Intraday compounding experiment analysis


In the years 2007 & 2008, I was a premium video subscriber of John Carter’s (Author of ‘Mastering the trade’ book) website. I had seen him taking a $10,000 account to $100,000 in 1 year and that was the 1st time I ever saw someone doing compounding in a trading account live. It brought a major impact on me as it acted as a great inspiration for me to think beyond what I thought was possible. Many of us think that compounding word does not apply to trading and its an ‘investing’ term. Far from the truth 😊 Any financial account should be exposed to compounding !!

I always thought I should do the same in the Indian markets but my circle in trading was less than 25 traders (from 2006 to 2013 – many traveled with me in trading and many quit 😊. It was almost like a revolving door. Folks come into this profession and go out) Trust me – the desire to show compounding was burning inside me from December 2013 itself (this was the month Nithin of Zerodha interviewed me as part of the Interview series he was doing) but there’s not many people I knew by then and it would not have reached many folks.

Fast forward to February 2019 – I had around 13 years of trading experience (some 11 years of trading for a living by then under my belt – this point is very important and it will pop up again in the fag end of the blogpost) and some 4000+ followers in twitter. I thought this was the right moment to experiment on how to take a small account to a decent sized account by compounding.

There was so much of negativity on intraday trading for a long time in the trading fraternity and recently on options buying as well (thanks to new expiry day option sellers in the Indian market).

Three reasons to choose options buying initially

a) I had made around 52% of futures points in options ATM buying for the FY 2018-19 in my positional trading account and I knew it would be much better in intraday (due to reduced theta decay).

b) Money management can be more aggressive

c) Liquidity in options is better than futures.

Finally, I decided to hit 2 birds with one stone and the choice for this experiment was “Intraday trading + options buying” combination.

Before the Start of the experiment

Please click the link below to read further on the thought process before the start of the experiment.

Before the start


I had created three separate sub-posts for buying, selling and synthetic futures episode.

Please click on the links to read further —

1. Options Buying Episode

2. Options Selling Episode

3. Synthetic Futures Episode

Observations and relevant pointers

1. Never thought about any of these numbers (even in my wildest dreams) when I started

2. I deliberately did not talk about Options buying points vs futures points and options selling points vs futures points in those respective time periods as we saw unprecedented VIX movements and that might skew our judgement.

Nevertheless, Options buying seems a bit advantageous compared to options selling intraday but as i mentioned elsewhere, it heavily depends on the avg number of hours in the trade

3. Trading Synthetic Futures for the last 1 month and this is the observation. If you are trading NF and trailing SL’s, there is a possibility of catching 1-3 big trades in a month(more than 100/150 points NF trade).

In that case, options buying looks favorable on those days and overall, beats options selling by a huge margin. But, this also means that you need to be available or your algo should be up and running (without broker errors) every single day.

If we remove the two outlier trades, then buying and selling is pretty much similar. Selling gives a relatively even distribution of trades and buying beats selling in those 1-2 trades substantially.

a) We should also remember what happened to VIX in the last 1 month – stayed in the range of 30 to 35

b)When VIX is rising, it is a buyers paradise. When VIX is cooling off, it is a sellers paradise. When VIX is really low, sellers have a slight advantage over buyers.

Kindly remember that am a complete novice in options and almost everyone i know are more informed/knowledgeable than me in options.  These are just my observations on buying and selling (as this seems to be the popular question/concern among new breed of traders) based on the live trades taken every day for the past 15 months.

4. Handling losses and drawdown is the name of the game – be it positional or intraday or investing

5. Winrate should be seen along with Risk:Reward. If you have noticed, my winrate was a bit low when I was doing options buying and was higher during options selling (for obvious reasons). But if we look at them in tandem with Risk:Reward, more things come into foray. WR+RR should be seen together – not alone.

6. Lot of misconceptions around drawdowns and return on investment (ROI). Pleas read this tweet as it also explains about small account vs large account returns

7. If you take a random trade and it becomes a profit, your trading future is doomed for the next several months. This creates a wrong illusion that it is OK to break rules and take random trades. This path is filled with corpses of many trading accounts.

Good trade” is a trade where you followed your plan (even if theres a 300 pts gap against you) and “bad trade” is a trade where you did not follow your plan (even if you made 500 points profit on that trade). It takes time to sink this point in but once it sinks in, it is easy to understand mechanical trading. Until that point of time, mechanical trading will feel like a bad dream 😊

8. Sticking to a simple plan is more important than ‘predicting’ market moves – lets delegate the market move prediction to analysts and paper/single digit lot traders 😊

9. For successful execution of a mechanical system (only mechanical systems can be backtested), one has to ‘act dumb’ in front of the markets. Very very tough for an erudite human being. It is more tougher for folks who are highly educated or well-accomplished in their life already.

10. Underestimating the probability of losing streak over large sample – one should learn to have unshakeable belief in ‘law of large numbers’

11. Try increasing the execution efficiency above 90-95%. Results would be dramatic. A simple comparison of how many points you would have made had you taken all the trades without any errors (vs) your current points will be a big eye-opener

12. Never taken a single day off (except for one day where my son fell ill) as I ran this like how a business owner/shopkeeper runs his business. This experiment was very close to my heart and it took the same kind of determination/grit as what it took to build my positional account (my son being a toddler and lockdown also helped quite a bit 😊)

13. Just because someone traded a 3L account and built it to 30L, it does not mean everybody else can do it. Remember, losing this 3L or 30L is not gonna affect my lifestyle even by an inch. So, focus on getting better at the trading processes and money will follow.

14. I am sure there are methodologies that are much better than what I trade with. But, if we think hard, it might take 1-2 years more for system B compared to system A(assume Sys A has better expectancy than Sys B and both have the same number of trades in a year) to reach the same goal. Think about this point – very important one. No point jumping systems.

15. 33L to 1cr is 200% and lets see how long this is gonna take 🙂 This will remain an experiment account until 1cr. After 1cr, will take it further and the plan is to trade BNF options/USDINR futures as well.

16. Long story short – Create a mechanical system -> backtest it for a longer time -> devise MM -> bring capital -> work on things that are making your execution difficult (has to be easy) -> take all the trades -> gain psychological resilience (it happens simultaneously)


I would like to take this opportunity to thank these following folks wholeheartedly —

1. Krish from Bangalore (my workshop participant + mentee and a great friend now) helped in creating this excel around Feb 2019. He designed everything from scratch and cannot thank him enough for this gesture

2. Bharat (workshop participant) automated all the calculations and included few more sheets for visual representation – totally amazed by his magnanimity in offering his time/effort

3. Santosh (workshop participant) helped in calculating drawdown and that column got included in the sheet

4. Numerous others who gave countless suggestions, feedback (both constructive and destructive) and inputs via email/Whatsapp/Telegram/tweets in this journey.

Thanks so much for reading this long post but i sincerely hope this is useful to someone out there.

Happy trading all !!

Synthetic futures episode

Synthetic Futures episode – 26th May 2019 to 19th June 2020

1. Went from 26L to 33 in 1 month,
Winrate = 50%,
RR = 2.52,
Option points made = 369

2. Mimicking futures points at least by 95%. This is very good as my whole backtesting was on futures.

3. Was able to move to weekly options for both calls and puts (4x -10x more liquid than monthly NF options) and I could see that in the way my orders were getting filled.

4. Cost is around 0.8 points vs 2.8 points for futures. This is a major advantage when you trade bigger sizes as plain futures will start giving good 2-5 pts slippage per trade above 150 lots.

5. Planning to do synthetic futures from hereon 😊

options selling episode

Options Selling episode – 17th Jan 2020 to 21st May 2020

1. Went from 15.5L to 26L in 4 months,
     Winrate = 51%,
     RR = 2.13 ,
     Option points made = 626

2. As MM plan changed quite a bit based on options selling margin requirement, i had to start from 30 lots.

Went from 30 to 40 lots before bringing it down back to 30 lots due to increased margin requirement by the broker (please note than even options buying MM plan would have gone for a toss as premiums were north of 600-700 points in ATM monthly options in that period)

3. If the average number of hours in a trade is more than 2-3 hours, then options selling seems to be a bit beneficial in the long run. In my opinion, options buying or selling should be based upon this # of hours in the trade.

4. Selling monthly NF options (intraday) for trend following is better than weekly options as the premiums are good in monthly. If one is hellbent on weekly options, then strike rotation is necessary and it seems to be a big pain as it needs constant monitoring (unless one creates algo for it)

5. I moved to options selling on Jan 16th 2020 when VIX was around 15. Murphy’s law is like gravity – you cannot escape. Guess what – VIX moved all the way up to 86 and eventually cooled off to 35 when i moved onto Synthetic futures. Had I stayed back in options buying instead of options selling, I think 15.5 to 26L would have happened in 2 months 🙂 Hindsight analysis is such a beauty, isnt it? Wish i knew that VIX would move to 86 😊

6. Generally speaking, it seems to be a good idea to do options buying when VIX moves up and options selling when VIX cools off. Problem is i dont know when that happens until it has already happened (again, hindsight analysis is such a bliss)

7. But this episode gave me a clear understanding of how option prices move and that experiential learning is priceless, according to me. Intraday margins were increased 2-4 times and i was forced to reduce my size. This size reduction was not based on my MM plan but it was forced by the broker 🙂

8. As I wanted to pursue intraday trading in a professional way, i was hoping to try even synthetic futures and that leads us to the ‘Synthetic futures’ episode.

options buying episode

Options buying episode – March 2019 to Jan 16th 2020

1. Went from 3L to 15.5L in 10.5 months,
Winrate = 43%,
Reward:Risk(RR) = 2.25 ,
Option points made = 836

2. Options decay is almost nil or non-existent in monthly NF options buying

3. When i had some decent drawdown in May/June 2019 (sea of red, as i call it), everyone jumped on-board to ridicule that

a) “See, i told you” – Daytrading does not work(most probably the person would have failed in daytrading and hence, the comment)

b) Options buying is a sucker’s game and selling is the way to go (most probably a new-age expiry options seller)

c) You were lucky in the 1st 2 months and your system lost edge now – nobody makes money in the markets (investor or somebody who lost money in the markets due to poor risk management)

4. System bounced back well in Aug/Sep/Oct 2019 and lot size went from 10 to 47 in this ‘buying’ episode. All the naysayers went quiet 😊

5. Option buying is more advantageous if the trader’s average time in the trade is less than 2-3 hours.

6. If we minimise the number of trades to 1 per day (average), then intraday feels pretty much like positional trading. (Please note that 1 trade/day does not mean we stop after 1 trade is done. It is an average number 😊

7. My options buying episode will not be complete without mentioning Arun of from Tanjavur, TN.

Arun brought me an excel sheet (connected to Zerodha API) in one of our chennai meetups and told me that they created this sheet solely based on their observation of my intraday trades. It was such a timely gesture(remember, I did not ask but they voluntarily created this sheet) that it made my intraday trading life so much simpler. It has everything what I could ask for. I started placing conditional order(options entry based on futures price) using his sheet.

8. Understood the importance of systematic trading more as the account grew intraday(it was more like a reinforcement). I am not sure if i would have done the same thing following discretionary way of trading.

9. During the June/July months, I spoke to a trader (aged around 63) who daytrades emini exclusively for the last three decades. She lives in Charlotte, NC. Based on numerous conversations with her in skype, I changed my trailing stoploss(TSL) mechanism a bit. Started trailing aggressively but that also made me miss a few of the big moves(not all the big moves). I backtested the system again with this changed TSL exit and I was OK with it.

So, it pays to test different trailing stops (both conservative and aggressive) and find out whether you’d have made more money using those instead of price targets or your magical “price action” interpretations.

10. Somewhere in this period, I saw the potential of trading intraday and options(as multiple strike prices can be traded and inturn, bigger account size can be traded) combo. I decided to pursue intraday trading (in addition to my positional trading) and thought of experimenting various ways of entering the markets.

..and that leads us to the options selling episode.


Thought process before the start of the experiment

1. Nobody has done this kind of experiment in India before and started with a 3 lacs account as an average trading account size in India is 3 lacs.

2. Taking 3 lacs to 30lacs (Why 30? – it is a decent minimum size to start thinking about trading as a serious profession and a trader can build upon it if he is adept enough in other areas of trading the markets) was the goal by then.

3. My assumption was that my psychological resilience should be strong(it is not measurable, unfortunately) as I had done compounding in my positional account in the past. This might not be easy but there is a big point we need to be aware of. Both this 3L(starting capital) and 30L(goal) is a very small part of my positional trading account size and a minuscule part of my net worth. This eases out any internal performance pressure as I don’t need this money at all.

Only real pressure left is public display of trades and the ‘need to be right’ can kick in anytime. I was aware of it but still made some blunders like exiting randomly, jumping the gun (and taking options based on futures manually was not helping either) in the first 3-5 months 😊

4. If I reach 30L (whenever that happens), there is a possibility of new traders thinking that this is possible from day 1 or Year1 of trading. Possible but highly improbable. Remember , I started intraday trading after trading positional account successfully for 10 years in a row. Top of that, it is not gonna bite me if I lose this experimental account. The same cannot be said for everyone and hence, I had the fear that it might send a wrong message.

5. Big believer of backtesting and I backtested my system for 9+ years intraday (5 mins timeframe). Created MM plan aggressively as the idea is to see how compounding works. Battlecry is to get atleast 75% of the points we got in backtesting. If we can do that, the job is well done.

6. As I had never done intraday trading in the past and positional trading has made me lazy 😊, i was doubtful about handling multiple intraday trades in a day. So, put some filters to bring the trade down to 1 trade/day average. I have also seen ‘burning out’ of people who trade multiple times in a day.

7. One of my good trader friend told me that big players (I guess he is referring to retail options sellers 😊) will not be happy if this ever happens (intraday + options buying + compounding) and my answer was like ‘ Nobody cares about me or my trading account – everybody is fighting their own demons’ 😊

8. Trading is all about ‘handling drawdowns’ and I believe I am very good at it. Am neither prescient in knowing where the market is gonna go next nor adroit in drawing lines in the charts but very good in handling drawdowns.

9. Belief in law of large numbers – focus on 100/500 trades and the edge will play out. It is easy to shift our focus from the ‘outcome’ of a few trades to the process if we believe in law of large numbers.

10. I am a firm believer that ‘implementing an idea’ is much more valuable/powerful than ‘idea’ itself and hence took a plunge. Nothing to lose, anyways.

Miscellaneous details before the start

1. As you all know, structural pivots is the underlying concept i trade with

2. Two ATM options will be traded for every 1 lot of futures.

3. Manual entry was a worrying factor – I was doing conditional orders in IB for my positional account and was so comfortable with it. Did not want to do intraday and positional trading in the same account as it creates confusion in long term.

4. Zerodha account was still active and hence, Z was the obvious broker

5. Goal is to make 50% of the futures points (after cost) as I trade 2 ATM options for 1 lot of futures

6. According to my money management plan, I was willing to lose 50% of the account from the peak.

7. Once 30L is reached, experiment is considered DONE