Bank Nifty Futures Trading Strategy – Part 1 – Basics

hi guys so this is a four part series on
Bank nifty now I quite often get queries about how to trade in Bank Nifty’s which
is why I have taken up this topic I’ve divided this topic into you know four
different parts in the first part that is this part will be covering a very
basics of Bank nifty now I’m well aware that not everyone knows Bank nifty
instrument in detail and you know that is why a basic video was needed on Bank
nifty and you know its various constituents and sort of characteristics
now in this video I have actually highlighted a method which can be
applied to any stock futures and commodities and the basic theme of this
video is to you know how to plan a trade for any instrument you select so the
part 1 of this video is focused on again the basics of Bank nifty the part 2 will
be focused on Bank Nifty and relative strength analysis that is how to use
Bank nifty you know how to trade Bank nifty rather using relative strength
analysis method the third part would focus on trend analysis of Bank nifty
and finally the fourth part would be you know risk management position sizing and
stop-loss entry/exit those sort of things so I’ll just get started with the
part 1 here so the for the first part what we’ll be doing is I’ll just take
you through a brief of bank nifty then I’ll put up an introduction on the
various segments in which trader can trade in Bank nifty I want to focus on
the high beta nature of Bank nifty and how it you know impacts the overall
market then I’ll take up a you know various constituents of Bank nifty and
the weightage in broader market index and how actually that impacts our overall
market then I have a special section on the importance of Bank nifty as in why
it’s extremely important for a trader you know who’s trading let’s say nifty,
nifty IT or let’s say any other stock futures as well to you know track Bank
nifty and then these are two common queries that I quite often get the first
one is you know how to access Bank nifty historical data and second one of course
is about you know accessing market profile chart for Bank
nifty and the relative strength indicator for again Bank nifty so I’ll
be taking these topics in detail so let us get started
so Bank Nifty is actually one of the many indices we have in our national stock
exchange it’s available to trade in cash futures and options segment under the
cash segment you know a Bank Nifty spot obviously you cannot trade it as any
other stock but you can trade it in form of ETFs there are there are many
companies that offer a bank nifty ETFs which are similar to Bank Nifty index
under the future segment you would often see that Bank Nifty is available
available as Bank Nifty I, II & III
wherein one two and three actually represent the current month, the near
month and the far month so currently we are in June so Bank nifty I would be
the June contract bank nifty II would be the July contract and Bank nifty III
would be the August contract so expiry for all these contracts actually
happen on last Thursday of each month right so under the option segment
banK nifty is actually available in a weekly expiration option and monthly
expiration option now options is something I’ll be covering up in much
detail in a separate video series so I won’t touch this topic in this video
series I’ll be focusing just on I mean whatever we will cover in this video
series you can apply that on the cash segment and the future segment the Bank Nifty future lot size is 40 and it is the same for Bank Nifty options as well
so Bank Nifty Index is actually a combination of private sector banks and
public sector banks now as you know index weightage actually actually keeps
changing so over the years what we have seen is that private sector banks
actually now dominate bank nifty more Bank nifty weightage is about 38% in
Nifty 50 index which is why this is actually one of the most important index
that you should track it is by far the you know highest this index has the
highest weight as far as any other major index is sector index is concerned so
Bank nifty as I said is now dominated by private sector banks if you see HDFC
Bank has a weightage of about 36% ICICI is about 15% and Kotak Mahindra
about 14% so together about 61% weightage in Bank Nifty is just from the top
three private sector banks State Bank of India which is SBI which is a public
sector bank it has a weightage of about 8.2 percent and I think Bank of Baroda
is another Bank which has a weightage of about 3 to 4 percent I’m not sure
about that so the top weightage of banks in Bank Nifty is as follows after
SBI you have IndusInd bank Axis bank Yes Bank RBL and Federal Bank alright so
I’ll just show you the index weight chart now if you see this is nifty 50
sector weight within the nifty 50 index the banking sector has about 38 percent
weightage after that the next sector that comes in is energy it it is at
about 13 percent followed by I.T., Consumer Goods and Automobile now why bank nifty
is so important is because if you see the weightage of Bank Nifty as
of now as of today it’s about 38% this does keep changing quite often so I mean
the re-balancing of nifty 50 index happens you can just check this weightage about once in three months that should be okay so if you combine all
these index weightages it would still not match with Bank Nifty weight you have to
combine Energy, I.T., Consumer Goods and Automobile together to reach the weight
of bank nifty so which is why bank nifty is so influential when it comes to you
know nifty movement I want to focus on one more aspect of Bank nifty which is
its high beta nature that is it’s a highly volatile index now why we need to
you know focus on any stock or index in terms of volatility is because the trade
planning the risk management position sizing all depends on volatility so
which is why I have actually dedicated one complete video part for volatility
wherein I’m going to show how volatility actually leads to better
position sizing and better risk management that is you have to
incorporate volatility in risk management and position sizing a common
mistake which traders do is actually look at the volatility here it’s about
14% whereas in 2011 to 2013 it was about 5 to 6% 2015 to 2018 that is current the
the average volatility is about 3.5% which is actually the lowest for bank
nifty in over you know period of 10 years now why this is important is
because in such a high volatile environment let’s say what we had in
2007 to 2009 June July you cannot be trading with the
same position size which you can in this volatile with this volatility
environment and this one all right so position sizing stop losses all have
to be different for each different volatility cycle now this this is an
extremely important point that is why you know I’ve taken up in a separate
video but for now keep in mind that whether it is Bank nifty or another any
other instrument that you want to trade or you want to you know research in
always keep in mind the volatility cycle of the instrument because that will
eventually determine your you know strategies in risk management. So the
next important point that I want to highlight in Bank Nifty is that of
correlation. So Bank nifty correlation with nifty is extremely high. This is a
correlation graph of about 12 years and you can see that you know Bank nifty
correlation had dipped somewhere in 2014, but still the correlation was as high as
0.87. So currently I’m doing this recording on 12th June so as of as of 8
June I can see that the correlation between nifty and Bank Nifty is high as
0.99. So which is why this index naturally because it is so high in you
know nifty it has such high weight in nifty which is where Bank Nifty mostly
decides the trend for overall overall market. In case you’ve been in the market
for let’s say about two years or three years, you would know that whenever Bank
nifty tends to move with momentum, nifty and most of the index indices sector
indices actually follow Bank nifty. So this is a sort of trendsetter if I’m if
I may use the word for at least this decade. For those of
you who were trading back in 2005-2006 actually it was the Capital Goods sector
Infra sctor those were the kind of sectors real estate sector which were
actually you know taking the Nifty high at that time. The sentiment – those three
index could be related to you know what Bank nifty is to market today. So which
is why if you see my market analysis video that I release every week,
I never forget to mention Bank nifty in fact in in my opinion bank Nifty is
actually more important than nifty when it comes to overall market analysis.
Another important aspect that I want to highlight is the overall sentiment
impact. Now I’ve briefly covered this topic in the previous slide but what I
have here is a return of Bank nifty and nifty from 2010 onwards. So if you see in
2010, Bank nifty gave about 30 percent returns nifty was about 17 percent. 2011
Nifty was minus twenty four percent whereas Bank nifty was minus 32. In 2012
Bank nifty was about sixty and nifty was about thirty. In 2013 Bank Nifty was minus
ten whereas nifty was positive five. In 2014 Bank Nifty was sixty four whereas
nifty was thirty one. So what I’m trying to show here is that whatever nifty does
Bank nifty actually amplifies it. So which is why the sentiment impact of
Bank nifty on overall market is much higher than you know any other index.
Also given the nature of banks this sector is always in news even if you
take you know ever since this government has changed, the central government is
changed and 2014 we got a new government, even prior to that banking sector used
to dominate. Even with this government banking sector actually dominates most
of the news flow. So that is why I said that Bank nifty is sort of index you
know like capital goods and IT and infra were back in 2006-2007. So which is why
whenever you start analyzing the broader market or you want
to make investments, just make sure you check out Bank nifty because this sector
along with financial services actually you know sets the overall tone of the
market. So I’ll just move to how to procure Bank nifty historical data. Now
this is a this is a question I get quite often on email. Bank nifty historical
data can actually easily be procured through NSE website. If you check the
description box below I have already put out the link for it you can download the
entire historical data of Bank nifty. Bank nifty future data is a little
difficult to get that is with open interest so in case you want this data
just leave a comment below and I’ll upload the data for you. Bank
nifty chart is actually available at Trading View Dot Com. Again the link of the
same I have posted in the description box. Bank nifty future data is actually
not available that is Bank Nifty futures chart is actually not available
on trading view but I think it’s available at Again the
link for the same is posted below. And now one part that I wanted to cover
before we move on to part 2-3-4 of this Bank nifty trading series is
whether to you know choose website related technical analysis software or a
proper software like Amibroker, MetaStock, Ninja trader. See this
depends on trader 2 trader but somehow I feel that a proper software for chart
analysis is always better than you know whatever platforms you get on websites.
Whether it is trading view dot-com or investing dot com, somehow you know some
advanced indicators are actually not available on web related softwares which
is why I would you know strongly encourage you guys to go and invest some
money in some good technical softwares so that you know you can import these
data have your own analysis and take notes of that. I belong to the camp
where you know I don’t like using web-based charting platforms which is
why I personally use various softwares for either that is broader market analysis,
relative strength analysis or let’s say market profile.
So the last segment that I want to focus on in this part is you know how to get
market profile charts and relative strength charts for Bank nifty. Now
market profile will be covered in the trend analysis segment as an independent
topic, but in case you you want market profile charts, these are the sources
from where you can get it. This is market Delta software, it’s actually quite
pricey it will cost you about 175 dollars so just go through it you can
pause the video here. I feel that for Indian markets I think Amibroker is a
cheapest option available because you do get some market profile afl’s rightly
available on readily available on google. There are some wonderful users of Amibroker who have actually uploaded the market profile AFL for free. So this I think
is the cheapest option available. Ninja trader of course is a free platform but
the market profile plug-in will cost you about $100 or round about that. Sierra
chart is one more software that i use but real-time data option is not
available in that softwares only end of day analysis can be done. So I personally
feel you can explore this Amibroker option in case you already have Amibroker and again just Google about market profile AFL and you should you
know get it readily available. As far as one more query that I get is about
relative strength charts. You can also get Bank nifty chart on Google Finance
it’s I think futures is also available in case you don’t want to invest in a
proper software and you still want to track charts through websites. So
relative strength charts that is RS analysis that I do the indicator for it
is available in again a proper software that is Amibroker, Metastock,
Ninjatrader, Multicharts, Sierra charts and it’s also available on a online trading
website that is trading view dot-com There’s a particular script I think for
relative strength you can use that but again I would strongly recommend that
based on your personal preference just invest in some good software so that you
can get your hand on these particular tools. Relative strength as I said is
not available on most web platforms which is why I leave it up to you to
decide whether you want to still stick with the web platform or sort of invest
in some proper softwares. So this RS topic I’ll be covering in depth in the part 2.
Part 3 I would be again taking up trend analysis and the fourth part would
be about risk management. So this was just a basic video on Bank nifty that I
wanted to do because we have to recognize the fact that not everyone who
watches these videos are proficient in trading. There are some beginners out
there who are just starting from the scratch and such basic videos are also
needed so that you know they can become proficient in joining us in trading bank
nifty successfully. So this is all for you know this video, the part 2 is also
uploaded by now so in case you know you want to learn more about Bank nifty and
you can move to part 2 and watch that particular video. So thanks a lot for
watching this video I’ll see you guys next time. Click on the subscribe button
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29 thoughts on “Bank Nifty Futures Trading Strategy – Part 1 – Basics

  1. Guys, thanks for watching this video.

    This is an Introduction Video on Bank Nifty.

    You will be learning about Bank Nifty Constituents, Bank Nifty Volatility, Bank Nifty correlation and much more which will form a building block for remaining videos in this 4 part series.

    I have also given sources from where Bank Nifty data can be procured along with RS Charts for Bank Nifty and Market Profile Charts for Bank Nifty.

    In case of any doubt, just leave a comment below and I will answer the same.

  2. Thank you very much for bringing Bank Nifty Educational Series, which will be beneficial to the learners and traders in their trading success.

  3. Sir pls tell me i cash sector u said their is Banking sector ETF so we ca trade them as we trade cash market .

  4. saw all Swing Trade five videos, though this channel is worthy to enhance knowledge as you put in lot of efforts, decided to see all the videos in this channel and started Banknifty videos, nice basic stuff on intro video on Bank Nifty

  5. Same as last comment.. I just completed Swing trading 5 videos. I was very much impressed on the details provided. I will go through those videos again. now started with Bank Nifty. Thanks a lot for your efforts…

  6. Sir
    Really I am wondering when I am watching the chart of bank nifty and nifty it gives always same movement now I can realised after watching this video I came to know bank nifty have more weightage than other sector super video really eye opener like me as a beginner I would say rather than I am in the market from 2007 with out knowing I am trading now I planned to watch all the video and than I will trade sir. You will upload many videos like this give market literacy to every one appreciated you effort sir. 🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏🙏

  7. Dear TradeWithTrend, which is the best software based charting & technical platform? What's ur suggestion?

  8. moving through your old videos and found good ones to recollect.thanks for maintaining this channel consistently

  9. Tried plotting 200 DMA for RS on tradingview. Changed the DMA source to RS:RS and RS:Plot but still unable to get the DMA line on RS chart. Any suggestions please

  10. Informative article. Actually I was looking for the answer… Why most trader/tips provider use BNF instead of NF… ? Got the answer. Thanks a lot…. BTW… Can you provide the BNF data, as said in this vdo ?

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