Zerodha is an excellent trading platform for those who want to trade and invest in the Indian stock market. In this article, we will go over strategies for intraday, futures trading, and many others.
Zerodha algo trading strategies
Keeping your eyes glued to the terminal session is exhausting, so using the algorithm seems tempting. Its main advantage is that you do not have to analyze the charts yourself to get Buy or Sell signals. If you don’t know how to code, you can entrust it to Algo trading platforms. However, there are two big “but” to trust them.
Firstly, they are uncontrollable; regulators’ rules, such as those set by SEBI for Zerodha, do not apply to them. Secondly, there is no guarantee that the program will not encounter technical failures or low Internet speed, leading to missed orders and losses for the client.
If you don’t have programming knowledge but are interested in coding your strategies for Zerodha, use https://www.streak.tech. Unlike the unregulated platforms discussed above, it does not automate order placement but only generates alerts when the system you set up generates a buy or sell signal.
Note! Streak is a strategy trading platform from Zerodha. It lets you plan and manage your trades without coding.
There are three basic steps how to use Streak.
#1. Create an Algorithm
After mastering technical analysis and portfolio building, you can try to create your strategy. Also, check out the pre-built ones; they are suitable for educational purposes.
Name your strategy and set it up in 4 easy steps:
- Add stocks you want to trade, enter quantity, and select chart type, time frame, and holding type.
- Put your entry and exit signals.
- Enter Stop-Loss and Target-Profit levels (this is a mandatory item, as it helps protect you from losses).
- Double-check that the settings are correct and run a Backtest.
Backtest helps you analyze the markets better by running your strategy on historical market data. Why you shouldn’t skip this step:
- Profit and loss data is essential for understanding what has worked and may work in the future.
- You can get an overall impression of your strategy profitability by looking at all entry and exit points in more detail.
- You have access to testing on multiple instruments, and the platform will backtest them all and present the results in an easy-to-understand way.
After running a few backtests and listing the top-performing strategies, you can start deploying in one of 2 ways:
- Take Live.
- Paper Trade.
The first means implementing a real-time strategy in the stock market. The platform gives you the option to choose which stocks you want to deploy, their quantity, and the total number of strategy cycles. Streak then starts tracking the selected stocks in real-time and notifies you in the order window when your strategy’s entry conditions are met. You can place orders with your stockbroker using this window. You get notified when a trade hits a stop loss or profit target.
Note! The Pi platform is no longer supported; to trade on Zerodha, use the Kite flagship platform.
If you are a beginner and want to learn how to deploy without risking capital or are still unsure if your trading strategy will work in the real market, Paper Trade is your option. It works the same as real trading, except that all placed orders are hypothetical and do not enter the market, meaning no funds in your account will be spent.
Intraday trading strategies for Zerodha
Intraday trading consists of buying and selling positions within one day before the market closes. It is an excellent option for beginners, as it allows them to take profits quickly and learn how to set up indicators.
Almost every intraday trading strategy is based on the work of such indicators as:
- Momentum Oscillators.
- Moving Averages.
- Relative Strength Index (RSI).
- Moving Average Convergence Divergence (MACD).
- Bollinger Bands.
There are many strategies for intraday trading. Let’s look at a few popular ones.
Ichimoku cloud trading strategy
Ichimoku is often used in stock and futures trading. It is a Japanese candlestick charting technique to determine if the current trend of a certain asset will continue.
The Ichimoku Cloud shows current and historical price action, creating formative barriers like support and resistance. However, it is thicker than these lines and, as a rule, also considers the volatility of the currency markets.
The breakout of a cloud and the subsequent move above or below it constitutes a signal. You should see the session close below the cloud before opening a sell position.
Note! Ichimoku will not work with many technical indicators as it displays volatility on shorter timeframes.
Volume analysis strategy
The trading volume is essential among the key technical indicators because it helps determine liquidity and can be combined with other technical indicators to make trading decisions. Trading volume is the total number of shares of a security that were traded during a given period. Investors often use this indicator to confirm a trend continuation or reversal. Thus, trading volume can help an investor decide whether to buy or sell given security, for instance, stocks included in Volume Shockers.
A few examples of how you can get trading signals based on volume:
- When prices fall with increasing volume, the trend gains momentum to the downside.
- When prices make new highs (or fail to make lows) on reduced volume, be on the lookout for a trend reversal.
- Swings with little price movement and high volume, following up or down move at a price, can also indicate a reversal.
Bollinger Bands trading strategy for Zerodha
Traders use the Bollinger Bands to assess overbought and oversold levels. A stock approaching the upper band is overbought, while one coming to the lower band is deemed oversold and predicted to reverse.
Bollinger Bands can work in conjunction with Renko charts. Their combination can give signals:
- For buy, when the bar crosses the middle line from the bottom up, the upper and lower bands move in different directions.
- For sale, when the bar crosses the middle line from top to bottom, the upper and lower diverge in different directions.
- To close the position when the price is touching the Bollinger Band or approaching it.
Note! While the Bollinger Bands are helpful for implied volatility, they aren’t ideal for providing signals. On a solid trend, trading with indicators can lead to trades on the wrong side of the move.
Fibonacci retracement strategy
Fibonacci retracement levels are often used to confirm trend trading entry points. This method of technical analysis is excellent for intraday trading with Zerodha. If your daily trading strategy gives a sell signal in this price range, the Fibonacci level helps to ensure this signal.
In technical analysis, a Fibonacci retracement is created by taking two extreme points (usually a peak and a trough) on a chart and dividing the vertical distance by the key Fibonacci ratios: 23.6%, 38.2%, 50%, 61.8%, and 100%. Once these levels are identified, horizontal lines are drawn to act as possible support and resistance levels.
Fibonacci levels do not always accurately indicate market turning points despite their usefulness. There is no guarantee that the price will stop and reverse at a certain level. During the trading day, there are several price fluctuations, so the two points you connect may not be the same as the two ones that other traders connect. To compensate for this, draw retracement levels on all significant price waves, noting where the Fibonacci group is located.
Volume-weighted average price (VWAP) is a widely used benchmark calculated by dividing the average share price of a stock by the total volume of shares traded over a period. This metric assists you in determining whether a stock’s current price is relatively overvalued or underpriced compared to the day’s average trading price. This information is frequently used to aid the entry or exit of a position.
A proper VWAP trading strategy is required to analyze the real-time market trend. Traders must understand the significance of entry and exit timing:
- When the price drop below VWAP: When the VWAP is higher than the price level, or when the price is lower than the VWAP line, it is time to buy.
- When the price moves above VWAP: The strategy states that the best time to sell a stock is when the price is above VWAP.
Many people want to automate trading; however, this is fraught with risks. The algorithm does not guarantee the generation of correct signals and timely placement of orders. There are no 100% winning strategies in trading intraday, just like in futures, options, or any other asset. It is necessary to develop your systems, and this requires training.
You can find detailed information about assets, such as crude oil or gold, and various trading strategies on the free training portal Varsity by Zerodha. You can also start with specialized publications; for example, buy or download a free PDF version of the Encyclopedia of Finance, which contains dozens of articles by eminent professors like Shashidhar Murthy.