You can definitely select any universe of stocks as you wish or a combination of a few as you have mentioned. I have a friend who runs a fairly large capital pool of some private clients using only Nifty 50 as the universe.
There is no easy way of defining stop losses. The most common quantitative methods are as follows:
- Using ATR (takes care of volatility in the stock)
- Using a moving average (for example, stock closes below 20 or 50 day moving average)
- Fixed percentage (the easiest method)
- Using other indicators like RSI, MACD etc (like RSI going below 30 or MACD crossing below zero)
I haven’t tried using F&O in my quant systems. Mainly because of my lack of knowledge and competence in F&O and also because I have found non-index options are mostly illiquid except for very large stocks. Maybe someday I will learn enough to try some experiments.
Nowadays, my experimentation is on commodities on MCX (I have to keep trying something new in life!!)
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