Nifty is an index; it is a number. Nifty cannot trade. Nifty can trade on derivatives. Right. So, when we talk about options, Nifty trades on options. Here, we will trade directly on Nifty futures. Right. So, this is a Nifty Futures Intraday strategy. Right. And as we said earlier, itis very simple.
Any beginner can do it because the rules are not complicated. Entry, exit, everything is very easy. But will give a disclaimer first. This is a directional strategy. So, a lot of money will be made on trending days. I will go to the chart and show that last Friday was trending, Thursday was trending. This Friday, Thursday, everything is made of 6-7%day-to-day strategy.
But in the consolidating market, it may make less money or there will be less loss. Maybe 1-2%losses can also happen on a daily basis. But on a winning day, there will be a very good profit. So, its risk reward is such that when there is a risk, there can be a risk, but the reward will be very high. 5 is to 1, 4 is to 1.
Something like this will happen. Right. So, it is a very high reward, there is a risk, but the win rates also low. Right. The win rate is low. But when you win, you will make a lot of money. I will go to the charts; I will show some days we will do the exercise together. But a very good exercise for all the viewers will be that you use this strategy and in the last one day, one day, in Nifty, you can go and fill in Excel.
You can do back test yourself. Going to the chart, it will be Avery good learning. It will be a very good exercise. So, before, before even you implement any strategy, just back test it, paper trade with it. Correct. Absolutely. And then only you see if it is working for you. Very right. So, you can trade according to your own.
Correct. Because look, we are just teaching you. We have no motive that you go and do it for our intention or benefit. There is nothing like that. Correct. So, you can definitely learn. Yeah. Right. Right. Right. So, this is very, again, simple.
You can do it manually, anyone can do it. Right. So, let’s get into the strategy. But before going, maybe let’s talk little bit about futures. Because this is their channel, they have taught a lot of options.
So, let’s talk a little bit about futures. Right. Absolutely. So, anyways, options, futures, both are derivatives. Right. So, let’s talk about derivatives. It feels very bad; they have written so well above. Below that, I am writing like this. Anyway, so, derivatives are there. So, options and futures, both. So, options, everyone knows, I am assuming, or futures.
So, let’s come to what or how they are different. Right. So, derivatives, let’s first hear the, or listen to the story of how derivatives came into the picture to begin with. How derivatives were invented. Let’s listen to a hypothetical, simple story. Right. So, let’s assume, can we go on, another page maybe. Okay. Let’s assume, first, just a hypothetical story. Okay. Reliance was there. Okay. Reliance. Reliance.
Okay. Sorry. Yeah. Reliance was at 100. Right. And someone bought it. And then it went from 100 to 200. Right. So, this person saw that there is an unrealized profit of 100 rupees. Right. Unrealized profit. He didn’t sell it.
So, there is an unrealized profit. So, he said, okay, it will increase. Because he bought it for long term. Long-term investment. So, he didn’t do anything. Then, later, some bad news came and Reliance fell down.
And it came to 50. So, he was seeing a profit of plus100. Now, he is seeing loss of minus 50. So, he won’t like it. He will think, earlier, I would have booked it. Now, it came down. Where I was seeing a profit of 100 rupees, now I am seeing a loss of minus 50. No one will like it. So, this problem was always therein long term investing, in stocks, in the market. I am talking about a very old one, again, taking a hypothetical example.
So, humans felt that why is it like this? When it goes up, there is profit. When it comes down, there is no profit. Then there is no profit. The profit that was visible earlier, that also went. Then humans, not only greedy, but also innovative. So, what did they do? They invented derivatives. Right? Why did they invent derivatives?
So that, secondly, one thing, a derivative, whose value is derived from the underlying, whose values derived from the underlying, can be traded in it. Okay? So, they built what? They built something called Reliance Futures. F-U-T. Okay? Reliance Futures, they made a derivative instrument. Why? To hedge.
Now, I know hedge is a bit of a complicated word. But it is very easy. Now, what can a person do? Right. Sorry. Okay? Now, Reliance bought it for100 rupees, for long term. Now, it has come to 200. Now, what did I say? Some news came earlier. Then Reliance fell. So, they know that now they don’t have to sell the stock.
They still have faith in the stock. It will go up for a longtime. In the next 20 years, it will go up for 100,000, 20,000, whatever it is. So, if badness comes, it knows that it can go down for the short term. So, what can it do for the short term? It cannot sell the stock. So, it can sell derivatives. It can sell Reliance Futures.
So, when it went to 200, it sold Futures for 200 rupees. Then it came down. It cannot sell the stock. Only derivatives can sell, which is Futures. It came down to 50 rupees. So, it bought Futures again. Or it has squared off this trade. It bought. So, what happened? The profit of150 rupees came. Right. So, the profit of 150 rupees came. So, here, the stock was seeing an unrealized profit of 100 rupees.
Then it is seeing an unrealized loss of 50rupees. So, it converted what it was seeing into money. Right. So, there is no loss anywhere. This is called hedging. So, basically, derivatives were invented for hedging. Solet’s go back to the previous page. So, derivatives were invented to hedge stock portfolios. Right. Hedge stock portfolio.
Because only longs can go in stocks. So, if the stock comes down, how will it make money? So, some derivative was needed. For that, first, mostly Futures was made. Now, what are the limitations in Futures? You can do either long or short. You can do this only. You can’t do anything else. What are the beauty of options? In that, you can make whatever you think. You can convert that into a strategy.
You can make a strangle, straddle. I mean, Nifty will be there, but not here. Whatever you think, whatever you think, you can convert it by using options to make money. Futures is not that much. Futures is a little limited, basic. You can either have long in Futures or short in Futures. Now, if you are buying Nifty and Bank Nifty, Nifty and Bank Nifty are indices. You can’t trade in that. In that, Futures is needed to trade on Nifty.
And you get leverage here. Yes, absolutely. You get leverage in Futures. Like in options, there is a lot. There is a lot. In Futures also. Now, in Futures, Nifty’s lot sizes 50. Bank Nifty is 25. Because it is leverage, you can trade1 lot in nearly 1 to 1.5 lakh because it is leverage. Now, let’s understand a little more about Futures if you need even more clarity. Because if you know how options work, because there is a settlement at the end.
So, in Futures contract, monthly expiry. Every Thursday, monthly expiry happens. So, again, I am taking an example. So, Nifty is at 17,500. Nifty’s Futures is there. Now, Nifty’s value and Nifty’s Futures value has a little difference. Okay. So, now, say, Nifty’s value is 17,500. And you buy Futures.
So, when you buy Futures, basically, just like in an option contract, it is a contract between 2 people. It is again a zero-sum game. It is a contract between 2 people and you are entering into Theas a buyer, right, you are entering as a buyer and you are telling to the seller that by the expiry which is the last Thursday of the month, contract.
What will I do? I will buy Nifty from you for Rs.17500. So, why is he doing this? Because this buyer feels that Nifty will increase and increase and go up to 18000 till expiry. Right. So, it went up to 18000.Now, if it goes up to 18000, then this is a contract, so the seller’s obligation will remain. Now, there is a seller, buyer is also there, seller is also therein this contract. Now, what will the seller do? The seller will have to deliver Nifty to him.
How much will he deliver? He will give Rs.17500 to the seller, he will get Nifty. And what will Nifty do? Nifty will sell it at 18000, so he got it at 17000, he sold it in the market at 18000, he got Rs.500 profit. Now, Nifty is Nifty, he cannot settle it physically. So, there will be a cash settlement. So, instead of doing all this, the seller would just pay Rs.500 to the buyer. He bought it for Rs.17500. Now, this is the story behind it.
Think very simply. Now, Nifty is at Rs.17530. You feel that Nifty can go up. Buy the future. You cannot buy Nifty. So, buy the future. It went up. It went from Rs.15530 to Rs.6300. It is a profit over. 100.It went from Rs.50 to Rs.152500. Now, you can think of it as simple as it is. This is the theory behind it. It’s just good to know.
Good to know theory always. But again, it’s not as complicated as futures and options. It’s very simple. We can come to the screen here. I’ll show you. Okay, now my screen is here. I’m showing you the trading view. So, as you can see, my watch list is set there. So, it’s very clear. This is Nifty and this is Nifty futures. There is a slight difference in price. This is Bank Nifty and this is Bank Nifty futures.
So, for example, let’s take this last Friday Nifty futures chart. So, if you want to trade futures, you can also see Nifty. See, it’s very similar. See, this is the pattern of Nifty. I twill go exactly the same. So, if you think that the gap down opened on the last Friday market, if you think that you saw this initial price action, it’s very easy.
See, if you break the opening range of the day, it will go down. So, you can have a speculation that Nifty can go down. So, what will you do? Sell Nifty futures. So, where will you sell the future?
Maybe at around this point, you are taking a decision. What is that? 17, 770. Sell the future. It went down. Maybe here, for example, just…It earned 200 points. If 200 points went down, you exit it. You got a profit of 15, 200, 10,000. So, futures are a way to trade on index or trade on a stock in highly leveraged manner. It is very easy to understand. Now, if this is the case, let’s come to the strategy.
So, were going to talk about an intraday Nifty futures trading strategy. And which is very simple. Any beginner can execute this. Now, the rule is… Maybe we can go back and write down the rules here. Awesome. Now, the rules are of the strategy. Let’s call this the third 5-minute candle breakout strategy.
Okay? It means that we have understood it very easily. We have to see the third 5-minute candle every day. So, the market opened at9.15 am. We have to see the third 5-minute candle. So, the third 5-minute candle, if it is formed, its high is here, its low is here. Above this, this is high plus 5 points.
Sorry, high plus 5 points, we have to mark on the chart. If this next candle and any candle breaks this high plus 5 point on that day, you have to buy. Your S&L will be low. If this third 5-minute candle breaks the low minus 5 point, you have to short Nifty futures. Your S&L will be high. This strategy can work because if there is any direction, if there is a big moment, then it will start happening from the starting.
And if there is a break out or break down after 15 minutes of starting, then you will not miss any direction. Exactly. On a big trending day, like I will show you know, maybe you can say this is a coincidence, it is luck. We will go to the chart and see the last two days, which is last Friday and Thursday. This strategy has lost 6-7% in a day.
And whatever data we show you now, it doesn’t matter that were showing that data, whenever you read this blog, you can try it. Whenever you apply. Let’s see this day, which is last Friday.16th September. Now, what happened? Zoom in. Zoom in more. Zooming more. Okay. Okay, so let’s use this. So, this is our first candle, first5-minute candle.
This is the second 5-minute candle, and thesis the third 5-minute candle. So, look here, high or low. Always look at this. You will easily find this on any charting platform. What is high? 17802.17768. So, any candle above 17807, you have to buy it. If itis below 17763, you have to sell its, let’s see what happened in the next candle. High plus 5 broken. High plus 5 was 807. Here, it has gone up to 803.4.
Obviously, low was not broken. Here, it is 805. Low was not broken. What is low? It was 763.Let’s see what happened in this candle. It went up to 755. So,763 was broken here. So, short there. And I took the high-cost stop-loss. You can easily keep that in any broker. So, you have shorted at 17763.
So, it’s always better that whatever data you are getting here, you maintain it in an Excel sheet so that you will have a good learning experience. Because I am telling everyone that it is important to do this back test yourself.
If you go back and put this rule in an Excel sheet and put all the data in it, then you will have a very good learning experience. Let’s take the date of this day. So, this is 16 September, 16September, 2022.
Entry was 17763. Right? It was the same. It was the third 5-minute candle. So, that’s exactly what we put here. 17763. Now, if you come to the exit, I can tell you two rules. One rule is very easy.
Darshan and Ajay, who are doing this, they have told that you leave it till 3 o’clock. Exit at 3 o’clock. Don’t use your brain much. So, if you see here, SLA is anyway clear, right? LA is at the high of the day. Otherwise, you go to 3 pm.
Whereas it at 3 pm? It is open at 3 pm. 17612. So, you got 151 points. I collected 151 points. 151 points means 151 into 50, which is1 lakh rupees’ margin to trade 1 lot Nifty Futures. So, you got7,550 over 1 lakh. So, let’s take 1,10,000, 1,08,000, something like that. To trade1 lot Nifty, 1,10,000, 1,2,3, which is what? 6.8% in a day.
That’s why I said that sometimes it happens that if you get attending day, you get it once or twice in a week or once or twice in 2 weeks, you get it, in a trending day, look, 6% in a day. Very good. The bank gives in a year. Anyway, so it’s good. But you should never be happy by giving a 1-day back test. You have to see for a long time.
After that, you have to decide whether to trade or not. Because it happened on a trending day. If the market is sideways, then the money may not be that much. Yes. So, that’s why there is a very good tip regarding this strategy. I say it at the end, regarding money management. And we are doing it for money management only in futures. Otherwise, people could have preferred options also. Because your strategy is a technical strategy.
Correct. So, that technical, we saw the third candle. Correct. Low break, high break, 5 points difference. So, someone could have bought put if there was an option buyer. Correct. But then his money management will be different. It will be completely different. When to exit. Because if he keeps it for 3 months and the market is consolidated, he will get 2-3 theta. Correct. But in futures, it won’t happen like that. Right.
Think like this, if he does a low break here, then he didn’t hit the S&L. That day, he went down like this, till here, 3 o’clock, it was here only. So, he didn’t earn much. In futures, he will earn something. Yes, he will earn in futures. But if he had bought put, then maybe nothing would have been left after decay. Right. So, it is possible. So, in futures, it is back-tested, it is doing, it is making a profit. So, it is working in futures.
So, this You can sell options, if you are going down, sell calls.is open to the viewers. They can try with option buying. Yes, that is also good. Your eyes and wait till 3 o’clock. Or you can do this, which can actually help you. The strategy Correct. So, in the role of exit, as I told you, you can close can get even better,
if you use technical analysis if you feel, it came down to here, at one point, you feel, now reversal is happening, maybe not, it will go up a lot. If you feel like this at any point, then you book a profit there. On reversal. But it is not like, wait at 1, 2, 3 or 4. Yes, it is not like that. You can trail it. Yes, you can trail it.
So, as I told you, this is a very basic setup. The simple rules I told you, will also increase the profit, but you can do it better. You can trail it. Or you can use reversal, technical analysis, find it and book profit. It is all up to the viewers. You can do it as you want. You can see for 1-2 days more. Like, maybe just look into the day before, which was the expiry. Now, this is the third 5-minute candle.
Now, it is very clear. You can see the low break. Now, I am saying, if you have any technical analysis. And you can see it 5-6 days before. Yes, know, if you work out for this day, you can see the profit in 5-6-7 days. Yes, look at this. Now, it is a very good trending day. You will feel, a lot of money has been made. No, money has not been made. Look, this is the third minute candle.
The hype of the third minute candle is, this candle was used to hit the stop-loss. After hitting the stop-loss, how much did it go up? There is no re-entry in this. But, there was a small profit. There was a small stop-loss. Yes, there was a small stop-loss. There was a loss. So, when there is a loss, it will be small.
Maybe, it will be of 1-2-3, 2%But, when there is a profit, it can increase. Let’s see for 1-2 days more. For time, let’s not go into the excel sheet. They will do it. Let the viewers do it.Let’s see. Most probably, it was good in this too. It hit the stop-loss. Let’s see again. This is the third candle. In 5 points below the low, there is an SL.
Because, 4 points below the low, there is an SL. It is very clear. Let’s go one day before. Let’s see. This day, there is a profit. This is the third minute candle. People had seen intuit will be SL on 17901.It didn’t go. It is not 17901.It is breaking the 5-minute candle of the high. It is a profit. Let’s see. It will be SL after the entry.
There was no entry till then. Which one? It entered here. But, after that, there was no SL. Yes, there is no profit. Look at this day. It is Slit is a small Slither range of the third candle is the Slit will be this much. Because, here…Whatever it is, it is SL day. Let’s see one more day. This is also SL day. It is clear. No, it is the entry.
The fourth candle of the third candle broke. There was a long entry. After the long entry, it hit the SL. But, it is a small SL. This is also SL day. Let’s see. Anyway, it is SL day. It will hit here or here. Look here. This is the third or fourth candle. There was a short entry. Without even looking, we can say either this candle or this candle And, it will hit here or here. So, this is the strategy. You can see the pieces in the long term.
Look at this. It is profitable. We can easily find out. Look at this. It is profitable day. So, mostly, there is a profit. And, SL days are small. Yes, SL days are very small. The profit can be big or small. So, if the win ratio is not that good, it is okay. Because, our risk reward is like this. This will make money. Now, there is a point. I told you. If you have 2 lakh rupees, then go and trade in one lot. So, you will get 1 lakh 10 thousand rupees to trade in a day.
Even if you get a 5% loss in a day, you can use the remaining money to refill. So, I would say, if you have 2 lakh rupees,1 lakh 50 thousand should be minimum. If you have 1 lakh 50 thousand capital, use 1 lakh 10 thousand rupees to trade. And, keep 40 thousand rupees as a buffer. Or, keep 90 thousand rupees as a buffer.
So, drawdown will not affect you much. If your drawdown and you are not able to trade, then you will face a loss. Because, the person who has 1 lakh 10 thousand, he can trade the strategy. If he loses 3-4% on the first day, he cannot trade on the second day. So, if you keep that money management in mind and trade, then the calculation of profit will not be 1 lakh 10 thousand.
If you have reserved 2 lakh rupees for this, then keep 2 lakh rupees. So, 1% loss day will be a very small loss day. The win days will also be good. So, if you use that money management, and follow it for a long time, then you will get money. Again, back tested, it works. And, mostly you can do it.