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Algo Trader Vivek Gadodia

@technovestor

1 Oct

System or Algo based trading started gaining prominence in US in 80s, picked up in 90s, and exploded from 2000 onwards. Over 80% volumes in these markets are driven by Algo. In April 2008, SEBI releases a policy allowing DMA (Direct Market Access) and opens the floodgates here

DMA simply means that a trade can now be originated by a computer and order execution can happen automatically. in an automated fashion via computers, without manual (human) intervention.

The truest technology revolution in India is the invention of ATM. A person with more

money has to wait in queue before a person who is standing ahead.

The second revolution, in my opinion is Algorithmic Trading. Why? Capital markets have been known to function with inefficiencies in early 90s (before advent of National Stock Exchange), where brokers front-ran

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Algo Trader Vivek Gadodia

@technovestor

10 Aug

Drawdown- The D Word

Trading and Investing is simple. In investing, buy “quality” stocks, hold them till ever. Even if you bought them at the peaks of market like 2007, 2017, you may have to wait 3-5 years before seeing you get back a return on your investment.
In trading,

where typically people leverage, you want to cut the losing trade and ride the winning trade.
Well, simply put these things look great in practice and sounds intellectually stimulating. Aah, once one reads this and understands this, one is ready to be the next millionaire on

dalal-street.

However, as one engages in the journey to “riches”, one realizes that actual riches v/s the idea of getting rich has one big chasm to cross- the valley called “Drawdown”.
What is Drawdown? Simply put, if you invested 100 Rupees in a stock, and unluckily it turned

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Algo Trader Vivek Gadodia

@technovestor

11 Jul 20

Trend-Following combined with Non-Directional Options trading is perhaps the best of discoveries we have found over the last few years in systematic trading. Notice how, when Trend Following loses, Options makes money. It's probably a bit early in the day, but my sixth

sense tells me this is going to give us the big boost we have been looking for. There have always been some of the Arguments against Trend-Following and critics of Trend Following are rather more judge-mental and who live less in the present moment.

a) Recovery Period: The longer recovery periods from draw-down are reduced because as they say- approximately 70% of the time markets are side-ways. I am not interested in any debate here whether this is 60% or 80% or 73.7%. Since Debating has never earned me any brownie points

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Algo Trader Vivek Gadodia

@technovestor

9 Mar 20

Position Sizing and Trading Performance
What is the value of the position you are carrying? When we say value, it has nothing to do with margin, risk, where your stop loss is, etc. When we are talking about the world of cash equities, this is quite clear. The importance

arises when we are trading futures and options, which is more the case. Let us see this in context of Cash equities, Futures and Options.

Let us say we are buying 1000 shares of XYZ Ltd. For Rs. 500/- a share. The exposure totals to Rs.500 (The price)

X 1000 (The quantity bought). That totals to Rs.5,00,000/-. This is the position size, or in other words “exposure” to the market. The maximum a share can go to is 0. So this is also the “Risk” i.e. maximum that one can lose in this position. To take delivery of this

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Algo Trader Vivek Gadodia

@technovestor

25 Nov 19

Emotions, Feelings and Systems Trading

Many of us feel system trading is removing the emotions from Trading. Nothing could be further from the truth. A Robot may not have emotions. This again is debatable. How does system trading help, if at all, then, in trading?

Our emotions are layered, just like the various peels of an onion. Many are at the surface, and maybe visible to ourselves and to others. A deeper layer of emotions though, is invisible. It is layered so deep and entrenched so much within us, that it may not be accessible to

our conscious. When we create a rule-based mechanical trading strategy, what we are doing in a way is channelling all our emotions together into an algorithm or set of rules, which we feel is suitable to us and our temperament. How can then, a system which is good for me,

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Algo Trader Vivek Gadodia

@technovestor

23 Sep 19

Multi-Time Frame Analysis
Think of Price Action in terms of waves. There are some waves which are large, and some are small. If a large wave is flowing towards the shore, and a small wave is going away from the shore, what will happen to the small wave when it meets the large

wave? Obviously, it will start flowing back towards the shore, in line with the large wave. There is no small wave capable to turning the course of the large wave, atleast in the now.

Now think of Candles in terms of waves. If the Weekly Candle (large wave) is Up, and Daily

Candle (medium wave) is Down, and Hourly Candle (smaller wave) is Down, will the Price go down. It may, and be enough to keep prices down and turn the Weekly Candle also down. The odds of this happening though are less. Therefore in Multi-Time Frame analysis one should trade

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