Bank Nifty Option Trade based on Time based Fibonacci Extension ( 23.01.

16 )

Principle :

First note the major trend whether it is Uptrend ( Higher high – Higher low ) or
downtrend ( Lower high – Lower low and Select a Significant High – Low.

From this you find the Fibonacci Levels 0.382 from High ( for entry ) 1.272 from low
( for Tgt 1 ) and 1.618 from high ( for Tgt 2 ) . After a pull back retracement below 0.382
from the significant high let the price close above 0.382 level. This close above Fib 0.382
level is the signal for long trade ( ie Buy OTM CE ) and the candle which closes above
0.382 is the signal candle. Next day buy OTM CE 300 points above Signal candle close
for a target once price moves 400 points above the Signal candle close. Since the price
move above 400 points becomes ITM , your original OTM CE becomes ITM CE giving
the required profit.

Similarly after a pull back rally above 0.382 from the significant low let the price close
below 0.382 level. This close below Fib 0.382 level is the signal for short trade ( ie Buy
OTM PE ) and the candle which closes bel;ow 0.382 is the signal candle. Next day buy
OTM PE 300 points below Signal candle close for a target once price moves 400 points
below the Signal candle. Since the price move below 400 points becomes ITM , your
original OTM PE becomes ITM PE giving the required profit.

In this strategy , once entered ( either long / short ) at 0.382 level, 1.272 ( Tgt 1 ) target
gives about > 1000 points out of which we aim for 400 points only which will be reached
almost.

Though Target 2 with still more profit is possible , we advise you to aim and exit within
Target 1 for this Option Strategy with a move of 400 points from Signal candle close.

For Buy this 0.382 retracement ( Pull Back correction ) level from high is equivalent to
0.618 level upward projection level from low and similarly for Sell this 0.382
retracement ( Pull Back rally ) level from low is equivalent to 0.618 level down ward
projection from high.

Risk Reward Ratio ( RRR ) :

Minimum margin required is Rs 30000 / = for three trades of Rs 10000 / = each. Out of
three consecutive trades one successful trade is sure ie failure of trades reaching the target
consecutively for third time is rare. In a month there is chance for 2 – 3 trade entries.

Since the Risk Reward Ratio ( RRR ) is 1 : 10, after two failure trades with Rs 10000 / =
each time , if the third one ends with success, your net return is 10 X 10000 – 2 X 10000
= 80000 – 10000 ( margin for third entry ) = 70000 / =
If the first trade itself is successful , your profit is 90000 /= ( 10 X 10000 – 10000 ) you
can risk 9 times each time with Rs 10000 / = of which you are sure to get minimum 3
trades successful.

Thus in a month there is chance for 2 – 3 trade entries of which even if one trade ends
with target you are in good profit.

Find the significant High – Low

What is Significant High ?

After a high there is a pull back of three candles preferably with lower highs

What is Significant Low ?

After a low there is a pull back of three candles preferably with higher lows

From this High – Low , Fib levels can be found out in two ways.

After fixing the High – Low, note the Fib levels for entry and target . This can be done in
two ways 1 ) Using Chart 2 ) By Excel calculation

By Chart :

How to draw Timed based Fib Extension in the Chart ?

Investing.com > Niftybank > Technical Chart > Daily chart > Candle pattern > Click
Pitch fork drop down menu > Click time based Fib Extension > place the Plus cursor at
Low and click > with out dragging click the high with the plus cursor > and again click
the Low on Rt side at the same previous low in a triangle fashion . Now you get the Fib
levels without 1.272 level .

To get the 1.272 level – Place the cursor over any Fib level – here you see a hand shaped
cursor and with this hand shaped cursor you click over the Fib number. Now you get a
format bar icons and click over the Setting Icon ( which is like a wheel ) . Now Fib Level
window will appear and put a tick mark against 1.272 . Now you will get the 1.272 Fib
level also.

Cursor movement from low to high and again back to low in triangular manner is for long
trade ( Buying OTM CE ). On the other hand Cursor movement from High to Low back
to high in triangular manner is for short trade ( Buying OTM PE )

Levels to trade

Note the 0.382 from high ( Entry level ), 1.272 from low ( Target 1 ) and 1.618 from low
( Target 2 ) levels
From the significant high wait for the further pull back retracement as near as 0.382 level
( preferably piercing below the 0.382 level and after this pull back let it close above 0.382
level . This close above 0.382 after pull back is the signal to BUY OTM CE

Select a CE ( Out of Money – OTM CE ) 300 points away from this Close above 0.382
Thus buy OTM CE and exit when the price moves 400 Points above this 0.382 closing
price ( where the original OTM CE now becomes ITM CE ( In the Money CE ) and you
are likely to get 10 times your entry price and hence you book profit.

From the significant low wait for the further pull back rally as near as 0.382 level
( preferably piercing above the 0.618 level and after this pull back let it close below 0.382
level . This close below 0.382 after pull back is the signal to BUY OTM PE

Select a PE ( Out of Money – OTM PE ) 300 points away from this Close below 0.382
Thus buy OTM PE and exit when the price moves 400 Points below this 0.382 closing
price ( where the original OTM PE now becomes ITM PE ( In the Money PE ) and you
are likely to get 10 times your entry price and hence you book profit.

Monthly Option

After entry target will be reached within 4 – 5 days after entry. Above principle is OK as
long as the Bank nifty was with Monthly option where taking any position minimum
5 – 7 days prior to Expiry you have ample time to book profit overcoming Time value
since there is every possibility of reaching the Target within Expiry as the target is
reached mostly within 4 – 5 days after entry.

Weekly Option

Since weekly option duration is only 5 trading days and the probability of reaching
targets within 3 – 4 days is possible, if entry is on Friday , Monday and Tuesday trade in
Current month OTM contracts and if the entry is on Wednesday or Thursday it is better to
trade in next week OTM contracts. In the latter situation there is not enough time to reach
target before expiry and hence the trade in next week contract. RRR is better in former
situation ie in Current week contracts than in the latter ie Next week contracts.

How to create Fibonacci Retracement Calculator in Excel ?

During an Uptrend find the High – Low and the Range.

Buy

Entry : High – Range X 0.382

Target 1 : Low + Range X 1.272
Target 2 : Low + Range X 1.618
Sell

Entry : Low + Range X 0.382

Target 1 : High - Range X 1.272
Target 2 : High - Range X 1.618

Alternate Fib Extension ( Projection ) calculation :

For Buy after a Significant High – Low during Uptrend

BUY

Entry : Low + Range X 0.618

Target 1 : Low + Range X 1.272
Target 2 : Low + Range X 1.618

For Sell after a Significant High – Low during Downtrend

Sell

Entry : High - Range X 0.618

Target 1 : High - Range X 1.272
Target 2 : High - Range X 1.618

Both the Retracement / Projection calculation gives the same levels. You can use any
one.

Example :

High 18050 on 10.06.16 Low 16186 on 06.05.16 Range is 1865

Signal Candle close low is taken for entry ( as the low reached on reached is only 17426
So 17000 CE ( OTM ) is selected for trade. Entry on 24.06.16

Entry : High – Range X 0.618 18050 – 1865 X 0.382 = 17399 ( 17426 )

Target 1 : Low + Range X 1.272 16186 + 1865 X 1.272 = 18558
Target 2 : Low + Range X 1.618 16186 + 1865 X 1.618 = 19204

Profit for Tgt 1 is = 18558 – 17426 ( Gap Up ) = 1132 points

Since Candle closing price above 0.382 is 17.

So OTM CE selected is 17426 + 300 = 17700 CE ( Approx )

Entry and profit calculations :

On Closing basis 17700 CE on 24.06.16 is bought at 74.3 and on closing basis exit is at
207 with a Profit of ( 207 – 75 = ) 132 points.
Amount wise 132 X 40 = 5280 / = in just 5 days from entry.

Profit % is 5280 / 3000 X 100 = 176 %

On Max high / low basis 17700 CE on 24.06.16 is bought at 30 ( Max Low ) and on
exit is at 255 ( Max High ) with a Profit of ( 255 – 30 = ) 225 points.

Amount wise 225 X 40 = 9000 / = in just 5 days from entry.

Profit % is 9000 / 1200 X 100 = 750 %