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CM Strategy

Optionalysis: Another Move In the MA20 Might Indicate A Nifty Swing

Optionalysis

The MA20, our proprietary indicator that measures  market breadth, shows up another trade: A long trade this time.

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It’s just turned up from about -30 back up, and ahead of a Fed rate hike (potential) we see a long move being indicated. The trade remains a 7800 call at about 61.5 and we’ll use a 50% SL.

MA20

What is the MA20?

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.

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.

Remember the strategy is:

• Enter puts or calls when it crosses +30 from above to below or -30 from below to above

• Sizing of positions and exits are discretionary

• One exception: max 50% losses on the options

This strategy has been up and down these last few months, but it has done really well overall. We’ve had a decent win-loss ratio, and will take this further. 

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Recent trades whipsaw but Position Sizing Saved Us

We saw recent trades move negatively against us, but even then we changed the position size accordingly and as you can see the last two trades were the same – long positions through call options – and we lost one and won the other. But we made more on the winner than we lost on the loser. 

We still don’t have an exit strategy. We have an entry strategy. We have a fixed position size of 600 right now. But we exit in a discretionary manner. 

Ma20 a strategy that acts reasonably fast (average holding period of 6 days) and seems to be doing well. It’s not something that triggers very often, though. Breadth is a good way to look at the market – if the majority of players are going down, the market is likely to follow.

Here’s the trades till now.

MA 20 Trades

This is a very risky strategy. Don’t try it unless you’re willing to lose nearly everything. We haven’t provided backtested results because the exits are discretionary and there’s no proper way to back-test a discretionary system. (Heck we could make up whatever exit we want). We’ve traded it in our accounts.

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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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