Loding Loading ...
X
Century Financial Consultancy LLC ("Century") does not offer investment advisory or portfolio management services nor guarantees investment returns. We do not accept or make payments in cryptocurrency or digital currency. Our official website is www.century.ae. Beware of fraudulent companies or websites posing as Century. We are not responsible for any losses from using fake websites or entities. Trading in financial markets involves a significant risk of loss which can exceed deposits and may not be suitable for all investors. Before you start, please ensure you fully understand the risks involved.
  • AR AR
Century Financial Consultancy
Back

Monday, March 11, 2024

Exploring Intraday Opportunities using BTST/STBT Strategies

By Century Financial in 'Investment Insights'

Exploring Intraday Opportunities using...
Exploring Intraday Opportunities using BTST/STBT Strategies

*Trading in financial market carries risk and can result in loss of capital.
*This performance is only observed with historical backtests and not traded by the company.

icon

The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.

Trading pairs is not a risk-free strategy. The jeopardy comes when prices of the two instruments move contrary to the positions taken resulting in losses. Thus, adhering to strict risk management rules is important when dealing with such adverse situations.

Calculations of estimated or past profits and losses do not include applicable holding costs and transaction charges.

Understanding BTST/STBT Trading Strategy

In Buy Today, Sell Tomorrow, market participants buy assets at/near the current day’s closing price and sell them at/near the next day’s opening price. Whereas in Sell Today, Buy Tomorrow (STBT), market participants sell assets at/near the current day’s closing price and buy them at/near the next day’s opening price.

The motive of such a trading strategy is to take advantage of the gap ups and gap downs that occur overnight. Traders employ this approach to take advantage of potential developments, news, or market sentiments that may cause a stock to gap up or down in value before the market opens. However, it carries risks, such as overnight market fluctuations and unforeseen events.

Key Terms

Total Trades: Represents the total number of trades

Positive Trades: Represents the total number of days in which the strategy resulted in a positive result

Negative Trades: Represents the total number of days in which the strategy resulted in a negative result

Hit Ratio: Represents the number of times the strategy resulted in a positive result in %

Return %: Represents the total return generated by the strategy on a position value of $100,000

Drawdown: The maximum drop in the portfolio value from its peak value

The Security

The Hong Kong 50 is a market-capitalization-weighted index on the Hong Kong Exchange (HKEx), encompassing the largest traded companies. Serving as a key equity market indicator for Hong Kong and broader Asian markets,Hong Kong 50’s inception dates back to 1969, with a base period starting on July 31, 1964, and an initial value of 100. Representing around 65% of the total market capitalization, Hong Kong 50 aims to mirror the Hong Kong Exchange's leadership. Given Hong Kong's unique administrative status in China, the close economic ties between the two regions are reflected in the significant presence of Chinese companies listed on the HKEx. The Instrument is traded under the ticker HK50 in the Century Trader Platform.

Period:

1 June 2023 to 31 January 2024 (8 months)

Session Timings:

icon
Tokyo Session - 5.15 AM to 1 PM*
icon
London Session – 1 PM to 5 PM*
icon
New York Session – 5 PM to 11 PM*

*UAE time

Executive Summary:

The analysis of the Hong Kong 50 (5.15 AM to 11 PM UAE Time) aims to identify potential trading strategies determined by the returns from the London session the previous day.

In instances where the London Session registers positivity, the Buy Today Sell Tomorrow Strategy proves most effective, boasting a 58% hit ratio and a 5.3% return on a $100,000 Position value. The likelihood of a positive London Session out of the total trading days is 50%. Conversely, when the London Session reflects negativity, the Sell Today Buy Tomorrow Strategy outperforms, with a 69% hit ratio and a 7.9% return on a $100,000 Position value. The probability of a negative London Session is 45.18%. In cases where both the London and New York Sessions are closed, the Buy Today Sell Tomorrow Strategy is optimal, yielding a 63% hit ratio and a 3.4% return on a $100,000 Position value.

In BTST market participants buy at/near the closing price at 11 PM on the current day and sell their positions at/near the opening price at 5.15 AM the next day, whereas in STBT market participants sell at/near the closing price at 11 PM on the current day and buy at/near the opening price at 5.15 AM the next day.

Cumulatively, adopting a BTST Strategy on days with positive and closed London Sessions and an STBT strategy when the London Session is negative results in approximately 166 trades. This approach achieves a 63% hit ratio, providing a return of 16.7% on a $100,000 Position value.

The Study:

The study is done by retrieving the prices of the Hong Kong 50 on the 4-Hour Candle Stick. Assuming that the Tokyo Session is from 5.15 AM to 1 PM, the London Session is from 1 PM to 5 PM, and the New York Session is from 5 PM to 11 PM, we then calculate the Returns in Each Session. The objective is to predict if the Tokyo session will open gap up or gap down based on the current day’s London and New York Sessions moves.

Upon doing so, we arrive at 4 possible scenarios:

  • 1. London (+), New York (+)
  • 2. London (+), New York (-)
  • 3. London (-), New York (+)
  • 4. London (-), New York (-)

Among all the trading days, the probability of each scenario occurring is 25.9%, 24.1%, 22.29%, and 22.89% respectively. Upon using these to predict the return of the next day’s Tokyo Session, we arrive at the result that, if the London session is positive on the current day then there is a 58% probability that the Tokyo Session will open positive in the next day, adding on, if the London session is negative on the current day then there is a 69% probability that the Tokyo Session open negative in the next day. Furthermore, it must be noted that the New York Session does not seem to have a significant impact on the Tokyo Session, as no clear pattern or trend can be identified.

Out of the 83 trading days where the London Session was positive, the BTST strategy resulted in positive returns in about 48 days. Whereas out of the 75 trading days where the London Session was negative, the the strategy resulted in negative returns in about 52 days the next day.

Hence, we conclude that a Buy Today, Sell Tomorrow Strategy works best on days when the London Session is positive, and a Sell Today, Buy Tomorrow Strategy works best on days when the London Session is negative. When trades were taken on a postion value of $100,000, it can be witnessed that when the London session was positive, the strategy generated a return of about 5% using the BTST Strategy, and a return of 8% using the STBT strategy when the London Session was negative.

On favorable days, when the London Session result was positive an average return of 0.3% was generated, whereas, when the London Session was negative, an average return of 0.24% was generated.

London Session
Return Summary		 London (+) London (-)
Total Trades 83 75
Positive Trades 48 52
Negative Trades 35 23
Hit Ratio 58% 69%
Return %
on trades taken		 5% 8%

Return Summary

Buy Today,
Sell Tomorrow		 London (+),
New York (+)		 London (+),
New York (-)		 London (-),
New York (+)		 London (-),
New York (-)
Total
Trades		 43 40 37 38
Positive Trades 23 25 13 10
Negative Trades 20 15 24 28
Hit Ratio 53% 63% 35% 26%
Return %
on trades taken		 1% 4% -4% -4%
Sell Today,
Buy Tomorrow		 London (+),
New York (+)		 London (+),
New York (-)		 London (-),
New York (+)		 London (-),
New York (-)
Total
Count		 43 40 37 38
Positive Trades 20 15 24 28
Negative Trades 23 25 13 10
Hit Ratio 47% 38% 65% 74%
Return %
on trades taken		 -1% -4% 4% 4%

Furthermore, apart from the positive and negative sessions of the London and New York Sessions, a third scenario also arises, in which both the London and the New York Sessions are closed. Such a scenario occurred about 8 times in the measured period, with a probability of 4.82%. It must be noted that in about 5 out of the 8 instances, where both the London and the New York Sessions were closed, the Hong Kong 50 delivered a positive return the next day in the Tokyo Session, boasting a hit ratio of 63%.

Adding on, if the BTST trades were taken on days when the London and New York Sessions were closed, we generate about 3% on $100,000 Position value. On favorable days an average return of 0.73% was generated.

Return Summary when
London Session is Closed		 Buy today,
Sell Tomorrow		 Sell today,
Total Trades 8 8
Positive Trades 5 3
Negative Trades 3 5
Hit Ratio 63% 38%
Return %
on trades taken		 3% -3%

Cumulatively, adopting a BTST Strategy on days with positive and closed London Sessions and an STBT strategy when the London Session is negative results in approximately 166 trades. This approach achieves a 63% hit ratio, providing a return of 16.7% on a $100,000 Position Value. On favorable days, cumulatively the strategy also generated an average return of 0.3%.

Cumulative Portfolio Return Summary
Total Trades 166
Positive Trades 105
Negative Trades 61
Hit Ratio 63%
Return %
on trades taken		 16.7%

The Drawdowns:

Cumulatively, the strategy witnessed a maximum drawdown of $1,702.

Disclaimer: Century Financial Consultancy LLC (“CFC”) is Limited Liability Company incorporated under the Laws of UAE and is duly licensed and regulated by the Emirates Securities and Commodities Authority of UAE (SCA).This document is a marketing material and is for informational purposes only and must not be construed to be an advice to invest or otherwise in any investment or financial product. CFC does not guarantee as to adequacy, accuracy, completeness or reliability of any information or data contained herein and under no circumstances whatsoever none of such information or data be construed as an advice or trading strategy or recommendation to deal (Buy/Sell) in any investment or financial product. CFC is not responsible or liable for any result, gain or loss, based on this information, in whole or in part. Please carefully read disclaimer mentioned below/next page/next frame.

PLEASE READ THE FOLLOWING TERMS AND CONDITIONS OF ACCESS FOR THE PUBLICATION BEFORE THE USE THEREOF.

By use of the publication and continuing to access the publication, you accept these terms and conditions and undertake to be bound by the acceptance. CFC reserves the right to amend, remove, or add to the publication and Disclaimer at any time without any prior notice to you. Such modifications may be effective immediately or otherwise. Accordingly, please continue to review this Disclaimer whenever accessing, or using the publication. Your access of, and use of the publication, after modifications to the Disclaimer will constitute your acceptance of the terms and conditions of use of the publication, as modified. If, at any time, you do not wish to accept the content of this Disclaimer, you may not access, or use the publication. Any terms and conditions proposed by you which are in addition to or which conflict with this Disclaimer are expressly rejected by CFC and shall be of no force or effect.

No information as given herein by CFC in this publication should be construed as an offer, recommendation or solicitation to purchase or dispose of any securities/financial instruments/products or to enter in any transaction or adopt any hedging, trading or investment strategy. The data/information contained in the publication is not designed to initiate or conclude any transaction. Neither this publication nor anything contained herein shall form the basis of any contract or commitment whatsoever. Distribution of this publication does not oblige CFC to enter into any transaction. The information in this document is not intended, by itself, to constitute independent, impartial or objective research or a recommendation from CFC and should not be treated as such.

The content of this publication should not be considered legal, regulatory, credit, tax or accounting advice. Anyone proposing to rely on or use the information contained in the publication should independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professionals or experts regarding information contained in this publication. CFC cannot be held responsible for the impact of any transactional costs or any taxes as may be applicable on transactions.

Information contained herein is based on various sources, including but not limited to public information, annual reports and statistical data that CFC considers reliable. However, CFC makes no representation or warranty as to the accuracy or completeness of any report or statistical data made in or in connection with this publication and accepts no responsibility whatsoever for any loss or damage caused by any act or omission taken as a result of the information contained in this publication. References to any financial instrument or investment product does not imply that an actual trading market exists for such instrument or product. In publishing this document CFC is not acting in the capacity of a fiduciary or financial advisor.

The report does not take into account the investment objectives, financial situations and specific needs of recipients. The recipient of this publication must make its own independent decisions regarding whether this communication and any securities or financial instruments mentioned herein, is appropriate in the light of its investment objectives, investment experience, financial situation, existing portfolio holdings and/or investment needs. Recipients will need to decide on their own as to whether or not the contents of this document are suitable for them.

This document is a marketing material and has been prepared by individual(s), marketing and/or research personnel of CFC. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is purely a marketing communication. In this publication, any opinions, news, research, analysis, prices, or other information constitute is a general market commentary, and do not constitute the opinion or advice of CFC or any form of personal or investment advice. CFC neither endorses nor guarantees offerings of third party, nor is CFC responsible for the content, veracity or opinions of third-party speakers, presenters, participants or providers. CFC will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Charts, graphs and related data or information provided in this publication are intended to serve for illustrative purposes only. The information contained in this publication is prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors relevant to their determination. All statements as to future matters are not guaranteed to be accurate. CFC expressly disclaims any obligation to update or revise any forward-looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.

The information in this communication cannot disclose everything about the nature and risks of the abovementioned data / information. This is not an exhaustive list of the risks involved, nor should it be regarded as offering advice on the suitability of these investments for the recipient.

All views expressed in all reports, analysis and documents are subject to change without notice. CFC may have issued other reports, analysis or other documents expressing different views from the contents hereof. Staff members/employees of CFC may provide/present oral or written market commentary or analysis to you that reflect opinions that are contrary to the opinions expressed in this research and may contain insights and reports that are inconsistent with the views expressed in this publication. Neither CFC nor any of its affiliates, group companies, directors, employees, agents or representatives assume any liability nor shall they be made liable for any damages whether direct, indirect, special or consequential including loss of revenue or profits that may arise from or in connection with the use of the information provided in this publication.

Information or data provided by means in this publication may have many inherent limitations, like module errors or lack accuracy in its historical data. Data included in the publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, credit risk etc.

CFC and its affiliates reserve the right to act upon or use the contents hereof at any time, including before its publication herein. The use of our information, products and services should be on your own due diligence and you agree that CFC is not liable for any failure to achieve desired return on investment that is in any manner related to availing of services or products of CFC and use of our information, products and services. You acknowledge and agree that past investment performance is not indicative of the future performance results of any investment and that the information contained herein is not to be used as an indication for the future performance of any investment activity. Any prices provided in this document are indicative only and do not represent firm quotes as to either price or size. The value of any investment or income may go down as well as up. All investments involve an element of risk, including capital loss.

This publication is being furnished to you solely for your information and neither it nor any part of it may be used, forwarded, disclosed, distributed or delivered to anyone else. You may not copy, reproduce, display, modify or create derivative works from any data or information contained in this publication. This document may not be published, circulated, reproduced, or distributed in whole or part to any other person (whether within or in a jurisdiction outside UAE) without the prior written consent of CFC.

Declaration of the Financial Analyst

The analyst(s) who prepared this report certifies that the opinions contained herein accurately and exclusively reflect his or her views. The Analyst further undertakes that he or she has taken reasonable care to maintain independence and objectivity in respect of the opinions herein. The analyst(s) who wrote this report does not hold securities in the Company mentioned in the report. The analyst(s) receives a fixed compensation from CFC. No part of his or her compensation was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. The business solicitation or marketing departments of CFC are separate and independent from the reporting line of the analyst(s). The analyst(s) confirms that he or she and his / her associates do not serve as directors or officers of the Company, and the Company or other third parties have not provided or agreed to provide any compensation or other benefits to the analyst(s) in connection with this report. An “associate” is defined as the spouse, parent or step-parent, or any minor child (natural or adopted) or minor step-child, of the analyst.

Services offered by CFC include products that are traded on margin and can result in losses that exceed deposits. Before deciding to trade on margin products, you should consider your investment objectives, risk tolerance and your level of experience on these products. Trading with leverage carries significant risk of losses and as such margin products are not suitable for every investor and you should ensure that you understand the risks involved and should seek independent advice from professionals or experts if necessary.

View More