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

Deepak Shenoy3 min read
Quick Facts
What is "Technicals: The BB-Reject+MACD Strategy Works On Hourlies Too" about?
What category is this article in?
Stocks
Who wrote this article?
Deepak Shenoy, Capitalmind's research team.
When was this article published?
Published 7 November 2013.
How long does this article take to read?
3 min read
What topics does this article cover?
IDFC, LT, TATAGLOBAL, Technical Analysis
What does the "Potential Trade: LT" section say?
Here’s a stock on the daily that seems to show promise:
What does the "Past trades:" section say?
Nov 7: Strategy works on hourly bars. IDFC (+3%), Tata Global (+3%). LT entry on the dailies. (This post) Oct 26: ITC hits Stop Loss (-3%), Sesa Goa Stop Loss (-6%) and RCOM Books +3%. Also, Hindalco shows +7% as well. Oct 4: ITC and RCOM Short Entries, Sesa Goa stays open. Oct 1: Tata Steel exits at +6%, TCS call write expires worthless (+3%), Sesa Goa Entry Sep 18: Tata Steel and TCS short entries spotted, short fut and a call write, respectively. Sep 06: ACC entry spotted at 976, which has exited on Sep 11 around 1048. (+7%) Aug 23: BHEL entry spotted at 108, which shows promise to 140, but doesn’t close the gap.Partial exit at 142, looking for 147. (+32% if done right. I didn’t). Aug 06: Airtel Short Setup at 326, and exits at 304 (+7%) Jul 29: Nifty Short Setup at 5886, and exits around 5542. (+6%)

[blurb-capmind-prem]

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:

image

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:

image

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:

image

No position yet, but I might enter today.

Past trades:

Tagged:IDFCLTTATAGLOBALTechnical Analysis