Study: Buy KOTAKBANK when there is bullish divergence in RSI and ADX is Trending

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In this study, we evaluate the performance of strategy "Buy KOTAKBANK when there is bullish divergence in RSI and ADX is Trending" under various conditions.

X Analysis

In the table below, we find out the performance of this trading strategy under following scenario: buy KOTAKBANK at the closing price whenever the signal triggers (Rs. 2Lac per trade). Then cover the position "X" trading days later at close_price i.e. sell after "X" trading days. Here are the results of this study:

X DaysNet ProfitTotal TradesWinning TradesLosing Trades% ProfitableAvg Winning TradeMax Winning TradeAvg Losing TradeMax Losing TradeWin/Loss RatioProfit FactorSharpe RatioAvg Trade
1-21354.481771041.185540.7516610.55-6013.98-42084.270.920.64-0.022-1256.15
2-8227179852.947934.4941301.91-9954.68-41977.930.80.9-0.0067-483.94
327656.881771041.1818520.3774523.01-10198.57-33630.21.821.270.0151626.88
475558.52178947.0618240.8880471.38-7818.72-26585.142.332.070.044444.62
583742.83178947.0622638.0392143.66-10817.93-20709.822.091.860.0394926.05
6123177178947.0622458.792143.66-6276.99-11629.393.583.180.0627245.69
71355021710758.8218689.2883501.68-7341.61-16036.312.553.640.0767970.68
81191881711664.7117558.2383726.15-12325.44-21482.61.422.610.0627011.05
91407421710758.8220869.9585521.89-9708.17-19062.032.153.070.0738278.96
10130258179852.9423946.688552.19-10657.73-20757.832.252.530.0657662.21
Although, strategy looks good but profit factor on day 1 is less than minimum accepted value so avoid this, see below for further analysis.
KOTAKBANK Performance, X=7, Profit Factor:3.64

Yearwise Summary of trades in above chart

YearNumber of TradesTrade Dates
2014113 Feb 2014 (6.41%)
2011101 Feb 2011 (-3.65%)
2008218 Mar 2008 (10.91%), 23 Oct 2008 (12.44%)
2005302 Sep 2005 (6.03%), 20 Sep 2005 (-0.44%), 17 Oct 2005 (0.31%)
2002105 Nov 2002 (1.06%)
1997527 May 1997 (2.5%), 16 Sep 1997 (2.5%), 11 Nov 1997 (-8.02%), 27 Nov 1997 (-4.45%), 11 Dec 1997 (-1.1%)
1996230 Jan 1996 (41.75%), 09 Jul 1996 (-3.25%)
1995214 Sep 1995 (-4.79%), 23 Nov 1995 (9.53%)

Strategy Analysis - Exit Criteria

In the study above, exit criterion was that hold the position for "X" trading days. That's one possible exit criterion. However, we can have more elaborate exit criteria. Now we study this strategy under other exit criteria. There are 3 things which you must get to know before proceeding further. Table below shows the performance of this strategy under various exit combinations. Note that nil,nil,-1 is a special exit combination where we just take the best result of "X" Analysis study above.

Stop LossAdjust Stop LossTargetAvg Holding PeriodNet ProfitTotal TradesWinning TradesLosing Trades% ProfitableAvg Winning TradeMax Winning TradeAvg Losing TradeMax Losing TradeWin/Loss RatioProfit FactorSharpe RatioAvg Trade
atrnil312.8111469206143043726.690492.09-10777.88-24056.984.061.740.045573.47
atrnil28.5562392.38207133528641.5160328.06-10622.94-24056.982.71.450.033119.62
atrtrail-15.46-34265.12451920.8321344.4678721.61-7420.39-24056.982.880.76-0.016-1427.71
atrtrail24.79-63054.422451920.8315586.647407.71-7420.39-24056.982.10.55-0.042-2627.27
atrtrail34.96-84832.732451920.8311230.9428153.99-7420.39-24056.981.510.4-0.073-3534.7

In the table above, row 1 shows the best exit criterion. Profit factor is 1.74. Strategy is showing mildly bullish results but we advice not to take a call solely on the basis of this study. Percentage of profitable trades is 30%, which is not acceptable. Avoid this strategy. Average return per trade is 2.79%, which is very good. Sharpe Ratio is 0.04, which is low, don't trade solely on the basis of this study. Average holding period is on the higher side, note this before entering the trade that you you may need to hold the positions for a longer time.
In the chart below, we plot cumulative trade gain versus trades using the best exit criterion.
KOTAKBANK Performance, Profit Factor:1.74

Yearwise Summary of trades in above chart

YearNumber of TradesTrade Dates
2014113 Feb 2014 (8.33%)
2011101 Feb 2011 (-4.49%)
2008218 Mar 2008 (35.56%), 23 Oct 2008 (-12.03%)
2005102 Sep 2005 (45.25%)
2002105 Nov 2002 (-4.38%)
1997827 May 1997 (-5.6%), 16 Sep 1997 (-5.95%), 11 Nov 1997 (-4.46%), 20 Nov 1997 (-4.44%), 27 Nov 1997 (-5.06%), 01 Dec 1997 (-5.19%), 10 Dec 1997 (-5.56%), 19 Dec 1997 (14.31%)
1996330 Jan 1996 (14.08%), 09 Jul 1996 (-5.09%), 17 Jul 1996 (13.66%)
1995314 Sep 1995 (-3.3%), 22 Sep 1995 (-3.49%), 23 Nov 1995 (-6.4%)



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