Prepare a Strategy for Trading Automation

1. The rules are complete

• Instrument, product and expiry rule are specified.
• Strike selection is a rule (ATM, distance, premium or delta), not a strike number that will go stale.
• Entry conditions name the timeframe and use closed candles.
• Entry has a time window and a maximum number of entries per day.
• Position size is fixed, or calculated from a rupee risk and the stop distance.
• Every entry has a stop loss, with the basis stated: underlying price, premium or combined MTM.
• Every entry has a target or a trailing rule, and a time exit.
• Multi-leg strategies state what happens to the other legs when one exits or is rejected.
• Re-entry after a stop is allowed or not, explicitly.

Our guide to no-code strategy design covers each rule.

2. The tests have passed

• Backtested over at least three years, including a period of sharp falls or high volatility.
• Costs and slippage included, and the strategy survives doubling the slippage.
• At least 100 trades in the test.
• Parameters are few, and neighbouring values give similar results.
• Tested out of sample or by walk-forward testing.
• Maximum drawdown is one you can sit through, and the capital covers 1.5 times it.
• Paper traded for two to four weeks, including an expiry day, with fills compared to the backtest's assumptions.
• The trade list has been read: the first ten trades did what the rules say.

See common backtesting mistakes and backtest performance metrics.

3. Risk limits are in place

• An exchange-level stop-loss order is placed as soon as each entry fills, so protection exists even if the platform disconnects.
• A daily loss limit for the strategy.
• A maximum number of open positions and orders per day.
• An account-level MTM stop loss across all strategies, at an amount decided in advance.
• A rule for pausing the strategy after a drawdown of a set size, for example 1.5 times the backtested maximum.
• Position size for the first month is one lot, whatever the backtest suggests.

4. The account is ready

• F&O segment is active with the broker.
• Funds cover the peak margin the strategy needs on its worst day, including expiry-day additions, checked with the F&O margin calculator.
• The broker connection works: logged in from the platform, funds and positions visible. See broker connection requirements.
• Two-factor authentication is on an authenticator app with the phone's clock set to automatic.
• No other strategy or manual trading uses the same contracts.
• If running your own code: static IP registered with the broker, order rate below 10 per second. See SEBI's algo trading rules.

5. Execution settings are checked

• Limit orders with a buffer, not market orders, especially in options.
• Hedge legs are placed before short legs.
• Quantities are in the right unit (units vs lots) and are multiples of the current lot size.
• Orders stay below the freeze quantity, or use iceberg orders.
• Product type is correct (intraday vs carry forward) and the time exit is before the broker's square-off.
• The strategy is deployed once, and the order book was checked before deploying.

6. You know how to stop it

• You have found the platform's stop or kill switch and know what it does: pause new entries, cancel open orders, close positions.
• You can log in to your broker's app and close positions by hand if the platform is unavailable.
• You know the broker's support number and the platform's. See troubleshooting.

7. The daily routine is set

• Before 9:15: log in to the broker from the platform, confirm funds and the day's scheduled strategies.
• After each entry: check the order book and positions match what the strategy should have done.
• After the close: review the day's trades, note any override in a trade journal, and confirm nothing is open that should not be.
• Monthly: compare live results with the backtest and paper results; change rules only at this review.

8. Nothing has been promised

• Nobody has promised you a return from this strategy. SEBI bars brokers and their partners from referring to algo returns.
• If the strategy came from a provider, it is registered with the exchange through a broker, and if its logic is hidden, the provider holds SEBI Research Analyst registration.

Scoring the checklist

Every item in sections 1 to 6 should be ticked before the first live order. An unticked item in section 1 or 3 means the strategy is not ready. An unticked item in section 2 means you do not yet know whether it works. Sections 7 and 8 keep it running once it is live.

QuantPower's strategy builder, backtesting, paper trading and MTM stop loss cover most of the items; the daily routine is yours. Our guide to algo trading risks explains what each item protects against.

Frequently asked questions