This post talks about the second part of the trade selection tool, applicable to shorter term variables on the 1H chart of Nifty Futures. One of the most important and critical variables is the strength of the setup for a particular commodity as determined by the Win Ratio. It differs by setup and has been arrived at after rigorous backtesting over the past two years.
Why is the Win Ratio so important? Lets understand this with the help of the following table which lists the Win Ratio for each setup along with the profit per mini lot of Nifty Futures.
Setup | Win Ratio | Profit/Lot (INR) | Strength of Setup |
Bullish Engulfing Bearish Engulfing | 78% 68% | 630 600 | Tradable Discretionary |
Hammer at Support Reverse Hammer at Resistance | 91% 69% | 1160 770 | Must Trade Discretionary |
Big Green above Resistance Big Red below Support | 81% 62% | 1020 540 | Tradable Below Avg - Avoidable |
89% 100% | 950 2740 | Highly Tradable Must Trade | |
Big Green at C1 or C2 Big Red at C1 or C2 | 71% 62% | 1020 900 | Tradable Below Avg - Avoidable |
Strong Green on C1- LBS Strong Red on C1- HAR | 77% 90% | 1470 1980 | Tradable Must Trade |
(Table showing Win Ratio and Profit per Mini Lot of each setup)
Hammer at support has a Win Ratio of 91% which implies that 9 out of every 10 trades are successful. Triple Falling Bottom and Triple Rising Top are very strong setups with the latter having a Win Ratio of 100%!
The Strength of the Setup is determined on the basis of the combination of Win Ratio and Profit / Lot. Self explanatory in the above example.
Please click on "Next Post" to discover the next short term variable of trade selection, the Chart Pattern on the 1H chart.
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