It is time for introspection. This is a business and will be reported as such on my ITR as well. I am expected to make advance tax payments also every quarter. Thus, 13 weeks is a logical time to take a pause and look back at what I have done.
The above P&L results came during the following candles of Nifty:
The correlation is crystal clear. The returns were always good but when market was giving big range candles, I was getting close to 100% annualized returns. All thanks to mean reversion trading. This style of trading is not new to me. It was something which I did for almost 2 years before it started backfiring. The style is extremely risky but here are some key things which I think are noteworthy:
- This works best between Tuesday and Thursday since hedge strike is cheap. It is better not to attempt such trades during rest of the trades
- Selection of mean reversion strike is on basis of DTE in my indigenous strike calculator
- Begin mean reversion only when setup is right else funds get depleted fast
- In continuation with above, paying attention to my custom indicators is the only way to know that it is ok to start adding positions
- Between the 3 timeframes that I use, the middle timeframe should be used for above (point # 2)
- The shortest timeframe always looks tempting but it is better to view it only as a pointer and take trade by looking at changes in option’s LTP
- If mean reversion trades are not being closed the same day, be mindful of the booked losses the previous day instead of looking at Zerodha’s current P&L on positions page
- If funds fall short, roll-in the strike such that overall premium is higher than earlier premium
Many of above notes came from crash of December 20th when I witnessed a drawdown beyond imagination. I hope that I don’t end up doing that again. Otherwise, my hopes are on cloud 9 right now. The CAGR for past quarter stands at 109% and overall CAGR till date is above 50%. This is phenomenal and beyond what I was aiming for.
Selling strangles + Mean Reversion Interventions = Happiness For Life?
Time will tell. But let me stick to it until the next quarter. If mean reversion interventions are cool, I may extend to trading banknifty also.
As I am feeling confident, I am raising my target return as 20% for the next quarter.
HAPPY NEW YEAR!!