The double barrel trade today

After yesterday's small loss it was crucial for me to have a decent day to keep my spirits alive heading to the weekend. So even though I started off on the wrong foot, let me show you how I was able to make a good profit today.

So the markets like yesterday opened with a gap up and tried to reverse the downtrend it has been for the last couple of days. Till about 10 AM it was showing good signs of a recovery and the charts confirmed it to an extent.

I was skeptical of this reversal at first but when I saw three green bars going up it kinda confirmed we might have a reversal. So I picked up the call option at 16,000 and scanned its chart for confirmation and delayed my entry a bit.

I should have entered at 82 but delayed my entry to 90 since I was not convinced of a reversal. But you can see more or less what happened after that. The market went back to its downtrend, so the call option also collapsed.

Since I had a stop loss in place close by, I only suffered a small loss and got out.

Always keep a stop loss to protect yourself from quick reversals. #lessonslearned

The Interesting Part

So after the reversal and the small loss I suffered in the early part of the day. I kept watching the markets for an important support level to be broken. Even though the market reversed, it still had not given me a confirmation it's going down. That level was 16,020.

If you see, the support level was almost breached at 10.40 AM but the market faked it. The actual breakout from this support zone happened only at 11.10 AM. So even though I entered at 10.40 AM, my patience paid off since my stop loss was intact during the whole time.

Now since I was looking for the markets to go down, my sights were on the 16000 put option. I bought the put option for 42 at 10.40 AM, when the market gave a false breakout and kept my stop loss at 26. I waited 20 mins more for the put option to give a breakout since the markets fell below the 16020 levels at about 11.10 AM.

The risk I was taking here was 16 (42-26). So when the price reached 77 I should have exited, since it was already giving me more than double my risk. How? My risk is 16 (42-26) and reward at 77 was 35 (77-42).

Instead I raised my stop loss to 58 and waited for the option to rise higher. But the markets had other ideas in mind - so it retraced back a bit, hit my stop loss and then again went to 77. So I had to settle for a profit of 16 which again is a decent return. (1:1) So let us beware of the Gollum mode next time (it's a Lord of the Rings reference).

The More Interesting Part

Now making a decent profit and compensating for the loss made early in the day, I waited for another chance in the second half of the day. The market presented it when another important support level at 15940 level was breached at 1.20 PM.

At 1.20 PM, I entered the same put option at 80 and kept my stop loss at 60 so my risk was 20 (80-60). After the retrace the option made a strong breakout above 100. I exited my entire position at 105 which got a reward of 25 (105-80). That was a decent return on my risk of 20, again almost 1:1 risk reward ratio.

Always go back to the market when it presents an opportunity.

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