- What is Bank NIFTY?
- How to trade using Bank NIFTY options strategies?
- 4 simple strategies for trading in Bank NIFTY
- Trend trading strategy
- Strategy for intraday trading in NIFTY
- Price Action trading strategy
- Butterfly strategy
- Advanced trading strategies for Bank NIFTY
- Positional trading strategies
- Swing trading strategy
- Renko trading strategy
- Straddle trading strategy
- Scalping trading strategy
- Arbitrage trading strategies
- VWAP trading strategy for Bank NIFTY
Yearly new traders appear, and almost everyone wonders: what is the best strategy for trading? This review is going to expose the different types of strategies for trading in Bank NIFTY and how to trade using them.
What is Bank NIFTY?
Bank NIFTY is one of the famous indexes in India that was launched in 2003. It is traded on the National Stock Exchange (NSE) and consists of 12 stocks of the largest Indian banks. It provides investors with a benchmark that reflects the performance of Indian bank stocks under all market conditions.
Note! Many people confuse NIFTY Fiftyand Bank NIFTY. The NIFTY 50 index includes 50 companies from different sectors of the economy, so not every trading strategy that works for NIFTY Bank is suitable for it. Also, do not confuse these indices with NIFTY BeES, which is an ETF.
How to trade using Bank NIFTY options strategies?
Because NIFTY Bank is an index, you can’t buy it directly like a company’s stock. One of the main ways to invest in it is through derivatives, including futures and options.
You can use futures or options contracts to profit from index price movements. Let’s assume the NIFTY Bank is currently trading at 10.000, and you have a bullish outlook and expect the index to rise to around 11.000 by the time the contract expires. In this case, you can purchase the NIFTY 11.000 CE option contract. When buying it, if the index aligns with your expectations, all you have to do is equalize your position.
To hedge the risk, you can also purchase a call option contract with an exercise price that is lower than the current one. However, you will have to pay a higher premium for this, which will increase your initial investment.
If, on the other hand, you are bearish, that is, you expect the index to fall by the time of expiration, you should buy a call option contract with an exercise price below the current market price. When the index falls, you can simply close your positions and make a profit. Presently, some of the securities in this index include leaps, i.e., options that expire after more than a year. A diagonal spread is suitable for trading them.
Note! You can download the NSE booklet on NIFTY option trading strategies in English or Hindi. The document is available in pdf format, but you can save it as any type of file, such as ppts or excel.
4 simple strategies for trading in Bank NIFTY
Now that you know what the NIFTY Bankindex and an options strategy are let’s look at a group of top techniques suitable for beginner traders.
Trend trading strategy
It can be called the best trading strategy for beginners. It helps traders know the appropriate time to enter the market or exit when the trends reverse. It involves selling a security when its price trend goes up and buying it when its price trend goes down.
Some traders try to profit from this strategy using Elliott Wave Theory. It states that stock price movements can be predicted as they move in repetitive up and down patterns called waves. In Elliott’s theory, a motive wave is a 5-wave movement in the same direction as the trend of one larger degree.
Traders can identify the trends using the opening, the closing price, and each candle’s trading range. However, there is a technique that is superior to conventional candlestick charting and can be called the best in determining the direction of the trend. It’s Heiken-Ashi, a candlestick pattern technique, with which there is a tendency to stay red for the candles during a downtrend and green during an uptrend. In contrast, regular candles change color even if the price moves predominantly in one direction.
The NIFTY Open Interest analysis is another amazing tool to provide market trends, support, and resistance. However, you need to use it in correlation with other technical indicators to get more profitable results: Moving average, Average directional index, and Relative strength index.
Strategy for intraday trading in NIFTY
Intraday options trading is one of the fastest ways to profit in the stock market. According to the Quora forum, one of the best and most popular strategies for intraday trading in Bank NIFTY is the Moving Average crossover system. For instance, taking a 5 minutes chart that uses 55 and 21 bars of SMA crossover can be a very profitable system for intraday trading.
Developing a pivot point is also a simple strategy to embrace in your intraday trading since it will help you edging. It is a technical indicator that traders measure the market’s overall pattern over various time frames like 1-, 2- or 5-minute.
You need to find the previous day’s intraday low, high, and the closing price, then do the average to come up with this indicator. If trading is above the pivot point today, that is thought to be bullish; otherwise, it is a bearish sentiment.
Note! The market may depend on the day, but there is no universal trading guide for Monday, Tuesday, or any other one this or next week. Also, do not blindly believe the strategy for a specific day, such as the trading guide for the 25th Apr.
Price Action trading strategy
Many intraday traders also focus on price action trading strategies to make profits in a short time. It involves using technical analysis tools such as live charts, price bands, trend lines, and high and low swings to check the price movements and recent historical data.
Most experts use multiple options (Multi-time frame trading strategy)that help recognize trading (trending or ranging) patterns, hence giving signals that establish the levels to enter or exit.
If you choose this strategy, you will need first to identify a scenario such as stocks price getting into a bear/bull phase break out, etc. Second, identify a trading opportunity within this scenario, e.g., if a stock is in a bull run, is it likely to retreat or jump over.
You can use calls and/or puts for this strategy. Combining the options in several ways creates different kinds of butterfly spreads, and each is designed to profit from low or high volatility.
This options strategy is one of the market-neutral trading strategies. It involves combining bear and bull spreads, providing a capped income and a fixed risk. These spreads aim to profit more if the underlying stock does not move earlier to the option expiry day. Many traders also follow the hero or zero strategy to extract from it.
Note! Bank NIFTY weekly options contracts expiry is every Thursday.
Advanced trading strategies for Bank NIFTY
Now that we have dealt with the basic strategies let’s move on to options for more experienced traders.
Positional trading strategies
Positional trading involves holding NIFTY Bank shares, not futures. It is an advanced level of intraday trading strategy that allows you to hold your position in the stock market for a more extended period: a week or even several months. This strategy is an amazing option for working professionals because you don’t have to be distracted during the day.
Buy it if Bank NIFTY crosses its highest high in the last two days, and sell if it crosses its two-day low. In addition, you can exit a long position if the index crosses the previous day’s low from below and exit a short position if it crosses the last day’s high from above.
Another of the best positional trading strategies is to use the crossover of Exponential Moving Averages. Anytime the 21-day EMA crosses the 34-day EMA from above, a sell signal is generated and vice versa for buy.
Swing trading strategy
Swing trading is also different since it goes for several days or weeks; this allows traders to benefit from the off-changing trends in price action.
It has up to five swing trading strategies that you can take advantage of to control your trades, i.e.:
- Fibonacci retracements.
- Support and resistance triggers.
- Ten and twenty-day SMA.
- Channel trading.
- MACD crossover.
Renko trading strategy
Renko is a strategy that ignores the time element and focuses more on price movements. It involves using the Renko charts, which filter out insignificant trade price movements. This filtration makes it easy to spot the price trends, and the chart appears more uniform, unlike candlestick ones.
Trying to find a trend direction will require the incorporation of an EMA, such as 200. If the trading price is above this EMA, there is an uptrend; otherwise, it is a downtrend.
Straddle trading strategy
It is another good strategy for options trading whereby a trader simultaneously buys a call option and sells a put option with a similar underlying security, strike price, and the same expiration date. It is one of the neutral trading strategies, and it is optimal if you expect a significant share price move but you are not sure whether the price will go up or down.
Scalping trading strategy
Using this strategy, you can earn money on small price changes. When the trade becomes profitable, grab and get your income as quickly as possible. You will need to strictly adhere to the system since the trades are many, but the gains from each one are pretty small.
The best scalping strategies involve using the parabolic SAR indicator, moving averages, and the stochastic oscillator. Scalping strategy with RSI can also be useful since it will help you identify the entry points in line with the prevailing trend.
Arbitrage trading strategies
If an asset trades at two different markets with different prices, you can arbitrage them by buying the lowest priced security and selling it at the market with a higher price.
You will lock in the profits risk-free despite the stock’s price movements since, on the expiry of the contract, the futures price and the cash price will converge.
VWAP trading strategy for Bank NIFTY
Volume-Weighted Average Price (VWAP) is the total sum of each transaction times the price of each transaction divided by the total volume for that trading day.
The best technique for VWAP is setting your targets by considering its closing amount on a NIFTY futures chart. You then draw a horizontal line and label it as PVWAP to mean Previous day VWAP. When the price breaks through this line on the current day with an average volume that is relatively higher, you can go short or long.
If you need more safe trading, wait for the price to pull towards PVWAP, check for rejection like long wicks, and then go short or long accordingly, immediately you spot it.
The secrets of trading techniques have long been exposed on a multitude of Internet resources. You can access the necessary information from the Marketcalls platform, BQEdge, videos by Abhishek Kar or Tamil Share on Youtube, and different discussion forums like Quora and Twitter. However, do not blindly believe blog posts on trading discussion boards, even if they are as eloquent as if a professor of writing and rhetoric Shyam Sharma wrote them. Make findings only from the latest exchange news and project reports on online trading, for example, from the DRK Institute of Science and Technology. To get basic trading tuitions, join IMFC Institute or NIFTY Trading Academy in India.
Remember that even the most popular trading strategies should not be considered universal rules, and only you are responsible for hedging risks. Trading is not a zero-risk activity, and here’s where learning is required. It is not for those who need a guarantee of a regular monthly income or believes in a fast cash jackpot.
The NIFTY index is unstable and cannot grow evenly, for example, by 10 points per day, which means there is no loss-free technique. If any of them worked for other traders, this does not mean that it works in your case, even if you are a trading master. No strategy can accurately predict the price movement for tomorrow and any other day. Conduct your independent analysis of the index, for example, based on VIX, and do not use signal-generating software such as Mudraa.