900% Returns in 4.5 Years from Simple ORB Day Trading Strategy

Here is a method you can follow to make 60% annual returns from the Indian stock market with only 4 minute of effort per day. 

Few months ago a friend shared me a youtube video about a day trading strategy that had crystal clear explanation and very simple to execute. I didn't realize it at the time that it is a variation of ORB or Opening Range Breakout Strategy. It is posed by youtube channel "Equity Family". Below is that video embedded. For mobile viewers, here is the link to youtube video.

Note: Later I found that it was posted a year ago by another youtube channel, PaisaToBanega. Exactly same and even Eichermot was used as an example. ORB strategies are not new. But extensive backtesting is not done by anyone earlier, as much as I have studied that I will show below. You may find more such videos on youtube or elsewhere by people who may not even cite their reference, passing up as their original idea. Don't worry about all that.

The video explains the rules to follow, how it manages the risk and shows a backtested data for the month it was posted in. One key point with this strategy is to follow it with discipline. The key feature of this strategy is that it doesn't take any time/effort from working professionals so they can go on with their day job and effortlessly execute it with alerts afforded by popular brokerage firms to not spend any significant time at all.

I will get into the details of this strategy and how the backtested results look over longer period of time, whether it is worth it or not.

This ORB is purely based on price action. No technical indicators are fundamental information is involved. Once you decided to do it on a stock, you need to do it on the same stock daily. It is only in stocks not in FNO. I am taking the example of Eichermot (instead of Bajfinance in the video, you will learn why by the end of the post).

Above we see 15-min intraday chart of Eichermot as on 11-Sep (Friday). We see the first candle of the day (the large red one) after 11/9 on x-axis. Here we look at the second 15min candle, note its high and low. When its high is above the high of first candle or its low is below the low of first candle or both, then the second candle's high/low are used as stop loss range (also breakout range) for the day. The above chart corresponds to the latter case as second candle low is below the low of the first candle.

The above chart of 9th September (Wednesday) shows the first case where the second candle has a high above the first candle's high.

For the other scenario where the high and low both are within the high/low of the first candle, the first candle's high and low are taken as stop loss range. 

The above chart of 10th September (Thursday) shows the last case where the second candle is within the range of the first candle.

We need to determine the high and low range values which happens just after 9.45am. So we have to let the first half an hour pass. Then do quick calculation and decide the high/low values. Then we buy if the stock goes above the high or short if the stock goes below the low. So the first half an hour is the opening range and we trade its breakout.

Equity Family channel has made some simple rules to follow to removes confusions about the quantity of shares which affects risk, the closing time of position and the number of trades in a day.

The number of shares is calculated by dividing 1% of your capital by the stop loss range (high-low). Let us say your capital is 1Lakh, then 1% of it is 1000. Your stop loss is 1000 (1% on the trade).

No. of shares = (1000) / (high - low)

This is how we control the risk to a fixed amount (1% per trade). But the closing of the trade is by end of the day. But another trade is taken in case first one ends up with stop loss. That means the opening range is broken on the other side.

If you started first trade with buy, then second is a short-sell trade. This is the case with the second chart above (of 9th Sep.). In that first trade is a short-sell, then it reverses soon and you execute a buy with double the number of shares as it breaks above as well.

You will take max. two trades only. For each trade you will keep stop loss as per the stop loss range. If you went long on first trade by buying a little above high of the selected candle, then stop loss is near the low of that candle. When you do short-sell when stock falls below the low of that candle, your stop loss is above the high of the candle.

You need to place trigger orders for both starting the trade and for stop loss as well. You will have stop loss through out the day till either two trades end with stop loss (happens on days when stock does whipsaw moves by moving in both directions of the range) or the time is 3.15pm. You will cancel the stop loss order at 3.15pm and close the position by selling long trade or covering the short-sell trade at the price available at that time.

If this is not clear, you can check the video and read again.

When I first saw this strategy, I was very much happy to see the risk management embedded in it and the least effort/time it takes for anyone to execute. Most importantly the backtested data in the video (at that time) showed about 15% gain. 15% gain in a month is awesome! Isn't it?

I also felt that as we are initiating position early during most days as the range is broken and then let the stock move in the direction till the end of the day, we are giving it a lot of day time to catch maximum movement on trending days. Some days especially the high range days that we see in highly volatile times like the March crash of this year, we would trade with small capital (limited by the number of shares which are limited when high-low range is high), hence risk is controlled to max. 2% during those days too.

So I started trading this from 26-May. I even liked the video and subscribed to the channel. It is good for some knowledge. For five straight weeks I followed it with discipline as the video demanded. I didn't feel anything on days where profits were seen but eroded by the end of the day; or stop loss happened twice; or stock gap opens to higher level the day after we close the trade, with some profit less than what it would have been, if the position is held just till next day morning. I did it in Bajfinance in that time and it showed great return in that five week period. Below table shows the results of that period.

The table shows date in first column, then gain for a 1Lakh capital, number of shares determined for that capital from the stop loss range, the stop loss range and % gain from this strategy for that date in the remaining columns.

As I started this from 26-May, I have highlighted the rows from that day in green color. In five weeks the cumulative result is 24.2%. In this I have also considered some slippage as practically we may not be able to buy at exact high price. Also sometimes prices just touch that level and pullback. So I used 0.5 or 1 rupee as extra margin above the high/low levels when placing orders. For the above back test results, I used 0.05% as extra margin. Bajfinance was at 2500 levels at that time and 1 rupee is about 0.04% extra margin. (Don't confuse the term "margin" with trading jargon "margin" about capital margin. Just a term used mathematically)

In reality I got 21% in that time period because I missed 6th July trade when stock jumped too fast above the high that my order didn't get executed. It had a wide gap there and didn't pullback to my order limits. I used 0.1% limit from the trigger price. This also adds another factor - slippage that reduces the gain from the above table. That day I even changed my limit to little higher value but it didn't pullback to that level. As it is first time that happened, I watched and left it to just follow the strategy as otherwise my stop loss range increases beyond 1%, which is important to control.

I have also studied some more data as statistics from this analysis in this time period.

Stats:
total gain	min gain	max gain	no of loss days	no of double whammy days
35930	-2000	5551	15	5
max gain dates	12-05-2020 20-05-2020 22-05-2020 26-05-2020 27-05-2020 02-06-2020 11-06-2020 12-06-2020 23-06-2020 26-06-2020 01-07-2020 06-07-2020 08-07-2020
double whammy dates	28-05-2020 17-06-2020 18-06-2020 02-07-2020 10-07-2020 26-06-2020 29-06-2020 01-07-2020 02-07-2020 03-07-2020 06-07-2020
Note	total gain 2 days after double whammy	2569.. -1701.. 1918
Note	total gain 3 days after double whammy	4197.. 1433.. 3380
Note	total gain 4 days after double whammy	5122.. 2670.. 5436
Note	total gain 5 days after double whammy	4989.. 3493.. 6893

Here we see total gain of 35.9% from 12-May to 10-July. Max. loss on any day is 2% (2000 on 1L capital) as we control it. But max. gain on any day is 5.5% (12-June). No. of days where loss happens whether stock falls by 3.15pm or stop loss is hit. No. of double whammy days in this period is 5. By double whammy day I refer to the day when both trades end up in stop loss (buy/sell). Noting these statistics important when we study results of this strategy across different Nifty 50 stocks.

The later rows give dates when gains more than 1.5% happened or 2% loss happened. Also the last four rows are the scenarios where we do trades for 2/3/4/5 consecutive days after a double whammy day happened and note the gain. It seems the last row is good across many stocks.

I was happy with this result only to realize after few days that this isn't working well. The two weeks after that had double whammies. Looks like this happens once a stock trends and then goes into consolidation phase.

Last week of July was good. Then it was getting erratic in August. So I stopped from second week of August to resume again once I have backtested data of a longer time period including not only this year before and after market crash but also prior years.

As the above table shows, from 13-Jul till 11-Sep, this strategy would have only given 7.2% gain on paper. In practice it would be less due to missed days when stock goes fast beyond our limit levels and also the stop loss widens on such days.

Seeing the backtested data in the youtube video, then 21% real gain by trading in five weeks, I was expecting about 5% average gain per month before deducting brokerage and other transaction charges. But in reality that is not happening. When I backtested this for all Nifty stocks after I had a good 5 week run I got this result.

The data is sorted with descending order of cumulative gains in the time period from 12-May to 10-July. Was I lucky to pick Bajfinance that showed good result? Atleast in that time period. We see that this is stock specific as many stocks at the bottom show large losses. However I noticed that the last row data (5 days after double whammy day) earlier discussed, is showing reduced loss for the stocks at the bottom like Sunpharma.

If we consider brokerage charges it will reduce the gains and increase the losses.

Later I further checked the gains from this strategy from 2016 April onwards till 7-August-2020. Deducting min. brokerage charges possible for a large capital size (as much as 10L).

The above table shows yearly gains from 2016 till 2020 and the annual compounded gain if we were to consider the new capital as the capital as the end of the year adding that year's gains. This shows every stock in Nifty50 giving some gains. But if we see year-wise, there are times when there is less gain, small or big loss as well. It varies across stocks and years/even months. I looked in detail monthly as well to make some sense as to what is the time period in which a stock shows huge gains in this strategy or repeated double whammy days. I couldn't make out any pattern.

As the data shows, even though Bajfinance and Reliance showed good compounded gains from this strategy in 4.5 year period, a 5% avg. gain per month would have given much more. Let me put the numbers. If we get 5% average gain per month, then yearly compounded gain is 79%. Or atleast 60% (12x5%). Even with 60% annual gain we should get 728% gain in 4.5 years. Except Eicher Motors, no stock is showing that much gain. The bottom stocks like ONGC, HINDUNILVR show 40-60% over this period.

All these gains not considering the 30% taxes we need to pay to the govt and the audit fees if the turnover of intraday trading exceeds 2Cr in the financial year. Then the compounded gains would reduce.

Even if we pick the stocks from the top of the list, there is no telling you would get good gain next year. If you commit for next five years on a selected stock, there is no telling whether it will be at the top in this table, at the middle or the bottom.

One thing I could observe and gain some confidence from this data as well as monthly detailed data is that only Eicher Motors is very consistent relative to all other stocks in this strategy. Moreover Bajfinance has gained more in price than from this strategy (and it doesn't help if we deduct annual taxes from gains). So holding the stock and paying LTCG (Long Term Capital Gain) is better as it is smaller amount - 10% tax. But Eicher Motors didn't gain much in stock price in this period but the strategy shows 896% compounded gain. Or 500% gain considering taxes. This is still good. So I think Eicher Motors being a long term trending stock which rose from 10 rupees to 35000 rupees at its peak as this trending ability ingrained in its price movements which shows up as the consistency for this method.

I don't think one can guarantee such return in the future from Eicher Motors for this strategy. But selecting that seems to be the best logical conclusion to make based on the data we saw.

So I conclude that this strategy is good for decent gains if one is fine with following it with discipline not missing any single day, for a long time. Not giving up even when there are a series of months with only losses. But not as much gains as I fancied initially (5% per month).

In long term, if one thinks that one can make even better gains with long term investment or other strategies or if one doesn't like the need to execute strictly everyday, then this may be skipped.

There are more things that I learned from the data generated by the backtesting I have done for this. I have also noted further ideas such as what happens if we only follow first candle, or second or both and skipping some on certain days based on some pattern, etc. What happens if we do opposite, that is instead of breakouts, if we do failed breakouts with stop loss as well? I will post those ideas and conclusions with back-tested data in the future posts.

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