Alpha Research

MA21 Mean Reversion Strategy
1. MCX Crude Oil - Intraday Trading System

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1. Core Concept

- Trade pullbacks to the 21-period Moving Average (MA21).**

The MA21 acts as a dynamic support/resistance zone. When price pulls back to this zone during a trending market, we enter in the direction of the trend expecting price to continue.

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

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1. Instrument & Timeframe

| Parameter | Value | |-----------|-------| | Instrument | MCX Crude Oil Futures | | Chart Timeframe | 5-minute | | Entry Precision | 1-minute (for exact timing) | | Trading Hours | 9:00 AM - 11:30 PM IST | | Blocked Hours | 9 AM (market open), 10 PM onwards |

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1. Entry Rules

1. 1. 1. MA Zone Requirement

- Price must be within **±25 points** of MA21 - This defines the "discount zone" for longs and "premium zone" for shorts

1. 1. 2. Direction Alignment (Hard Filter)

Trade direction MUST align with MA21 slope:

| MA21 Slope | Allowed Direction | |------------|-------------------| | Rising (↗) | LONG only | | Declining (↘) | SHORT only | | Flat (→) | Use Multi-Timeframe (MTF) direction |

1. 1. 3. Setup Quality Grading

Every potential trade is scored on 5 factors:

| Factor | Weight | |--------|--------| | Timeframe Alignment | 30% | | Trend Strength | 20% | | Key Level Proximity | 20% | | Entry Technique | 15% | | Risk:Reward | 15% |

- Grade Thresholds:**

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

1. 1. 4. Probability Zone Filter

Based on price position within recent range: - **Top Third**: 80% probability of continuation (favor shorts after rally) - **Bottom Third**: 85% probability of reversal (favor longs after pullback) - **Sideways Market**: Mean reversion logic applies

1. 1. 5. Special Pattern: Crash SHORT

In sideways markets at top of range: - If big RED bar breaks below MA21 zone - Override any LONG signal to SHORT - Enter the breakdown

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1. Exit Rules

1. 1. Stop Loss: 40 Points

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

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

| Calculation | Value | |-------------|-------| | Target Distance | Risk × 1.5 = 40 × 1.5 = **60 points** | | Alternative | 50% of distance to MA (if > 60 pts) | | Risk:Reward | 1.5:1 (gain Rs 150 for every Rs 100 risked) |

1. 1. Timeout: 8 Hours Maximum

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

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1. Risk Management

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

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1. Cost Structure

| Cost Type | Value | |-----------|-------| | Brokerage | Rs 20 per lot per leg (Dhan) | | CTT (Commodity Transaction Tax) | 0.01% on sell side | | Total Round-trip | ~Rs 40 brokerage + CTT |

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1. Trade Flow Summary

``` ┌─────────────────────────────────────────────────────────────┐ │ ENTRY DECISION │ ├─────────────────────────────────────────────────────────────┤ │ 1. Is price within ±25 pts of MA21? → NO = SKIP │ │ 2. Does direction align with MA21 slope? → NO = SKIP │ │ 3. Is setup grade A+, A, or B? → NO = SKIP │ │ 4. Is current hour allowed (not 9, 22, 23)? → NO = SKIP │ │ 5. Does probability zone allow this trade? → NO = SKIP │ │ │ │ ALL YES → ENTER TRADE │ └─────────────────────────────────────────────────────────────┘

┌─────────────────────────────────────────────────────────────┐ │ EXIT DECISION │ ├─────────────────────────────────────────────────────────────┤ │ • Price hits STOP LOSS (40 pts) → EXIT (loss/profit*) │ │ • Price hits TARGET (60 pts) → EXIT (profit) │ │ • Time exceeds 8 HOURS → EXIT (at market) │ │ │ │ *Stop can be profitable if trailing stop moved in profit │ └─────────────────────────────────────────────────────────────┘ ```

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1. Equity Curve

![Equity Curve](equity_curve.png)

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1. Backtest Results (19 Months)

| 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% | | 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 |

1. 1. 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 |

1. 1. Direction Distribution

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

1. 1. Setup Quality Distribution

| Grade | Count | |-------|-------| | A+ | 3,457 | | A | 551 | | C | 3,526 |

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1. Key Strategy Principles

1. **Trade WITH the trend** - MA21 slope determines direction 2. **Enter at value** - Only when price is near MA21 zone 3. **Quality over quantity** - Only A+, A, B setups are traded 4. **Fixed risk management** - 40 pt stop, 60 pt target 5. **Time discipline** - Maximum 8 hour holding period 6. **No overnight risk** - All positions closed intraday

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1. Source Code Reference

All rules implemented in: - `signal_generation_trade_management.py` - Entry/Exit logic - `setup_quality_detection.py` - Trade grading system - `trade_execution_engine.py` - Stop/Target/Timeout execution - `probability_zone_analysis.py` - Zone-based filtering

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Document generated from code analysis - January 2026*