Market not moving? Trade outperformance: Shubham Agarwal

F&O Cues

This topic arises approximately every few quarters. Before we delve into how we discuss trading outperformance, let's first explore why we're discussing it. Taking stock of the last few months, we realize we have not moved since almost 2 quarters of 2025.

Now, while that has become a new normal for most traders since the last few weeks, the no move cannot be permanent. The widening of the range that we are trading is a testimony to that. Once we start observing that, we need to prepare for the range being held as well as the range being broken.

So, we rely on a trading technique found in the late 1980s and widely used now called Pairs Trading, also known as Long-Short. Choppiness in the market is not just high volatility, but it is the same volatility with the market giving no returns. This creates a lot of turbulence in the market. As the days go by, it makes things difficult to trade. Pairs on the other side work best with turbulence, as that is what fuels a round of underperformance/ outperformance.

Trade Logic:

The biggest hurdle to trading a turbulent market is the continuation of the move. Outperformance trade removes the risk of untimed reversal. Let us understand how that happens.

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Shubham Agarwal

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2 kinds of factors affect any stock.

Systematic: Factors affecting the Country or Sector as a whole (Policy Decisions, Interest Rates, Geo-Political Risks).

Unsystematic: Company Specific Factors (Result Miss, Fire at Plant etc).

By taking care of systematic factors, we can largely remove the risk of untimely reversals in the overall market. To remove this risk, we can create a combination of Buy & Sell positions in Futures from the same industry.

Buy a Bank Future
+
Sell another Bank Future

Factors positive for both or negative for both will have very little impact on your Profit/Loss because they will get neutralized. This trading technique is aimed at removing systematic risks.

With the struggle around the current trend, these are times when one wants to Buy for Outperformance and Not Bargain Hunting. Stocks that either run faster or fall the least.

Trade Setup:
We always have a stock that we are interested in buying. Just follow these steps to convert to an outperformance trade.

Find another Stock from the same line of business that,

1. Has Highs and Lows are around the same period as Our Stock in the past
2. Has outperformed (Risen more / Fallen Less) Our Stock in the recent past (around a month)

Then we just Buy Our Stock, sell the Stock that satisfies above mentioned 2 conditions.

We would anyway have a stop loss on Our Stock. Just keep that stop loss in mind. If the stop loss gets triggered, get out of the combination. If the trade works out and our Stock heads up and hits the target, then the Profit could be a little less because the stock we sold may also go up.

However, generally it is seen that the money lost is small, but if the outperformance comes in and we do hit the target, it would give a fantastic reward for the risk taken.

In difficult-to-trade market conditions, it makes sense to rely on such risk-neutral trading techniques.

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