Idea Script - EICHERMOT

Earlier I was trading with bank nifty options, where in I used to buy options. When the premiums were decaying, I couldn't tolerate the mini attacks I got, leading me take multiple wrong trades & thus losing more money & more heart attacks. Then I decided, I'm not an aggressive kind of person & I don’t have that maturity to handle the losses.

Idea

Script - EICHERMOT

So I started to find out ideas in equities, finally ending up with one I'm sharing with you.

This is a mechanical trading system where in you need to enter & exit only as per rules and need not validate with indicators or crunching numbers.

Idea

Script - EICHERMOT

Time frame - 1 Hr.

Entry criteria =

9am candle closing above or below 2pm & 3pm candles of previous day and candle should be positive ( green candle) if it is breaking high & negative (red candle) if it is breaking low. ( this is very important)(edit 1)

current hourly candle closing above or below high or low of previous hour candle.

Exit Criteria =

Current Hourly candle closes above or below of 9am candle as per the entry you take. If you take buy order, exit if current hourly candle closes below low of 9am candle. ( Exit only when market breaches high/low of 1st hour candle)

Exit at market price around 3:15pm.

Trade Reversal.

When the 1st trade you take, exits before 3:15 pm (last exit can be 2:15 pm for taking reversal entry), take position in the opposite direction.

Notes - Do not enter or exit a trade before looking at the closing value of the current hourly candle. Exit only after the current candle closes above or below 9am hourly candle. Sometimes, market would move against your entry & loss would be seen in your position. But wait for confirmation at closing time of current hourly candle. Since many times I've seen market coming back in you favor & closing within the stop loss limit.

Back test:

I've back tested this strategy manually for the last 12 months ( Nov'18 to Oct'19). I would conservatively say this strategy may yield 25% of returns month on month.

Certain months have been bad, certain ones were excellent averaging the poor performance of other months.

Monthly returns graph.

Entry Criteria Snapshot

Entry when 9:15am candle close above or below of high/low of 215 pm & 315 pm candles of previous day.

Entry when current Hourly closes below or above previous hourly candle low or high

Trade Reversals

Criteria to avoid trade (Edit 1)

In the above situation, market H1 candle of 2/8/19 closed less than the low of last 2 hourly candles of previous day. But it is a positive candle. So it is a false signal.

Similarly, in the above case, though the opening candle closed above high of previous day’s high of last 2 candles, the candle is red & hence it is false signal.

For any trading idea to succeed, you need idea, fund management & emotional control.

we discussed idea. next lets move on to

Fund management

I use Zerodha for trading.

they offer 12.5x leverage which mounts to Rs 1500 per lot (conservatively take Rs 2000 as margin required to buy 1 lot in MIS)

so margin required = Rs 2000/-

Maximum draw down points ( both on single day as welll as consequtive days) = Rs 500/- ( maximum continuous loss days = 3 days of Rs 100 to 200 each)

Now, Have 5 days of loss as backup = Rs 500 * 5 = Rs 2500

Add margin requirement = Rs 2000+ Rs 2500 = Rs 4500/-

Round off to next thousand = Rs 5000/-

So if you have Rs 5000/- you can trade 1 lot of eichermot per day. Choose lot size as per the amount you wish to invest.

Emotions.

This is tough part of any trading system.

since you’ve a plan in place, you need not panic. I know it is easy said than done.

You’ve no choice but to wait to confirm if you really need to book loss & take a reverse trade.

Hold tight even when you end up with loss for 1 or 2 days. because as per data, it is not going to last more than 3 or 4 days.

Also we have our back covered with 5 days of Rs 500 loss per day of which the chances are very low.

That’s all with my idea.

please give me your feed back & point out if my system has any flaws as I’m still learning.

PS - I’ll add more details on the above method. also i’m testing this method on other scripts. I’d come up with their test results as well.

Meanwhile, you can read Muthu Kishor's answer to What is the most accurate combination of technical indicators for intraday and positional trading that one should use while trading?

Also u can start your trading journey from Upstox (Open a Demat Account Online ) and get 1 month of free brokerage ( upto ₹1000)

Happy reading & trading,

MuKi

Note, -

Guys this answer is for educational purpose only. So backtest and take trades at your own discretion.
Also I'm not using by this method due to time constraints I've with executing the trades.
This strategy can be applied to any low beta stocks also

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