BTST is an abbreviated form for “Buy Today and Sell Tomorrow” (and Sell Today Buy Tomorrow = STBT).
Traders who don’t wish to hold shares for a long time period (in fact more than a couple of hours!) and take risk claim to make good profits from this strategy.
THE POTENTIAL PROFIT POOL
We took Nifty stocks data from April 1 2017 to July 30, 2018 to check what the maximum potential profit that a client can make if he or she timed every stock extremely well (High of Stock next day versus Close previous day was used as a proxy)– with a BTST trade only (we ignored STBT).
The average profit per trade turned out to be 2%! However, some trades in the Nifty may have biased this with their directional moves so we took the “median” profit instead of average – there too, the average turned out to be a healthy 1% odd!
Whats most surprising was that, using the above formula (not selling at open or average but selling at days high which is of course difficult but shows the maximum potential profit), there was a 90% chance that a BTST trade at least broke even if it didn’t generate a profit! More than 70% of the trades delivered upwards of 0.5% and almost 85% of the trades delivered upwards of 0.25%.
With leverage, these would have of course delivered excellent returns. And remember, we assumed only BTST and not STBT trades – and probably it worked because the Nifty moved from 9200 levels to 11300 odd levels during this period but we are sure its probably not the underlying trend but just the nature of the trade itself in a market that is on a long term uptrend
THE TOP 5 STOCKS
We then took the top 5 stocks in the Nifty that had the highest probability of a BTST profit during this period! Each of these showed almost a 90% probability of an excellent return if one could exit somewhere near the highs overnight!
The honors went to:
Rank # 1: Titan
Rank # 2: Maruti
Rank # 3: M&M/Bajaj Finserve
Rank # 4: TCS
Rank # 5: Bajaj Finserve
The formula assumed above is for a specific time period and also assumes exits on the next days highs to showcase the potential and therefore the result may be biased.
There is of course settlement risk if one is doing this in cash and not futures segment. Suppose you planned to do BTST and bought stock on Monday and sold the stock on Tuesday. The other party from whom you purchased shares on Monday, fails to deliver to you end of Wednesday then you are involved in the short selling of the stock. Now, after an auction, the stock will be delivered to you on Thursday (T+3 day). The exchange will apply a penalty to you as you do not have a stock which you sold! Of course STBT can anyways be executed only via futures as your broker will not allow you to sell delivery if you don’t have it.
Traders usually use the last 45 minutes to decide which way they wish to trade the stock for overnight positions including checking Pivot Levels, change in price pattern in last half hour versus the day, sudden breakups or breakdowns and so on. There is no specific trading strategy except that the last half hour demonstrates a momentum that may continue into the next day and therefore the traders come in for a quick buck. A key rule to keep in mind is that one must avoid trading in BTST and STBT when there is high expected volatility in the market or when some major event is expected to happen overnight.
It is of course advisable that you should trade with a stop loss in place. Also, follow the decided stop loss at the time of buying and selling.
And finally , there is the small matter of STT etc which can eat away gains.
Prabhudas Lilladher Technical teams give a wide variety of BTST calls for its clients and you may want to get in touch with us at firstname.lastname@example.org or Whatsapp/Call us at 022-66322366 to know more!