Announcement | Taking a short break

I thought its only fair to let you all know that, I have been extremely busy with some LOB data back-testing, Trading Strategy consulting projects and a data visualization project. All this does not leave me with much time to write meaningfully. So apologies for the lull on the blog.

I foresee the situation to improve in a couple of months, and I should be back on the blogging track.

For anything else feel free to write to me at 


Podcast | CWT | Mike Bellafiore

This is one of those podcasts' which should not just be listened to, but should instead be understood and assimilated. That's all there is to trading, esp. day trading.

Behind the ‘veil’ of Price | Indicators that signal market microstructure dynamics | Part 3 of 4

Part 1

Part 2

In this part we will explore the third indicator that I use which helps us in understanding the dynamics that happens in the Limit order-book before large moves, in a way this is one those “predictive” indicators as it signals oncoming volatility a few minutes before it actually does – The Average Bid-Ask Spread.

In the slack room, I call it SOS – No not “Save our Ship” but “Spikes on Spread” – Which indeed is an SOS signal if you have any positions on, as it signals one to be alert.

Before we get to the mechanics of this indicator, one needs to have a basic understanding of how the Limit Order book (LOB) works.

So if you look at the L2 market depth, this is how it would typically look at a given moment (Graphically i.e.)


Now let’s see what happens when a Market Order hits the book. In this example a Market Buy Order hits the book.

The contracts marked in Yellow are the one which are consumed by the Market Order. Now do compare the spread in the two illustrations. In the first one we have a spread of 1 and in the second, because of the market order coming in the spreads doubles to 2. Now let’s see what happens next.

As you can see in the above illustration, the limit orders (Bids) come in to fill the spread. This Expansion-Contraction of spread due to market orders coming in can happen and can be observed over different timeframes. But the concept remains the same.

Microstructure academicians also call this the Liquidity Cycle or more specifically the Make – Take Phases

Typically you have shorter “Take Phases” and longer “Make Phases”, which fits in with the fact that we would typically have lesser market orders compared to limit orders.

With theory covered now let’s move to practice.

Look at the NIFTY Futures 1 minute time frame chart (Date – 8th May’18)

On the top pane is NIFTY Futures Price, the second pane has Average Bid-ask spread as a Histogram aggregated for each minute. On the Second pane is a 5 minute (Orange) over 45 minute (Grey) SMA of the Spread, the last pane has Volume rate which we’ve looked at already in part 1 of this series.

If you notice the spread for NIFTY Futures oscillates in a range of 0 to 2.

So how do we use this indicator?

Observe the spread from 12:05 to 12:45 – If you see the price has largely been range bound but the spread moved from the upper band to the lower band – Remember the concept of “Take Phase”?

My conjecture is this is a period where liquidity takers are sort of sweeping the book, the price remains range bound up till the point where adequate liquidity exists, the moment there is an imbalance we see large moves or volatility come in, and as these initial bursts come in, perhaps herd and threshold behaviour takes over causing extensions of these moves.

Since this indicator is like an oscillator with a fairly defined range – it’s easy to spot deviations and be prepared for an upcoming move, however one must remember this indicator does not predict direction all that it does it predict volatility.

As of now I am still testing and collecting data to do back-tests on this indicator, so I do not have any statistics to support my claim, but people in the slack group know – how often I call out an ‘SOS’ and how accurate or inaccurate it turns out to be.

The usual disclaimer applies to this indicator as well – this indicator  is to be used within the context of the market structure and in combination with other indicators discussed in this series.

Update - Another screen shot of NIFTY FUT 10th of May'18

Behind the ‘veil’ of Price | Indicators that signal market microstructure dynamics | Part 2 of 4

Previous part here 

In this part we will explore the second indicator that I use which helps us in understanding the dynamics which happens as price action unfolds, i.e. points where price turns, also known as "Imbalances". Adam Grimes in his book "The Art and Science of Technical Analysis" says something interesting about Imbalances.


Imbalances happen in the Limit Order book (LOB), however in the absence of LOB info. we can use executed order info. as a proxy to access LOB imbalances. The indicator known as “Volume Delta” tries to do just that. It looks at volumes executed at ask vs. volumes executed at bid to make an assessment of an imbalance.

Delta here is defined as - The net difference between the buying and selling (volume) at each price (footprint delta), each bar (bar delta), or the entire day (cumulative delta).

All that you need to know about delta is here - and it makes no sense to reinvent the wheel, what I think is of more value to the readers here is to know how to use it in the context of NIFTY.

Delta becomes important only at points where there is a divergence, meaning price moving in one direction but delta getting skewed in the opposite direction or in other words – More aggressive buying as the price goes down and more aggressive selling as the price moves up  Such divergences point to a possible change in trend or a reversal.

Now it’s important to understand that this indicator measures divergence caused by aggressive buying or selling i.e. through Market Orders, but in reality passive limit orders could also cause both reversals and continuations and in NIFTY the ratio of market orders to limit orders would be close to 30:70, so one has to factor that in.

At this point I want to categorically say that as far as I know there is no programmatic way of determining if an execution is a market, limit, or a stop order. So the idea that attributes “aggressiveness” to market order driven (long/short) at that price point is not correct, it could always be stop’s being hit as well, or for all you know it can also be marketable limit order. This is the reason why divergences per-se can be both a point of reversal or continuation.

Let’s look at the following chart.

In the image above – The Red colored candles mean (Greater than “x” size volume at Ask compared to Bid) and the Green candles mean (Greater than “x” size volume at Bid compared to Ask) in that specific bar. X can be set to a User defined value or you could ignore it totally and let the indicator point you to every imbalance that occurs. This is an illustration of "Per Bar Delta" which is what I use.

As you can notice there are some divergence signals which act as points of continuation and some act as point of reversal, meaning some Red markers which don’t lead to a fall instead cause further up-move and some green candles which don’t lead to a raise but instead cause a further fall.

I repeat this, because a lot of novices buy into the fact that this (Indicator ie not the idea of Imbalance) is some sort of a holy grail and all that they need to do is follow the divergence signals and buy or sell accordingly, twitter traders and indicator sellers don’t make life any easy either.

That’s the reason we really need to use this indicator within the probabilistic context of the market structure of a given product.

There is another nuance in terms of the input factor for this indicator usually Volume Delta Indicators come with two modes of inputs – Up/Down Tick and Bid/Ask, choosing either of these can also alter the output.

At the end, like all other indicators this is no holy grail stuff, however can be an extremely useful reference if you can combine it with market statistics and other indicators referenced in this series.

Behind the ‘Veil’ of Price | Indicators that signal market-microstructure dynamics | Part 1 of 4

As most of you in the slack group know, this year my focus is on finding indicators which would help us get better, more refined entries and exits in our existing setups.

And I was sure that these indicators either have to be some sort of visualization of the Limit Order Book (LOB) activity or at least must signal the change in state of the book, even if it takes inputs from executed orders.

In this post we will look at the concept of Trade Rate/Pace of Tape/Trade Intensity  - these are conceptually the same. Essentially we are looking at the time taken for the price to move from 1 tick to another or volume acceleration in a given time.

Let me tell you how I landed on this idea – After having watched the market depth (L2) for years, I knew for sure that the beginning and the end of a micro-trend usually happens with a flurry of orders and then the pace comes down and the price retraces a bit or coils around for a while. Being a visual person, I wanted to chart it and that’s where my search for such an indicator began.

I did find several mentions of it for different platforms but didn’t find one for NT8.

To read more about it, some good soul has collated all the information here

Similar Indicator for a Different Platform

I later found this one

Since it had a selection for both Volume and Trade rate I thought it would be better to play around with. So I got this one coded for NT8

Now let's see how to use this indicator. If you have read the links above you would have guessed by now that this indicator is used mainly to identify the location of a trend or micro-trend change. As always it cannot be used in isolation and without relevant context of the market structure.

Now let’s look at a an example from NIFTY Futures

Look at the areas marked with a rectangle, what you see in the above chart is Price (100 Tick)/Volume Rate/Trade Rate (Green Line Chart)

You will notice that trend reversals coincide with the Trade rate being in the upper band. You will also notice that it coincides with the spikes on the Volume Rate. More importantly one needs to observe what I call the “Trade Rate Cycle” and look at turning points in the Trade Rate, which is easy to identify as it operates within a range/band.

Again, this is no holy grail, but at least offers information that is behind the veil of price.

 Note – I am still testing this and would in future do some back-tests as well.

Honest Serving Men | Finding Indicators that work for you | Part 3 of 3

In the previous two parts of this series, we looked at aspects like

a)      How to go about looking for Indicators?

b)      Do Indicators have any predictive value?

In this part we will explore the idea of leading vs. lagging – the concept of leading vs. lagging can get confusing if you compare it with the previous post on “predictive value” of Indicators.

I look at it this way – Any indicator that uses “Price” or “Volume” as the input is lagging, simply because a given price point does not cause another price point and a given level of volume does not cause another level of volume.

That is the single biggest reason indicators like Moving Averages or Volume Underlays look so elegant in retrospect but are not tradable as such.

For something to be categorized as “Leading” – We would need to look behind the “veil” of price and volume. Market microstructure aspects like (Simple - 'Executed Order Info.') Bid-Ask Spread, Delta Divergence, Executed Trade Rate - and more (Complex - 'State of LOB Info.') Limit Order Book (LOB) Slope, Relative Depth of the LOB, LOB Volume/Order Arrival Rate etc. are the factors that “lead” to the midpoint of the spread a.k.a “Price”. 

Again, one has to understand that irrespective of whether the input for the indicator is Leading or Lagging, one has to do backtests to check for validity, and predictive effectiveness.

That brings me to the end of this 3 part series. In the coming posts, I will explore some such (Simple) Indicators and see how they work for NIFTY.   

The Dark Side of Being a Full-time Retail Trader

Most aspiring traders that I have met, seem to have a few things in common

  • They want to be independent i.e not to work for someone
  • They also want independence in terms of their time, they perhaps want to spend time doing several things and not just trading
  • They want to make some reasonably good amount of money by investing around a year or two worth of time

These are the sort of expectations that aspiring traders usually have. And as they say, reality is usually quite different from what we expect it to be. So let’s look at the other side, the reality, the darker side i.e.

  • The other side of Independence is responsibility – responsibility to succeed at something by oneself, all by oneself – the impact of this on one’s self-worth can be massive, much more than one can even imagine – Especially if you’ve had considerable success or acceptance in your previous career, the impact could be even more.
  • The other side of freedom to use one’s time could be either indifference or obsession, both the extremes won’t help usually, obsession is a shade better than indifference though
  • Long streaks of losses can psychologically break the strongest of the people, which can have further ramifications, from depression to suicide, yes I am serious.

While all that I described above could be two extremes and the reality would be somewhere in the middle, but I guess what matters is

a) Getting a better sense of reality before diving into this business, yes I call this a business because, like any business, this too requires you to risk your time and money.

b) Developing a plan which includes the possibility of a fairly long learning curve 

c) Viewing this as one of the ventures in your entrepreneurial journey

d) Viewing trading as a performance sport – which would mean hours and years of practice and focused effort and an understanding that you need to be at the top of your game and like anything which is performance oriented very few can be.

e) Viewing the effort towards the goal not just in a linear sense, but also in another sense, be open to the idea of landing on something else altogether, in a serendipitous sense, which could alter the course, perhaps all for your good.

f) Finding like minded people to work with, not falling into the lonewolf trap, there are limits to what one can do by oneself

So with all this said, you can imagine how your everyday life as a trader is going to be. In all probability, you may end up being unhappy, and fairly stressed more number of days than you ever imagined. Depending on your general constitution, it may also affect your health. Depending on the quality of your relationships and life context that too may suffer. All this happens not just in trading, this is the truth for any entrepreneurial venture.

Even after being aware of all this, it’s still different when it really hits you. Because in the beginning, you tend to think “maybe it may work out differently for me” and then it doesn't, you may delude yourself for some time but then, sooner or later it does it hit you. And when it does, you end up asking yourself questions like – Till when do I be in this venture? Should I just quit and take up something else?

Valid questions with no simple answers.

As clichéd as it may sound – as they say - Nothing great ever was that easy.  


Podcast | Dr Brett Steenbarger | Three Powerful Techniques for Changing Your Trading Psychology

Those of you who follow the blog would know that I am a big follower and fan of Dr. Steenbarger and his Traderfeed blog.

A few days back I came across this Podcast which highlights several things one needs to understand and be reminded of when developing one's trading skills. Do listen to the the full episode, he answers several relevant questions.

I particularly agree with the idea of "Pattern Recognition" and "Analytical Ability" that he stresses upon. Something that I have shared in the blog here and here.


Honest Serving Men | Finding Indicators that work for you | Part 2 of 3

In the previous post we look at two issues a) What are Indicators? b) How do we go about finding Indicators that would aid in our trading process or strategy?

In this part we will look at the question - Do Indicators have any predictive value?

Since we discussed that indicators are essentially representative of past, lets re-frame the question. Can past data predict future? 

In other words, if I tell you that in 2016 - Monsoon started in June and in 2017 it did in May. That is past data. Will the mere knowledge of past data help you predict the future? Will knowing the above 2 data points tell you anything about the chances of Monsoon this year?. The answer is obviously No.

However, what we can do is to analyze past data of adequate number of occurrences and then calculate the probability of an event occurring in the future. Remember we are only calculating the "chances" that X would happen given that it has happened Y number of times in the past.

But it still does not mean, X will happen for sure.

So if you can create an Hypothesis based on the Indicators or without them even, you can test it for its validity.

So to sum it up, Indicators by themselves are not predictive in nature, however, you can back test the Setups or Hypothesis-es to know how often a particular Cross-over or a breakout leads to a specific outcome that you are looking for - So it's the back-test which determines the probability of an event happening not the Indicator itself.

Of course there could be different indicators with varying degrees of accuracy for a given hypothesis. Our attempt should be to test them all and find what works best for us.

Honest Serving Men | Finding Indicators that work for you | Part 1 of 3

When it comes to indicators, there is one significant difference I have noticed between novice traders and experienced ones.

The novice trader will put an indicator on the chart, scan it for a while, and would get an orgasmic high - Oh that cross over, oh that divergence, that's all I need to catch. And, those of us who have been through it know, that looking at charts in hindsight is different from trading them on the go.

So what is the way out? Abandon them all? Trade naked charts? Which one's to use and which one's to leave?

In this short series I will share with you some perspectives on Indicators and and their use.

Let's start with the Question - What is an Indicator? 

An Indicator is nothing but an analysis of historical market data, I use the word historical because its "past", we cannot calculate or analyze an event till its done. If you are looking at a Moving Average crossover it will calculate only after an event ie Open or Close of a price point. So essentially its history, its an analysis of the past data.

Does it have any predictive value? Hold on to your horses, we will come to that later.

Question 1 - How do we go about choosing indicators that would aid our trading process?

Not many know, but I am a PhD program dropout not once but twice, and one good thing that happened because of that is, I ended up attending the basic research coursework twice, and one of the things that they drill into you in that course is about the idea of Inductive vs Deductive reasoning.

So basically this is how we would apply this idea to Indicator selection -

Deductive Approach - Hypothesis first! -> So we would form an hypothesis, say you have been observing the markets for a long time and you see some pattern occurring several times - Lets say you have seen that once a crossover of 10 period EMA and 60 period EMA  happens it stays that way for some time. So what you have is a hypothesis that you have arrived at based on observation - Now you need to use data to test it to see its validity - If it holds well, then you use that indicator to trade.

Inductive Approach - Data first! -> So lets say you have historical data, and you see a pattern in the data based on tests that you run, you see that the average trend duration is 60 minutes in the market that you trade, now if you want to trade that pattern (in that data), you could use an indicator to help you catch those trends - A a crossover of 10 period EMA and 60 period EMA could be one of the ways of doing it. 

So these are two broad approaches to getting to indicators, but as you can see in both approaches a "back-test" is a must.

In Part 2 we will explore the question - Do Indicators have any predictive value?

NiftyScalper | StatShot - 03 | High Low Markers

One of the reference points for Mean Reversion and Range Extension trades is the High and Low reference of the day w.r.t time. Here is a set of stats which helps us take a probabilistic view of the day structure. 

The hypothesis that we tried to test here was - How often does the High or Low marked x minutes after the market open remains so for the rest of the day?

Y axis in % | X axis in Minutes - Data - 847 Trading days till Nov'17

Y axis in % | X axis in Minutes - Data - 847 Trading days till Nov'17

Podcast | CWT | Jeff Davis

This is one of those podcasts in the CWT collection that I may have listened to perhaps 10 times and made notes every time.

So here is how I recommend you listen to it, 

1. Listen to the podcast 2. Make notes of what he is saying 3. Think of why does he say - what he say's 4. Compare it with your Day trading strategy 4. Repeat.

Happy listening!


Glimpses | Craft of Scalping | Workshop | 10th Feb'18

Here are some glimpses of from the workshop we did, titled "Craft of Scalping", more about it here


Dealing with multiple time-frames

Before I became a serious Intraday trader, I used to trade on multiple time frames. 

Yes, some trades were scalps, some intra-day swings, some positional trades as well thrown in. The net result always had been in Red. The combinations would be different though, Green on Intraday / Red on Positional or vice versa.

The real consistency in my P/L happened only after I stopped participating in Sprints and Marathons parallel-ly. I realized marathons are not for me.

The idea I am trying to point to is, the probabilities and the risks associated with trading in different time frames is very different.  And its humanly impossible to do justice to both as one lone retail trader. Yes, if you have a team to work with, each with their own specialization, its a different ballgame.

Not recommending, but what has worked for me, given my limited resources and disposition is to focus only on Intraday time frame.

Think about your losses and red days, and see if mixing time-frames is the culprit.

NiftyScalper | StatShot - 02 | Volatility Clusters

StatShot 01 - Here

In this post let's look at the time segments within the day when NIFTY is more volatile. If you ask what is the relevance of this? Then perhaps you would need to dig a bit on the Internet to understand the relevance of volatility in the context of day trading, but for those in the know, here are the time segments which offer you the "meat" of the day. 

The idea is, your return on time invested would increase exponentially if you avoid trading in time segments that are not volatile. 

A through F stand for an hour of trading time and G for 15 mins. 9:15 to 15:30

A through F stand for an hour of trading time and G for 15 mins. 9:15 to 15:30

The light blue colour represents moves of 3 points / min; light pink represents 5 points / min; and dark blue represents 10 points / min. 

If you are wondering as to why segment "D" has the maximum number of 10 point moves well, here is some hint.

 All standard disclaimers apply, trade safe!

NiftyScalper | StatShot - 01 | High/Low Time Segment

Starting a new series here on the blog called "StatShot". The idea is to bring to you statistics based snapshots of NIFTY. Be warned that you cannot use these in isolation for your trading, it has to be used in a specific context while creating your strategy or setups.

Coming to our first 'StatShot' in the series. Let's took at what I call the 'High/Low Time Segment'. As an Intraday trader one of the key things is to determine your supports or resistances, and to do that you need to know when (at what time i.e.) does an index mark its high or low during the day. Of course you could slice and dice the data to get to more nuanced stats and probabilities.

So heres's how it looks like for NIFTY

Based on NIFTY Data (2014 to 2017) - A through F constitute 1 hour each and G is 15 min

Based on NIFTY Data (2014 to 2017) - A through F constitute 1 hour each and G is 15 min

With this info. you can take a probabilistic call as to where your supports and resistances lie.

Hope this helps.

Trade Safe. 

Workshop - Craft of Scalping | 10th Feb'18 - Bangalore

Making a an announcement about the upcoming workshop on the "Craft of Scalping". This is what I intend to cover in it

  • Market Statistics & Probabilities based approach
  • Focus on NIFTY only – One Market, multiple trades, size big philosophy!
  • Intraday only strategy - No overnight risk!
  • Free access to trading room for two months (Only for Early birds)
  • Key Topics
  • Probability Basics
  • NIFTY Market Back-tested Probabilistic Setups
  • Position Sizing & Trade Management
  • Execution Platforms and related Customization
  • Trading Psychology
  • Trading as a Business

Pre-requisite and Disclaimers

  • You should either be or looking forward to be a full time trader to benefit from this approach.
  • You need to understand the basics of Options and Option Greeks and a statistical bent of mind. We trade NIFTY Options with Nifty Futures as reference largely due to cost advantages.
  • You need to understand that it would take at least 6 months to understand and profit from this method - the workshop is only a beginning, skill building takes time, commitment and practice. If you cannot afford to put in the above, please don't even bother to get started.
  • Trading or Scalping is a business and can work only as a primary business, this is not something to be done on the side, this is not a hobby.
  • My method aims to teach you how to capture 10 to 25% of the range on a given day.
  • My method is an adapted form of Probabilistic trading, designed for scalping NIFTY Options, the two links and references below will give you a sense of the approach- a)  b) c) ORB Trade adapted from - Toby Crabel and Mark Fisher - This is one of the fundamental parts of the approach. 
  • You need to understand that it is NOT a get rich quick scheme.
  • You need to understand that this is not an advisory or tip providing service.

Venue - Grand Mercure, Koramangala, Bangalore

Date & Time - 10:00 am to 5:00 pm on 10th of Feb'18

Early Bird Offer - Rs. 10,000 - Pay here - (Only 2 seats remaining as of now) if this gets filled your next choice is the the full fees - Rs. 15,000 - pay here

Ladies get a 50% discount on the full fees - Pay here

*Free for the physically challenged - Please contact me on mail or through the contact form.

For anything else feel free to reach out to me through the contact page or email.

Think of this before you start your trading this year - 2018

One of the fundamental ways to become better at anything is "Reflecting", more about it here.

So here is something you may want to start your year with,

Think about the following two contexts and the questions linked with it

Context 1 - Think of -

What kind of feeling that you like to end your trading day with? -> What kind of behaviors lead to that feeling? -> What kind of scenarios lead to that feeling -> How often do such scenarios occur? 

Context 2 - Think of -

What kind of feeling that you "DON'T" like to end your trading day with? -> What kind of behaviors lead to that feeling? -> What kind of scenarios lead to that feeling -> How often do such scenarios occur?

Thinking of the above two contexts will solve many if not all of your trading issues.

All the very best for the coming trading year! 

NIFTY - Scalping Set-up - 03 - Afternoon Range Extension

This is in continuation with the scalping set-ups series. 

The first one being (

The second one was (

The third setup we will discuss is called the Afternoon Range Extension (ARE)

1. What determines entry?

There are two key factors to consider when entering this trade

a) Range - You need to check the pre noon ie pre 13:30 range. The mean of which is around 60. There are three possibilities, one is we had a very narrow range in the first half or we had a super normal / very high range in the first half. While the former is good the latter obviously reduces the probability of an A.R.E. Lets take a look at both these conditions.

If you look at the figure 1 below the day had a narrow range of 27 till 13:30 post which we got an over all range of 63.75. So if you look at it you will see that 42 % of the range was formed in the morning and balance 58% in the afternoon. 

So the key factor to consider for entry is the morning range.

2. What determines the target and exit?

Now lets do some basic arithmetic, the mean % of range that forms in the first half is 71%. So if you work that backwards 27 * 100/71 = 38. Which means (38-27=11) a 11 point extension is possible even if the the index remains in low range at large.  

You could use other statistics to guide you? For instance

a) What has been the mean extension on days with under 30 range in the first half?

b) How many days in a given year does the index remain within the range formed in the first half?  Of which how many days does the index remain in a narrow range within 30 itself? Is it an event day? Is it an expiry day? 

c) On days when range extension happens in the second half? At what time does it peak before it pulls back or reverts to mean again?

NIFTY FUT - 19th Dec'17 - Fig. 1

Getting these numbers right helps us form a probabilistically informed structure to work with. 

That is exactly what we attempt to do collectively in the NiftyScalper Trading Room.

Hope you found this useful. Back test it if you would like? I am sure you will see an edge here.


Book Excerpt - "Most investors would prefer Intraday Strategies"

Reading the book - Machine Trading - By EP Chan. An I am not surprised when he says this. One may argue, machine trading is different from discretionary trading, but you can become more systemic, by creating rules. But the underlying premise of risk and reward does not change.