Stock Trading Ideas: January 2025

Monday, January 20, 2025

New Options Trading System using Physics and Mathematical constants. Part-2

In the last paragraph of the first post, I said that this system can be used on underlying stocks or Index charts and also on their options chart. Here's more on that-

This system can be utilized in two ways:

Using the Stock or Index Chart: Apply this system to the stock or index chart. When a breakout or breakdown signal is generated, buy the ATM (At-The-Money) strike option corresponding to the underlying asset.

Using the ATM Option Chart Directly: Apply the system directly to the ATM strike options chart and trade based on the breakout or breakdown signals observed.

Which method is better?

Based on my experiences, both approaches have their merits. Sometimes the first method proves to be more advantageous, while at other times, the second method yields better results. Personally, I prefer the first method—trading ATM options based on signals derived from the underlying stock or index chart—as it aligns well with my trading style and decision-making process.

Below images will clear waht I am saying-

HDFCBANK 5 min chart (20-01-2025)

HDFCBANK gave Break Out BUY signal at 09:25 candle, so we would enter on opening of next candle (one should wait for retracement , if the Break Out candle is big). The Break Out price was 1634.80. So, nearest ATM strike selected would be 1640 CALL. Below is chart of HDFCBANK 1640 Strike CALL (30-Jan-2025 Expiry). As per this chart, first Break Out was around 10:35, if traded this signal, then Stop Loss would have hit. Next BUY signal was around 11:15, which was successful. Also, we would have missed the up move if we would have traded using Options chart. I have seen this many times.

HDFCBANK 1640 Call (30-Jan-2025 Expiry) 5 min chart

Sunday, January 19, 2025

New Options Trading System using Physics and Mathematical constants.

As the title suggests, this is my new system for options trading. I have used certain constants from physics and mathematical ratios for the calculations. I developed it quite a while ago but had not tested it thoroughly at that time. However, a few weeks ago, I tested it and found it to be astonishingly effective. I simply call it the "Buy Above Sell Below" system.

Every day, it will plot a lime-colored line labeled as "Buy Above (Buy Call)" and a red-colored line labeled as "Sell Below (Buy Put)." Based on these two lines, Stop Loss (aqua-colored small dotted line), lime-colored lines with labels "Up TP-1," "Up TP-2," "Up TP-3" up to TP-5 are plotted, which are various Take Profit levels. Similarly, Take Profit levels for the downside are plotted. A Bollinger Band is also present, with the Upper Band in red and the Lower Band in lime. The Middle Band changes color: it is red when prices are below it and lime when prices are above it.

A yellow-colored 5-period EMA is also present, along with a 20-period EMA in white. Enough of the description; now let's discuss Entry, Stop Loss levels, and where to Take Profit. Those who are observant might notice that the Stop Loss level and Take Profit levels are already shown.

I prefer this system for buying options, both stock and index. Below is an image for Nifty; others will be shared too.

Entry Criteria: When the price breaks the "Buy Above" (hereafter BA) line, we will consider taking a long entry. However, earlier, I used to enter on this signal and had accepted losses. Now, a refined entry criterion:

Both the price and the 5-period EMA need to cross the BA line. Sometimes, the price will cross, and after 1, 2, 3, or even more candles, the 5-period EMA will cross. So, we have to wait until the 5-period EMA crosses the BA level. Then, enter on the same candle (if price action allows) or on the open of the next candle.

I prefer ATM Strike Options.

Similarly, if the 5-period EMA crosses the "Sell Below" line (SB, hereafter), I prefer to buy ATM Put options.

Stop Loss: The Stop Loss is already mentioned in the image (it is hard-coded in the Pine Script code).

Take Profit: These levels are also mentioned. However, as per my personal experience, TP-1 on either side has the highest probability. Additionally, the Bollinger Bands help to select the Take Profit level for that particular day. Also, I would suggest profit trailing, which I do. I trail it till the prices closes below 5 period EMA.

👉 NO RE-PAINTING

👉 NO NEED TO ANALYSE WHERE THE INDEX OR STOCK WILL GO, NO IFS AND BUTS

THE BEST PART OF THIS SCIPT IS THAT IT CAN BE APPLIED DIRECTLY ON THE OPTIONS CHARTS... the 2nd image is of NIFTY 23-Jan-2025 23300 strike Call. When directly applied on Call or Put charts, the TP-1 level mostly comes exceeds 5%. More in coming posts....

Nifty Chart 👇