Oct21-W3: I think I thought I saw me make lotta money

I went for the kill with my super-risky mean reversion style of trading. In this style, I try to catch the top i.e. I don’t even wait for a signal candle. Catching the top is impossible. I then start averaging by using a mathematical formula based on ATR. The formula also helps in computing the position size to perform averaging. I think I am slowly getting good at it.

All this is not possible by shorting naked options. My strike of choice was 18600 CE, and my choice of hedge was 19100 CE. As market tended to go up, I once tried to use Zerodha’s basket order to place trade but accidently placed order of buying 18600 CE. I instantly fixed the mess and tried to place a basket order again. The order failed again as Zerodha places limit orders and not market orders. The trades simply did not get executed. Feedback to Zerodha: Please allow market orders as part of basket order.

The above fiasco happened on Monday. Now, I forgot that Zerodha follows a FIFO method when it comes to calculation of average LTP. I got fooled on Tuesday with the average LTP and notional P&L. When the market dropped, I saw that I was making more than Rs. 20,000 but in reality I had made only around Rs. 8000 since I had actually booked loss on Monday while trying to adjust positions.

It is not like I would have traded otherwise. I needed to exit on Tuesday as my target was hit but I was quite happy until I checked my P&L report today. I had to check the log twice to understand how my profit of 20,000 got reduced to 8,000. I am not sure if other traders often fall for this misunderstanding also. Irrespective of this accounting misunderstanding, I believe I should have made more money anyway during this mean reversion trade. I was facing margin problem due to far OTM hedge. Next time, my hedge won’t be that far.

So I was trading between these candles:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAnnualized  return till today
Rs. 14615.95Rs. 888512.661.65%133.6%1935.45%

The following is breakdown of week’s positions:

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