Revision as of 12:02, 5 January 2026

MA21 Mean Reversion Strategy

Complete Trading System Documentation

MCX Crude Oil - Intraday Trading System

PART 1: CORE CONCEPT

The Big Idea

Trade pullbacks to the 21-period Moving Average (MA21) during established trends.

When the market is trending, price naturally pulls back to the 21 MA before continuing. We enter at these pullback zones, trading WITH the trend direction.

"The MA is a ZONE, not a thin line" - Entry allowed within ±25 points of MA21

PART 2: MULTI-TIMEFRAME (MTF) ANALYSIS

Template:Note

Timeframe Hierarchy

We analyze 5 timeframes from highest to lowest:

Timeframe	Purpose	What We Look For
Daily (1D)	Context/Bias	Overall trend direction, key levels
4-Hour (4H)	Primary Trend	Main trend confirmation
1-Hour (1H)	Confirmation	Trend alignment validation
15-Min (15M)	Entry Timing	Final confirmation before entry
5-Min (5M)	Execution	Precise entry and exit

MTF Alignment Logic

For each timeframe, we check:

MA21 Slope - Is it rising or declining?
Price Position - Is price above/below MA21?
MA21 vs MA200 - Short-term vs long-term trend alignment

Weighted Scoring

Each timeframe contributes to an alignment score:

Higher timeframes have more weight (Daily > 4H > 1H > 15M > 5M)
Score ranges from 0.0 to 1.0
Higher score = stronger alignment

Direction Determination

IF all timeframes agree → Strong signal
IF most timeframes agree → Medium signal
IF timeframes conflict → No trade (wait for clarity)

Per-Timeframe Trend Analysis

For each timeframe, the Trend Analysis Core calculates:

1. Trend Direction

Based on MA21 slope:

MA21 Slope	Direction	Threshold
Positive > 0.01%	UP	Bullish slope threshold
Negative < -0.01%	DOWN	Bearish slope threshold
Between ±0.01%	SIDEWAYS	No clear trend

2. MA Trending Status

Is the MA21 moving with significant momentum?

MA Slope	Status	Threshold
> 0.05%	TRENDING	MA is clearly moving
< 0.05%	FLAT	MA is consolidating

3. Price-MA Struggle Detection

Is price stuck near the MA without breaking away?

Condition	Detection
Price within 0.5% of MA21 for multiple bars	STRUGGLING
Price clearly moving away from MA21	CLEAR TREND

Trading Impact: Price-MA struggle = -30 penalty in grading

4. Trend Confidence Calculation

Weighted score from three factors:

Confidence = (MA_Slope × 40%) + (Price_Position × 30%) + (MA_Alignment × 30%)

Factor	Weight	What It Measures
MA Slope	40%	Steepness of MA21 angle
Price Position	30%	Is price above/below MA21?
MA Alignment	30%	Does MA21 align with MA200?

PART 3: SIGNAL GENERATION FLOW

Complete Flow Diagram

┌─────────────────────────────────────────────────────────────────────────────┐
│                         SIGNAL GENERATION PIPELINE                         │
├─────────────────────────────────────────────────────────────────────────────┤
│                                                                             │
│  STEP 1: DATA COLLECTION                                                    │
│  ┌─────────────────────────────────────────────────────────────────────┐   │
│  │ Load OHLCV data for all 5 timeframes                                │   │
│  │ Calculate MA21 and MA200 for each timeframe                         │   │
│  └─────────────────────────────────────────────────────────────────────┘   │
│                              ↓                                              │
│  STEP 2: MULTI-TIMEFRAME ANALYSIS                                          │
│  ┌─────────────────────────────────────────────────────────────────────┐   │
│  │ Analyze trend direction in each timeframe                           │   │
│  │ Calculate weighted alignment score                                  │   │
│  │ Determine primary direction (LONG/SHORT/NONE)                       │   │
│  └─────────────────────────────────────────────────────────────────────┘   │
│                              ↓                                              │
│  STEP 3: MARKET STATE ANALYSIS                                             │
│  ┌─────────────────────────────────────────────────────────────────────┐   │
│  │ Detect: Railroad Trend, Creeper Move, Two-Day Trend                 │   │
│  │ Classify: Trend Phase (EARLY/MIDDLE/LATE)                           │   │
│  │ Check: Institutional activity, BOS (Break of Structure)             │   │
│  └─────────────────────────────────────────────────────────────────────┘   │
│                              ↓                                              │
│  STEP 4: SETUP QUALITY GRADING                                             │
│  ┌─────────────────────────────────────────────────────────────────────┐   │
│  │ Calculate 5-factor weighted score                                    │   │
│  │ Apply penalties (creeper -50, MA struggle -30, etc.)                │   │
│  │ Apply bonuses (railroad +15, key level +10)                         │   │
│  │ Assign grade: A+, A, B, C, D, F                                     │   │
│  └─────────────────────────────────────────────────────────────────────┘   │
│                              ↓                                              │
│  STEP 5: ENTRY FILTERS                                                     │
│  ┌─────────────────────────────────────────────────────────────────────┐   │
│  │ □ Is price within ±25 pts of MA21?                                  │   │
│  │ □ Does direction align with MA21 slope?                             │   │
│  │ □ Is setup grade A+, A, or B?                                       │   │
│  │ □ Is current hour allowed? (not 9, 22, 23)                          │   │
│  │ □ Does probability zone allow this trade?                           │   │
│  │ ALL YES → Generate Signal | ANY NO → No Signal                      │   │
│  └─────────────────────────────────────────────────────────────────────┘   │
│                              ↓                                              │
│  STEP 6: SIGNAL OUTPUT                                                     │
│  ┌─────────────────────────────────────────────────────────────────────┐   │
│  │ Direction: LONG or SHORT                                            │   │
│  │ Entry Price: Current close price                                    │   │
│  │ Stop Loss: 40 points (structure-based or default)                   │   │
│  │ Take Profit: 60 points (1.5:1 R:R)                                  │   │
│  │ Position Size: 1 lot                                                │   │
│  └─────────────────────────────────────────────────────────────────────┘   │
│                                                                             │
└─────────────────────────────────────────────────────────────────────────────┘

PART 4: MARKET STATE DETECTION

7 Detection Algorithms

1. Railroad Trend Detection

What it is: Strong, consistent trend with minimal pullbacks.

Characteristic	Description
Bar Analysis	5 most recent bars analyzed
Strong Bars	80%+ must close in same direction
Consistency	Bars must be "strong" (body > 0.3% of price)

Trading Impact: +15 bonus to setup score (high quality trend)

2. Creeper Move Detection

What it is: Slow, grinding price action with small bars.

Characteristic	Description
Bar Range	Average range < 0.5% of price
Analysis Period	Last 7 bars
Pattern	Price moving slowly without clear impulse

Trading Impact: -50 penalty to setup score (avoid these setups)

3. Two-Day Trend Analysis

What it is: Trend must be visible on Daily timeframe for 2+ days.

Requirement	Description
Daily Bars	At least 2 consecutive bars in same direction
Purpose	Filters out noise, ensures real trend

Trading Impact: Missing two-day trend = -30 penalty

4. Trend Phase Classification

Phase	Bars into Trend	Trading Approach
EARLY	0-15 bars	Avoid (uncertain direction)
MIDDLE	15-40 bars	TARGET (best trades)
LATE	40+ bars	Avoid (exhaustion risk)

Trading Impact: Not being in MIDDLE phase = -25 penalty

5. Institutional Fight Detection

What it is: When big players are battling each other (choppy action).

Indicator	Sign
Volume	1.5x+ average volume
Price Action	Narrow range with high volume
Wicks	Long wicks on candles (rejection)

Trading Impact: 0.7x multiplier on final score (30% reduction)

6. Break of Structure (BOS)

What it is: Price breaking a significant swing high/low.

BOS Type	Description
SWING_HIGH_BREAK	Price breaks above prior swing high
SWING_LOW_BREAK	Price breaks below prior swing low
PDH_BREAK	Previous Day High break
PDL_BREAK	Previous Day Low break

7. Volatility Classification

Volatility	ATR % of Price	Trading Adjustment
HIGH	> 1.0%	Wider stops needed
MEDIUM	0.3% - 1.0%	Normal stops
LOW	< 0.3%	Tighter stops possible

PART 5: SETUP QUALITY GRADING SYSTEM

5-Factor Weighted Scoring

Every potential trade is scored on 5 factors:

Factor	Weight	What It Measures
Timeframe Alignment	30%	How well all timeframes agree
Trend Strength	20%	Quality of the trend (railroad vs creeper)
Key Level Proximity	20%	Is entry near a significant level?
Entry Quality	15%	Clean entry technique, near MA
Risk/Reward	15%	How favorable is the R:R ratio

Score Calculation

Base Score = (TF_score × 0.30) + (Trend_score × 0.20) + (KeyLevel_score × 0.20)
           + (Entry_score × 0.15) + (RR_score × 0.15)

Final Score = Base Score + Bonuses - Penalties

Penalties (Negative Adjustments)

Condition	Penalty	Reason
Creeper Move	-50	Poor quality price action
MA Struggle	-30	Price fighting the MA
No Two-Day Trend	-30	Trend not established
Wrong Trend Phase	-25	Not in MIDDLE phase
Far from Key Level	-50	No confluence
Far from MA	-40	Not a pullback entry

Bonuses (Positive Adjustments)

Condition	Bonus	Reason
Railroad Trend	+15	High quality trend
At Key Level	+10	Confluence present
Clean Entry	+10	Clear technical setup

Grade Thresholds

Grade	Min Score	Action
A+	90+	Trade with full conviction
A	80-89	Trade with confidence
B	70-79	Trade normally
C	60-69	NO TRADE
D	50-59	NO TRADE
F	<50	NO TRADE

A+ Special Requirements

To get an A+ grade, ALL of these must be true:

Score ≥ 90
All timeframes aligned
Entry near MA21 (within ±25 pts)
Two-day trend present

PART 6: ENTRY TECHNIQUES

Available Entry Techniques

Universal (Both Directions)

Technique	Description
NEAR_MA	Entry when price is near MA21 zone (±25 pts)

Long-Specific (Bullish)

Technique	Description
GREEN_BAR_AFTER_PULLBACK	Green candle after price pulled back
MA_BOUNCE_LONG	Bounce off MA21 in uptrend
BOS_ENTRY_LONG	Entry after break of structure (upside)
BREAKOUT_PULLBACK_LONG	Pullback after breakout, then continue
DISCOUNT_ZONE_LONG	Buy in lower zone of range

Short-Specific (Bearish)

Technique	Description
RED_BAR_AFTER_RALLY	Red candle after price rallied
MA_BOUNCE_SHORT	Rejection from MA21 in downtrend
BOS_ENTRY_SHORT	Entry after break of structure (downside)
BREAKOUT_PULLBACK_SHORT	Pullback after breakdown, then continue
PREMIUM_ZONE_SHORT	Sell in upper zone of range

How Entry Technique is Selected

IF price near MA21 zone:
    technique = NEAR_MA

ELIF break of structure detected:
    IF direction == LONG: technique = BOS_ENTRY_LONG
    IF direction == SHORT: technique = BOS_ENTRY_SHORT

ELIF pullback pattern detected:
    IF direction == LONG: technique = GREEN_BAR_AFTER_PULLBACK
    IF direction == SHORT: technique = RED_BAR_AFTER_RALLY

ELSE:
    technique = MA_BOUNCE_LONG or MA_BOUNCE_SHORT

PART 7: PROBABILITY ZONES

Halves & Thirds Analysis

Based on price position within recent swing range:

Zone	Position in Range	Continuation Probability
Top Third	67-100%	80% (likely to make new high)
Top Half	50-67%	65%
Bottom Half	33-50%	35%
Bottom Third	0-33%	15% (85% likely to go lower)

Zone-Based Trading Rules

In Trending Market

Zone	LONG	SHORT
Top Third	Allowed (after pullback)	Blocked (with trend)
Bottom Third	Blocked (against trend)	Allowed (after rally)

In Sideways Market (Mean Reversion)

Zone	LONG	SHORT
Top Third	Blocked (overextended)	Allowed
Bottom Third	Allowed	Blocked

Three-Finger Spread

What it is: Large separation between Price, MA21, and MA200.

Three-Finger Spread = When:
- Distance(Price to MA21) > 2% of price
- AND Distance(MA21 to MA200) > 2% of price

Trading Impact: When detected, expect profit-taking soon (bearish for longs, bullish for shorts)

Crash Bar Detection

What it is: Abnormally large bar indicating structural break.

Characteristic	Threshold
Bar Size	2x average bar size
Close Position	Within 30% of extreme

Trading Impact: Crash bar in sideways + top zone → Override to SHORT (Crash SHORT detection)

PART 8: EXIT RULES

Initial Stop Loss: 40 Points

Method	Description
Default	40 points from entry
Structure-Based	Below recent swing low (LONG) / Above recent swing high (SHORT)
MA-Based	MA21 value ± 25 points buffer
Minimum Enforced	Always at least 40 points

Stop Loss by Entry Technique

Technique	Stop Placement
NEAR_MA	40 pts default
BOS_ENTRY	Below/above structure (10-bar lookback + 5pt buffer)
MA_BOUNCE	Below/above MA21 zone
BREAKOUT_PULLBACK	Below/above pullback low/high (3-bar lookback)

DYNAMIC STOP MANAGEMENT (Two-Phase System)

Template:Note

Phase 1: Breakeven Stop (ENABLED)

When trade reaches 25 points profit, stop moves to entry price + 2 pts.

Parameter	Value
Activation	25 points in profit
New Stop	Entry price + 2 pts buffer
Purpose	Lock in small profit, eliminate loss

Example (LONG at 5500):

Entry: 5500
Original Stop: 5460 (40 pts risk)
Price reaches 5525 (25 pts profit)
→ Stop moves to 5502 (entry + 2 buffer)
→ Worst case now = +2 pts profit (not -40 loss!)

Phase 2: Trailing Stop - ATR Based (ENABLED)

After 20 points profit, stop trails behind price using ATR (Average True Range).

Parameter	Value
Method	ATR_MULTIPLE (adapts to volatility)
ATR Period	14 bars
ATR Multiplier	2.0
Trailing Distance	ATR × 2 (dynamic)
Minimum Distance	15 points
Activation	20 points in profit

How ATR Trailing Works:

IF current ATR = 12 points:
   Trailing Distance = 12 × 2 = 24 pts

IF price moves to 5540 (LONG from 5500):
   New Stop = 5540 - 24 = 5516
   (Stop can only move UP, never back down)

IF volatility increases, ATR = 20:
   Trailing Distance = 20 × 2 = 40 pts (wider stop)
   This prevents getting stopped out in volatile moves

Stop Movement Flow (LONG Example)

Entry: 5500, Original Stop: 5460

Price hits 5520 (+20 pts):
├── Trailing activates
├── ATR = 15 pts → Trail distance = 30 pts
└── New stop = 5520 - 30 = 5490

Price hits 5525 (+25 pts):
├── Breakeven activates
└── Stop moves to max(5490, 5502) = 5502

Price hits 5560 (+60 pts):
├── Trail: 5560 - 30 = 5530
└── Stop is now 5530 (locked +30 pts profit!)

Price reverses to 5530:
└── EXIT via STOP at 5530 = +30 pts profit
    (Shows as "stop" exit but is profitable!)

Template:Note

Take Profit: 60 Points (1.5:1 R:R)

Calculation	Logic
Primary	50% of distance to MA21
Minimum	Risk × 1.5 = 40 × 1.5 = 60 pts
Final Target	MAX(50% to MA, 60 pts) = Usually 60 pts

Why 60 pts: Since we enter NEAR the MA (within 25 pts), 50% of that distance is small. The minimum of 60 pts ensures favorable R:R.

Timeout: 8 Hours Maximum

If trade doesn't hit stop or target within 8 hours
Exit at current market price
Prevents overnight holding

Slippage Modeling

Realistic execution costs are modeled:

Exit Type	Slippage Added
Entry (base)	1.0 points
Stop Loss exit	+2.0 points (worse fill in fast move)
Take Profit exit	+0.5 points (better fill, limit order)
Market Impact	Up to 2.0 points (capped)

Example:

Entry at 5500 → Actual fill: 5501 (+1 pt slippage)
Stop at 5460 → Actual fill: 5458 (-2 pts slippage for LONG)
Target at 5560 → Actual fill: 5559.5 (-0.5 pts slippage)

PART 9: HOUR FILTER

Blocked Trading Hours

Hour	IST Time	Reason
9	9:00-10:00 AM	Market open volatility
22	10:00-11:00 PM	Late session
23	11:00-11:30 PM	Market close

Allowed Trading Hours

Trading allowed: 10 AM to 9 PM IST (Hours 10-21)

PART 10: DIRECTION DETERMINATION

MA21 Slope Alignment (Hard Filter)

The primary direction filter:

MA21 Slope	Allowed Direction	Logic
Rising (↗)	LONG only	Trade with uptrend
Declining (↘)	SHORT only	Trade with downtrend
Flat (→)	Use MTF direction	Let higher timeframes decide

Direction Determination Algorithm

<source lang="python"> def determine_direction(ma21_slope, mtf_direction):

   if ma21_slope == "rising":
       return LONG  # Only longs in uptrend

   elif ma21_slope == "declining":
       return SHORT  # Only shorts in downtrend

   else:  # Flat
       return mtf_direction  # Use multi-timeframe consensus

</source>

PART 11: RISK MANAGEMENT

Position Sizing

Parameter	Value
Position Size	1 lot (100 barrels)
Risk per Trade	40 pts × 100 = Rs 4,000
Reward per Trade	60 pts × 100 = Rs 6,000
Max Concurrent Trades	1

Cost Structure

Cost Type	Value
Brokerage	Rs 20 per lot per leg (Dhan)
CTT	0.01% on sell side
Total Round-trip	~Rs 95 per trade

PART 12: EQUITY CURVE

Equity Curve

PART 13: BACKTEST RESULTS (19 Months)

Summary Statistics

Metric	Value
Initial Capital	Rs 1.00 Lakhs
Final Value	Rs 26.48 Lakhs
Total Profit	Rs 25.48 Lakhs
Total Return	2,548%
Peak Value	Rs 28.35 Lakhs
Max Drawdown	-78.6%

Trade Statistics

Metric	Value
Total Trades	7,534
Win Rate	57.6%
Profit Factor	1.20
Average Win	Rs 3,464
Average Loss	Rs 3,904
Largest Win	Rs 26,799
Largest Loss	Rs 13,217
Avg Holding Time	2.4 hours

Exit Reason Breakdown

Exit Type	Count	%	Note
Stop	5,444	72.3%	Includes trailing stop profits
Target	1,716	22.8%	100% winners
Timeout	374	5.0%	8-hour limit

Direction Distribution

Direction	Count	%
SHORT	6,024	80%
LONG	1,510	20%

Setup Quality Distribution

Grade	Count	%
A+	3,457	45.9%
A	551	7.3%
C	3,526	46.8%

Note: C-grade trades were analyzed but NOT executed per strategy rules

PART 14: HARD vs SOFT FILTERS

Understanding which rules reject trades outright vs which just affect scoring:

HARD FILTERS (Trade Rejected if Failed)

These filters block trades entirely - no exceptions:

Filter	Rule	Effect
MA21 Slope Alignment	Direction must match MA21 slope	Rising MA = LONG only, Declining MA = SHORT only
Setup Grade	Must be A+, A, or B	C/D/F grades = NO TRADE
Hour Filter	Hours 9, 22, 23 blocked	Market open/close = NO TRADE
Price in MA Zone	Must be within ±25 pts of MA21	Too far from MA = NO TRADE

SOFT FILTERS (Affect Score, Don't Block)

These filters affect the quality score but don't block trades:

Filter	Effect on Score	Can Still Pass?
MTF Alignment	30% weight in grading	Yes, if other factors strong
Creeper Move	-50 penalty	Yes, if base score high enough
Railroad Trend	+15 bonus	N/A (bonus not required)
Price-MA Struggle	-30 penalty	Yes, if other factors compensate
Wrong Trend Phase	-25 penalty	Yes, if other factors compensate
Key Level Proximity	20% weight in grading	Yes, affects grade not rejection
Institutional Fight	0.7x multiplier	Yes, reduces but doesn't block

Filter Flow

ENTRY CANDIDATE
      │
      ▼
┌─────────────────────────────────────────┐
│  HARD FILTERS (any fail = NO TRADE)     │
│  • MA21 slope alignment                 │
│  • Hour filter                          │
│  • Price in MA zone                     │
└─────────────────────────────────────────┘
      │ ALL PASS
      ▼
┌─────────────────────────────────────────┐
│  SOFT FILTERS (calculate score)         │
│  • MTF alignment (30% weight)           │
│  • Trend strength (20% weight)          │
│  • Key level proximity (20% weight)     │
│  • Entry quality (15% weight)           │
│  • Risk/Reward (15% weight)             │
│  ± Penalties and Bonuses                │
└─────────────────────────────────────────┘
      │
      ▼
┌─────────────────────────────────────────┐
│  FINAL GRADE CHECK (HARD FILTER)        │
│  Score ≥ 70 = B or better = TRADE       │
│  Score < 70 = C or worse = NO TRADE     │
└─────────────────────────────────────────┘

PART 15: KEY STRATEGY PRINCIPLES

Trade WITH the trend - MA21 slope determines direction, never fight it
Enter at value - Only when price is near MA21 zone (±25 pts)
Quality over quantity - Only A+, A, B grade setups are traded
Avoid creeper moves - -50 penalty ensures we skip poor quality price action
Trade the MIDDLE - Focus on middle phase of trends, avoid early/late
Dynamic stop management - Breakeven at 25 pts, trailing with ATR
Time discipline - Maximum 8 hour holding period
No overnight risk - All positions closed intraday
Probability zones - Trade high probability zones only
MTF as soft filter - Contributes to score, doesn't block alone

APPENDIX: SOURCE CODE REFERENCE

File	Purpose
`trend_analysis_core.py`	MA slope, trend direction, price-MA struggle
`multi_timeframe_analysis.py`	MTF alignment scoring (5 timeframes)
`market_state_analysis.py`	Market state detection (7 algorithms)
`setup_quality_detection.py`	5-factor grading system
`probability_zone_analysis.py`	Zone-based filtering, Three-Finger Spread
`signal_generation_trade_management.py`	Entry/Exit logic, stop/target calculation
`trade_execution_engine.py`	Breakeven, Trailing stop, Slippage, Timeout

Document generated from code analysis - January 2026

All rules extracted directly from source code implementation