Systematic income from index credit spreads, signalled by noiseless charts

A credit spread sells the nearer strike and buys a farther one. The premium difference is yours to keep if the market behaves; the strike difference minus that premium is the most you can ever lose. Maximum profit, maximum loss and margin are all known before entry. I know my worst day in advance — that single property is what makes this compatible with savings.

People call this structure “two-out-of-three”: the market can go with you, sideways, or against you, and the spread profits in the first two. Treat that as intuition, not statistics — wins are small and frequent, the rare loss is larger. The structure alone has no edge; the edge must come from when you deploy it and how you exit. Anyone selling you the structure alone is selling you a coin flip with commissions.

The arithmetic of staying alive

Typical spread margins on the four indices run roughly ₹40,000–80,000 per lot depending on instrument, width and volatility. I deliberately reserve about ₹1.5 lakh per lot — roughly one-third cash, two-thirds pledge — nearly double the requirement. Capital efficiency is the wrong metric; capacity to stay in the game after a bad month is the right one. One well-selected trade a month per instrument does the job. I am not trying to trade more; I am trying to not trade unless the market pays me to.

The rules that matter more than any entry signal

• No fresh positions in the final ~3 days to expiry. Gamma turns a small adverse move into instant max loss. The best trade near expiry is usually no trade.
• Book at ~75% of maximum profit. The last quarter of the premium carries the worst risk-reward you will ever hold. For bearish spreads I take 50–60% — V-shaped recoveries are violent.
• Exit on trend-state flip, don't hope. The same signal that put you in takes you out — and often straight into the opposite spread. Margin should never sit idle, and neither should a losing thesis.
• Position size from max loss, not margin. If the defined max loss on all open spreads hitting at once would change your life, the size is wrong.

I do not predict direction. I read trend state — and only deploy a spread when the state is unambiguous. The problem is that ordinary candlestick charts are full of noise: wicks, gaps, dojis, time passing with nothing happening. Renko and Point & Figure charts solve this by printing only when price moves a fixed percentage. Time disappears; only structure remains. And because a brick or column exists only once it has fully formed, signals cannot repaint.

The recipe has exactly two ingredients, in a fixed order:

• 1 · Trend state first. A regime indicator on the noiseless chart answers one question: is this market in a bullish or bearish state right now?
• 2 · Confirmation second. Indicators whipsaw. A price-structure signal or pattern in the same direction confirms the trend has re-asserted before capital moves.

Both true → credit spread in the trend's direction. State flips → exit, and usually reverse. That's the whole engine. Everything else is testing.

What a backtest must show before you believe it

• Multiple regimes. The test must span crash, trend and chop years — a strategy born in 2021's melt-up and tested only there is a lottery ticket.
• Hundreds of trades. Thirty trades is an anecdote.
• A holding period that fits the vehicle. Two to five sessions is the credit spread sweet spot. A system that flips daily gives theta no time to work and pays the brokerage away.
• Profit factor and worst month. Averages hide the month that would have shaken you out of the system.
• Survival under slippage. An edge that dies at 0.05% slippage was never an edge.

Every condition I use is a standard Definedge indicator, and the platform's Strategy Builder can reproduce every test in this note. The secret is not the sauce — the secret is actually following the recipe.

Both use only standard TradePoint / Zone indicators at default settings, so you can rebuild and re-test them yourself in the Strategy Builder. They are deliberately chosen to be representative, not my best — solid, consistent, mid-pack systems that show the method working. Backtests are on the index signal (costs and slippage modelled); the credit spread is the risk-defined expression of that signal, and its P&L — capped both ways — will not equal index-point results.

They are also deliberately different in shape: the NIFTY system trades long-and-flat, while the MIDCPNIFTY system is a full stop-and-reverse — the same conditions mirrored, so it is nearly always in the market. The data, not preference, chose those shapes — see the note under each.

Notice the win rates: both under 45%. That is by design, and it is the psychological price of trend-following. Losers are cut quickly on state-flip; winners are held while the state persists. If you need to be right most of the time to stay emotionally solvent, this style will break you before the market does — that is a real cost, and you should know it about yourself before you start.

Do not take my word for any number on this page. Build these conditions in the Strategy Builder, run the backtest yourself, change the parameters, try to break them. A strategy you haven't personally tortured is a strategy you will abandon on its third losing trade.