Bank Nifty Impulse Elliott wave pattern along with Open Interest is giving an amazing Trade Setup.
In the chart below, we are combining both of these techniques together to derive at prudent trade using Options.
Bank Nifty Hourly Chart with OI chart:
Elliott Wave analysis:
Bank Nifty showed an amazing impulse rise from the lows of 34,200 to the highs of 36,200 levels.
Two-stage confirmation for trend reversal: From there prices broke below 2-4 trendline in a faster time than wave 5 took to form thereby confirming that the impulse rise was over.
The second stage of confirmation is obtained when the entire wave 5 was retraced back in a faster time than it took to form. This was the area that virtually confirmed that the rise is over and corrective overlapping move is starting.
With this information, a trader can be aware that he has to place his bets for a counter-trend move which is going to be slower and non–trending. Over here, it is Options that come in handy and selling Out of money Call and Put Options is the best strategy.
What does Open Interest signify?
Combining both Calls and Puts open interest, cumulative chart shows where the Option writers are active and which levels can act as important support or resistance. We can see a huge Call OI buildup at 36,000 and second highest Put OI buildup at 35,500 levels. So expected movement is between these levels for now and it is re-affirmed by Elliott wave analysis.
So, we expect Bank Nifty to move in a broad range between 36,000 and 35,500 levels. A decisive close above 36,000 is required for short covering in this index that can drive prices higher towards 36,500 or above. On the downside, 35,500 should remain protected.
This research shows how one can use this simple yet powerful method to trade any instrument.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.