter current market price 5152
Gann Square of "9"
5587.563 5606.266 5625 5643.766 5662.563 5681.391 5700.25 5568.891 5256.25 5274.391 5292.563 5310.766 5329 5719.14
5550.25 5238.141 5076.563 5094.391 5112.25 5347.266 5738.06 5531.641 5220.063 5058.766 5041 5130.141 5365.563 5757.02
5513.063 5202.016 5184 5166.016 5148.063 5383.891 5776 5494.516 5476 5457.516 5439.063 5420.641 5402.25 5795.02 5909.766 5909.766 5890.563 5871.391 5852.25 5833.141 5814.06
5152 comes between 5166 - 5148 Buy above 5166.01 TGTS 5184 -5220-5256
Sell below 5148.06 TGTS 5130-5112-5094
o Derivative is a product whose value is derived from an Underlying
Assets .
o Instruments in Derivative includes : Commodity Derivative, Currency
Derivative, Interest Rate Derivative .
o Derivatives first came about in Japanese rice markets in 1650’s .
o The first organized derivatives market came in 1848, when the
Chicago Board of Trade ( CBOT)
o Total size of International Derivative Market exceed $109 trillion in
outstanding contracts and over $400 trillion (Bank of International )
.
Number of Stocks and Indices Available for Trading
Stocks
(228)
Indices
(9)
Stocks & Indices
Available
NIFTY
NIFTY MINI
S & P 500
CNXIT
CNX INFRA
BANK NIFTY
Dow Jones
CNX MID CAP 50
CNX PSE
FII
(57.3 bn; 70 %)
Cash
(INR 177 bn)
Institutional
(83 bn; 47%)
Non Institutional
(94 bn; 53%)
FII
(57.3 bn; 70 %)
MF
(12.2 bn; 15 %) Insurance
(13.6 bn; 15 %)
Derivative
(INR 1180 bn)
Institutional
(255 bn; 21%)
Non Institutional
(925 bn; 78%)
FII
(250 bn; 21 %)
MF
(5 bn; 1 %)
Insurance
(N.A.)
DIIs
Forward is a contract between two entities , where settlement
takes place at specific future date.
Where Future is nothing but a “Standardized Forward contract”.
Futures Forwards
Trade on an organized
exchange
OTC in nature
Standardized contract
terms
Customized contract terms
No chances of Counter
party risk
Chance of a Counter party
risk
Requires margin
payments
No margin payment
Follows daily
settlement
Settlement happens at end of
period
Futures Options
Exchange traded Same as futures
Exchange defines
the product
Same as futures.
Linear payoff Nonlinear payoff
Both long and
short at risk
Only short at risk.
Futures contracts have linear payoffs .
Means both profit and losses are unlimited.
Long Future Short Future
Buy Future Contract : Bullish
Buy @ Rs 100
Sell Future Contract : Bearish
Sell @ Rs 100
o Option price/premium
o Expiration date
o Strike price
o In-the-money option
o At-the-money option
o Out-of-the-money option
Option contracts have Non -linear payoffs.
Means buyer having an unlimited profit but limited loss
Profit
Loss Long Call
0
-60
Long Put
Profit
Loss
o In Call option, breakeven point for buyer would be @ Strike price
+ Premium .
o In Put option, breakeven point for buyer would be @ Strike price
- Premium
o Premium = Intrinsic value + Time value.
o Intrinsic value of an option: The option premium can be broken
down into two components - intrinsic value and time value. The
intrinsic value of a call is the amount the option is ITM, if it is
ITM. If the call is OTM, its intrinsic value is zero. Putting it
another way, the intrinsic value of a call is Max[0, (St — K)] which
means the intrinsic value of a call is the greater of 0 or (St — K).
o OTM :- Don't have Intrinsic Value .
Options Call Options Put Options Buyer
(Bullish)
Right to
Buy
No initial
margin
Pays
premium 1 December 2011 Writer
(Bearish)
Obligation
to Sell
Initial margin
to be paid
Receives
premium Workshop on Derivatives
Buyer
(Bearish)
Right to
Sell
No initial
margin
Pays
premium
Writer
(Bullish)
Obligation
to Buy
Options
Call Options Put Options
Buyer
(Bullish)
Writer
(Bearish)
Right to
Buy
No initial
margin
Pays
premium
Obligation
to Sell
Initial margin
to be paid
Receives
premium
Buyer
(Bearish)
Right to
Sell
No initial
margin
Pays
premium
Writer
(Bullish)
Obligation
to Buy
Initial margin
to be paid
Receives
premium
o The Put/Call Ratio is an indicator that shows put volume relative to
call volume. Put options are used to hedge against market weakness
or bet on a decline. Call options are used to hedge against market
strength or bet on advance. The Put/Call Ratio is above 1 when put
volume exceeds call volume and below 1 when call volume exceeds
put volume.
o But exactly what it is ?? Major Foreign or smart players likes to Short
instead of Buy. Hence a rising P/C ratio is bullish for the market and
vice versa.
o But being a smart traders we would like sail on the other side of the
waves. I.e. Sell the market when the ratio touch 1.30-1.38 and Buy
when it falls till 0.70-0.78
Traders,
We are taking all your queries on writing your script/strategy on algoZ in the blog, “Code your Technical Analysis Strategy”. I have gotten a few queries like, “Once you have written a script, what next?” Though it is explained in the user manual, let me show you below how to take the strategy live, how to run/stop it, how to have a preset stop loss, and more…
In the simple example, we had used a really basic strategy which was on a 14-candle EMA. So, basically, the strategy is “buy” if the price of the stock goes over the 14 EMA and “sell” if it goes under. The problem with a strategy like this is that if you are looking at a 1-minute/5-minute/hourly candle, this crossover will happen quite frequently giving a lot of trades. In the simple example, we had gotten 823 trades over a 22-day period in the backtesting report which is pretty high by any standards.
To explain how to manage your script, I will use another example, the one that has been asked in the tutorial blog by one of you.
Strategy:
The same 14 EMA crossover as mentioned in the example above, but we use RSI as a filter. Typically, RSI below 30 means that it is getting oversold and if above 70 it is getting overbought. So what we want to do is buy/sell on 14 EMA crossover but buy if RSI is below 45 and sell if RSI is above 55.
Here’s the script:
Buy Expression: Close>EMA(Close,14) AND RSI(Close,14)
Sell Expression: Close55
Buy exit : 0
Sell exit: 0
Contract: Nifty Futures.
The script window will look like this:
Backtest Window:
You will see that by having the RSI condition, the total number of trades in the 22-day period has dropped from 823 to 19, but the net profit on backtesting shows only 43 points. See the pic below. Also, if you notice in the backtest report the largest loss making trade was 200 points and this could have been controlled at 50 points by having a SL which would have improved the profitability of this strategy.
Taking it live/Alert Preference: As shown in the first example, when you click on the Live button you get a new window “Alert preference”, which is the menu to preset the Quantity/SL/Type of the order you want to execute when the strategy gives you a signal.
Managing your script once you have taken it live:
In the pic above, once you have clicked on submit, the strategy goes live. To see all
the live scripts/strategies that you are running on your account you can go to the
link shown below:
Once you click on Pulse Running Scripts you will get the window as shown below:
Once you have taken a strategy live, all you have to do now is wait for the
buy/sell alerts to pop up. If you click “Act on Alert” an order is placed based on
your alert preference as shown above.
Happy Coding,
