Capitalmind Chase is a Systematic (rule-based) Trend-Following Strategy that combines holding the NIFTY with directional (long-short) positions in NIFTY Futures aimed at market+ risk-adjusted returns across market cycles
Read on for an overview of the strategy, as to who should and should NOT trade this strategy.
If you are an existing subscriber click here for Trade Log & FAQs
Capitalmind Chase – Strategy Overview
- Aims to deliver risk-adjusted returns across market cycles on the NIFTY50 Index
- Offers a low-leverage1 approach to Futures trading
- Uses a Systematic Trend Following based model to avoid any ‘Emotional Bias’ or Discretion.
- Designed to offer Alpha Potential in all market cycles through downside risk management in falling markets and upside participation in rising markets
- Traded on NIFTY Futures. Expect 5-6 trades a month.
Chase Performance
*Updated Weekly, refer to the date in the first row of the table below
How does it work?
There are two components to the strategy. One is Active and the other is Passive.
Active
The Futures trading component is the active part and the buy or sell trades need to be executed for it, as and when you receive the signals. The signals would be actioned on our Slack platform, in the #actionable-fno channel.
Passive
The passive component is a one time activity of investing the notional value equivalent in an index tracking Mutual Fund or an ETF.
How much capital do I need to trade this strategy?
You would need approximately Rs. 13,00,000 to trade one lot of this strategy. Below is the calculation.
- Calculate the notional value: 18,500 * 50 = 925,000 (as of 31st May 2023)
- Invest 9,25,000 in NiftyBees as a passive component.
- Allocate 1,06,088 (calculated using theZerodha margin calculator) to trade one lot of Nifty Futures.
- Maintain 25% of the passive component in cash for mark-to-market (MTM) requirements.
(The above calculation is based on the closing values of 31st May 2023)
Please note that the minimum capital required for the strategy will vary depending upon the values of the Nifty spot on the day you intend to start trading this strategy.
Chase Monthly Performance
2023
2022
2021
2020
Who is this strategy good for?
This strategy is ideally suited for investors and traders who can afford to be moderately active in the markets. You do not have to be glued to the markets though. You should have a fair understanding of Index futures as a product and the inherent risks that come with it. On average, there would be 5 to 6 trades a month and you would need to have access to your trading account during the day when the trades are actioned.
If you are already invested in the markets through Index Mutual funds or have investments in Large-cap stocks, this strategy works as an ideal hedge.
Who should NOT trade this strategy?
If you are new to futures/derivatives trading and do not understand the inherent risks in trading leveraged products.
If you want to trade only parts of this strategy by using broker or exchange provided leverage.
If you cannot be active during market hours to execute the trades.
What’s the underlying concept behind this strategy?
The strategy is based on the concept of Trend Following, we’ve done a series of posts on this. You can start with the first one here.
- Trend Following: What is it?
- If you can’t measure it, don’t trade it
- Are trends logical? What makes them happen?
- Preparing a trend-following strategy
- Using Moving Averages and setting up metrics
- Taking it live: the pitfalls and the things to watch out for
How does the strategy get actioned?
All Capitalmind Premium subscribers get access to the Premium slack forum where any actions on our portfolios and strategies are shared. You would receive the Buy / Sell signals on the Capitalmind Slack platform. You can set up notifications to receive specific alerts. Note: We do not send SMS updates.
What are the risks associated with this strategy?
The worst that can happen while you are in the trade, is an index circuit against you, which can be at a max of 20% on a given day, since we are not using any leverage it would mean a 20% hit on the notional equivalent capital, 2x if it happens when the system is long. Something that has never happened in the past 12 years though.
Of the 17 Crashes in the past 12 years, a crash defined as a greater than 2% fall intraday on NIFTY, CM Chase was Short ahead of it 16 times.
The strategy has delivered positive returns over the past 12 years with a decent Sharpe ratio of 1.77.
Of course, past performance is no guarantee of future results.
Risk warning and disclosure
There are special risks associated with an investment in futures including market price fluctuation, leverage risk, liquidity risk, economic changes, and the impact of adverse, political, geological, or financial factors. No investment/trading strategy can guarantee performance results. Past performance is no guarantee of future results. All investments are subject to a multitude of risks, including loss of principal invested.
1 The system follows a conditional leverage approach, the position is levered 2x on the upside and is not levered on the downside.
For further questions about the Capitalmind Chase, write to us at premium [at] capitalmind [dot] in or on twitter @capitalmind_in
Get access to Chase strategy as part of Capitalmind Premium Subscription. Along with 5 more thematic portfolios!
