Trade at the Top confidently with 3 simple tactics: Shubham Agarwal

The biggest weekly loser was Divi’s laboratories, which fell 2.72 percent. It was followed by Hindustan Unilever which lost 1.86 percent during the week..

Shubham Agarwal

Market is at the top yet again. All time high above the milestone of 21,000 printed on the charts for NIFTY. While it must have made money for you already, it sure makes you feel a bit scared when it comes to taking a new trade. The confidence geos down and finally we start skipping the less conviction trades.

Funny as it is, many times the least conviction trade performs that we avoided. We may feel overloaded if we trade full capacity when the indices have already posted 5% in a week. Solution is to be methodical or tactical about it. Following are 3 such tactics that can come in handy when we are trading at the top and buying into the trend.

#1 Known Loss Strategies:

We all know that Options are capable of making sure that we know the maximum loss before even taking the trade (in case of worst-case scenario). So, we can use Options in making sure that all the trades that we take have such buy options that restrict the losses after a point.

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Shubham Agarwal

CEO and Head of Research|Quantsapp Private Limited

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Few examples are:

1. Buy Call
2. Protected Future = Buy Future + Buy Put (Option to Sell)

#2 Keep Track of market vibe:

This means, one should have a handy indicator that gives hint of the short-term trend in the market, especially running on the index. The one that I have been relying on lately is Volume Put Call Ratio.

Volume PCR = Total Put Option Volume / Total Call Option Volume

Here Total Volume refers to the volume of all strikes, all expiries of Call or Put options.

Volume of options especially is really interesting. This is because of the types of the options. Call option particularly signify Bullish bias, while Put options particularly signify Bearish bais. The Volume PCR is a single number made up of both of these volumes.

Rememebr to keep a track of Volume PCR on a daily basis. We are looking for a sudden jump in Volume PCR because of hike in volume of Puts significantly.

This would mean traders are making contrarian bets against the rise. This development alone can alert us in making sure that we reduce the bets and place them again if the ratio falls back down.

For Example: Nifty Volume PCR for 05-Dec = 0.78, for 06-Dec = 1.003. Post this rise in Volume PCR on 07-Dec Nifty saw a pause in the rise, 1st ever negative close in Futures in December.

#3 Profit Locks

This one is really simple. We all know Put Options are options to sell and their values rise if the market falls. This becomes a perfect lock.

So next time we buy a Future at 100 and it goes up to 102.5 instead of booking profit we Buy 102.5 Put @1.5 (Example). This way the profits are locked at 102.5 (for a cost of 1.5). In case the stock rises, we are in the position to make more profit.

Disclaimer: The views and investment tips expressed by investment 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.