Algo & Trading Research
Indicators made simple
Three indicators that Indian market coverage mentions almost every day, in plain words.
Moving averages and crossovers
A moving average is the average closing price of the last few days, for example the last 50 or 200 trading days (written 50-DMA and 200-DMA). When price stays above the average, the trend is usually called up. A crossover is when a short average crosses a long one: the 50-day moving above the 200-day is called a golden cross, and falling below it a death cross.
Keep in mind: averages follow price, so the signal arrives after the move has already begun.
RSI
RSI (Relative Strength Index) is a score from 0 to 100 that shows how strongly price has moved recently, usually over the last 14 days. Above 70 is commonly called overbought and below 30 oversold.
Keep in mind: a stock can stay overbought or oversold for weeks, so RSI on its own is not a buy or sell call.
Bollinger Bands
A 20-day moving average with one band drawn above it and one below it. The bands widen when the market is jumpy and narrow when it is quiet, so they give a quick picture of how stretched a move is.
Keep in mind: price touching a band shows a stretched move. It does not by itself mean a reversal.
In the news
How these terms are showing up in the last one to two weeks of market coverage.
Moving averages and crossovers in the news
RSI in the news
Chart talk this week
Expiry day in the news
Straddles and time decay
The basic option ideas behind many intraday algo strategies.
What is a straddle?
A straddle is a call and a put of the same strike price and the same expiry, taken together. Someone who sells a straddle collects both premiums and gains if the market stays close to that strike until they exit.
Keep in mind: the loss can be large if the market moves sharply either way, which is why sellers use a stop-loss or a hedge.
Time decay (theta)
Every option loses a little of its value each day as expiry comes closer, if nothing else changes. That daily loss is called time decay, or theta. It helps the option seller and works against the option buyer.
Keep in mind: time decay is fastest in the last few days before expiry, and so are the sudden moves.
Time-based straddles
A time-based straddle is sold at a fixed clock time, such as 9:20 in the morning, and closed the same day. It became one of the most copied retail algo ideas in India because the rule is so simple.
Keep in mind: lot sizes, weekly expiries and the tax on options have all changed since those days, so old results do not carry over directly.
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