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Those new to the stock market may be amazed or
rather perplexed by the movement of the stock
Indices namely the Nifty and the Sensex.
Sometimes, they may find it really hard to
understand why they move the way they do.
For those and others who have been in the market
for quite a bit, this strategy would be a great
starting point in their endeavor to make a
living out of the stock market.
We will consider trading the nifty futures. Why
nifty futures? Unlike stocks, the Nifty Futures
is an indices and it is the larger barometer of
the Indian Stock market in general and so it is
highly volatile, which it should be for traders
to make money out of its moves. Its high
volatility and ease of trading would make it the
ideal candidate for us to select it for starting
trading it.
Since lay traders and newbies would not consider
spending money on real time data which costs
quite a bit and the software associated with it
and the necessity of other associated trading
aides, we would take an auto refreshing yahoo
feed for our trading and tracking purpose which
will just as well serve our purpose.
First there are two types of strategies in
trading the Nifty Futures.
1. Pure Intraday Trades.
2. Pure Positional Trades.
The Pure Intraday Trader is one who makes most
out of the small moves or large moves the
markets tend to make within the day and
capitalizes on it. He tends to close his
position within the end of the trading day and
finishes off his trades.
On the other hand the Pure positional trader is
bent on capitalizing the larger moves that
happen over a period of time. He carries forward
his positions for the next trading day.
Having said about both these types of traders
and trades, now let us examine which is
advantageous to the other. In intraday trades,
the profit or loss margin might be less since
the indices might move in a smaller range. In
positional trades the profits or loss might be
more since the moves might be in proportion to
the overnight International market moves and in
some cases it might give a big gap up or gap
down move which might or might not be favorable
to the position we hold. Personally, I would
advise any trader who is interested in trading
the market for a living to go for an intraday
trade rather than a positional trade due to the
fact that it takes out the tension out of you.
Since you do not have any overnight positions,
you need not worry about where the international
markets are heading and you need not lose your
sleep staying awake and watching the DOW JONES
industrial average till late at night or do you
need to lose your patience with your wife over
trivial things just because of irritability of
holding overnight positions!!!!!lol.
Now to the timeframe to be adopted to trade the
Intraday Nifty Strategy. The timeframe we chose
will be one-day technical chart.
You can bookmark this page (
http://www.niftyfutureking.com/niftylivechart.asp)
and watch it during market hours and as it
refreshes every 10 seconds, it does not require
that you do it manually, it helps a lot with the
decision making process.
http://www.niftyfutureking.com/niftylivechart.asp
Now to the part of getting into a trade. Go long
when the GREEN line crosses above the RED line
and go short when the RED line crosses below the
GREEN line.
This strategy can yeild results provided you
trade every signal generated on it and also
follow some trading strategy.
Suppose we get a buy signal at 3650 and nifty
drops to 3630 against our trade, then what do we
do? So each and every trade should be done with
a Strict stop loss. Before we get into any trade
we should fix how much we can lose on that
particular trade before we enter into it thus
making risk to reward ratio favorable for us. We
can consider using a 20-point stop loss or a
bigger stop if you are playing positional and so
on.
Let us consider another scenario where after we
get a buy signal at 3650, the nifty moves in
favor of our strategy and it moves 50 points up
to 3700. Now what do we do? If we sit idle and
keep dreaming about higher levels, there is
every chance that the markets might drift lower
to the point where we entered. So just as it is
important to have a Stop loss in our trade, we
should have a exit strategy in place so as to
book profits when the markets move in our
direction.
So suppose we have a fixed target and a fixed
Stop loss. Suppose our risk (stop loss) is 20
points and our reward (profit booking) is 40
points, then our risk to reward ratio is 1:2
which is good by any standards.
Having said all this, it would be wise on
everybody's part to paper trade this strategy
for at least a minimum of two months with Stop
Losses and profit targets using their capital
and their risk appetites and then jump into the
real trades.
As always, Caution is advised in using this
strategy. This is not a recommendation to buy or
sell, rather it is for educational purpose only.
The consequence of using this strategy lies
wholly on the user and it shall be deemed fit to
ask your investment advisor or consultant before
you start doing anything.
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