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Trading bots and their Risk category
  • April 22, 2022
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At https://squareoffbots.com there are multiple trading bots listed. At times users get confused on which bots to choose on which days. Is there any mechanism to filter the right bot to trade? In this article we will explore about every trading bots, their returns, their risk, what type of market environment is good. In short this article will guide you on picking the right trading bot and make consistent return in the long run.

Let us divide each trading bots in different risk category. Low risk, medium risk and high risk.

Low Risk:

When it comes to low risk, the Auto adjust strangle bot tops the list. Since it keeps adjusting the position based on market movement, it controls the risk to a greater extent. The expectation from this bot is to make 30 to 40% per year with less than 10% drawdown. Its been running live since last ten days, the max downside it has seen is just less than -0.5%. With almost 80% accuracy, this bot is designed to make stable returns with lower risk.

The next low risk bot is 1% Bank Nifty Short Straddle bot This strategy is designed specifically to make profits out of range bound days. Usually when trading a straddle strategy with a fixed stop loss, due to morning volatility/whipsaws the stop loss gets hit easily. If we dont use a stop loss then on trending days we lose bigger. So there should be a optimal way not to keep stop loss in the system, also there should be a way to exit earlier on trending days and cap the risk. So we came up with this 1% Short straddle strategy.

The 1% BNF straddle bot max drawdown is less than -15k which is just around -5%. Since market stays in range bound most of the time, this bot makes stable and consistent returns. When the market turns volatile, it does’t lose much.

So if your expectation is to make consistent decent returns with low risk, then we recommend you to trade with Auto Strangle bot and 1% BNF straddle bot.

Medium Risk:

The 920 Bank nifty short straddle bot is the medium risk category bot, unlike the low risk bot mentioned above, this 920 BNF short straddle bot makes profit only when the market is in trending phase.

It generates positive returns when market either goes up or goes down. Most of the time, max drawdown for BNF short straddle bot is less than -25k, only once during 2021, it hit a max DD of around -60k. It made around 70% profit so far.

BNF Strangle:

The Bank Nifty short strangle is another medium risk bot which has max drawdown of less than -20k most of the time. Only once in 2021, it faced a -50k drawdown but that was also recovered quickly.

So basically we have different uncorrelated strategies, the low risk bots makes profits when markets are in range bound and the medium risk bot makes profit when the market is in trending phase. By diversifying with these bots, we can control the risk to a greater extent and generate very good returns with smooth equity curve.

High Risk:

All directional strategies comes under high risk. Bots like Golden Ratio futures, options and Machine learning bot comes under high risk. They highly rely on trending days to make money. And ML bot is designed to capture trend reversals, when market slowly changes its trend during the day, it captures it perfectly but when the trend change happens very swiftly with quick fall, then it doesn’t capture it at times, that’s when ML bot ends making loss.

80% of all profits will come from less than 20% of the trades with high risk bots. So we never know which days are going to be most profitable. So we need to take trades every day with high risk bots.

Golden ratio bot made 122% returns so far but since the start of 2022, its been in drawdown. But just two or three big trending days are enough for the GRB bot to recover from drawdown. High returns not only comes with high risk it also comes with prolonged drawdown periods. Its really hard to see back to back losses, but that’s how trend following works. You can choose this category of bots only if you can handle such risk appetite.

Conclusion:

If your capital is less than 5 lacs, then we would recommend you to stick to low risk bots like Auto Strangle or 1% Bank nifty short straddle bot. If your capital is higher than 5 lacs, then we would recommend you to trade with both medium risk and low risk bots to diversify between range bound and trend following strategies. So you can trade with Auto Adjust strangle bot, 1% BNF straddle bot, BNF Short straddle and strangle bot. You should go for high risk bot, only if you can handle larger drawdowns.

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