Q2Y1 Returns

Q2Y1: Mean Reversion Trading Has Raised Hopes

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:

  1. 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
  2. Selection of mean reversion strike is on basis of DTE in my indigenous strike calculator
  3. Begin mean reversion only when setup is right else funds get depleted fast
  4. In continuation with above, paying attention to my custom indicators is the only way to know that it is ok to start adding positions
  5. Between the 3 timeframes that I use, the middle timeframe should be used for above (point # 2)
  6. 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
  7. 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
  8. 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.