Kainos Combo Strategy

Single indicators give many false signals. By requiring multiple indicators to agree (confluence), you filter out low-quality signals and only trade when trend, momentum, volatility, and volume all confirm the same direction. This dramatically improves win rate, though you'll have fewer trades.

Kainos is a mid-cap technology stock with higher idiosyncratic volatility - it moves more than steadier large-caps in both directions and can gap sharply on results and guidance. Around 41% of revenue is international, so it is currency sensitive (sterling weakness helps). Catalysts include major contract wins and Workday-ecosystem news. It has no fixed exchange lot - you trade it as shares, CFDs or spread bets. These factors make it suitable for active strategies, with larger drawdowns as the trade-off.

Minimum 2 signals should align for a half-position trade (moderate confluence). Ideally, 3-4 signals align for full position (high confluence). If only 1 signal is positive or signals conflict, skip the trade. The combo strategy's edge comes from requiring multiple confirmations.

Conflicting signals mean no trade. For example, trend bullish (+1) but momentum bearish (-1) gives net score of 0 or low. This indicates uncertainty - the market isn't clearly directional. Wait for signals to align before trading.

High confluence (3-4 signals aligned) occurs roughly 2-4 times per month on average. This is intentional - the strategy prioritises quality over quantity. You will have fewer trades but a higher win rate on those you take.

In trending markets (ADX > 25), weight trend and momentum higher (1.5x each). In ranging markets (ADX < 20), weight volatility/BB higher. For exceptional readings (RSI at extremes, volume > 2x), apply 1.5x weight to that signal. This adapts the combo to current market regime.

For moderate confluence (+4 to +6), enter 50% initially and add 50% on confirmation (price moves 0.5 ATR in direction or confluence increases). For high confluence (+7 or higher), you can enter full position immediately since confidence is high. Scaling reduces risk on uncertain setups.

Check the UK technology sector trend (the FTSE 350 Technology index), Kainos's relative strength, the overnight NASDAQ, and the GBP/USD trend before any trade. If 3-4 filters are favourable, trade full combo signals; if 2 are favourable, trade only high confluence; if 0-1 are favourable, reduce all positions by 50% or skip. Remember that weaker sterling is broadly a tailwind for Kainos's overseas earnings.

Liquid single-stock options are not available on Kainos, so use a leveraged CFD or spread bet (or the cash share) sized to your conviction, always capped with a hard or guaranteed stop. Spread-bet profits are exempt from CGT and stamp duty for UK residents; CFD gains are CGT-liable but incur no stamp duty. For defined risk, use a guaranteed stop rather than buying options.

Monitor daily. Score dropping from high to moderate = warning, consider reducing 33%. Two components flipping against position = reduce 50%. Three flipping = exit. Score increasing = can add to position on pullbacks. Active management based on evolving confluence beats fixed rules.

Use walk-forward optimization: train on 60% data, validate on 20%, test on 20%. Roll window forward and repeat. Parameters consistent across periods are robust. Significant out-of-sample degradation indicates overfitting. Target Sharpe > 1.0, profit factor > 1.5 consistently across periods.

Build empirical hit-rate and expectancy tables, bucketing past setups by confluence band and market context (regime, sector trend, GBP/USD). If the raw score and the bucket's historical expectancy agree, trade with confidence; if a high raw score sits in a context with poor historical expectancy, downgrade or skip it. Require a minimum sample per bucket so thin data does not mislead you. It is purely rules-based and refreshed periodically.

Identify the regime using ADX and volatility percentile. Trending (ADX > 25): weight trend and momentum higher. Ranging (ADX < 20): weight BB/volatility higher. High volatility: wider stops, larger targets. Low volatility: tighter stops and lower expectations (premium-selling is not practical on Kainos as single-stock options are illiquid - that only applies via liquid index options). Apply a regime-specific weight matrix to the combo scoring.

On linear products (cash/CFD/spread bet) exposure is roughly 1:1, so you set it by position size. Maximum confluence (+10 to +12 weighted): close to a full unit (high exposure). High (+7 to +9): about 75-90% of a unit. Moderate (+4 to +6): about half a unit. Stay within the retail 5:1 leverage cap. If you instead use options on a liquid proxy, this maps onto option delta.

The Kainos combo, as a single-stock technology strategy, should target 15-20% of the portfolio VaR budget. Calculate its VaR contribution as allocation x strategy VaR, and ensure total portfolio VaR stays within budget. Kainos is correlated with the technology sector - treat all tech strategies as a single allocation bucket for diversification purposes.