Bank NIFTY is an index of the 12 highest cap and most liquid banking sector stocks. It is heavily traded on the stock market, and many traders make their living by speculating on the Bank NIFTY chart.
These traders, focused on trading Bank NIFTY options, have devised many strategies over the years. We will delve into two Bank NIFTY option trading strategies and look at a few tips that will throw some light on trading in Bank NIFTY.
The volatility of the Bank NIFTY is, perhaps, its most appealing feature. Its price jumps make it an excellent option for traders who are looking to make a quick buck. Intraday traders find it highly attractive as they can easily earn a profit margin of 2-3% by trading in Bank NIFTY options.
On the other hand, this same volatility increases the risk element too. If you are not present to book your profit when the price jumps or take a bad trade, the possibility of running a loss is augmented. Let’s keep this in mind as we look at some tips and strategies for trading on Bank NIFTY options.
Intraday Trading Strategy
Use your charting software to generate a five-minute Candle Chart and select a point from which you will commence your Strategy. You must pick a point where the first two candles are either bullish or bearish.
Place the buy order at the high of the second candle If the first two candles are bullish. You must set the stop-loss order at the low of the same candle. If the two candles are bearish, then place your buy order at the low of the second candle, and the stop-loss order would be placed as a buy order at the high of the candle.
You can also use a bracket order by setting your stop-loss order at 40% of the height of your candle. By chasing a 1:2 ratio, the target is placed at twice the height of the candle. So, if the candle height is 40 points, the target order price will be 80 points. Remember that if both the candles are bullish, you must focus on putting sell orders and place buy orders if both the candles are bearish.
Sell Trade Strategy
If the market opens with a downward gap, you must wait for the chart to close that gap.
When a candle fills this gap, you place a sell order at that point. Analysis and trend studies predict that the price will fall from here. So this sell order protects you from a fall in price.
Buy Trade Strategy
Similarly, when the market opens at a gap up, you wait for a candle to fill the gap. Once that is achieved, you place a buy order at that point. The price is predicted to rise from this point and creates opportunities for making a profit. This gap is usually filled within a day. If not, another NIFTY tip advises you to wait for the gap to be filled in the coming days and place your orders accordingly.
Setting Targets/Stop Losses
To set effective targets and stop losses, you should chart a horizontal line from the high of the closing candle. You place your buy order at this point. The low of the closing candle is where you place your stop loss.
You could also place your target at twice the height of the candle. For this to work, your choice of the gap should be at least 100 points. If it’s less, then you wait for the next gap. A 15-minute timeframe chart is helpful for this method.
These NIFTY Intraday tips and strategies are great for beginners to dip their toes in Bank NIFTY trading. There are various options for trading Bank NIFTY; you will get better and make more profitable trades over time.
Krishna Murthy is the senior publisher at Trickyfinance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.