5 points magic with crude oil!

A project to multiply capital with a different counter - the MCX Crude Oil 5 points a Day

Ok, am continuing from where Moh and RM completed this series. They have shown us the path how a lakh can be converted to a crore by gaining 10 points of nifty futures or 5 points of nifty options per day. Thanks to those articles and I would like to continue the same study with

my favorite contract, The Black Gold a.k.a Crude Oil.

My thoughts ... what if one looks for substitutions and variations or diversification to 10 points of Nifty Future or 5 points of Nifty Options! Or, what if finding the 10 point from Nifty Future / 5 point from Nifty Options may sound high!!

So, am coming up with 5 points scalping idea with my favorite contract Crude Oil.

Scalping 5 points a day from MCX Crude Oil

Before going into detail, let us have a look at brief comparison between Nifty and Crude oil. This comparison may help to have a confidence that scalping can be done at ease with crude oil.

Comparative Table of Contracts of NSE Nifty and MCX Crude Oil

Contract	Nifty	Crude oil
Current Market Price	5597	5187
Margin per lot (approx) see note below	Rs.25,000.00	Rs.25,000.00
Lot size	50	100
Average range in the day	75	100
Trading hours	9 a.m - 3.30 p.m	10 a.m - 11.30/12.00 p.m
Average leg movement	15-20 points	20-30 points
Note on Margin: The Post on Nifty 10 points was done when Nifty was at 5000 and so Margin 25000. For comparable tables this post adopts Rs.25000 margin so that both Nifty table in the Nifty 10 pt post and returns table here can be studied comparatively. Otherwise, the margin required is similar (on percentage terms on lot value) to Nifty margins.

Now, we will have look at daily price range comparison between nifty and crude oil in the year of 2011. This will help to understand the consistent scalping possibilities with crude oil.

Comparative Table of Number of Trading Days and Range of Day of Nifty and Crude Oil

Price Range	Number of trading days having this trading range
	Nifty	Crude oil
< 25	1	2
26 < 75	96	55
76 < 125	111	116
126 < 175	75	58
176 < 225	8	19
225 < 350		8

Above two tables should give you an idea to understand the possibilities with crude oil.

Total returns from crude in long run would be much better compared to Nifty. Please look at the table below which is self-explanatory. It shows what would happen by end of the year if one can get adjusted 5 points profit per day from crude oil scalping.

How does 5 point scalping in Crude Oil add up

Worksheet Extract of Crude Oil 5 Points a Day Concept

Contract	MCX Crude Oil
Time frame	Intraday
Trading period	1 year - approx 250 trading days
Target	5 Points per day
Seed Capital	1 lakh
Trade Margin	Rs.25000.00 per lot
Starts with	4 lots (400 units)
Summary of the projected trade score ( Only Highlights )
Day	Margin requirement	Quantity	points/day	profit in the day
1	100000	400	5	2000
20	141000	500	5	2500
40	203000	800	5	4000
60	295500	1100	5	5500
80	434000	1700	5	8500
100	639500	2500	5	12500
120	944500	3700	5	18500
140	1403500	5600	5	28000
160	2079500	8300	5	41500
180	3084500	12300	5	61500
200	4577500	18300	5	91500
220	6797500	27100	5	135500
240	10094500	40300	5	201500
250	12302500	49200	5	246000
Cash in trading account after 1 year		1.25 crores
No. of lots in trading by end of 1 year		492

Ok, let us consider another option.

We basically start with 1 lakh capital and let us with draw our invested capital of 1 lakh in the mid of the project when the accrued capital reaches 2 lakh mark. We continue to trade the remaining capital of 1 lakh. We can with draw again another 1 lakh when the accrued capital reaches 2 lakh second time. This with drawl would be the 100% returns from our investment. Again, the remaining 1 lakh is left for the project for rest of the whole year and no with drawls till end of the year. I have made the table for this scenario and check it below.

What if we try to take out the Initial Capital and a 100% Return on it, and try to run the concept Free of Capital from us

Worksheet after extracting the Initial Trade Capital and 100% Returns on it in 5 points Crude Oil a day

Summary of the projected trade score with two interim withdrawls during the year (Only Highlights)
Day	Margin requirement	Quantity	points/day	profit in the day	With drawal	Back to trade with capital of
1	100000	400	5	2000
20	141000	500	5	2500
40	203000	800	5	4000	100000	107000
From 41	Continuing with 107000 now the capital is taken out.
76	201500	700	5	3500	100000	101500
From 77	Continuing with 101500 now the capital+ 100% return taken out.
100	153500	600	5	3000
120	222000	800	5	4000
140	324000	1200	5	6000
160	474500	1800	5	9000
180	698500	2700	5	13500
200	1032500	4100	5	20500
220	1528500	6100	5	30500
240	2265000	9000	5	45000
250	2760000	11000	5	55000
With drawn amount		2 Lakhs
Cash in trading a/c after 1 year		28 Lakhs and 15 thousands.
Lots in trading by end of 1 year		110

One can notice from the above table that initial capital of 1 lakh can be withdrawn on the 40^th day and another 1 lakh i.e, 100% returns can be taken out on the 76^th day.

How this helps?

It helps in many ways. I can see the following advantages in this option.

• When we initially start the project, we are going with comfortable and manageable quantity. This would allow us to move freely without any stress as we trade only 4 lots targeting only 5 points a day. This helps to get away from fewer errors due to emotional part. Making 5points with 4 lots is not going to be a strain with all the experience.
• On the 40^th day, we withdraw our invested capital of 1 lakh when we are trading with just 8 lots. If one can plan very well and carry on in a well composed manner up to 40^th day, then there would be no loss for him after 40^th day, as he is going to trade henceforth with earned profit and not with his invested capital. This would psychologically relieve him from the greater stress.
• On the 76^th day, if another 1 lakh is withdrawn, then he has achieved 100% returns on his initial investment (though it has been withdrawn on 40^th day) and whatever the loss is going to happen after 76^th day is not going to upset him in anyway. (Since he has taken out his capital and 100% return on 40^th and 76^th days).
• Bottom line is, your risk if any is only till the 76^th trading day
  (or, rather the 40^th day itself, since a 100% return itself is a 10times return on FD interest).
• When we enter the phase where we are going to deal with higher volumes, it’s absolutely on the free capital. So, you must be rather in thrilled than the frightened state of mind.

Before I close, I can list down following  points for consideration

1. Longer trading hours in commodities offer many intraday opportunities for scalping.

·         Potential spike movements suitable for scalping happen many times in the day. There are three confirmed important spike times in the day. These can be used for range break-out kind of trades.

·         One is at open when Indian crude oil prices get adjusted with overnight price.

·         Next spike, when Europe markets open for the day.

·         And, final kick off at evening when US starts trading.

·         Apart from this, there are plenty of global events and data releases all through the day set momentum for price movements.

2. Playing simultaneously with nifty and crude might help i.e, one can plan 5 points in nifty instead of 10 points and 3 points in crude instead 5 points :)
3. As Alphabet pointed out, when the volumes are becoming huge to a level of practically unmanageable dimensions, we can diversify trades into various contracts like bank nifty, large caps and several commodities. This would automatically reduce the volume as it gets split into different counters. 
   Smaller stones making different chambers to build the huge palace!

This post is a value-adding diversifying part of the series on Mathematical Cumulation of Trading Capital with regular small daytrade scalp. -OJN
The other 2 posts are :
Nifty Future 10 points a day 1 year Cumulative Scalp Trading potential Nifty Options 5 points a day Cumulative Trading

moh says

I wish to bring out here the essence of the concepts in these 3 posts. We have to always start somewhere with concept at the planning room on a draft board, and deploy for benefits. All opinions, inputs from friends are valuable inputs that makes the process improve and evolve. Very good inputs from Alphabet1. Thanks a lot.
The valuable efforts of assortz has helped in many aspects. Thanks a lot. Some clarification may be due. I have given some of my thoughts below:

• It is suggested to tune up the scalping on paper-trade, simulated trade and virtual trade, backtest before plunging into real trade, as it is the best way to self-assess concepts.
• The Profit aimed at is confined to about 5 or 10 points after expenses. At this the expected returns concludes.
• The aim is at one single profit scalp a day. And, if a particular day looks unsuitable, the trading can be avoided. The concept takes in a delay, at the most, by this.
  • This implies one can shut down trading after the one profit scalp. And this avoids over-trading.
  • Also, this implies no compulsive trading each day.
• And, about the daytrade advantage here is
  • Trading does not go to positions,
  • does not get carried home,
  • is not taken overnight,
  • its always squared off maximum by 3:25.
  • avoids
    • the gaps risk,
    • positional drawdowns,
    • MTM loss,
    • margin hit
• The whole table is flexible. One can go with any number of points, any number of lots, any counter, any number of days, it can be stopped somewhere on the way after a few months too. Each will lead to some point of cumulation.
• When systems try for larger profits, they have to cross this basic 10 points anyway, where this one can stop.
• And, when the basic goal of 10points is reached, the rest is a corollary, sooner or later.
• one 10 point once a day in one of the days is one forward step a time.
• And, it is a concept article set ... enumerating cumulative potential which can be fine-tuned per individual trader mind-set and situation.

Let me look at the table above and the Nifty table from the other post ...
Lets assume I start on 4 lots.
I would keep tight stoploss and minimal cost, so that a couple of re-entries would keep me in with negligible overhead.
I would keep a target order for the 10+2 point in Nifty (5+1 point here).
And, say I am unable to make the 10+2 point in Nifty (or 5+1 point in Crude) on all the days.
And if I get the 10+2 points on each day on 40 days in the next 6 months, it still makes the additional 1 lac, though it has been made in 6 months instead of 2 months, and finally trading 8 lots.
At that point I have decided to take out my seed capital of 1 lac and continue with the earned 1 lac, again starting to trade 4 lots.
(the 1 lac was estimated when Nifty was at 5000, now the margin would be 1.12 lac since Nifty is 5600 now. But I am going to keep mentioning the 1 lac for continuity purpose ...)
When, per above table if I again continue, now that my mind is free that my capital has been drawn out, and I am trading with the earned capital, and with a confortable 4 lots again.
When I make the 10+2 points in Nifty (or 5+1 points in Crude) for another 60 days (let us assume, in another 6 months, instead of 3 months), I would end the year of 240 (approx) trading days with 100 target met days.
It would still make my capital appreciate and pay me 3 lacs, which when added to the earlier withdrawal of 1 lac, will be 3+1 = 4 lacs.
Here I am looking at it with a laidout angle of "What If 10+2 point trade is made only on 100days out of 240 market days in the year".

Let me say, this post is another in the series on Cumulation Concept. The post is not about how to make the 5 points. The concept comes to use for a trader who makes the 5 point profit. :)

So, lets build upon it. -moh