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Stocks

Technicals: The BB-Reject+MACD Strategy Works On Hourlies Too

The Bollinger Band Reject + MACD Strategy seems to be working on hourly bars as well. I have been tracking this for the last five days and the strategy seems to give great entries and exits in a shorter time frame. Lower volatility but lower returns (as a %) as well.

(I get hourly data from http://globaldatafeeds.in/, and pass it into Amibroker)

Here’s a couple I executed yesterday.

First, IDFC:

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As you can see, price rides up the upper band, pushes out, and then goes back up. This was after a good result recently.

The reversal saw an MACD Crossover, and the trade was a short future, taken early yesterday. The stop was the upper BB. The stock moved very fast intraday to close at the lower BB – this is rare, since most trades will take a day or two, even on the hourlies.

A note on exposure. The future needs an exposure of 2000 shares per lot. The margin requirements are only Rs. 40,000, but the total exposure is (2000 x 114 = 228,000). I assume between 2 and 3x leverage, so a per lot investment for me is about 100,000. If you assume that, the return on the day is about Rs. 3.5 (the move) multiplied by the lot size = Rs. 7,000 per lot. For an investment of Rs. 100,000 per lot, this is 7%. If you don’t want leverage, the return is just 3%. (Rs. 3.5 divided by Rs. 114, the future price).

And Tata Global:

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This has again demonstrated a move up the upper band. This stock oscillates well within the hourlies as you can see from the recent past. The MACD crossover was a short term signal to hit the lower band as the stock had rejected the upper band. The signal came in on Tuesday, and I held overnight to exit on Wednesday.

Return: Lot size of 2,000, exposure of Rs. 120,000 (3x leverage) per lot. Move was Rs. 4.5, so a per lot profit of Rs. 9,000 translates to 3% (without leverage) and 8% (with leverage).

In both the above cases, I exited too early and gained only about half the above moves, which I must say are still good. The reason: I had to step out for a meeting and didn’t want a position to undo the mind. Perhaps I should delay these meetings! Now considering introducing this strategy to Capital Mind Premium (not as a “tip”, but as a positional move).

Potential Trade: LT

Here’s a stock on the daily that seems to show promise:

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No position yet, but I might enter today.

Past trades: