Bank Nifty Intraday Trading Strategy

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Impulse Trading System- BankNifty Intraday Trading Strategy

Many times I have been facing the same questions over and over again.

Nishit, can you tell me the best strategy for intraday trading in Bank Nifty? Since I am losing my money constantly and not gaining anything after trying so many things.”

So before taking you to the strategies , I would like to point out the mistakes done by retail investors while trading in indices or Bank Nifty.

Most beginner traders make trading a complex affair like using so many indicators, oscillators, etc, which lead to the generation of wrong signals and many times lead to the initiation of wrong trade. And they don’t have any proper system for trade initiation, setting a stop loss, and booking profits.

Or one of the most common mistakes these days is watching youtube videos from anybody for analysis of markets, trading ideas, etc. Okay, I am not saying that watching videos is bad but you should take it as learning only and practice on your own unless he/she is a renowned personality in the markets. And by a renowned personality, I don’t mean the subscriber count.

So, in conclusion before starting any trade, make a proper trading system with defined entry points, stop loss and targets.

I would like to share a simple but very effective trading system known as “Impulse Trading System ” introduced by Dr. Alexander Elder, in his book “The New Trading for a living ” ( Must recommend book available on Flipkart )

Believes – Impulse Trading System

The idea for an impulse trading system comes from the mid-1990s in the middle of the night. The basic principle of this trading system is that the market movement can be defined in any timeframe using inertia and power. By combining both, one can easily spot the bullish and bearish opportunities and trade along.

A good measure of the inertia of any trading vehicle is the slope of its fast EMA. A rising EMA reflects bullish inertia, while a falling EMA reflects bearish inertia. The power of any trend is reflected in the slope of the MACD-Histogram. If its latest bar is higher than the previous bar (like the height of the letters m–M) or less deep than the previous bar (like the depth of the letters y–v), then the slope of MACD-Histogram is rising, and the power is pushing up. If the latest bar of MACD-Histogram is lower than the previous one (like the depth of the letters v–y or the height of the letters M–m), then the slope is declining, and the power is pushing down.

When we use MACD-Histogram to define power, it doesn’t matter whether it’s above or below zero: what matters is the relationship of the last two bars of MACD-Histogram. (Most traders make a mistake in using MACD Histogram on the basis of the centerline but it is wrong, we should focus more on the relationship between bars ).

Trading System Setup

We have been using this strategy on Bank Nifty, so we will take this in the example only.

Platform : TradingView

Scrip : BankNifty Futures,ATM Options, In case you are starting trading, then first try using BankBees ETF

Timeframe : 15 Min

Exponential Moving Average : 9 based on hl2/close ( depends upon you, we prefer to use hl2 )

MACD Histogram : Based on default configuration of TradingView.

bank nifty trading setup
Source : TradingView

The screen will look like as shown in the image above (we have customized MACD indicator in TradingView to remove distraction from the signal line – if you want us to do the same customization for you contact our team ).

Purpose Of Indicator

Exponential Moving Average (EMA)

An EMA is a trend following indicator, it gives greater weight to the latest data and responds to changes more faster than traditional moving average.EMA is popularly used as a crossover with a combination of two EMA or support or resistance. But we will use it as a trend identification indicator.

In simple words if EMA is sloping towards downwards, we can simply initiate a short position and if it is sloping upwards, we will look to initiate a long position.

banknifty falling ema
Source : TradingView

As you can see from the above chart on 30th April, the EMA of BankNifty in the 15min time frame was sloping downwards continuously, this means that we can initiate a short position based on the reading MACD-Histogram.

MACD- Histogram

MACD-Histogram reveals the difference between long-term and short-term consensus of value. The fast MACD line reflects market consensus over a shorter period. The slow Signal line reflects market consensus over a longer period. MACD-Histogram tracks the difference between them.

The slope of the MACD-Histogram is more important than its position above or below the centerline. It is best to trade in the direction of the slope of the MACD-Histogram because it shows whether bulls or bears dominate the market. The best buy signals occur when MACD-Histogram is below its centerline but its slope turns up, showing that bears have become exhausted. The best sell signals are given when MACD-Histogram is above its centerline but its slope turns down, showing that bulls have become exhausted.

bank nifty macd histogram
Source : TradingView

As we can see in the above figure, on 27th April, Bank Nifty opened flat and started going upward, and MACD Histogram bars are below the center line and start reducing which shows that bulls are taking strength over bears. And the reduction of MACD- Histogram bars shows that bears are losing control and bulls will take control over bears from now on.

Trading Rules – Impulse Trading System

Long Position

  • EMA rising and MACD – Histogram also rising (especially from below the centerline ) – It is a bullish sign, shorting is prohibited, buying is advisable.
  • STOP LOSS: Place a stop loss below the day’s low or the previous day’s low on the basis of your risk appetite.
  • TARGET: It is recommended to hold the position till MACD- Histogram is rising, the moment it starts falling, this is the correct time to book profits.

Note : If you are using Options , then I will suggest you to not place a stop loss and monitor the position on the basis of Bank Nifty.

Note: In case you are using Bank Nifty Futures directly, then stop loss is the must and if the trend is in your favor then trail your stop loss to protect from the sudden movement.

Short Position

  • EMA falling and MACD – Histogram also falling (especially from above the center line ) – It is a bearish sign, a long position is prohibited, shorting is advisable.
  • STOP LOSS:  Place a stop loss above day’s high or previous day close/high on the basis of your risk appetite.
  • TARGET: It is recommended to hold the position till MACD- Histogram is falling, the moment it starts rising, this is the correct time to book profits.

Note : If you are using Options , then I will suggest you to not place a stop loss and monitor the position on the basis of Bank Nifty.

Note : In case you are using Bank Nifty Futures directly , then stop loss is the must and if the trend is in your favor then trail your stop loss to protect from sudden movement.

Note : We are not using EMA to identify entry or exit points. EMA is just used to identify the trend, whereas MACD- Histogram is used to identify the entry and exit points. So don’t confuse yourself with the indicators used.

Example of Actual Trade Taken – Bank Nifty Futures

Date : 14/May/2021

Scrip : Bank Nifty Futures , Options , BankBees ETF

Trade Type : Short Position

banknifty intraday position
Source: TradingView

Bank Nifty opened flat on the account week domestic clues, AT 9:15 , EMA is showing a downward line ( As you can see black line in the chart ). This makes us very clear that the trend is weak and we need to identify the right entry point since MACD-Histogram was not showing any clear indication for the strengths.

At 10:30 AM, MACD histogram starts declining from the previous bar and the best part is it is above the centerline. So we immediately advised our client to initiate a short position.

Entry Level : 32438 , ( If you are using Options, we bought 20th May 32400PE@ 390-415 )

Stop Loss : 32626 ( above day’s high )

In half, an hour bank nifty fell to 32309 many of you are tempting to cover the position and book profit. But before this we need to look into the MACD- Histogram is still declining which proves that bears are still in control and we need to maintain this position.

At 12:15 PM Bank Nifty is rising and MACD- Histogram is forming lower low from the previous bar as we can see in the chart above, this proves that our bears are losing control and bulls are gaining strength, so it is advisable to book profit in the short position.

Exit Level : 32231 , ( If you are using Options, we sold 20th May 32400PE@ 490-510 )

Profit : 207 points, ( If you are using Options, 95 points )

In Just few hours.

Note: If you are using ETF make sure you have covered the cost over profit, since those are least leverage positions.

Other Suggested Reading:

This article is for information only, and should not be considered as a recommendation to buy or sell any stocks. Stocks discussed might be part of Earnstock Portfolios or its client portfolio

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