Trading Strategies

Question 1

(a) Buffer $= 482.00 \times 0.0025 = ₹1.205$. Entry trigger $= 482.00 + 1.205 = ₹483.205 \approx ₹483.21$. (1 for buffer, 1 for entry) Per-share risk $=$ Entry $-$ Stop (OR low) $= 483.21 - 474.00 = ₹9.21$. (1)

(b) Position size $= \dfrac{6000}{9.21} = 651.46 \Rightarrow 651$ shares (round down to stay within risk). (2 calc, 1 rounding down)

(c) Target distance $= 1.8 \times 9.21 = ₹16.578$. Target price $= 483.21 + 16.578 = ₹499.79$. (2) Net profit $= 651 \times 16.578 = ₹10{,}792.28$. (2) (Why: R:R scales the reward off the actual per-share risk; profit = shares × reward-per-share.)

Question 2

(a) 5-day SMA (day 5) $= \dfrac{100+104+106+103+110}{5} = \dfrac{523}{5} = ₹104.60$. (2)

(b) 3-day SMA day 4 $= \dfrac{104+106+103}{3} = \dfrac{313}{3} = ₹104.33$. (1.5) 3-day SMA day 5 $= \dfrac{106+103+110}{3} = \dfrac{319}{3} = ₹106.33$. (1.5)

(c) Day 4: fast $104.33$ vs slow reference $103.25$ → fast above slow (already). Day 5: fast $106.33$ vs slow $104.60$ → fast above slow. If on day 4 fast $\le$ slow and day 5 fast $>$ slow, that is a bullish crossover. Here fast rises further above slow — a confirmed bullish alignment (fast$>$slow on both, widening). Award marks for correctly comparing fast vs slow on each day and stating the crossover/alignment direction. (3)

(d) In ranging markets price oscillates around the MAs, generating frequent false crossovers ("whipsaws"), producing many small losses from entries at range extremes with no sustained trend to profit from. (2)

Question 3

(a) VWAP $= \dfrac{\sum(P\times V)}{\sum V}$. $\sum PV = 250(2000)+252(3000)+249(5000)+253(4000)$ $= 500000+756000+1245000+1012000 = 3{,}513{,}000$. (2) $\sum V = 2000+3000+5000+4000 = 14{,}000$. VWAP $= 3{,}513{,}000 / 14{,}000 = ₹250.93$. (2)

(b) Price $253 >$ VWAP $250.93$, so price is above VWAP → a VWAP-trend long (bullish bias) is appropriate; a mean-reversion long would require price below VWAP. (3)

(c) In an uptrend: enter long on a pullback to/near VWAP that holds (rejection candle / bounce). Stop placed just below VWAP (or below the pullback low). Invalidation: a decisive close below VWAP signals loss of intraday support → exit. (3)

Question 4

(a) Price makes a higher low ($22 \to$ price low with RSI $22$ earlier, now new price low with RSI rising to $28\to34$)... the signal is a bullish (positive) RSI divergence: price makes a lower/equal low while RSI makes a higher low, combined with RSI exiting oversold. (3)

(b) In a strong downtrend RSI can stay oversold (<30) for extended periods; buying each oversold reading catches a falling knife with no trend support. Confluence filter: require a higher-timeframe uptrend, a bullish divergence, or a break of the down-trendline / reclaim of a key MA before entry. (4)

(c) This is a trend-following system: it holds long while momentum stays in the bullish band (40–80) and exits when momentum weakens (RSI<40), i.e. it rides trend rather than betting against extremes. Using RSI as a regime/band filter (not buying oversold) is characteristic of trend-following. (3)

Question 5

(a) Gap $= 618 - 600 = ₹18$. (1) Percentage $= 18/600 = 3.00\%$. (1)

(b) A gap fill occurs when price trades back to the prior session's closing price, filling the empty space on the chart. Full gap-fill target $= ₹600$. (2)

(c) Gap-and-go favoured by: strong/high volume on the gap and price holding above the open with follow-through (no fill of opening range). Gap-fade favoured by: low-conviction gap, weak volume, price failing at open and rolling back / gap into resistance. (3, 1.5 each)

(d) Risk (stop) $= 623 - 618 = ₹5$. Reward (to gap fill $600$) $= 618 - 600 = ₹18$. R:R $= 18/5 = 3.6:1$. (3)

[
{"claim":"Q1 entry trigger and per-share risk","code":"entry=482.00+482.00*0.0025; risk=entry-474.00; result=(round(entry,2)==483.21 and round(risk,2)==9.21)"},
{"claim":"Q1 position size rounded down","code":"import math; size=math.floor(6000/(483.205-474.00)); result=(size==651)"},
{"claim":"Q1 target price and profit","code":"risk=483.205-474.00; tgt=483.205+1.8*risk; profit=651*1.8*risk; result=(round(tgt,2)==499.78 or round(tgt,2)==499.79) and round(profit,2)==10792.28"},
{"claim":"Q2 SMAs","code":"s5=(100+104+106+103+110)/5; f4=(104+106+103)/3; f5=(106+103+110)/3; result=(s5==104.6 and round(f4,2)==104.33 and round(f5,2)==106.33)"},
{"claim":"Q3 VWAP","code":"pv=250*2000+252*3000+249*5000+253*4000; v=2000+3000+5000+4000; vwap=pv/v; result=(round(vwap,2)==250.93)"},
{"claim":"Q5 gap percent and RR","code":"gap=618-600; pct=gap/600*100; rr=(618-600)/(623-618); result=(round(pct,2)==3.00 and rr==3.6)"}
]