Brief Summary
This video presents a trading setup designed for option buyers in the crude oil market. It focuses on achieving a high probability of profitable trades with a target of 1:2 or more risk-reward ratio. The setup involves using RSI, DMI, and moving averages to identify potential buying opportunities. The video emphasizes the importance of following the setup rules closely and provides examples of successful trades using this strategy.
- The setup is designed for option buyers with small capital.
- It aims for a high probability of profitable trades (7 out of 10).
- It uses RSI, DMI, and moving averages to identify buying opportunities.
Introduction
The video introduces a setup beneficial for option buyers, particularly those with small capital. The presenter claims that following this setup can lead to a high probability of profitable trades, with the potential to achieve 1:2 or greater risk-reward ratios. He mentions that he uses the same setup in his live streams for crude oil trading. He encourages viewers to keep a notebook and pen handy to note down the details of the setup.
Setting Up Indicators
To set up the strategy, the presenter opens a call option chart for crude oil (CL 6300) and adds three indicators: RSI (Relative Strength Index), DMI (Directional Movement Index), and a Moving Average. The moving average is configured with a period of 30. The RSI settings are adjusted to highlight the 60 level in green and the 40 level in black, with the middle level set to white. In the DMI settings, DI+ is set to green, DI- to red, and ADX to white, while ADX-R is turned off.
Understanding the Setup
The presenter explains the rules of the setup. A long trade is considered when the 30-period moving average is trending upwards. RSI levels above 60 are considered a buy signal, while levels below 40 are considered a sell signal. The DMI's white line indicates the strength of the trend, with green DI+ representing buyer strength and red DI- representing seller strength.
Call Option Buying Examples
The presenter provides examples of how to identify buying opportunities using the setup. When RSI crosses 60 and the price is above the 30-period moving average, a buy signal is generated. The DMI should show a positive buyer stance (green DI+). Entry is made immediately after the candle closes, with a stop loss placed below the candle. The target is set at a 1:2 risk-reward ratio. He also notes that it's important for the price not to be too far from the moving average when the setup is triggered.
Put Option Buying Example
The presenter switches to a put option chart (crude oil 6300 put) and demonstrates how the same setup can be used for put options. The rules remain the same, but now the focus is on identifying selling opportunities. When RSI crosses below 40 and the price is below the 30-period moving average, a sell signal is generated. The DMI should show a positive seller stance (red DI-). Entry is made immediately after the candle closes, with a stop loss placed above the candle. The target is set at a 1:2 risk-reward ratio.
Important Considerations and Conclusion
The presenter emphasizes that this setup is designed for option buying only and not for short selling. He reiterates the importance of sticking to the 1:2 risk-reward ratio and trailing the stop loss using the moving average as support. He advises viewers to abandon the strategy if it does not yield positive results in 7 out of 10 trades. The presenter concludes by encouraging viewers to like the video, subscribe to the channel, and join the live streams for Bank Nifty and Crude Oil trading.
