We post Banknifty trade ideas for short term and swing traders very often in our twitter feed. So here is quick guide on how to trade the bank nifty ideas, interpret the information and derive meaningful short term, swing or options trade off it.
First of all, a support / resistance is not merely a line but rather treated as a band or a zone, reason being most intuitional activity doesn’t happen off one point. They have enough volumes to trade off one point really.
Will cover it in two quick parts- one how to interpret the levels and two how to trade off the zones.
Most of the interpretation is simple color code base
- A red zone- is supposed to act as a resistance zone and prices are expected to respect it
- A green zone- is supposed to act as a support zone and prices are expected to hold that level.
- A white line- these are potential target points for trades initiated off the red or green zones.
- A Blue zone- is sort of a trend decider, trading above that have a bullish bias and trading below that have a bearish bias.
How to Trade the zones:
- . Primary hypothesis – is to look for pullbacks from the zones, so look for a downside move from a red zone and look for upside from a green zone. Trading isn’t simply about resistance and support at a time frame so use that with the larger context and the commentary provided for the day.
So this can be traded two ways, aggressive traders can have resting orders at the zone and defensive traders can look for a price confirmation before initiating the trade. My own approach is a hybrid approach if the volatility is low I have a resting order else go for real time markets orders to get a fill and a move. The zones give excellent RR based entry exit points.
- Secondary Hypothesis- is to treat the zone the other way round once breached.so a resistance will act as a support and expect prices to bounce off it to intiate a long trade once resistance is breached.
- Once a trade is initiated I’m looking for the white line marked areas as the target range.
- A swing trader can use a resistance or a support zone as a confirmation, once done can continue to hold on a trade for a larger move.