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BANK NIFTY - NIFTY RATIO PLAY



Sometimes, in unfavorable circumstances it becomes bit difficult to take a directional view on entire market or on a particular asset. But in financial markets we have seamless opportunities even at the times when your systems are not able to take a directional view on an asset or when fundamental and technical are not streamlined.

Ratio trading is one of those opportunities. In past we suggested a ratio trade in gold and silver while gold silver ratio was at 120 and today this ratio stands at 76. Means people who traded this opportunity could bought 120 kg of silver by selling 1kg gold and now they can buy 1kg of gold just by selling 77 kg silver means this opportunity has earned you 43kg silver.

Today again I am back with my analysis on BANK NIFTY and NIFTY ratio. Current Bank nifty- Nifty ratio stands at 1.94. Areas of 1.90 has served as good support for this ratio since 2012. However, this ratio has hit 1.62 during 2013 but was not able to spend much time in that territory and then this ratio rallied to 2.64 in May 2019.

At this stage while things are contradictory and fundamentals are suggesting a pessimistic view on entire economy it might be very risky to take a directional view. But yes, sometimes riskless opportunities exist and current situation seems like that only.

As per historical data of this Bank nifty and nifty ratio right now one can execute long positions in Nifty Bank and short position in Nifty 50. Currently this ratio stands at 1.94 thus one can buy 3 lots of BANK NIFTY and sell 2 lot of NIFTY 50. Our objective for this trade is to get benefit from increase in this ratio and our potential target of this ratio is 2.25 and 2.45 in coming months.

At this stage we assume that market is not going to hold this ratio at 1.94 for longer period of time and this ratio will get back to 2.25 or 2.45 in next 2-3 months. Any thing can happen either NIFTY might witness some decline or BANK NIFTY can witness some recovery but by taking this trade we can make money from both scenarios.

In order to protect risk one can, consider 1.90 as stop loss for this ratio trade and as soon as this ratio starts holding below 1.90 one can exit from this trade or options can be used to protect this trade if needed.

Dear readers this blog is intended to spread knowledge about trading and purely for educational purpose read the disclaimer before executing any trade we will not be responsible for any kind of profit or loss made in trades.

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