Some days in the week have special significance for market participants. Thursday, for NSE is the options expiry day. Last Thursday of the month is the monthly options and futures expiry day. Since a lot of option denominated notional value gets unlocked on this day, Friday is sort of a fresh start.
Hence, how the market behaves on Friday, may give a probabilistic idea of how the coming week might be.
Based on this Kora proposed the BankNifty green friday candle strategy on the Watanabe PM show on June 3rd 2022.
Based on that, I conducted a simple Nifty and Banknifty points backtest on Index Data, to determine if the idea was worthwhile.
The backtest was done in three methods:
1. Naive backtest (non conditional) – Go long if Green Friday Candle (GFC) was present.
2. During Downtrend Backtest: Go long if GFC occurs when index is in downtrend (defined by autocorrelation and linear regression criteria – described HERE): AC<0 and LR<0
3. During Uptrend Backtest: Go long if GFC occurs when index is in uptrend. AC>0 and LR>0
The same tests were conducted for a Red Friday Candle (RFC).
Both backtests were conducted in both Nifty and BankNifty.
Results in Images below:
NIFTY
BANK NIFTY
Inferences for Nifty:
1. Going long a Red Friday Candle in a downtrend is profitable (might mark reversion) for Monday Gap.
2.Going long a Green Friday Candle in an uptrend is the least risky and high R:R trade for Monday Gap.
Inference for BankNifty:
1. Poorer R:R than Nifty for these criteria.
2. Going long a GFC in an uptrend is the best bet.
nice1
Yayyyyy:)