Most traders lose in reversals.
So, I studied the best reversal trades - for selling options.
What I found?
Here's a guide to a FREE Setup on reversals in Bank Nifty:
Collaborated with @niki_poojary
So, I studied the best reversal trades - for selling options.
What I found?
Here's a guide to a FREE Setup on reversals in Bank Nifty:
Collaborated with @niki_poojary
Many traders are finding the current markets pretty different from 2023 till now.
That's because, in major indices like Bank Nifty, the trends are not as constant as earlier.
So naturally, we need to be observant and have our minds ready for where to find reversals.
I have found one pattern where it is getting repeated all the time.
That's because, in major indices like Bank Nifty, the trends are not as constant as earlier.
So naturally, we need to be observant and have our minds ready for where to find reversals.
I have found one pattern where it is getting repeated all the time.
So what are we trying to search for?
In this thread, we cover, taking a bearish trade by selling call options and then going long the next day and we will see multiple examples of this.
1. Spot a Bearish Engulfing (the good ones)
2. Sell puts the next day if you get a chance
In this thread, we cover, taking a bearish trade by selling call options and then going long the next day and we will see multiple examples of this.
1. Spot a Bearish Engulfing (the good ones)
2. Sell puts the next day if you get a chance
1) What is a Bearish Engulfing Pattern?
A bearish engulfing pattern occurs when a large red candle engulfs a smaller green candle.
The red candle’s open is higher than the green's high, and its close is lower than the green’s low. This signals strong selling pressure.
When you spot this, sellers have control, and the market might gap down the next day!
A bearish engulfing pattern occurs when a large red candle engulfs a smaller green candle.
The red candle’s open is higher than the green's high, and its close is lower than the green’s low. This signals strong selling pressure.
When you spot this, sellers have control, and the market might gap down the next day!
2) Who Should Use This Strategy?
This is for traders who:
• Want to profit from falling markets
• Sell call options and seek gap-down profits
• Prefer intraday and overnight strategies
If you're tired of relying on directionless trades, this thread is for you.
This is for traders who:
• Want to profit from falling markets
• Sell call options and seek gap-down profits
• Prefer intraday and overnight strategies
If you're tired of relying on directionless trades, this thread is for you.
3) How to Execute the Strategy?
Step-by-step breakdown:
• Spot a bearish engulfing pattern on the daily chart.
• Sell call options (naked or hedged) after identifying the pattern.
• Hold the position overnight, aiming for a market gap down.
• Book your profit at market open to lock in gains!
Step-by-step breakdown:
• Spot a bearish engulfing pattern on the daily chart.
• Sell call options (naked or hedged) after identifying the pattern.
• Hold the position overnight, aiming for a market gap down.
• Book your profit at market open to lock in gains!
4) Example from April 18: – Bank Nifty
Bank Nifty was in a small range, then the market formed a perfect bearish engulfing pattern.
Strategy:
Sold call options right at the closing of the bearish engulfing candle.
The market gapped down 400 points the next day, profiting from a huge price drop in call options. Simple and effective!
Bank Nifty was in a small range, then the market formed a perfect bearish engulfing pattern.
Strategy:
Sold call options right at the closing of the bearish engulfing candle.
The market gapped down 400 points the next day, profiting from a huge price drop in call options. Simple and effective!
5) What Happens if the Market Goes Up the Next Day?
Beware of the intraday bounce!
Even after a gap down, the market may reverse quickly, creating higher highs.
When you spot this on a 15-minute chart:
• Shift gears.
• Start selling put options below the day's low.
Profits from both the call side and the put side!
Example shared below.
Beware of the intraday bounce!
Even after a gap down, the market may reverse quickly, creating higher highs.
When you spot this on a 15-minute chart:
• Shift gears.
• Start selling put options below the day's low.
Profits from both the call side and the put side!
Example shared below.
Taking Profit at the Right Time
đź’ˇ Key Tip:
Always book your call option profits at market open after a gap down.
Holding on too long could erase your gains if the market reverses. Many times I have been correct about the gap but then if I used to keep holding my options used to come back to cost earlier.
Make this a rule: Profit on the gap, don’t risk the reversal.
đź’ˇ Key Tip:
Always book your call option profits at market open after a gap down.
Holding on too long could erase your gains if the market reverses. Many times I have been correct about the gap but then if I used to keep holding my options used to come back to cost earlier.
Make this a rule: Profit on the gap, don’t risk the reversal.
5) Example 2 – 28th February
Another example, 20th Feb, during monthly expiry:
• Market showed a bearish engulfing pattern on Wednesday.
• Sold call options above the day’s high.
• Market opened flat-to-down.
Results?
10-30 points of decay on options.
Sold the calls, captured the bearish move profit, and waited for intraday opportunities to sell puts.
Another example, 20th Feb, during monthly expiry:
• Market showed a bearish engulfing pattern on Wednesday.
• Sold call options above the day’s high.
• Market opened flat-to-down.
Results?
10-30 points of decay on options.
Sold the calls, captured the bearish move profit, and waited for intraday opportunities to sell puts.
6) Managing Risk Properly
Risk management is essential. Here's how:
• Hedge your positions if unsure about news or gaps.
• Use a stop loss at double the premium you sold (e.g., sold at ₹50, stop at ₹100).
• Never let emotions control your trade. Stick to the plan!
Risk management is essential. Here's how:
• Hedge your positions if unsure about news or gaps.
• Use a stop loss at double the premium you sold (e.g., sold at ₹50, stop at ₹100).
• Never let emotions control your trade. Stick to the plan!
7) Why Short-Term Backtesting is Key
Backtesting is critical, but don’t go overboard.
Markets change! Instead of backtesting 20 years, focus on recent patterns—6-12 months. Test the strategy in current market conditions to fine-tune it.
Rules and regulations change every year so this 10-20 year backtesting is nonsense according to me.
Backtesting is critical, but don’t go overboard.
Markets change! Instead of backtesting 20 years, focus on recent patterns—6-12 months. Test the strategy in current market conditions to fine-tune it.
Rules and regulations change every year so this 10-20 year backtesting is nonsense according to me.
8) Also with the bearish engulfings
Make sure the red candles are big Marubozus and also much bigger than the previous candle.
Do not take into account bullish candles at all.
For example, bearish engulfing may occur but the red candle can have a long wick on the downside as well.
We do not take such days into account.
Make sure the red candles are big Marubozus and also much bigger than the previous candle.
Do not take into account bullish candles at all.
For example, bearish engulfing may occur but the red candle can have a long wick on the downside as well.
We do not take such days into account.
9) Conclusion –
The beauty of this strategy is its flexibility:
• Bearish engulfing for overnight trades
• Intraday plays for both call and put selling
It works whether the market moves up or down, but you must act quickly and stick to risk management.
Use it to profit from volatility, not sideways movement.
The beauty of this strategy is its flexibility:
• Bearish engulfing for overnight trades
• Intraday plays for both call and put selling
It works whether the market moves up or down, but you must act quickly and stick to risk management.
Use it to profit from volatility, not sideways movement.
If you found this strategy valuable, hit the like button!
Questions?
Drop them in the comments, and I'll answer them all.
Subscribe to my channel for more videos and updates on new strategies.
Let me know if there’s another topic you want to cover.
#OptionsTrading #BearishEngulfing #CallSelling
Questions?
Drop them in the comments, and I'll answer them all.
Subscribe to my channel for more videos and updates on new strategies.
Let me know if there’s another topic you want to cover.
#OptionsTrading #BearishEngulfing #CallSelling
If you found this useful:
(1) Follow @Adityatodmal & @niki_poojary for more such threads.
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(2) Bookmark this thread for future.
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Check out our FREE LEARNING videos here:
1. Support and Resistance: youtu.be
2. Profit & Loss Statement for the FY 2023-24 with learnings:
youtu.be
3. How to trade Short Strangles? youtu.be
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youtu.be
5. How to Trade Hammer Candlestick Pattern?
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