Updated: Jun 1, 2020
What is it?
It involves 3 factors that decide the trade. Together these three factors offer better returns through synergy and flexibility to manage the trade should the trade go against me.
Three deciding factors:
1. Understanding Market mood
Understanding the macro narrative and global, local macroeconomic background is important for me. Narratives are shifting constantly. I try to understand them by glancing through business, economic news (only reputed websites such as Reuters and Bloomberg. I don’t open CNBC or channels where anchors shout in high pitch as if they are selling fishes)
I conduct early morning inter-market analysis. I watch how safe haven assets such as gold, US Dollar, Japanese Yen are moving. I look for signs in bond, commodity and industrial metals market. Off late, VIX indices are giving me good heads-up. I also keep tabs on performance of developed and emerging market equity indices.
Finally, I take into account news flow from policy makers and Industry thought leaders.
2. Await high probability technical setups
Every trader has his/ her own way of using charts to find right place for entry and optimum place for exit. These are called set ups. My setups are based on my own technical indicators which I have created to suit my style of trading. I have three technical indicators namely:
a) Composite standard deviation bands. This is the basic indicator upon which entry and exit points are decided
b) R-or-D. That is Range or Directional. This is helpful to decide the phase of the market
c) Divergence indicator to look for turning points
I have also coded two strategies based on these indicators. One for 15 minutes timeframe and another one for daily time frame. The performance summary of these strategies are are attached below in a file
3. Deploy option-spreads that offer statistical edge
Options spreads are my favored instruments for trading.
a) Options spreads can be custom constructed and adjusted when trade is underway, thereby control and adjust risk, directional element, and time decay
b) They will have statistical edge. There are few ways to do it. For example, it might be achieved by selling higher IV option and hedging it with buying lower IV option or doing a net debit or credit spreads based on Implied volatility & its direction vis-a vis actual volatility.
c) Options spreads can be profitably deployed in both trending and sideways market.