Bank Nifty Option Tips and Strategy

Banknifty 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 Banknifty. Over the years, many traders who have focused on the trading of Banknifty options have devised a plethora of bank option trading strategies and the market is now littered with Banknifty tips and tutorials on how to trade in Bank Nifty. This article will provide a breakdown of 2 Banknifty option trading strategies as well as provide a number of Banknifty tips and Banknifty option tips that can potentially help you understand how to trade in Banknifty and take better trades in the future.

There are several pros and cons to Bank Nifty. On one hand, due to its high volatility, Banknifty is exceptionally attractive to traders who are looking to generate a quick profit, as price jumps are more likely with this script. This characteristic also makes it more appealing to intraday traders, as any profit margin over 2-3 % per day is a good day’s trade for a trader. However, it is this same volatility that causes this script to be extremely risky. Put simply, the concept of ‘what goes up must come down’ is fast forwarded, as the price is likely to jump, and if you are not present to book your profit on time or take a bad trade, the chances of loss is amplified, as is the amount of loss you could incur.

Keeping this in mind, let’s take a look at how to trade in bank nifty, how to trade Banknifty options as well as some Banknifty tips and Banknifty option tips.

1. Strategy #1

This Banknifty option strategy applies only to intraday trading.

First, Chart a 5 min Candle Chart in your charting software. Next you have to pick the point at which you will commence your strategy. You must either pick a point wherein 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 at the placed as a buy order at the thigh of the candle.

One can also employ a bracket order in 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 if the first two candles are bearish.

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 days 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 Banknifty option 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 get skin in the game before this happens and subsequently possibly turn a profit. While the gap is usually filled within a day, another one of the Banknifty 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 stopping losses is an integral step of these Banknifty option tips. In order 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 Banknifty option trading [ ]strategy, another Banknifty 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 a hundred.

There are some key aspects to this Banknifty option strategy. The first is that in order to succeed, your gap of choice must have be of 100 points or more. If it is below 100, you wait for the next gap and skip this one over. You can use a 15 min time frame chart for this purpose.

Conclusion

Banknifty is an attractive script for investors looking to make a profit quick, however its volatility warns caution against the risk. There exists extensive research and theory on how to pay bank nifty, however these tips and strategy are easy beginning points to enter the world of trading. There are a number of options for how to trade Banknifty options and using the right Banknifty tips and Banknifty trading strategy, you could gradually get better and make more successful trades.