This post is in reference to the facebook post on 21st November 2016 in SHARE MARKET PROFIT group
I have been tracking nifty for a while. Let me share one of my recent trades for Nifty December Future. The purpose for this post is to analyze a successful trade so that it can serve "Learn from Experience" for others and also help me to gather statistics for future reuse of similar strategy and trading practices.
As nifty hits 8200+ today, reward is 273+ points (8200-7927). So Risk Reward Ratio is 1:10. So it passes Risk Reward Ratio test with flying colors.
And second target near 8288-2896 which would be around 370 points per lot. As long as we are trading above 8200, I may use trailing sl just below 8195.If I see reversal candles I may close the trade any time. As profit booking is equally important as choosing a right trade. I will prefer booking profit around 8280-85 and wait for next clues.
And ONLY IF it sustains above 8300, I might think of a 3rd target near price levels 8400 which eventually is also the 50 day EMA (at this moment the chances are low that it may go past 8300,but I am open to new possibilities as market is dynamic and one has to be agile)
Analysis:
After a sharp fall in nifty from 8600 levels a technical pullback was expected and was seen bouncing from 7916 levels instead of 7927, but I am happy that nifty respected my sl 7900. It is really important to use proper stop loss as part of risk management against capital erosion. In this trade risk was 27 points.
RISK = Entry Price - Stop loss or Support level
REWARD = Exit Price - Entry Price
In such falling market and also in general we must always be very choosy about entering a trade. In normal case I try to choose trades with risk : reward ratio as 1 : 3 or more.
My 1st target was 8200, which was quite comfortable till target is achieved, as the reward is much fattier than the risk involved. Such technical pullbacks resemble "V" formation and show quick movement. In this case target 1 or 273 + points was achieved in just 8 trading sessions.
As nifty hits 8200+ today, reward is 273+ points (8200-7927). So Risk Reward Ratio is 1:10. So it passes Risk Reward Ratio test with flying colors.
And second target near 8288-2896 which would be around 370 points per lot. As long as we are trading above 8200, I may use trailing sl just below 8195.If I see reversal candles I may close the trade any time. As profit booking is equally important as choosing a right trade. I will prefer booking profit around 8280-85 and wait for next clues.
And ONLY IF it sustains above 8300, I might think of a 3rd target near price levels 8400 which eventually is also the 50 day EMA (at this moment the chances are low that it may go past 8300,but I am open to new possibilities as market is dynamic and one has to be agile)
Rationale:
Logic for entering the trade:
1. Noticed decrease in Volume for short Position or selling positions in NIFTY, and Nifty was over sold so I was waiting patiently for it to fall near support levels.
2. Noticed head and shoulders pattern in nifty which was the main trigger for me to jump into this trade. Support at around 9727-30 was very important as previously it rallied around 1000 points from this level and 7927-30 seems to be the "neckline of head and shoulder"pattern. At that point of time on 21st Nov I was anticipating formation of the right shoulder.
2. Noticed head and shoulders pattern in nifty which was the main trigger for me to jump into this trade. Support at around 9727-30 was very important as previously it rallied around 1000 points from this level and 7927-30 seems to be the "neckline of head and shoulder"pattern. At that point of time on 21st Nov I was anticipating formation of the right shoulder.
Caution:
1. Nifty current price is trading below 50 day EMA which is a bearish sign. Nifty opened below 50 day EMA as GAP DOWN on Nov,2nd and it corrected over 600 points in sharply. I agree that we are seeing a relief rally but entering now for positional trades would be risky considering weakness in primary trend.
2. Buying late in the rally can be costly considering un-favorable risk reward ratio.
3. Demand zone in nifty is near 7700, and fibonacci levels also indicate lower levels.
Please Note: I share my trades only for learning purpose. These should be used as trading calls in any context.If done otherwise it is not my responsibility. #LEARN & #EARN
Credits: chart analysis was done online +Investing.com
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