When it comes to trading in a financial market, you have a number of choices to select on how to buy or sell an instrument. You can use different chart types, many indicators, and even astrological assessment to trade the market. The more complex you make your chart trading more difficult it becomes to earn money.
Therefore the focus should be to earn money rather than to switch between different type of charting and indicators.
I am going to discuss simple price action trading strategies. If you apply these strategies you can earn consistent money from the market.
Trading can be done keeping 2 aspects in mind
- Intraday trading, where you compulsorily buy and sell in a single day and therefore you do not carry any positions with you.
- Positional trading: where you buy or sell a security for one day to a week.
In this article, I will talk about 1 strategy for intraday trading. In Part2 article there will be another strategy for intraday trading and in final Part 3, there will be a strategy for positional trading.
Many of you might have heard about this strategy. It is simple ORB ( Opening range breakout) and then a variation of ORB.
Traditional ORB ( Opening Range Breakout)
I prefer 5 minutes or a maximum of 15 minutes candle to get my opening range and not more than that.
The strategy is, In the first 5 minutes when a candle is formed, we note it’s high and low. when we close above or below it ( on a 5 minutes closing basis) we will buy or sell keeping the opposite side high or low as a stop loss. Target price should be 1.2X stop-loss( first target) and end of the day closing is the last target.
Here is an illustration of this.
This is Nifty 5 minutes chart of 19 September. in the first 5 minutes, nifty made high of 10837 and low of 10800. we have marked that with horizontal lines.
In the next candle itself 10,800 is broken and nifty closes at 10,781. So as per this system, our sell signal is generated. We can sell immediately or can wait for the price to retrace a bit before taking a sell position. Our stop loss will be 10,837 on 5 minutes closing basis. and our first target is 10,714 [( 10837-10781) * 1.2 = 67.2 ], which was achieved by 12.45 PM. Before closing, Nifty made a low of 10,670 and closed the day at 10,696.
No method can provide you 100% success rate and this method is no different. But if you follow this on Nifty, Bank Nifty and one or two stock of your choice regularly, you will make good money. Backtest this for yourself and check the result. For the past 6 months, this method success rate is about 60%, which is decent.
Now, let me talk about the variation of the above strategy. Mark the high and low of the previous day and if we open gap up or gap down leaving the high or low of previous day in the first 5 minutes, then we will take a position once this 5 minutes range is broken. Let us understand this with an example.
This is an example of VEDL. On 20 august it made a low of 141.5, on 21st august it opened at 141.10 and remained below 141.5 for the first 5 minutes. Therefore it satisfies our condition and now we can sell using our traditional ORB method. Finally, it gave sell at 139.65 and made a low of 138.05.
This modified ORB will not give us signal daily, but it has very high accuracy. In the last 1 year, it has more than 80% success rate for Nifty. you can backtest it and give it a try.
If you use some software which gives you live chart and live query function you can shortlist stocks which satisfies the above criteria and take position accordingly.
If you have any doubt, message me for more clarification.