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How To Do Intraday Option Trading in Banknifty?

Updated: Feb 12

Many traders make their living by trading nifty or bank nifty at the intraday level. A few traders directly trade in futures, whereas some deploy different option trading strategies to make profits.


There is a massive difference between ‘a successful trade’ and ‘successful trading.’ The latter demands the continuous execution of a trading strategy that has positive expectancy for a longer duration.


Nifty and Banknifty Intraday Options Trading Strategy Guide


Table of Content


What is Banknifty?

Banknifty Live Chart

Margin Details of Banknifty

Banknifty Historical Data

Nifty vs. Banknifty

Banknifty Support and Resistance

Banknifty Intraday Trading Strategy

Banknifty Options Strategy

Conclusion


What is Banknifty?

Nifty is an index for top-50 companies from National Stock Exchange.

Sensex is the index of top-30 companies from the Bombay Stock Exchange (BSE).


Similarly, bank nifty is an index comprised of the 12 most liquid and largest cap stocks from the banking sector in the National Stock Exchange (NSE).


Let us explore how the bank nifty is formed, a successful trading strategy to trade Banknifty, and a corresponding options trading strategy.



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Banknifty Live Chart Today

A live chart is essential to take intraday trades. There are many sources to get a live graph of Banknifty. Tradingview provides a simple and interactive live chart.


Access Banknifty Live Chart here.



Banknifty Margin Details

As per NSE's new margin rules, from 1-June-2021, traders should keep 75% of the peak margin available with the broker. By Sep 2021, the same rate goes to 100%, which means there is no extra leverage for intraday trading in Indian market conditions.


In other words, all brokers should collect a 100% margin from traders. None of the brokers will be able to provide any extra margin to intraday traders.


So, one can check the margin requirements with any broker as they are the same as mandated by SEBI. One can check the margin requirements with the below links


Zerodha Margin Calculator

Upstox Margin Calculator



Banknifty Historical Data

Backtesting helps traders to identify a good trading strategy. It also allows them to fine-tune their approach in volatile market conditions.


However, historical data is necessary to perform the backtesting. With a 15-min timeframe, one can access the last 3 months of data with Gocharting. The advantage of Gocharting is that it also provides an EOD market profile chart for free users.


A trader can access up to 6 months of intraday data (in 15-min timeframe) in Tradingview.


NSE also provides historical data (at the EOD level) here.


If you need 1-min intraday data from Jan 2008, visit the Trading Tuitions website.




Banknifty vs. Nifty

Banknifty is made up of only top-12 banks from NSE. Whereas, Nifty is made up of top-50 companies from NSE, which also includes some Banks.


As compared to bank nifty, nifty displays calm, smooth and composed behavior on most trading days. Whereas, Banknifty is a beast and displays volatile swings on many trading days.


Hence, many day traders who have the intention of taking only 1-2 trades prefer nifty. In contrast, scalpers and traders who are happy to take more than 2 trades like bank nifty.




Banknifty Support and Resistance

Some traders underestimate support and resistance in intraday trading, thinking it is a basic trading concept. But simple things bring wonders in trading, and the support & resistance concept is not an exception.


In Banknifty intraday trading, there are two levels of support and resistance:

  1. Support & Resistance trend lines from the daily chart

  2. Previous Day High (PDH) and Previous Day Low (PDL) acts as support and resistance in the live market


Daily Chart Support & Resistance

Image 2 – Banknifty Resistance in Daily Chart
Image 2 – Banknifty Resistance in Daily Chart

If we look at the daily chart of Banknifty in image-2, there is a resistance trend line. It prevented the rise of price on 29-Apr-2021.


Image 3 – Banknifty Support in Daily Chart
Image 3 – Banknifty Support in Daily Chart

If we look at the daily chart of Banknifty in image-3, there is a clear support trend line. It prevented the fall of price on 29-Jan-2021.


Hence, it is apparent that support and resistance pivot levels play a crucial role in intraday trading.


A Banknifty intraday trader should note these price levels and oversee the price action carefully when the price reaches these levels.



PDH and PDL as Support & Resistance

Previous Day High (PDH) is also called ‘Unfair High.’ It indicates the presence of the last buyer on the previous day, and there are no more buyers at a higher level.


Hence, in a balanced market condition, there is a higher probability of price acting as resistance.


Image 4 – Banknifty PDH as Resistance (balanced open)
Image 4 – Banknifty PDH as Resistance (balanced open)

The above image shows the balanced open (open at the center of the previous day range), and when the price bounced back to PDH, it acted as a resistance, and hence the price fell in the second half.


Most of the traders know resistance turning into support (and vice-versa) in trading.


Similarly, in an imbalanced market condition, the same PDH can act as a support for today (high probability).


Image 5 – Banknifty PDH as Support (imbalanced open)
Image 5 – Banknifty PDH as Support (imbalanced open)

The above image shows the scenario of an imbalanced open (open above the previous day range), and when the price gives a pullback to PDH, it acted as a support, and the price bounced back later.


Like the previous day high (PDH), the previous day low (PDL) will also act as support in the case of balanced open and serves as resistance in case of imbalanced open of the price.


Image 6 – Banknifty PDL as Support (balanced open)
Image 6 – Banknifty PDL as Support (balanced open)
Image 7 – Banknifty PDL as Resistance (imbalanced open)
Image 7 – Banknifty PDL as Resistance (imbalanced open)

Image-6 and image-7 show the examples for PDL acting as support in the case of balanced open and resistance in case of an imbalanced open.



Banknifty Intraday Trading Strategy

Many traders look at only the ‘success ratio’ to shortlist a trading strategy.


It is not a good idea. Because a trader can have a 90% success ratio, but still, he can lose money.


For example, Banknifty is trading at 30100. A person will suggest taking a long trade at CMP (at 30100), target 30200, and stop-loss 29000.


Do you know what will be the outcome of this trade?


On most days, these kinds of trades are winners. Because we are risking 1100 points for a profit of just 100 points!


One loss can wipe out the profits from 10 trades. Hence, day traders, along with ‘Success Ratio,’ should always look at another parameter, ‘Risk-Reward.’


Now assume we have a good trading system – Success ratio of 60%, Risk-reward of 1-2.


It means out of 100 trades, 60 trades are winners, and 40 trades are losers. In addition, if we risk 10K per trade, winning trades made a profit of 20K (RR or 1-2).


So all looks good on paper, right?


An intraday trader starts to use the above trading strategy and deploys 10 Lakh capital for this system.


After some trades, his portfolio reduces to 7 lakh (30% erosion). Do you think he will keep the same emotional stability to take trades using the same trading strategy?


Definitely, the answer is a big NO!


In the above case, if the maximum drawdown is only 10% (means capital erosion only up to 9 lakh), then the same trader is in a better condition to take the trades using the same trading concept.


How to measure the performance of a trading strategy?

Hence, 3 parameters are essential to measuring the performance of a trading system.

  1. Success Ratio

  2. Risk-Reward

  3. Maximum Drawdown


In this article, I will explain an intraday trading strategy for Banknifty. Besides, I will also provide all the statistics (including the above success ratio, risk-reward, and maximum drawdown parameters).


However, an explanation of two crucial concepts is necessary before giving the trading strategy.


Day Structures in Banknifty

Market Profile identifies a few readable patterns in the daily time frame based on the level of participation of big players.


IB Range is the first one-hour range in the market after the market open. Based on IB range and price variation around IB range, Market Profile identifies 6 important day structures:

  1. Normal Day

  2. Normal Variation Day

  3. Trend Day

  4. Double Distribution Day

  5. Non-Trend Day

  6. Neutral Day


We will discuss only ‘Normal Variation Day’ as part of the Banknifty trading strategy.

(Please read ‘Intraday Trading using Market Profile’ if you want to know all the day structures)


Normal Variation Day

Image 8 – Normal Variation Day in Banknifty
Image 8 – Normal Variation Day in Banknifty

In Normal Variation Day, the IB range (1-hour range) will be medium.


The price will move outside of the IB range in any direction (either up or down).


This movement of price outside of IB range (range extension) generally will be equal to the length of the price range in the IB.


For example, if the IB range is 150 points, the price will move outside of IB approximately by 150 points.


Normal Variation Day occurs because big players don’t participate in the open.

They will watch the market for some time, and then they enter after the formation of the IB range to create a range extension on any one side of the IB.


Out of 100 trading days in bank nifty, 70 days will be normal variation days. Hence, if we have a trading strategy to trade normal variation day, we get more trades.


Opening Range Breakout (ORB) Concept


TOBY CRABLE develops ORB Strategy, and it is one of the widely used trading strategies among day traders.


It is based on the concept “Amateurs open the market and professionals close the market.”


Opening Range Breakout (ORB) trading strategy in Nifty and Banknifty

As per the ORB strategy, traders take the trade in the direction of the breakout of the IB range (1-hour range).


If the price breaks the IB high (1-hour high), they go for a long trade, and if the price breaks the IB low (1-hour low), they go for a short trade.