Let us get on to the point of our main theme "Trading the Ranges"
I am giving below a simple formula to calculate Range Top and Bottom which serve us two purposes. One is that it helps us to trade range bound market ie sell at top and buy at bottom. Also it helps us to trade a trend if any of these Range support or resistance is broken by reversing our positions. Isnot it a two edged weapon?
The formula is as follows:
(High + Low + Close)/3 = X
NUM1=2X - High
NUM2 =2X - Low
Let us consider the values of Nifty Spot for example.
High - 5333.90
Low - 5298.90
close - 5309.40
X = (5333.90 + 5298.90 + 5309.40)/3 = 5314.06
NUM1 = 2 x 5314.06 - 5333.90 = 5294.22
NUM2 = 2 x 5314.06 - 5298.90 = 5329.22
Here NUM2 is highest and it becomes resistance. NUM1 is lowest and it becomes support.
Next day, the market opened at 5252.25 and has a high of 5276.95 and a low of 5198. That is Nifty has opened with a huge gap down ie below support about 41 points and tried to reach support and eventually lost ground and touched a low of 5198. Since the price out of range of above pivots, its in a trend zone and should look for a shorting opportunity below support as long as it is below support. If the price successfully breaks support and enters in the Range, we should look for buying with a target of resistance. Hope the method is clear.
How to trade these Pivots on Range days.
Sell at resistance and buy at support.
We have already learned two important candlesticks in above posts to assess the price movement at resistance and support.
Further, look out for failed breakout candlesticks at these two important levels to trade.
Note :- Successful penetration of these resistance and support points, will throw us an opportunity to enter the trade as trend following.
One important clue for identifying a successful breakout is a definite close beyond these points with higher volumes.
There is every likelihood of Gap openings making calculated resistance and support redundant.
So, let us add a new dimension to them.
Take first half an hour or one hour high/low. Continuing the above example, the high/low of first half an hour are 5269 and 5247.
Now, consider today's anticipated range as per above resistance/support as 5329.22 - 5294.22 = 35
Add 35 to Low of first half an hour ie 5247 + 35 = 5282
Subtract 35 from High of first half an hour ie 5269 - 35 = 5234.
It is likely that the price will hit any of these two numbers ie either 5282 or 5234. Hitting both is very unlikely.
In the example, the price has hit 5234 but failed to hit 5282.
I am giving below a simple formula to calculate Range Top and Bottom which serve us two purposes. One is that it helps us to trade range bound market ie sell at top and buy at bottom. Also it helps us to trade a trend if any of these Range support or resistance is broken by reversing our positions. Isnot it a two edged weapon?
The formula is as follows:
(High + Low + Close)/3 = X
NUM1=2X - High
NUM2 =2X - Low
Let us consider the values of Nifty Spot for example.
High - 5333.90
Low - 5298.90
close - 5309.40
X = (5333.90 + 5298.90 + 5309.40)/3 = 5314.06
NUM1 = 2 x 5314.06 - 5333.90 = 5294.22
NUM2 = 2 x 5314.06 - 5298.90 = 5329.22
Here NUM2 is highest and it becomes resistance. NUM1 is lowest and it becomes support.
Next day, the market opened at 5252.25 and has a high of 5276.95 and a low of 5198. That is Nifty has opened with a huge gap down ie below support about 41 points and tried to reach support and eventually lost ground and touched a low of 5198. Since the price out of range of above pivots, its in a trend zone and should look for a shorting opportunity below support as long as it is below support. If the price successfully breaks support and enters in the Range, we should look for buying with a target of resistance. Hope the method is clear.
How to trade these Pivots on Range days.
Sell at resistance and buy at support.
We have already learned two important candlesticks in above posts to assess the price movement at resistance and support.
Further, look out for failed breakout candlesticks at these two important levels to trade.
Note :- Successful penetration of these resistance and support points, will throw us an opportunity to enter the trade as trend following.
One important clue for identifying a successful breakout is a definite close beyond these points with higher volumes.
There is every likelihood of Gap openings making calculated resistance and support redundant.
So, let us add a new dimension to them.
Take first half an hour or one hour high/low. Continuing the above example, the high/low of first half an hour are 5269 and 5247.
Now, consider today's anticipated range as per above resistance/support as 5329.22 - 5294.22 = 35
Add 35 to Low of first half an hour ie 5247 + 35 = 5282
Subtract 35 from High of first half an hour ie 5269 - 35 = 5234.
It is likely that the price will hit any of these two numbers ie either 5282 or 5234. Hitting both is very unlikely.
In the example, the price has hit 5234 but failed to hit 5282.
Day trading is a difficult road to take as a means of making profits in stocks and futures.
Most day-trading methods, however, require considerable attention. Although day trading is both time consuming as well as difficult, there are ways in which to harness the profit potential of day trading.
I personally feel that it would be incomplete if I fail to give a setup/strategy based on a breakout.
This method can be very riskybut it can also produce some very large profits. The best time to begin using this method is after it has had 35 losses in a row.
The 30-minute breakout method discussed in this post will help you get the edge on day trading, but it will require the following:
1.Maximum discipline and attention to rules.
2.Persistence.
3.At least Rs.50,000 in starting capital for trading the full-sized Nifty contract
4.The ability to accept at least seven consecutive losing trades.
5.The ability to sit at the computer all day.
6.The discipline to ride profits until the end of the trading day.
7.The eventual ability to trade multiple positions.
THE CONCEPT AND SETUP
The 30-minute breakout method (30MBO) uses the price high and price low of the first 30 minutes of each trading day as the setup.
Finding the setup is very simple. All you have to do is to make note of the high and low price for the first 30 minutes of the trading session; this can only be determined after the first half-hour is over.
A buy trigger occurs when and if any subsequent 30-minute price bar ends above the high of the first 30-minute price bar. A sell trigger occurs when any subsequent 30-minute price bar ends below the low of the first
30-minute price bar.
A trigger can only occur at the end of a bar, not during a bar.
A trigger can occur at the end of any 30-minute bar up to the last hour of trading.
MANAGEMENT OF TRADES
Follow-through for this method is very simple, but you must be consistent and highly disciplined in order to employ the follow-through method profitably.
Here are the rules:
1.As soon as a trade has triggered, your stop-loss becomes the opposite side of the trade. In other words, if a buy is triggered first, then the stop is a 30-minute ending price below the low of the first 30-minute ending bar and vice versa for a short.
2.When a trade is triggered, the first profit target is the range (highlow) of the first 30-minute bar.
3.If you have multiple contracts, then take profit on part of your position at the first profit target and place a stop at breakeven.
4.If and when the trade achieves twice the range of the first 30 minutes place a stop at the first profit target. If you have multiple positions, take profit on another portion of your position and place a stop at the first
profit target.
5.Exit MOC (market on close) on all positions not stopped out.
6.If you get a buy first and are stopped out, then reverse to a sell and vice versa.
7.Only take one reverse trade per day. In other words, if the second trade loses money then there are no additional trades for the day.
8.Always exit at the end of the day.
The rules are clear and concise. Practice and the ability to ride large swings both in your favor and against you are of paramount importance if you want to be successful with this method.
Paper trade initially for a week or so on your favourite stocks/futures. Adjust the profit targets as per the volatility of stock/futures.
Happy Trading
Most day-trading methods, however, require considerable attention. Although day trading is both time consuming as well as difficult, there are ways in which to harness the profit potential of day trading.
I personally feel that it would be incomplete if I fail to give a setup/strategy based on a breakout.
This method can be very riskybut it can also produce some very large profits. The best time to begin using this method is after it has had 35 losses in a row.
The 30-minute breakout method discussed in this post will help you get the edge on day trading, but it will require the following:
1.Maximum discipline and attention to rules.
2.Persistence.
3.At least Rs.50,000 in starting capital for trading the full-sized Nifty contract
4.The ability to accept at least seven consecutive losing trades.
5.The ability to sit at the computer all day.
6.The discipline to ride profits until the end of the trading day.
7.The eventual ability to trade multiple positions.
THE CONCEPT AND SETUP
The 30-minute breakout method (30MBO) uses the price high and price low of the first 30 minutes of each trading day as the setup.
Finding the setup is very simple. All you have to do is to make note of the high and low price for the first 30 minutes of the trading session; this can only be determined after the first half-hour is over.
A buy trigger occurs when and if any subsequent 30-minute price bar ends above the high of the first 30-minute price bar. A sell trigger occurs when any subsequent 30-minute price bar ends below the low of the first
30-minute price bar.
A trigger can only occur at the end of a bar, not during a bar.
A trigger can occur at the end of any 30-minute bar up to the last hour of trading.
MANAGEMENT OF TRADES
Follow-through for this method is very simple, but you must be consistent and highly disciplined in order to employ the follow-through method profitably.
Here are the rules:
1.As soon as a trade has triggered, your stop-loss becomes the opposite side of the trade. In other words, if a buy is triggered first, then the stop is a 30-minute ending price below the low of the first 30-minute ending bar and vice versa for a short.
2.When a trade is triggered, the first profit target is the range (highlow) of the first 30-minute bar.
3.If you have multiple contracts, then take profit on part of your position at the first profit target and place a stop at breakeven.
4.If and when the trade achieves twice the range of the first 30 minutes place a stop at the first profit target. If you have multiple positions, take profit on another portion of your position and place a stop at the first
profit target.
5.Exit MOC (market on close) on all positions not stopped out.
6.If you get a buy first and are stopped out, then reverse to a sell and vice versa.
7.Only take one reverse trade per day. In other words, if the second trade loses money then there are no additional trades for the day.
8.Always exit at the end of the day.
The rules are clear and concise. Practice and the ability to ride large swings both in your favor and against you are of paramount importance if you want to be successful with this method.
Paper trade initially for a week or so on your favourite stocks/futures. Adjust the profit targets as per the volatility of stock/futures.
Happy Trading
