Mentoring Session 4, Day 7: 04 June 2021

Event Day & Trading Ideas

Hello Everyone,

With 6 days of Mentoring session gone we expect that you must have realised that you can
make money through Options buying on a regular basis if you can decode the market and
“execute” your trades in a disciplined manner. Market environment will be different every day
and you must adapt yourself to this environment. OI Pulse with its unique AI based features
based on in-house proprietary trading techniques and experience of 15 years shall help you
immensely in this process.
Talking about different environments we shall discuss “EVENT DAYS” in today’s document and
see how to trade on such days.

EVENTS
When we talk about events we particularly refer to events that will have an impact on our
economy in general and markets in particular. Following are few events that are important for
our economy
1. Union Elections
2. Union Budget
3. RBI Monetary Policy Announcement
4. US Monetary Policy (Federal Reserve Board)
5. National Address by Prime Minister, Finance Minister, Defence Minister etc
6. Financial Results Declaration by Index heavyweights like Reliance,HDFC twins, Infosys
etc

Such events happen periodically and all of them except occasional random National addresses
by PM,FM etc are predetermined and preparations can be made before hand.

Impact of Events for Markets

Markets are always forward looking and that means the price discounts everything. Even before
the event ,Market takes into consideration the most likely possibility that is expected from the
upcoming event. For example if the results of Reliance are about to be released and the general
market expectation is that it would be good then Price of reliance will increase before the
declaration to a certain extent. If on the result day, the expectations are as per market the price
may not move much, if the results turn out to be better than expectation then price will increase
and if results are bad then price will decrease.
So the point that I want to make is that the market's movement after the event is based
not on the outcome of the event but on deviation from the expectation.

So with that said today we had RBI Monetary Policy Event Day. We are not economists so we
will not get into the details of Monetary Policy but rather focus on outcomes. As traders what
should we rather focus upon is how the MPC decision is going to impact liquidity in the
market. If liquidity increases then more money will flow into the system and markets tend to
rise, on other hand if RBI reduces liquidity then money will go out of the markets and that will
have Bearish implications.
So to know the impact of MPC on liquidity traders shall focus primarily upon

● Policy decision on Benchmark Interest Rate

● GDP forecast
● Inflation forecast
● Any other liquidity affecting factor

But remember that Market movement will depend not upon the actual outcomes but upon
deviations from the expectations.

For today’s event it was expected that

● RBI will continue with an “ACCOMMODATIVE” stance given the troubled times our
economy is going through.
● Policy Rates will not be changed.

However the Market will certainly react to how the RBI pictures GDP growth and inflation in the
coming time. If Inflation is on the rise then RBI will be left with no option but to increase Policy
rate in future and that would be Bearish for markets.
Also if GDP forecast is declined then it would be fundamentally bearish for our markets as
companies revenues will be hit.

So that's all you need to focus upon in the Governor's speech.

So lets see how the speech went today

10:05 AM

Status quo, RBI to continue with accommodative stance

The RBI on Friday kept the benchmark interest rate unchanged amid COVID-19
uncertainty and fears over inflation. Repo rate (lending rate) will continue at 4.00% and
reverse repo rate (RBI’s borrowing rate) at 3.35%. The panel had also left rates unchanged
during the last MPC meet in April 2021.

10:13 AM

RBI cuts FY22 GDP growth forecast to 9.5% from 10.5% earlier

10:15 AM

Recent fall in inflation provides elbow room, policy support from all sides
required to regain growth momentum: RBI Governor

10:18 AM

Dent on urban demand and spread of COVID-19 in rural areas pose downside
risk to growth: RBI Governor

So overall it was near the expectation and nothing exceptionally great or worse. So markets
may respond in a neutral way.

Now let's discuss how to Trade on an Event Day.

There will always be uncertainty in the environment and because of that VIX and IV would rise
before the event but cool off after the event is over.

So based on these two factors there are some strategies like going Long Straddle 2-3 days
before the event to make use of rise in Volatility that would lead to increase in Premium or Short
Straddle on the day of event just before the declaration to make use of fall in IV levels and VIX .
You can try these strategies but we shall stick to our domain of Options buying on Event day.

So there is one thing that you must remember

“Never take a trade till the outcome of the event is known”. That means if an RBI event
starts at 10 and ends at 11 do not trade between 10 & 11 no matter what setup you get. During
this period you may get many fake candles and you may get trapped.
Today we witnessed a wonderful example of this phenomenon that we will discuss
subsequently.

So let's start with Opening Trade ideas.

As you are aware we need to do Previous day and world market analysis.

Previous Day Analysis

Yesterday was an expiry Day and a lot of activities are specific to that particular day but we must
understand the tone or sentiment of the day.
So Yesterday it was a muted expiry till 1.00 PM until Bulls finally appeared and took the market
higher. We identify it through our 2 candle moves. However,the closing was not near the Day’s
High but near the VWAP. So though the Bulls appeared, they couldn't close the Market at higher
levels. In such a scenario unless the Global market is highly bullish there is no point in chasing
the Gap Up. However the only certain thing is that if the price comes near the Bullish zone from
where the bullish moves happened we can expect one up move. So

Gap Up Opening
No point in chasing the up move unless Global Markets do some magic overnight. Rather wait
for price to come near a Support Level like Yesterday’s VWAP or Price from where 2 candle
move started i.e 35685 to expect a bounce upwards.

Gap Down Opening

If the World markets are not Bearish then we may expect one up move ,so Buy on dips till PDL
is not taken out with Volume.

World Markets
Dow Jones
Dow Jones had a neutral outlook and was mostly flat. After falling a bit it recovered more than
250 points.

US30 Futures

We can see that US 30 Futures was also flat, though it recovered initial losses.

So on the basis of World Markets and our domestic markets we can have following plan for
opening day
Gap Up Opening
No point in chasing the up move as World Markets are flat.. Rather wait for price to come near a
Support Level like Yesterday’s VWAP or Price from where 2 candle move started i.e 35685 to
expect a bounce upwards.

Gap Down Opening

Buy on dips till PDL is not taken out with Volume.

One note for Today;s opening trade. Since it is an event day please be light on your
position.

Let us see what could have been the trading opportunities based on the day that went by

Opening Trade
So we see that we had a flat opening and price took a support at 35685. This was the exact
level from which the Yesterday's 2 candle Bull move started. Thus it was a perfect entry point for
an upward scalp.

OPEN HIGH TRADE

Today Open & High played out very well.

1. We had a flat opening

2. There was no significant fall with Volume
3. We got many OH matches on Call side
4. We got an upward momentum move from 9.24 to 9.27 that should have been your entry
point and the see how OH got triggered for the strikes

Just notice the timings. 35300,35600,36400 were rewarding candles that hit in the next one
minute.
This trade alone was more than enough to give you 1 % return if you “Trailed” your profits.

So you see that the OH feature of OI Pulse proved its worth again. Having faster “EXECUTION”
skills is all that will matter for these Mornin trades, so you must develop this skill. Using NEST
software will help you a great deal in this regard.
FAKE MOVES
Today was an Event Day. The RBI governor’s speech started at 10.00 AM. During this time you
must stay away from the market. There may be many fake moves just as one we got today

Just notice the 10.03 move. It came while the Governor was delivering the speech. It was meant
to trap people on the upside. So as Option buyers no matter what “Wait for the event to get
over to enter a trade.”
2 Candle Trade
Today we had multiple 2 candle trades

So we had two opportunities for 2 candle trades and if we entered in 3rd candle we would have
made money more than desired 1 %.
Small Scalp Opportunities
This is a new concept that we are discussing. This setup comes after we get a clear
confirmation about the trend.
Usually 2 candle movements give us a clear trend. But to be sure we can confirm it with the
Trending OI feature of OI Pulse.
The idea of this setup is that once we get a downward trend then any up move that forms a
higher High without Volume can be used as an opportunity to buy a Put option.

However remember to risk only your profits of the day to these small scalps.
Stop Loss can be your profits of the day or Supertrend or Vwap whichever is earlier.
Keep a small target of 10-15 points only and trail beyond that.
Today we had many opportunities for these small scalps
Supertrend Retracement trades

Today we got 2 opportunities for Supertrend Retracement trades. I have marked them as 1 and
2 respectively.
Today’s ST retracement trade deserves special attention.

Let us discuss Trade opportunity 1 that occurred at 12.36

We must know that we take trades based on Sentiment of the market and not just solely based
on any indicators. Indicators are there only to help.

So ST retracement will happen only when the Sentiment is Strongly Bearish.

● Once we get a 2 candle down move the sentiment is strongly bearish.
● But this Bearish sentiment can continue only if we get further down in the next half an
hour. Otherwise if the price just consolidates the trend may reverse.
Lets see what happened today

So as you can see there was no Fresh Low for next one hour. So what happens to the Bearish
sentiment? It weakens.
So in this scenario Probability of ST Retracement lowers. It may happen that the Trend may just
reverse from this point after ST is crossed.
So if price approaches ST in such circumstances it is better to let it go as probability lowers. Go
for ST retracement only when Sentiment is Bearish. Don't just take a mechanical trade.
Now let's discuss ST Retracement trade 2 that happened around 2 PM

So we see that we got a strong Bearish move at 13.24 then at 13.42. So if we see the price
reaching ST at 13.57 then the probability of successful retracement is high. Now you see that
price closed above ST in the next candle but since it is without volume you should not get book
loss and rather wait for pull back to happen. Just look at what happened in very next candle.
Just see what happened on a 5 minute time frame at same time
Now this doest mean that 5 minute TF is better than 3 min time frame but we want you to
believe in the Sentiment rather than plain indicators.
If you can catch the Pulse of the Market then indicators are merely helping tools. So we
encourage taking trades on the basis of “Sentiment of Market” rather than on indicators and
this is where OI Pulse will help you a great deal. The Trending OI, Connecting Dots, Big OI
features will help you a lot in this regard and we shall be paying a lot of emphasis on these
features in upcoming sessions.

Till then
Happy Trading!