Ellipse tangent breakout
This intraday option-buying strategy turns a geometric chart idea into rules. It joins the last swing low and swing high on 5-minute NIFTY futures bars with a quarter-ellipse, takes the ellipse's tangent at a balance point as a trigger line, and buys an at-the-money option when price closes through that line. The aim is to spot when a swing has run out of steam and is turning.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
Bought options need movement, and this test shows it plainly. On trend days that closed near their high or low the strategy made ₹45,603 over 68 trades, while 115 trades on quiet sessions lost ₹40,232: with a range under 0.75%, the option rarely reached its 60% target and lost value to time instead. Direction mattered as much. In markets below their 20-day average it made ₹72,815 over 120 trades, but lost ₹55,891 over 132 trades in uptrends, because many signals are puts bought after up-swings, which pay best when the market keeps sliding. Expiry days, when ATM premiums decay fastest, lost ₹15,799 over 66 trades.
About this strategy
- Build 5-minute bars of the NIFTY future, running continuously across sessions.
- Mark swing highs and lows: a bar whose high (or low) beats the 25 bars on either side, which is only known 25 bars later.
- When a new swing high follows a swing low, draw a quarter-ellipse joining them; a swing low after a high draws the mirror image.
- Find the point on the ellipse where the price travel before and after it is most evenly split, and extend the tangent at that point forward as the trigger line.
- After an up-swing ellipse, the first close below the line buys the ATM put of the nearest weekly expiry; after a down-swing ellipse, a close above it buys the ATM call.
- Take signals only between 09:30 and 14:45, one position at a time, each ellipse firing once.
- Exit at a 30% loss or a 60% gain on the premium, or at 15:15.
Why traders use it
Straight trendlines drawn between swings are subjective, and different traders draw them differently. The ellipse gives a curved, fully defined path between two pivots, so the trigger line is the same every time. A close through it suggests the momentum of the last swing has faded. Buying options rather than futures limits the loss to the premium, and the 60% target against a 30% stop aims for winners twice the size of losers.
The year in plain words
From 1 Oct 2025 to 30 Sep 2026 on NIFTY the strategy bought 256 options, won 37% and made ₹14,308 before costs, a profit factor of just 1.06. After ₹20 per order and bid-ask slippage only ₹1,461 was left, effectively break-even. Average wins of about ₹2,813 roughly offset losses of about ₹1,544, as intended, but 115 trades hit the stop against 47 targets, and 94 ran to 15:15. Months swung widely: November 2025 lost ₹19,413 while March and July 2026 each made over ₹18,700. The maximum drawdown before costs was about ₹38,800.
What the settings do
Risks
- Swings are confirmed 25 bars late, about two hours on 5-minute bars, so many entries come well after the actual crossing.
- Bought options lose time value on every quiet afternoon, which is why 94 trades ended at the time exit.
- The edge before costs is thin enough that spread and brokerage remove nearly all of it.
- The rolled futures series can jump at a monthly roll, which can shift a trigger line.
Who it suits
Technically minded traders interested in testing a precise geometric reversal rule, who prefer the defined risk of buying options and can tolerate a low win rate and uneven months.
Questions traders ask
What is the ellipse tangent strategy?
It draws a quarter-ellipse between the latest swing low and swing high, then uses the tangent at one point on that curve as a trigger line. When price closes through the line against the last swing, the strategy buys an ATM option in the new direction.
Is the ellipse tangent breakout profitable?
Barely. On NIFTY from 1 Oct 2025 to 30 Sep 2026 it made ₹14,308 before costs and ₹1,461 after ₹20 per order and bid-ask slippage, with a 37% win rate. Statutory charges were not included. Past results do not guarantee future ones.
Does this strategy repaint?
Not in this backtest. It only uses swing points after they are fully confirmed, so nothing it trades on changes later. The price of that honesty is lag: confirmation needs 25 more bars, so signals can arrive hours after the crossing.
Why buy puts after an up-swing?
An up-swing ellipse traces the rally just finished. A close below its tangent suggests that rally is fading, so the strategy buys a put to trade the turn lower. A down-swing ellipse works the other way, buying a call.