Level of understanding required: Intermediate (at least 6 months into trading)
Fig 1 - Day chart of Bank Nifty
Pre-Market
The index is at a stage where it is close to the downtrend line. The market has rallied for 6 sessions and overall traders are expecting a retracement. So am I.
As per Fibonacci plotting, it is expected that the index will fall to about 40500 - a 300 point correction. I am planning the day accordingly. I plan to short CE in anticipation of a fall when I see some price action which suits my plans.
Trade: Successful, but not as per my target
The market just did the opposite of what I had expected. It opened with a gap up due to Kotak Mahindra Bank's large gap up overnight. There was a huge profit booking on the index. Then the index started to rise and kept rising on an uptrend throughout the day.
Personally, I took short positions on the CE expecting a downward movement at two points. The trades went right but soon after the markets rose again and my trailing stop loss was hit.
I got profits of 5 points each on the premium but that was way below my target of 25 points today. Also, those profits would erode with the charges like brokerage etc.
At-least, did not lose. Kept my psychology intact and stopped trading after a while.
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