Exploring Intraday Opportunities using BTST/STBT Strategies

1. Exploring Intraday Opportunities using BTST/STBT Strategies ByCentury Financialin 'Investment Insights' Share *Trading in financial market carries risk and can result in loss of capital. *This performance is only observed with historical backtests and not traded by the company. The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully. Trading pairs is not a risk-free strategy. The jeopardy comes when prices of the two instruments move contrary to the positions taken resulting in losses. Thus, adhering to strict risk management rules is important when dealing with such adverse situations. Calculations of estimated or past profits and losses do not include applicable holding costs and transaction charges. Understanding BTST/STBT Trading Strategy In Buy Today, Sell Tomorrow, market participants buy assets at/near the current day’s closing price and sell them at/near the next day’s opening price. Whereas in Sell Today, Buy Tomorrow (STBT), market participants sell assets at/near the current day’s closing price and buy them at/near the next day’s opening price. The motive of such a trading strategy is to take advantage of the gap ups and gap downs that occur overnight. Traders employ this approach to take advantage of potential developments, news, or market sentiments that may cause a stock to gap up or down in value before the market opens. However, it carries risks, such as overnight market fluctuations and unforeseen events. Key Terms Total Trades: Represents the total number of trades Positive Trades: Represents the total number of days in which the strategy resulted in a positive result

2. Negative Trades: Represents the total number of days in which the strategy resulted in a negative result Hit Ratio: Represents the number of times the strategy resulted in a positive result in % Return %: Represents the total return generated by the strategy on a position value of $100,000 Drawdown: The maximum drop in the portfolio value from its peak value The Security The Hong Kong 50 is a market-capitalization-weighted index on the Hong Kong Exchange (HKEx), encompassing the largest traded companies. Serving as a key equity market indicator for Hong Kong and broader Asian markets,Hong Kong 50’s inception dates back to 1969, with a base period starting on July 31, 1964, and an initial value of 100. Representing around 65% of the total market capitalization, Hong Kong 50 aims to mirror the Hong Kong Exchange's leadership. Given Hong Kong's unique administrative status in China, the close economic ties between the two regions are reflected in the significant presence of Chinese companies listed on the HKEx. The Instrument is traded under the ticker HK50 in the Century Trader Platform. Period: 1 June 2023 to 31 January 2024 (8 months) Session Timings: Tokyo Session - 5.15 AM to 1 PM* London Session – 1 PM to 5 PM* New York Session – 5 PM to 11 PM* *UAE time Executive Summary: The analysis of the Hong Kong 50 (5.15 AM to 11 PM UAE Time) aims to identify potential trading strategies determined by the returns from the London session the previous day. In instances where the London Session registers positivity, the Buy Today Sell Tomorrow Strategy proves most effective, boasting a 58% hit ratio and a 5.3% return on a $100,000 Position value. The likelihood of a positive London Session out of the total trading days is 50%. Conversely, when the London Session reflects negativity, the Sell Today Buy Tomorrow Strategy outperforms, with a 69% hit ratio and a 7.9% return on a $100,000 Position value. The probability of a negative London Session is 45.18%. In cases where both the London and New York Sessions are closed, the Buy Today Sell Tomorrow Strategy is optimal, yielding a 63% hit ratio and a 3.4% return on a $100,000 Position value. In BTST market participants buy at/near the closing price at 11 PM on the current day and sell their positions at/near the opening price at 5.15 AM the next day, whereas in STBT market participants sell at/near the closing price at 11 PM on the current day and buy at/near the opening price at 5.15 AM the next day. Cumulatively, adopting a BTST Strategy on days with positive and closed London Sessions and an STBT strategy when the London Session is negative results in approximately 166 trades. This approach achieves a 63% hit ratio, providing a return of 16.7% on a $100,000 Position value.

3. The Study: The study is done by retrieving the prices of the Hong Kong 50 on the 4-Hour Candle Stick. Assuming that the Tokyo Session is from 5.15 AM to 1 PM, the London Session is from 1 PM to 5 PM, and the New York Session is from 5 PM to 11 PM, we then calculate the Returns in Each Session. The objective is to predict if the Tokyo session will open gap up or gap down based on the current day’s London and New York Sessions moves. Upon doing so, we arrive at 4 possible scenarios: • • • • 1. London (+), New York (+) 2. London (+), New York (-) 3. London (-), New York (+) 4. London (-), New York (-) Among all the trading days, the probability of each scenario occurring is 25.9%, 24.1%, 22.29%, and 22.89% respectively. Upon using these to predict the return of the next day’s Tokyo Session, we arrive at the result that, if the London session is positive on the current day then there is a 58% probability that the Tokyo Session will open positive in the next day, adding on, if the London session is negative on the current day then there is a 69% probability that the Tokyo Session open negative in the next day. Furthermore, it must be noted that the New York Session does not seem to have a significant impact on the Tokyo Session, as no clear pattern or trend can be identified. Out of the 83 trading days where the London Session was positive, the BTST strategy resulted in positive returns in about 48 days. Whereas out of the 75 trading days where the London Session was negative, the the strategy resulted in negative returns in about 52 days the next day. Hence, we conclude that a Buy Today, Sell Tomorrow Strategy works best on days when the London Session is positive, and a Sell Today, Buy Tomorrow Strategy works best on days when the London Session is negative. When trades were taken on a postion value of $100,000, it can be witnessed that when the London session was positive, the strategy generated a return of about 5% using the BTST Strategy, and a return of 8% using the STBT strategy when the London Session was negative. On favorable days, when the London Session result was positive an average return of 0.3% was generated, whereas, when the London Session was negative, an average return of 0.24% was generated. London Session Return Summary London (+) London (-) Total Trades 83 75 Positive Trades 48 52 Negative Trades 35 23 Hit Ratio 58% 69%

4. Return % on trades taken 5% 8% Return Summary London (+), New York (+) London (+), New York (-) London (-), New York (+) London (-), New York (-) Buy Today, Sell Tomorrow Total Trades 43 40 37 38 Positive Trades 23 25 13 10 Negative Trades 20 15 24 28 Hit Ratio 53% 63% 35% 26% Return % on trades taken 1% 4% -4% -4% London (+), New York (+) London (+), New York (-) London (-), New York (+) London (-), New York (-) Sell Today, Buy Tomorrow Total Count 43 40 37 38 Positive Trades 20 15 24 28 Negative Trades 23 25 13 10 Hit Ratio 47% 38% 65% 74%

5. Return % on trades taken -1% -4% 4% 4% Furthermore, apart from the positive and negative sessions of the London and New York Sessions, a third scenario also arises, in which both the London and the New York Sessions are closed. Such a scenario occurred about 8 times in the measured period, with a probability of 4.82%. It must be noted that in about 5 out of the 8 instances, where both the London and the New York Sessions were closed, the Hong Kong 50 delivered a positive return the next day in the Tokyo Session, boasting a hit ratio of 63%. Adding on, if the BTST trades were taken on days when the London and New York Sessions were closed, we generate about 3% on $100,000 Position value. On favorable days an average return of 0.73% was generated. Return Summary when London Session is Closed Buy today, Sell Tomorrow Sell today, Total Trades 8 8 Positive Trades 5 3 Negative Trades 3 5 Hit Ratio 63% 38% Return % on trades taken 3% -3% Cumulatively, adopting a BTST Strategy on days with positive and closed London Sessions and an STBT strategy when the London Session is negative results in approximately 166 trades. This approach achieves a 63% hit ratio, providing a return of 16.7% on a $100,000 Position Value. On favorable days, cumulatively the strategy also generated an average return of 0.3%. Cumulative Portfolio Return Summary Total Trades 166 Positive Trades 105

6. Negative Trades 61 Hit Ratio 63% Return % on trades taken 16.7% The Drawdowns: Cumulatively, the strategy witnessed a maximum drawdown of $1,702.