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Sunday, November 22, 2009

[Technical-Investor] Nifty Futures day trading -Volatility based risk/reward ratio in points.

 


Hi all,

To begin with, kindly go through the article in the following link, especially the contents under the head VOLATILITY STOPS to understand what I am going to say below.

http://thepatternsite.com/stops.html

It is about setting initial stop loss based on Average Daily Range. The method outlined there is ideal for Position/swing trading.

In day trading, the task of arriving at a fairly agreeable and successful Risk reward ratio has always been daunting.

In another site, for emini futures trading, the stop loss was set at 10% and profit target at 15% of the ADR for seven days. This method produce very small figures  in Nifty price levels.

Combining the idea from the article in the above link, and the idea of setting SL and target with ADR percentage, I made an excel sheet of NIFTY futures trading. (The prices are that of NIFTY spot)

I have taken 22 days prior price bars for calculation and arrived at 30% of ADR as initial stop loss (risk), and also arrived at risk/reward ratio of 1:1.15, 1.30.1.50 and 1.618.

If a trader achieved 1:1 he can happily exit the trade or he can wait if his chart asks him to wait.

Assuming a good trading method, an entry strategy, is in place, initial stop loss of around 30 to 33 points seems to be Ok for me.

So, according to this, Monday's initial stop loss points for Nifty futures would be 31.09 less ones entry price and the corresponding reward ratios are also mentioned.

I await your views, suggestion for improvement or any other comments.

Best Regards,

Jayakrishnan.


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Posted by nsivaa at 12:40 AM

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