Bank NIFTY is an index of the 12 highest cap and most liquid stocks from the banking sector. Launched in 2009, this index is now heavily traded on the stock market, with a lot of traders making a living off exclusively specializing in Bank NIFTY. Over the years, many traders who have focused on the trading of Bank NIFTY options have devised a plethora of bank option trading strategies and the market is now littered with Bank NIFTY tips and tutorials on how to trade in Bank NIFTY.
This article will provide a concise summary of two Bank NIFTY option trading strategies as well as provide many Bank NIFTY tips and Bank NIFTY option tips that can potentially help you understand how to make better trades in the future.
There are several pros and cons to Bank NIFTY. On one hand, due to its high volatility, Bank NIFTY is exceptionally attractive to traders who are looking to generate a quick profit, as price jumps are more likely. This characteristic also makes it more appealing to intraday traders, as any profit margin over 2-3% per day constitutes a good day’s trade. However, it is this same volatility that causes Bank NIFTY to be extremely risky. Simply put, the price is likely to fluctuate, and if you are unable to keep up, the chances of loss are amplified, along with the amount of loss you could incur.
Keeping this in mind, let’s take a look at how to trade in Bank NIFTY and Bank NIFTY options as well as some tips to trade.
1. Strategy #1
This Bank NIFTY option strategy applies only to intraday trading.
Firstly, chart a 5-minute Candle Chart in your charting software. Pick the point at which you will commence your strategy. You must pick a point where the first two candles are either both bullish or both bearish. If your first two candles are bullish, you must place the buy order at the high of the second candle.
Once this is triggered, the stop loss order must be set at the low of that same candle. Alternatively, if the two candles are bearish, you do the exact opposite and place your buy order at the low of the candle, with the stop-loss order placed as a buy order at the high of the candle.
You can also employ a bracket order to carry out this strategy. In this situation, your stop-loss order is set at 40% of the height of your candle. Here, we are chasing a 1:2 ratio and therefore, the target is placed at double the height of the candle. For instance, if the height of the candle is 40 points, you place the target order at 80 points. It is important to note that if both candles are bullish you must focus on placing sell orders only, and vice versa for bearish candles.
2. Strategy #2
This strategy is split into two parts: sell trades and buy trades:
a. Sell trade
If the market opens at a gap down (a jump to a lower price from last day’s close), you must wait for the chart to fill that gap. When a candle fills this gap, you place a sell order at that point. Analysis and trend studies predict that the price is likely to drop from this point. The sell order, therefore, protects you from this fall in price.
b. Buy Trade
This Bank NIFTY options trading strategy is designed for when the market opens at a gap up. When you notice the market opening at a gap up, you once again wait for a candle to fill that gap and then proceed to place a buy order at that point. Contrary to the ‘sell trade’ section of this strategy, the price is predicted to rise, allowing you to possibly turn a profit. While the gap is usually filled within a day, another one of the Bank NIFTY tips states that if this is not the case, you simply wait for the gap to be filled in the coming days and place your orders then.
Setting your targets and stop-losses is an integral step of these Bank NIFTY option tips. To gauge where the stop loss and targets must be placed, chart a horizontal line from the high of the closing candle. This is also the point at which you place your buy order, and once the market corrects to cover this gap, your buy order will be completed. The stop loss should be placed at the low of the closing candle. Similar to the previous Bank NIFTY options trading strategy, another tip is to place the target at twice the height of the candle. For example, if the candle is 50 units, your target should be set at 100.
If it is below 100, you wait for the next gap. You can use a 15-minute time frame chart for this.
Conclusion
Bank NIFTY is an attractive script for investors looking to make a quick profit. However, its volatility makes investments riskier. There are many options for how to trade Bank NIFTY options. By using the right Bank NIFTY tips and Bank NIFTY trading strategies, often with the assistance of a stock market app, you can gradually start making more successful trades.
