An Intraday Trend-Following Trading Strategy on Equity Derivatives in India

11 Pages Posted: 18 Mar 2019

Date Written: January 13, 2019

Abstract

In this article, we will present a trend-following based investment strategy on single-stock futures. Using the price movement of the recent past we are able to achieve a Sharpe Ratio of 1.7 on training data by cascading positions on successive positive signals and closing out positions if we hit a stop-loss. The stop-loss is computed using historical volatility. The universe is defined in an unbiased fashion to eliminate overfitting. We have used the top 75% most active single stock futures contracts and we have further filtered out products with low opening 15-minute volume. This was done to improve the scalability of the strategy. This might also help in avoiding contracts where less volatility is expected. We have trained our strategy on historical data from 2012 to 2016 and we have tested the strategy on the data from 2017 to 2018 data. Given the nature of markets in 2017-18, we have also looked at modifying the strategy to take positions more conservatively to avoid volatile situations. Empirical studies on profitable trading strategies are rare. We endeavor to shed light on the process of development of a profitable intraday trading strategy and we hope that this encourages collaboration in the active trading community.

Keywords: derivatives, trend-following, intraday, return periodicity, market microstructure

JEL Classification: G11, G12, G14, G120, C630

Suggested Citation

Bhandari, Nishit and Chakravorty, Gaurav, An Intraday Trend-Following Trading Strategy on Equity Derivatives in India (January 13, 2019). Available at SSRN: https://ssrn.com/abstract=3342508 or http://dx.doi.org/10.2139/ssrn.3342508

Nishit Bhandari

QPLUM LLC ( email )

Harborside 5, 185 Hudson St, Suite 1620
Jersey City, NJ 07311
United States

Gaurav Chakravorty (Contact Author)

Qplum ( email )

Harborside 5, 185 Hudson St, Suite 1620
Jersey City, NJ 07311
United States
2013772302 (Phone)

HOME PAGE: http://https://www.qplum.co

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
981
Abstract Views
2,687
rank
29,651
PlumX Metrics