India: Analysing January effect on year

January barometer is most discussed for predicting the year end returns for any index.

Lets analyze the January effect on Indian markets. Although the Sensex does not century old data so that we can draw some conclusion with large set of numbers so lets see whatever we can find out with the 30 years of data.

The preliminarily data shows correlation of 0.23 with R square at 0.054 which is quite weak for making any direct statistical analysis. This is evident from the following chart also. There are large number of outliers from the linear trendline.

Going further lets apply some filters and see if we can good data coorealtions. The first filter can be of bands of price change and then finding the probability. Following is the analysis:

The probability of  having a bullish year for a negative January is at 62% which is quite high. But wait.

The last 2 rows shows show the returns with price filters. And both of them have very less probability of bullish year.
The Jan 2011 had -11% returns so the last row shows bullish year has chances of 25% with average change of last occurrences at -11% which is quite bearish figure.

Year 2010 Nifty: System testing the Color code

For long I have been writing about the color of the indices which defines the trend.
I think the best way to know about any strategy is to backtest the strategy. So let us test the Nifty for the color system.

Time frame: Daily for year 2010. Testing only for Longs no Short trade tested.

Buy Condition: Buy color
Sell Condition: Neutral or Sell color

Commissions: 0.10% of trade.


The results

The system was equal to buy and hold but the profit factor of the trade at 4.7 makes it attractive with only 10 long trades for the year.

Also the maximum draw down for a single trade was about 3% which is reasonable given that we are trading on daily timeframe.

More details later.

Year 2010 Nifty: Price change in a different prespective

This post in about analysing the price change of Nifty Futures foryear 2010 in a different prespective.

I am condisering the available parameters like the OHLC and Volume only. In the next few series I will discuss in detail in next few days to arrive at some trading strategies.

Let me present you with the graph I am gonna discuss.

The Red line is the Nifty chart while the Series 1 and series 2 are built by customizing the data.

The series 1 is the most important among all of the other studies here I  gonna present. Why so? Well look at the divergence at important turning points like the Jan Feb sell off then during the May sell and most importantly the big divergence before the sell off in Nov.

The series 2 looks more smooth to trade thenany of the above. True?
Yes, the bell curve of all the series indicates this. See the bell curve of all the series. Special Thanks to Barath who helped me put the numbers into nice curves. (If you need his help let me know)

As you can see both Nifty and Series 1 has fatter tails. Technical term is Kurtosis

This shows more consistency can be there in trading this series rather than Nifty and series 2. (Though some more statistical tests can be done before concluding that.)

The total return of Series 2 are quite similar to Nifty while having lesser volatility. Even the net drawdown is better than Nifty itself.

Que to answer: How the results would be if one trade long/short the series 2 instead of Nifty?