Thanks Anup for starting this thread. First of all the Trades posted here will be for Positional. So it could be used for Cash Trade or Futures Trade or Options Trade. So we will just mention the values in the SPOT. The rules are very simple. It is based on the Tool that I had developed. You can find the link in my signature. It is based on the Options Chains Data from the NSEIndia. It might work where the Stock is Traded heavily in Options. For stocks which are not Traded heavily in Options, the tool will not be able to give a Trade.
Coming to how the Trade is suggested, In the options Chain, You have two sections
The Call (CE) Section on the Left hand side and the Puts (PE) on the Right hand side.
We will pick the Strike where there is MAX Open Interest in CE and we will call it RESISTANCE or MAX OI @ CE
We will pick the Strike where there is MAX Open Interest in PE and we will call it SUPPORT or MAX OI @ PE
We will also calculate the MAX Pain for the Stock. The MAX Pain is simply the Average or the middle point of Support and Resistance. (But using the tools and special formula MAX PAIN could be fine tuned, Or when the Range is moving the MAX Pain need not be the Average of the Support and Resistance.)
Now we have three Values SUPPORT, RESISTANCE and MAXPAIN.
1. Whenever the Stock is NEAR the SUPPORT - We will BUY and Keep the First Target as the MAX PAIN.
2. Whenever the Stock is NEAR THE RESISTANCE - We will SELL and Keep the First Target as the MAX PAIN.
3. The entry is only at SUPPORT or RESISTANCE.
4. KEEP the STOPLOSS as per your Risk strategy. Normally for Positions I hope we need a minimum 2% as the Stop loss
5. So when we have the STOPLOSS as 2% we would also need to make minimum 2% or more as the profit. So we will only suggest where the Profit could be more than 2%.
We will discuss about the Exceptions and What if cases in the next post ?
1. What if SUPPORT Moves DOWN after we take the BUY Position ?
2. What if RESISTANCE Moves UP after we take the SELL Position ?
3. What is MAX PAIN changes ?
Note : We would need some help from the Positional Traders on how they do these adjustments.