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CM Strategy

Optionalysis: Market Breadth as MA20 Reveals Is Breaking Down

Optionalysis

The MA20 is our proprietary indicator about market breadth. The MA20 is calculated by taking the number of Nifty stocks above their 20 Day Moving Averages, and we subtract from this number those that are below. We then take a further four day MA of the resulting number to smooth it out.

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Since the Nifty has 50 stocks, this calculation will oscillate between -50, when there are no stocks above their 20 DMAs, to +50 when there are no stocks below. We have found that trading opportunities exist when it crosses +30 from above to below, or -30 from below to above.

The MA20 has now indicated a trade on the downside. 

It has crossed from above to below -30 today. You can see it at http://snap.capitalmind.in/#/mac – it is updated once per hour.

MA20

The Past Trades

MA20 has seen some incredibly good moves in the past. Remember we only choose the entry through MA20, the exit is discretionary. (Mentioned on our slack channel)

MA20 Trades

 50% stop loss is our limit. If you’re new, you might want to keep your position size much lower.

With the trades above, we have seen:

• 12 wins and 2 losses

• Average Win of Rs. 23,000 (if you discount the first BIG win, still 18,000)

• Average loss of Rs. 9,000

• Only 14 trades and very slow, so one trade in a month or two.

The concept is about breadth. When the index is in a consolidation zone the first trigger comes when breadth breaks down – it’s no longer about one or two stocks driving up the Nifty, it’s about a larger number of stocks breaking down below their averages compared to the ones that are not.

Disclosure: we have bought a few puts. 

Note: Very very risky. With stop losses of 50% there is a very good chance you’ll lose half your capital, or more if the market gaps up!

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Disclaimer

Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion. 

Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.

Next Gen Financial Analytics

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