Options ConfluenceBacktest Strategy by nitinarora2004
By nitinarora2004
Performance Metrics
- Author: nitinarora2004
- Symbol: NSE:BANKNIFTY
- Timeframe: 1 minute
- Win Rate: 30.6%
- Profit Factor: 1.041
Description
. EMA (13-period) — Trend Direction FilterThe Exponential Moving Average weights recent price more heavily than older price, so it reacts faster to changes than a simple moving average. Here it's used as a basic trend filter: price above EMA = bullish bias, price below = bearish bias. It's the "which side of the market am I even allowed to trade" gate.2. VWAP — Institutional Fair Value ReferenceVolume-Weighted Average Price is the average price weighted by volume traded at each price level, resetting each session. It's widely used by institutional/algo desks as a benchmark for "fair value" for the day — price above VWAP suggests buyers are in control and paying a premium to average; below suggests sellers are dominant. Combining EMA + VWAP means you're requiring both a short-term trend signal and an institutional positioning signal to agree before considering a trade.3. Chandelier Exit — Volatility-Adjusted Trend/Stop IndicatorOriginally built by Chuck LeBeau, this uses ATR (Average True Range) to set a trailing stop: highest high (over N bars) − ATR × multiplier for longs, lowest low + ATR × multiplier for shorts. The idea is the stop distance scales with how volatile the market currently is — tighter stops in calm markets, wider stops in choppy ones — rather than using a fixed point/percentage stop. Here it's repurposed as a directional filter (ceDir): once price closes beyond its own ratcheted stop line, the market is considered to have flipped regime. This is the piece that was buggy before — a proper Chandelier Exit locks in its stop level as the trend extends (never loosens it), so it acts like a ratchet defining trend persistence, not just a moving band.4. BOS (Break of Structure) — Price Action / Smart Money ConceptsThis comes from ICT/Smart Money Concepts trading theory. A "break of structure" happens when price closes beyond a recent swing high (bullish BOS) or swing low (bearish BOS), signaling that the prevailing short-term structure has been broken and a new directional leg may be underway. Here it's simplified to "close beyond the highest high/lowest low of the last N bars" — a lightweight proxy for genuine swing-point BOS.How they combine — Confluence TradingThe core theory tying this together is confluence: no single indicator is trusted alone; a trade only triggers when multiple independent signal types agree simultaneously:Trend (EMA)Institutional reference level (VWAP)Volatility-adjusted regime/momentum (Chandelier direction)Structural price action break (BOS)The logic is that each indicator alone throws false signals regularly, but the intersection of unrelated methodologies (a moving average, a volume-weighted price, a volatility band, and a structural break) filters out a lot of that noise, at the cost of trading much less frequently — you're trading only the highest-conviction setups where trend, order flow proxy, volatility regime, and structure all point the same way at once.The tradeoff worth knowing: confluence models like this tend to have fewer trades and (in theory) higher win rates per trade, but they also lag — by the time all four conditions align, you're often entering after a meaningful chunk of the move has already happened, which matters a lot for options where theta is working against you while you wait for the setup to form.