Level of understanding required: Intermediate (at least 6 months into trading)
Fig 1 - Day Chart of India Bank Nifty
Pre-Market
Started with the day chart of the Bank Nifty today. The Bank Nifty has been on a downtrend over a few weeks now. However, last 4-5 sessions have been bullish. We are at a juncture where the trend line on the day charts may be breached (Fig 1) and we may see a reversal in the weekly trend.
The Bank Nifty is an index of a few bank stocks. The top contributors to the index also witnessed a breach of the weekly trend (Fig 2). Some possibilities:
This may be a break out and we will see upside today (however, I feel a little apprehensive as the market has been rising constantly and may take a pause)
The Bank Nifty may come back down to the trend line and then start a further uptrend (I think most confident about this)
This is a false break-out and the Bank Nifty will come back to the downtrend on weekly basis.
Today's plan - again take 10 points on an options sell. Since I sell out of the money at 0.2 delta, This would mean 50 points on the Bank Nifty chart. I do not know the direction and will wait for the market to open and take a price action. Will update post market.
Post-Market
Trade 1: Loss
As I had mentioned, I was targeting to take 10 points of premium on a trade today on options selling. Instead, in trade 1, I lost 30.
See the chart:
I shorted a CE expecting the market to go down. There was a break in the trend line 4 candles before. The market had rallied quite a bit to justify my prediction. However, there was a sudden 200 point candle in the opposite direction.
Key Learnings
Stop Loss: Prior to this, I did not use a stop loss on the system but in my mind. Normally, I keep my stop loss at 10 points on the options chart which is about 50 on the index (at 0.2 delta). However, the candle out did me today. By the time I pressed the exit button, It had crossed 30 points on the options premium and I lost 30 points in a second. Note to self: Never again will my stop loss be manual. It will be on the system.
Major event: Today there was a policy declaration by the Reserve Bank. I somehow missed the news. The huge candle came just after the policy announcement. Note to self: Study more about key happenings.
Trade 2: A profit of 30 points by sheer luck
Immediately hereafter, as a reflex, I took the opposite position of shorting a PE. Thankfully for me, the markets continued to rise and that too exactly by about 200 points. I managed to recover the entire loss and closed at a no profit or loss. However, this is pure chance and an aberration. There could have been a profit booking and I could have ended on a loss. See chart below:
Conclusion: Taking away 2 key learnings today. Will try not to make these 2 mistakes again, which, are totally controllable.
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