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Compositedge E-learning: Key testing parameters before implementing automated trading strategies

The retail automated trading space is growing at a tremendous pace in India after market regulator SEBI permitted retail investors to have a go in April 2008. Since then, demand for automating strategies has been rising immensely and brokers are quickly ramping up their trading terminals to include automated trading as part of a broad package to retain customers who are constantly looking for a viable trading option that can combine both conventional and fully automated trading from a single platform.

Compositedge E-learning: Supports and Resistances

If you’re new to technical analysis, the key to predicting future price movements is to analyse chart patterns and price trends, which largely assist you in defining entries and exits from what looks like a choppy graph. Likewise, if you’re trying to analyse charts for the first time, you may perceive markets to be random and inconsistent, but experienced chartists organize this random price behaviour into systematic patterns to define entries and exits solely based on supports and resistances, which can either be short-term breakouts or long-term trend changers.

Compositedge E-learning- Option Greeks

Every tradable asset class has a certain degree of risk associated with it, even the likes of sovereign securities which most of us perceive to be completely risk-free. Since markets are highly unpredictable, you cannot eliminate trading risk completely, but if you want to be a successful trader, the key is to identify the risks early and manage them efficiently.

Compositedge E-learning- Condor and Reverse Iron Condor

The Iron Condor is a market neutral strategy which comprises of a combination of OUT OF THE MONEY bull put spread and a bear call spread with all the options having the same expiration date. Being a low risk credit spread strategy, it is designed to generate profits in low-volatile, non-directional markets. However, this does not mean that you time your entries when the volatility is low, on the contrary, Iron Condor strategies should be executed when the volatility in the underlying security begins to drop after a period of high volatility.

Compositedge E-learning- Butterfly spreads

Butterfly spread strategies are a combination of a bull and bear spread, effectively making it a low-cost neutral strategy. The strategy typically comprises of a combination of three strike prices using a combination of either calls or puts having the same expiry with limited risk and profit potential. Butterfly spreads are categorized into two types

Long butterfly-Generally used if you’re anticipating prices of the underlying to remain in a narrow range until the expiry of the contract.

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Compositedge E-learning- Renko charts

The Renko chart is a kind of aggregation chart developed by the Japanese using price movements while ignoring time and volume. Renko is taken from the Japanese word “Renga” meaning bricks which is typically represented in the way the chart looks. There may be a few features in the chart type which are very similar to some of the other aggregation chart types like the Point and Figure and Heikin-Ashi, however, a deeper understanding points to quite a few differences.

Compositedge E-learning- Heikin-Ashi charts

If you’re familiar with candlestick charting, at the outlook you may find Heikin-Ashi charts visually indistinguishable from candlestick charts. That’s because they’re an offshoot of the Japanese charts with a few modifications resulting in noise filtration in the latter, thereby assisting in capturing the trend of a security in a much more robust fashion and giving them a smoother look. The basic setup of the two charts such as up-down bars, time frames, colouring method etc. are very similar, however, there are a few differences in the way the two charts are plotted and analysed.

Compositedge E-learning- Point & Figure charts

A key aggregation chart for your day today trading activities…


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