Rules and guidelines for trading NIFTY F&O

When it comes to trading NIFTY F&O, there are certain rules and guidelines that you need to strictly follow. Failure to do so will wipe out your trading capital sooner or later. Hence follow these like a robot and do not let your emotions get in the way of successful trading.

Trading tips and checklist

Use a low brokerage online trading account. Check and confirm that your volume-adjusted brokerage, including taxes, does not exceed 0.01% per trade (both legs combined).

Ensure trading capital of at least ₹5 lakh. Maintain some additional relevant margin for accommodating any possible intervening losses.

Be mentally and financially prepared to bear occasional losses. Profit and loss are part and parcel of the trading cycle. In fact, 10 or even more consecutive losses are not unusual. The goal is higher overall net profit by minimizing risk (losses) and maximizing reward (profits).

Never risk more than 5% of your trading capital on a single trade. Keep the balance amount on standby for other possible opportunities or to tide over any temporary losses.

Quantity < 0.05 x Trading Capital / Stoploss Range
For example, if your trading capital is ₹5 lakh and trade's stoploss range is 30 points then the quantity traded must be < 0.05 x 500000 / 30 i.e. 833. Since 1 NIFTY Future lot = 75 quantity, your trade size should not exceed 833 / 75 = 11 lots.

Use intraday leverage judiciously. If amount required for trading the quantity as calculated above exceeds your capital, leverage the trade using intraday or cover/bracket order margin facility provided by your broker.

Always trade with a strict stoploss. In the stock market you may lose, say up to 20% of your capital, literally in the blink of an eye, just as easily you could gain that much in the same time. An accompanying stoploss order helps in mitigating financial disasters.

Stay alert and act fast. The stock market is extremely volatile and prone to swift movements which may severely limit your ability to enter and exit positions at desired price or time.

Trade opportunistically, not compulsively. Do not expect trading opportunities every single day. It's better to skip the day when market doesn't offer a suitable risk-reward payoff.

Guidelines for NIFTY intraday LIVE trading

Trade current week or month derivative contract only. NIFTY FUT refers to current or near month NIFTY future. NIFTY xxC / xxP refers to current or near week NIFTY Call / Put option with xx strike price.

Allocate fixed capital per trade. You may consider increasing the trading capital after profitable trades provided that you remain consistent and do not downgrade the amount after any losing trade.

Quantity Factor may be used as a quick rough guide, where 1x = quantity you normally trade, 2x = double quantity, 0.5x = half quantity, so on and so forth. It is inversely related to the stoploss range thereby ensuring a fixed capital allocation per trade.

Conservative traders should stick to Target1 only. Ignoring Target2 and just working with Target1 means sacrificing occasional big gains in favour of frequent small gains for reducing the severity of drawdowns caused by a string of consecutive losses.

Aggressive traders may utilize Target2. Upon hitting Target1, book profit for 50% quantity and move Stoploss for remaining 50% quantity to the initial Entry price. For this remaining 50% quantity, either book profit upon hitting Target2 or exit at new Stoploss upon reversal from Target1 to initial Entry price. Beware of severe drawdowns while using this high risk - high return strategy.

Skip trade if Stoploss or Targets are hit before Entry. In case the current market price hits either Stoploss or Target levels even before you are able to initiate the position then skip that trade altogether. Do not re-open position once the price pulls back to Entry level from Stoploss or Target levels.

After 3 p.m., exit trade either at entry price or at 3:20 p.m., whichever is earlier if neither Stoploss nor Targets are hit by that time.

Do not expect any follow-up, closure or exit alerts. Once the initial trade alert is issued, it is entirely your choice and responsibility to act upon it in the manner prescribed herein.