What it does
Large companies get sold off hard now and then, on a bad result, a sector scare, or nothing much at all. More often than not the price recovers some of that fall over the following days. This strategy waits for those moments and buys them.
It is the most ordinary-looking thing on this list: it buys shares and holds them, like you would. The difference is that it never buys on a hunch, only when its two measurements agree the fall is stretched, and it never forgets to sell.
How it makes money
Two things must be true to buy. The stock's RSI, a score of recent momentum, has to be under 35, which means it has fallen hard and fast. And the day's close has to be below the lower Bollinger band, meaning the price is further below its 20-day average than it usually strays.
It sells when the stock has recovered: either RSI climbs back above 60, or the price climbs back to its 20-day average. Both mean the stretch has gone. There is also a stop a few percent below the entry, in case the fall is not a dip but the start of something worse.
Each trade is sized so that hitting the stop costs a fixed small fraction of your account, half a percent on the conservative version. A wider stop therefore means a smaller position, not a bigger loss.
A worked example, in rupees
Illustrative. ₹1,00,000 account, balanced version, a stock at ₹1,000 that has fallen 8% in a week.
- Entry
- ₹980, with RSI at 31 and the close under the lower band
- Stop
- ₹902, 8% below
- Risk budget
- 1% of the account, ₹1,000
- Position
- about 12 shares, ₹11,760, so the stop costs ₹1,000
- Exit nine days later
- ₹1,012, back at the 20-day average
- Result
- ₹384 before charges, about 0.4% of the account
Small on purpose. The strategy is built to be right more often than wrong by a modest margin, over many trades, with no single trade able to hurt the account. The published version of this family made 45 such trades in two years.
When it does well, and when it hurts
Does well when
- The market is choppy or drifting: stocks dip and recover, dip and recover.
- The fall was a scare rather than a change in the company's fortunes.
Hurts when
- A stock falls for a reason and keeps falling. The stop catches it, but at a loss.
- A broad bear market: everything meets the entry condition and then keeps going down. The conservative version refuses to buy a stock that is below its 200-day average for exactly this reason, and trades rarely as a result.
What the robot does when a trade goes wrong
These are the real rules, in the order the strategy checks them. Nothing here needs you to be watching.
- 1
Sells when the recovery arrives
RSI back above 60, or the price back at the 20-day average, and it is out. It does not wait for a full recovery to the old high.
- 2
Stops if the fall continues
Six to ten percent below the entry, depending on the version. Wide, because a stock that has just fallen hard is noisy, and sized so the stop costs the same small fraction of the account every time.
- 3
Never puts more than 15% of the account in one name
However good the setup looks.
- 4
Holds overnight, deliberately
This is a delivery strategy. Recoveries take days, and a square-off at 15:15 would sell every trade before it worked.
Adjustments, and why it does not make them
The temptation with a falling stock is to buy more at the lower price, averaging down. It feels like getting a better deal. It is how one small loss becomes the loss that ends an account.
This robot never adds to a losing position. One entry, one stop, one exit. If the stop is hit, the trade is over, and the same stock can only be bought again when the conditions are met afresh.
The three versions
Each strategy comes as conservative, balanced and aggressive. They share the idea and differ in how much they risk once in.
| Setting | Conservative | Balanced | Aggressive |
|---|---|---|---|
| Companies | 10 large caps | 10 large caps | 10 large caps |
| Buys when RSI is under | 35, and the price is above its 200-day average | 35 | 35 |
| Sells when RSI recovers above | 60, or price reaches the 20-day average | 60 | 60 |
| Stop below entry | 6% | 8% | 10% |
| Risk per trade | 0.5% of the account | 1% | 1.5% |
| Most in one company | 15% | 15% | 15% |
The conservative version's 200-day filter makes it very selective: in a two-year test it found only a handful of trades.
Entry: When daily RSI(14) is below 35 and close is below the 20-day lower Bollinger band (2 std dev)
Action: Buy delivery shares sized so the stop risks 1% of account equity
Exits: Sell when RSI(14) recovers above 60, price reaches the 20-day middle band, or stop hits 8%
Want a stricter filter, a different stop, or your own stock list? Open a working copy in the builder and run a backtest.
Customize this ruleRisks you should know
- Overnight risk is real. A company can announce something after the close and open 10% lower, straight through the stop.
- Long only. In a market that falls for a year, the best it can do is lose small amounts and sit out, which it will.
- Returns are modest by design. Nobody should expect this to double anything; the published versions earned low single digits over two years, before any charges your broker adds.
The jargon, explained
- RSI
- A 0 to 100 score of recent momentum. Below 30 or 35 means a stock has fallen hard and fast; above 60 or 70, it has risen hard.
- Bollinger bands
- A band two standard deviations either side of the 20-day average. Price outside the band is unusually stretched.
- EMA
- An average of recent prices that leans towards the latest ones. Price above its EMA is drifting up; below, drifting down.
- ATR
- The typical size of one bar's move. Stops in these strategies are set a few ATRs away so ordinary noise does not trigger them.
- Delivery (CNC)
- Shares bought to hold overnight or longer, paid for in full. No shorting.