In the Top 3 Secrets of Price Action trading part-1, we have seen one simple method of doing intraday trading. It is known as ORB( Opening range breakout) among traders. Also, we have seen modified ORB, using which the success rate increases tremendously. If you have not seen that article please read it.
In this part, I am going to tell you another very simple intraday trading strategy that can be used for quick trades.
Before telling you about this strategy, let me tell you about the characteristics of this strategy. It is based on price movement beyond 2 standard deviations. To identify this we will be using the Bollinger band. And finally, to take the trade we will be using candlestick patterns. So let’s get started with this strategy.
Steps required to be followed for this strategy are:
- We will have to use standard settings for the Bollinger band and apply it on our chart
- Our chart should be a candlestick chart
- If we are trading intraday, we will be using 5 mins chart ( quick trade ) or maximum 15 mins chart
What is the strategy
Once we have made the above setting in our chart, the screen should look like this.
This is the chart of Nifty, intraday, 15 minutes ( we can see at the bottom right corner I-15). And RSI for additional confirmation can also be added with default settings.
Let’s see the case for buying the stock first:
If the stock/index price closes below the lower Bollinger band ( in 5 or 15 mins chart) and the body of the candle is completely outside Bollinger band, then it is an alert candle for us. That means we will keep on watching this script. Within the next 3 candles, if the stock forms a positive candlestick pattern ( like a bullish engulfing, hammer, morning star, etc) and hence a green candle, we will buy above the high of this green candle.
As this is a very short term trade first target of this trade will be the middle of the Bollinger band. After that we will move our stop to cost price and target two will be before the market close.
Stop loss will be the immediate low of the stock.
Let’s have a look at the example:
Above chart is of tata Steel 5 mins cash. As you can see the circled candle has closed completely outside the lower band. So that red candle is our alert candle. The next candle itself is forming a bullish engulfing candle. This fulfills all our requirements. We will buy above the high of the green candle, keeping immediate low as the stop loss. And it has given us a good profit.
Let’s see the case for Selling the stock :
If the stock/index price closes above the upper Bollinger band ( in 5 or 15 mins chart) and the body of the candle is completely outside Bollinger band, then it is an alert candle for us. That means we will keep on watching this script. Within the next 3 candles, if the stock forms a bearish candlestick pattern ( like bearish engulfing, inverse hammer, evening star, etc) and hence a red candle, we will sell below the low of this red candle.
Same as above our target and stop loss will be defined. Let’s see an example of this:
This is the 5 mins chart of SBI. See the circled area. The small green candle has closed outside the band and not touching it, hence it becomes our alert candle. The next candle itself made a bearish engulfing pattern. We will sell below this and you can see the stock has fallen sharply within the next 1 hour.
Please do note that you will not get trade opportunities using this system in a single script every-day. You will have to use some scanner to shortlist the stocks ( alert candle) for you. You can use a free tool like chartink.com for this purpose, or if you want you can have a professional intraday trading software.
The strategy is basically against the momentum strategy. That is why you should be quick to enter and exit. Also, put strict stop-loss, otherwise, one bad trade can take all of your profit. So you should put the stop-loss in the system rather than in mind.
If you follow this strategy consistently, you will make good money. As with any other trading strategy, this is also not a 100% successful strategy. But good money management coupled with the strategy can earn you a lot of money.
I hope you liked the article. If you have any queries, please write in the comment box.