Price Action Trading Strategies for Beginners

We’ve discussed the importance of price action when it comes to trading using technical analysis in our previous article. There are several price action trading strategies that a trader can use.

In this article, we’ll cover two commonly used price action trading strategies.

1. Using Continuation Patterns

Price charts often seem to be random. However, the job of the trader is to find patterns within this seeming randomness. These patterns form the basis on which future price movements occur.

A continuation pattern indicates that the current price trend is quite likely to continue in the future. Thus, if such a pattern that shows the price to be going up, then it is likely that the price will rise in the future, and vice versa.

This pattern can take the form of a triangle. However, just one triangle is not enough to indicate a trend. For a continuation pattern to occur, the triangle must form at least twice, as shown in the chart below. The chart below shows an uptrend due to the formation of two upward triangles. (Read more on triangle patterns.) When this occurs, it is quite likely that the price of the security is going to break its resistance level and continue rising.

Using Continuation Patterns

In addition to triangles, a continuation pattern can also take the form of flags or pennants or rectangles. If the pattern repeats, it is likely that the upward or downward trend will continue.

2. Using Price Action Reversal

Just like a continuation pattern reveals that an uptrend or a downtrend is likely to continue, a reversal pattern indicates that an uptrend or a downtrend is likely to break. If the basic rule of a trend is breached, traders can predict that the trend will not continue.

Consider the case of an uptrend, as shown below. Within the uptrend, the price action is making higher swing lows and highs. Next, the chart makes a lower swing low and then a lower swing high. This indicates that the pattern is about to reverse and enter a downward trend. As soon as the lower swing high is made, the basic rule surrounding the pattern and trend has been broken.

The chart below shows two reversal patterns. The first reversal is from uptrend to downtrend, and the second reversal is from downtrend to uptrend.

using price action reversal

Thus, price action reversals can help you detect important changes in the movement of the markets. Usually, when using price action reversal as a basis for your trades, you should look out for retracements back to support or resistance levels (as the case may be). If these levels are broken, a trend reversal is more likely to occur.

Once you have figured out your price action trading strategy, head over to PHI 1 for advanced charting, strategy creation, testing, and more on a single automated trading platform.

You don’t have to worry about manually keeping track of hundreds of charts and letting your emotions getting in the way of making the right trades.

Power up your trades with PHI 1!

Get a free trial today! 

An Introduction to Price Action Trading

All economic data and world news that causes price movement within a market is ultimately reflected via price action on a market’s price chart.” – Nial Fuller


Intraday traders rely on technical analysis to make long or short bets on securities. Price action forms the basis of all technical analysis. Price action trading consists of analysing the history of a security’s price to make predictions on future movements. Technical analysis tools such as moving averages and advanced charting are derived from price action.

Here’s part 1 of our series on Price Action Trading.


1. What is Price Action Trading?

Traders use price action as a way to make sense of seemingly random price movements of securities. Price action uses charts to plot the price movement of a security over time, which helps traders detect patterns.

For example, a common pattern “breakout with a build-up” allows traders to take advantage of short stop-loss orders above a resistance level. If the price of a security breaks above the resistance level, there is a good chance that the security will experience sustained bullishness, and a trader may enter a buy order just above the resistance level.

price action trading

There are many such patterns in price action trading. Essentially, the job of a price action trader is to identify these patterns and make their bets accordingly.


2. What are the Advantages of Following Price Action?

Price action is not just a technical tool. It is the idea behind all technical tools and indicators. Price action traders use this idea to make increasingly sophisticated tools to better predict the markets.

Most intraday traders almost exclusively use price action theory to chart resistance and support levels of securities. This allows them to predict when breakouts or consolidations might occur.

The beauty of price action trading is that fundamental news and events form a part of the history of the price of a security. Hence, price action covers almost every factor that decides the future price of a security.


3. What are the Shortcomings of Price Action?

While price action is the dominant idea behind which all technical analysis is based, it also has its limitations. This is because interpretations from price action data can be highly subjective. The same price chart can cause a price action trader to go long on a security, while another price action trader would go short.

Hence, traders should remember that there is no guaranteed way to predict the markets as they are inherently unpredictable. All you can do is use your best judgment and make informed decisions while trading.

The best way to think of price action trading is in terms of probability. You have a higher probability of making the right trades if you rely on price action rather than without

In conclusion…

Price action trading has been around for a long time and modern intraday traders still rely on past prices to predict future prices. There are certain authoritative books written by highly experienced traders which can help you go further in your trading journey.

  1. Martin Pring on Price Patterns – Martin Pring
  2. Make Money with Price Action Trading – Sunil Gurjar
  3. The Ultimate Trading Guide – John Hill, George Pruitt, and Lundy Hill
  4. The Art and Science of Technical Analysis – Adam Grimes
  5. Price Action Trading Secrets – Rayner Tao


And if you’re one of those traders who relies on price action to place trades, you may want to explore PHI 1 for easy tracking of prices and chart patterns with 120+ technical indicators at your perusal.

Get the free trial today!

technical indicators

PHI 1 Core Vs Streak – Comparison between no code algo-trading platforms

Here is a detailed comparison of PHI 1 vs Streak. In this comparison, we are going to touch upon 9 key metrics.

Content Table

1. Ease of Use
2. Strategy Creation
3. Backtesting & Paper trading
4. Signal generation
5. End to end automation
6. Brokers Available
7. Technical Indicators
8. Support
9. Pricing Plan

See Comparison between PHI 1 Core Vs Streak

PHI 1 Core Vs Streak Comparison


1. Ease of use

Both – PHI 1 Core and Streak are extremely easy to use.
They have strategy templates to help you get started quickly
They have an easy to use, form-based strategy editor to create or modify strategies
You don’t have to download or install any software to use


2. Strategy Creation

You don’t need any coding knowledge to create strategies on both platforms.
Both have a powerful form-based strategy creator which allows you to create technical strategies within minutes.

You can either select one of the existing strategy templates to experiment with further or build your own.


3. Backtesting & Paper trading

Both allow you to backtest and paper trade your strategies. You can select the duration, amount, and time interval to modify your testing parameters.


4. Signal generation

If you deploy or paper trade a strategy, both allow you to generate signals basis your predefined entry and exit conditions.


5. Automated Trading

Streak doesn’t automate order execution. You must manually place your orders.
PHI 1 allows end-to-end automation, which means you can even automate order execution.


6. Brokers available

Currently, Streak offers login using these 4 brokers – Kite, Upstox, Angel One, and 5 Paisa while PHI 1 has integrations with only Kite and Fyers.

This list is expected to increase in near future.


7. Technical Indicators

Streak supports 80+ indicators while PHI 1 supports 120+ indicators.
This list of indicators includes all the popular indicators like Supertrend, MACD, RSI, Momentum indicator, Moving Average, etc.


8. Support

Streak has a robust support system comprising Streak Academy, Telegram Community, and Webinars. PHI 1 offers live chat, chatbots, tutorials and conducts regular webinars to help its users.


9. Pricing

Streak offers 2 pricing plans – Regular and Ultimate. Its pricing starts at INR 690/ month while PHI 1’s Core Plan starts at INR 999/ month.

PH1 1 Pricing

Streak Pricing

Both offer discounts on their annual plans.

Here’s a table of the comparison as well. Please feel free to share with fellow traders!

Comparison Chart

Step-by-step Guide to Algo Trading using PHI 1

While a human trader may be able to trade for a few hours everyday, a computerized trading program will be able to do it for the entire 24 hours without a break or a mistake.

This is the advantage of algo trading – also known as algorithmic trading and automated trading.

You may have read all about algorithmic trading in our concept guide on algo trading. Let us now move on to the steps you need to follow for algo trading.

For the sake of illustration, we use PHI 1 as our algo trading software.


What is PHI 1?

Many algorithmic trading software is available in the market with few features, which may or may not be required by all traders.

The key challenge that traders face is the need to use multiple tools and additional plug-ins to complete the trading process. There are no tools that offer a comprehensive solution to algorithmic trading.

A good algorithmic trading software is one that allows easy access to the market and broker data, supports multiple instruments as well as markets, allows creation and testing of any trading strategies, has a user-friendly interface, provides readily available reports, has a reliable architecture as well as efficient order management and execution capabilities.

Well, we just defined PHI 1—a unified algo trading platform that takes care of mundane tasks so traders can focus on trading only!

Steps to follow for algorithmic trading:


Step 1 – Screening

The first step to begin algo trading is to screen the markets to identify instruments like stocks or index instruments to trade-in.

PHI 1 makes this process easier by allowing you to scan and screen symbols on a customized basis.

Traders can do screening based on any arbitrary criteria, with parameters based on price/volume action, volume ranks, and more. Traders can also create custom screeners by providing any mathematical expression with PHI 1.

Step 2 – Charting

The next step after screening is charting.

Charting refers to the plotting of graphs or patterns of a symbol based on customized parameters/indicators.

Charting also makes it easy for the trader to compare two or more symbols or parameters and their performance over time.

PHI 1 comes with advanced charting features and offers more than 120 indicators for free. Intraday traders can also access real-time and historical charts with PHI 1.

Moreover, one can plot many indicators for live updates.

This allows for seamless analysis of multiple facets of a stock. PHI 1 also provides pre-integrated data for all symbols including equity, indices, futures, and options.

Step 3 – Strategy Creation

The next step is creating a trading strategy.

The trader needs to decide on the strategy for the selected symbol.

PHI 1 allows traders to automate their trading strategy easily. Traders can create any type of trading strategy with PHI 1, even if it is just an arbitrary idea. Unlike most other platforms, PHI 1 allows the creation of customized strategies even outside of templates.

With the Advanced Strategy Creator feature, the trader can create any strategy they can imagine—no restrictions apply. Further, PHI 1’s Multi-symbol Strategy Creator, the built-in data allows traders to monitor multiple symbols/time intervals/asset classes in a strategy to make trading decisions on one or more of them.

If you don’t know coding, PHI 1 has a form-based strategy creator as well. This can allow you to do algorithmic trading without coding!

PHI 1 also offers coding services which you can use to develop your strategy.

Step 4 – Testing

Backtesting and Scenario Grading

Once the strategy is created, it is imperative to test the strategy before implementing it.

PHI 1 enables bulk backtesting, an essential assessment to identify whether your strategy could perform in past scenarios, using historical data.

PHI 1 also offers a unique feature called scenario grading wherein you can get a score on your strategies in multiple market scenarios such as market crash and volatility, further adding to your confidence.


Now that you’re done with back-testing and optimizing your strategy, it is recommended that you test your strategy in a simulated (virtual trading) environment.

This can give you a crystal clear picture of how your strategy will perform in the live market. You can identify any bugs or edge conditions that might be present in the strategy code and refine your code accordingly. It’s like trading in the real markets without using real money.

PHI 1 allows you to simulate trades or perform forward-testing so you can gain the confidence of trading with your strategies in the live market.

Step 5 – Execution/Deployment

This is where your strategy is finally put to work.

Automated trading allows easy execution when all your criteria are met. PHI 1 helps you seamlessly deploy and closely monitor your trades.

Moreover, with PHI 1’s multi-broker integration, you don’t have to be limited to a specific broker. The choice is yours. Even if one broker is having a downtime, you won’t miss a trade. Multiple brokers also help you get the best rates.

Step 6 – Monitoring

Once live, you need to monitor your trades, which can be quite cumbersome.

PHI 1provides traders a single dashboard to monitor trades by date interval, strategy, and time-frequency across markets, scrips, and brokers.

We hope we’ve taken away the hesitation you’ve always had for trying out algorithmic trading.

In fact, PHI 1 offers the algorithmic trading software for a free trial so you can experience the prowess of automated trading in full! You can also enjoy lifetime free features like charting and screening. Try PHI 1 today!

And if you’re still wary of algo trading, we can schedule a demo for you. Click to schedule a session.

Getting Started with Options Backtesting on PHI 1

Before you use a trading strategy, be it an options trading strategy or otherwise, to work, it is important to test it. The fundamental ways to evaluate options trading strategies include backtesting and forward testing.

Backtesting trading strategies refers to testing your strategy using historical data sets.

Forward testing refers to evaluating your trading strategy using simulated environments.

As a trader, testing your options trading strategy is of utmost importance, as it will not only help you avoid huge losses but also help you trade stress-free.

With backtesting, you can understand how viable your trading strategy is without the need to risk your money. Yes! It’s basically testing how good your trading strategy is when tested with real market data.

You can test both – simple and complex options trading strategies requiring multiple parameters and inputs with backtesting using options backtesting software on an algorithmic trading platform.

The analysis that you get from backtesting can help you optimize your trading strategy.

Here’s how you can perform these backtest options strategy with ease on PHI 1:

Step 1: Open the Option Leg Builder on PHI 1.

Step 2: Select the index or stock, expiry, and the strike price whose options you want to trade to create your desired strategy.

Step 3: You can save this strategy for future use as a template by clicking ‘save strategy.’ Read how you can create the straddle strategy with PHI 1 here.

Step 4: This strategy is saved.

Step 5: Select Create Options Backtest.

Step 6: Select strategy to backtest, select symbol or stock on which you want to backtest the strategy, select test parameters like expiry date, period, etc. and run the backtest.

Step 7: Voila! You can see the result on the next screen within a minute or two!

Step 8: You can check monthly trades, equity charts, and logs for your strategy

Kudos! You have successfully backtested the strategy created by you.

You can backtest any other options trading strategy in the same way.

Watch our webinar on “How to backtest your options trading strategy using PHI 1.”

In this webinar, you will learn to create popular options strategies like an iron corridor, straddle and strangle and deploy it too!

And hey! Before you watch the video, one more thing.

There’s a lot of automated trading tools available in the market which offer the backtesting option.

But, what if you could see payoff charts, Greeks, and more along with robust screening and deployment on a single automated trading platform?

That’s PHI 1 for you!

Avail of the free trial to experience trading automation in full throttle.

Try for free today!

Getting Started with Options Trading on PHI 1

Options trading can be tricky, especially if you don’t use the right trading platform. Algo trading software can make it simpler and quicker to trade options.

Here’s a guide on how you can start options trading with ease using PHI 1.


Access comprehensive charts:

Using PHI 1 for options trading will give you uninhibited access to detailed charts and data sets. You have the choice of displaying any chart, symbol, price-related data across various time frequencies. This means minute-to-minute trading actions and movement will be available at your fingertips.

For displaying charts, you need to click on the graph symbol on the left side of PHI 1. All NSE instruments are available here. You can choose any scrip you want.
Choose Script for Option Trading
For Options, you would need to click the F&O selector in the header and choose your desired scrip, expiry, strike price, and whether it is a call or a put option. Once that is done, click generate.
F&O selector in the header
With PHI 1, you can get access to data across various time periods. Whether it is daily swings or market ticks by the second, you can generate data for any time you want.
time periods for daily swings or market ticks
There is no restriction on the number of indicators you can apply here. You can use multiple indicators at a time.

Another useful feature that needs to be highlighted is the ease of transactions.

If you have connected your broker to your account, you can place a buy or sell order directly from PHI 1’s interface.
multiple indicators
There are two ways to select the option instrument on PHI 1:

A. One is by directly inputting the precise strike and expiration date, or

B. You can choose from the dynamic monthly and weekly options available. You can choose any strike price like at the money (ATM), and the software generates various options that get updated daily.

option instrument on PHI 1
In case you want to come back to the charts in the future, you can do so by saving the chart. Just click on ‘Save’ in the header with the name you want.

Your chart template is now saved and you can continue your technical analysis whenever you want.
chart template for technical analysis

Built-in strategy templates

For viewing the various strategy templates available at hand, click on the menu options on the right-hand side, and select strategy.

Under the strategy, you have two options to choose from. You can either start with the form mode or code mode.

With form mode, you have basic strategy templates available with various indicators so you can algorithmic trading without coding.
Built-in strategy templates
You just need to select the strategy template that you require (SMA, EMA, etc). You get a basic buy and sell condition on which you can add a stop loss and take profit.

If you have your own entry and exit rules, you can enter them using either the form mode or code mode. Also, if you need any coding help, just contact PHI 1 support and they will help you out.

Once your strategy is ready, all you need to do now is click on ‘Run and Save’.
SMA and EMA strategy template
When the run completes at the day frequency, you get the default run for the entire year.

There are other trading performance metrics that you get access to at this stage such as your overall returns, long-short trades, profitable trades, loss-making ones, each entry, each exit, and overall return.

It’s super easy to get started with the form mode. You can add as many indicators as you want to experiment with in order to get the results you require.
Set day frequency
Even with code mode, you have access to 10 templates, to begin with.
Inbuild templates
Let us understand code mode with an example.

When we choose the first strategy template – Bollinger, it gives you an initial indication for you to calculate and take buy and sell orders based on where your current price is in terms of the Bollinger band with default parameters.

You can change the parameters and buy/ sell orders based on the metrics you want to analyze.
understand code mode
If your current strategy isn’t working, and you want to include an additional trading indicator of your own, you can introduce the code under initialize code here.

In the screengrab below, the code for MACD is added in the box.
code for MACD
Next, you will need to add the set of conditions under step code.

The first condition is that, from the top, MACD should be < zero.
set conditions
And on the opposite side, before the uptrend, we want the MACD to be >zero.
opposite side uptrend
This added indicator helps filter out unfavorable trades and allows you to focus on trades that may work in your direction.
filter out unfavourable trades
The code mode is not limited to only the 10 indicators visible in the drop box.

You can access nearly 119 indicators available in the learn section on the left-hand side to add to your strategy.

You also have the option of using multiple indicators at one go, to analyze market trends, and review the metrics you need.

You can experiment with trading strategies, time frequencies, add stop-loss conditions, and different instruments.
visible indicators
When building a trading strategy for options, the process is exactly the same.

You just need to choose your desired option and strike price and run the strategy.

You can choose different time frames from hourly to monthly, visually inspect all trades to see how the premiums have changed over time, etc.
trading strategy for options
With PHI 1, options trading gets bigger and better.

You can not only try out tested and experimental strategies but also see payoffs, backtest, and simulate trades.

Finally, you can deploy your trades with the broker of your choice using the multi-broker integration.

In a nutshell, PHI 1 offers total freedom for the trader to exploit market opportunities while trading options by managing mundane tasks that take away time and effort.

Try PHI 1 for free!


Watch our webinar on ‘Getting Started Options Trading with PHI 1’ here.

Stay tuned for more.

Creating a Straddle Strategy with PHI 1

What is the Straddle strategy in options?

Straddle strategy is an options trading strategy in which the trader buys both a call option as well as a put option of the same underlying asset or stock having the same expiry date and strike price.

Usually, traders use the straddle strategy when they are sure of a significant movement of the underlying stock’s price, but are unsure of the direction, i.e. whether the price will rise or fall significantly.

Thus, in this strategy, the trader will make a profit when the price or the underlying stock rises or falls by an amount that is more than the premium paid to buy call and put options.

The profit potential is unlimited as long as the price of the underlying stock moves significantly in either direction.

For example, consider a stock whose price is Rs. 10.

The trader is expecting a significant movement in the stock’s price within 15 days post its result on 1st February.

But, he/she is not sure if the market will take the result positively or negatively.

So, the trader goes for a straddle strategy, i.e., he/she buys call options and put options with expiry of 15th February and bets the price to rise above Rs. 12 or fall below Rs. 8.

Thus, in this way he/she will make a profit on any movement of the stock price beyond Rs. 2.

Looking at a straddle, a trader can know two things about the sentiment of the options market towards a particular stock. The first is that the market is expecting volatility in the price of the stock, and the second is the expected trading range of the stock’s price.

You can easily try this strategy on PHI 1 as shown below:

Step 1:
Open the Option Leg Builder on PHI 1.

Step 2:
Select the index or stock whose options you want to trade.

Step 3:
Select the expiry.

Step 4:
Select the option strike price.

Step 5:
Select PE (put option) in option type.

Step 6:
Add this position by clicking Add Position.

Step 7:
Keeping all other parameters the same, select CE (call option) in option type.

Step 8
Add this position by clicking ADD POSITION.

Voila! You have created the straddle strategy with the payoff chart.

You can save this strategy for the future as a template by clicking ‘Save strategy’.

Now, prior to deployment you may want to perform backtesting for your options strategies. You can avail free options backtesting with PHI 1.

You can also deploy your options strategy easily when your predefined criteria are met. This means no more staying glued to the screens for the right trading opportunity to come!

Make the most of automation with PHI 1!

Try for free today!


Watch our demo of how to test straddle strategy using PHI 1’s Options Trading feature: Watch Now!

An Introductory Guide to Options Trading

Learn Basics, Strategies, Risk Evaluation, & Risk Management in Options Trading

Options can be great instruments for hedging and risk management. Options also open up a whole new world of trading strategies you can explore and use to make profits.

We’ve put together an options trading guide to help you get started.

Here’s what you will learn in this guide:

1. What are Options?
2. What are Call Options & Put Options?
3. What are the uses of Options?
4. How do Options work?
5. What are some Options Trading Strategies?
6. What is risk in Options and how is it measured?
7. What are some risk management strategies using Options?
8. How to effectively use leverage in Options Trading?
9. What are the pros and cons of options trading?


1. What are Options?

An option is a contract that gives the buyer the right (without the obligation) to buy or sell the underlying security or asset at a predetermined price (strike price) by a predetermined date (expiry).

Options belong to the derivatives segment, as their price is derived from the price of something else, which is the underlying asset or security.


2. What are Call and Put Options?

There are two types of Options – Call option and Put option

A call option means that the buyer of the call option has the right but not an obligation to buy the underlying security at the strike price.

A put option means that the buyer has the right but not an obligation to sell the underlying security at the strike price.

The four main actions traders can take with options are:

1. Buy call

2. Sell call

3. Buy put

4. Sell put

Similar to buying a stock, buying a call option gives a long position to the trader on the underlying security.

And similar to short selling a stock, selling a call option gives the trader a short position in the underlying security.

Buying a put option means the trader is taking a short position in the underlying security.

Selling a put means the trader is taking a long position in the underlying security.

These four scenarios are crucial to understanding Options Trading.

Buyers of options are known as holders and sellers are known as writers of options. The difference between holders and writers is:

1. Call holders and put holders do not have the obligation to buy or sell the underlying security/options. They have the choice whether they want to exercise their right. This limits the risk of holders to losing the premium spent to buy the options if the markets do not go their way.

2. Conversely, call writers and put writers must buy or sell if the option expires in the money. This is because the writers need to make good their promise to buy or sell. This shows us that writers usually are exposed to more risk, as they can lose much more than the premium paid for the options. Sometimes, the risk to writers is unlimited.


3. What are the uses of Options?

A. Speculation

Speculation is essentially betting on where the price of a security will go in the future.

If a trader thinks that the price of a security will go up within the next one month based on his analysis, he/she will either buy the stock or a call option to benefit from the price rise.

An option is a more attractive instrument, as it provides leverage (one only has to pay option premium and not the price of the underlying security) and costs significantly lesser than the stock.

B. Hedging

Options were invented for hedging.

Using options to hedge helps traders reduce risk at a lower cost.

For instance, if a trader invests in a security assuming that its price will increase, they can hedge their position by buying put options of the same underlying security.

Thus, if the price increases, they will earn as the security price rises. And if the price falls, they will minimize their losses by making money on the put options.


4. How do Options work?

Here are 3 factors you need to know to understand how options work:

Relative Value:

Options are used by traders to profit from determining the probability of future events.

If the probability of an event is high, the option that makes bets on the event happening is more expensive than that of an option of an event less likely to occur, i.e., an event whose probability is low.

Thus, for example, the call option’s price goes up as and when the underlying security’s price goes up. Thus, one must understand the relative value of options to trade in it.

Time Value:

The price of options depends on time.

Therefore, if the option would expire soon, its price would be lower than the option whose expiry is after a longer time period.

This is also because determining the probability of an event (in this case – price rise or price fall) becomes easier as the expiry date comes closer.

This means that options are a time-diminishing asset.

For instance, if one buys an option with a one-month expiry, and the price of the stock does not move, then the option’s value decreases with each passing day.

So, a one-month expiry option is cheaper than a three-month expiry option.

This is because the probability of a price move in your favor increases if the time available increases.


The more volatile the underlying stock’s price, the more is the price of the option.

This is because more volatility implies that the price can go either way with larger swings, thus making the possibility of price movement in either direction greater.

Here’s an illustration of how option pricing works:

Most of the time, traders choose to make money by trading their positions, so the option holders usually sell their options in the market.

Only ~10% of options are exercised, 60% are traded, and 30% expire.


5. How do traders use options? (Basic Options Strategies)

As we know, traders use options to either speculate, hedge their trades or simply trade to make profits. To make maximum profits, option traders use some strategies while trading.

Let us look at some strategies here:

1. Long Call

In this strategy, the trader goes long on a call, i.e., the trader buys call options expecting that the price of the underlying security will go up.

For instance, a trader buys a contract with 100 call options for an underlying security whose current price is Rs. 10.

The option price, say, is Rs. 2.

Therefore, the trader spends Rs. 200 for the contract.

The trader will be at a no-profit no loss position (at the money) when the security price reaches Rs. 12 (strike price).

As the security price increases over Rs.12, the trader will start making profits.

Thus, a long call can give unlimited profits to the trader, as the price of the underlying stock can increase infinitely.

If the stock price falls below Rs.12, then the trader may sell it off at a loss or let the option expire and lose Rs. 200 only.

Thus, this strategy has an unlimited upside and limited downside, which traders use when they are fairly certain of the increase in the underlying stock’s price.

Long call

2. Short Call

In this strategy, the trader sells a call option, expecting that the price of the underlying stock will decrease over a predetermined time frame.

Thus, the trader can make unlimited profits if the price of the underlying stock decreases.

However, the trader may face significant losses if the price of the underlying stock increases, as in that case, he/ she would have to purchase the stock at higher prices and deliver.

Short call

3. Covered Call

To protect against such losses, the trader goes for the covered call strategy.

This involves holding a long position in the underlying while shorting a call.

Here, since the trader already buys the underlying stock, they gain on the stock price if it increases and gain on the call option if it falls.

This strategy limits the losses and profits of the trader. Experienced traders usually use this strategy of covered calls to generate income from their stock holdings.


4. Long Put

This strategy is like that of a long call except that the trader buys put options instead of call options when they are fairly certain that the price of the underlying stock will fall below a certain level in a fixed time frame.

For example, if a trader buys a contract with 100 put options for an underlying stock whose price is Rs. 10 at a strike price of Rs. 8, they will be at a no profit no loss position (at the money) if the stock price falls to Rs. 8.

Thereafter, as the stock price falls further, the trader will be in the money, till the stock price reaches 0.

As the price of the underlying security cannot fall below zero, gains as well as losses are capped.

This is because if the price moves in the opposite direction, the trader can choose to let the options expire and suffer a loss of Rs. 200.

This strategy is used when the traders are fairly confident of the stock price falling below a certain level.

Long Put

5. Short Put

In this strategy, the trader will write/ sell a put option, i.e., bet that the price of the underlying security will increase over a fixed time period.

Here, the maximum profit for the trader is limited to the premium amount collected.

But, the maximum losses can be unlimited because they will have to buy the underlying stock to fulfill their obligations to buyers if they decide to exercise their option.

This can be an effective strategy if the trader is fairly certain that the price of the underlying stock will increase.

The trader can also buy back the option when its price is close to being in the money and generate income through the premium collected.

Short put

These strategies would have seemed vague if you wouldn’t be able to see payoffs, right?

Well, here you go!

Now, let’s move on to understanding risk measurement in options and risk management strategies.


6. Risk Measurement in Options Trading

An option’s price can be influenced by several factors that can either help or hurt traders depending on the type of positions they have taken.

We need to understand the factors that influence options pricing, which are known as “Greeks”—a set of risk measures named after the Greek letters that denote them.

Greeks show how sensitive an option is to time-value decay, changes in volatility, and movements in the price of its underlying security.

These four primary Greek risk measures are known as an option’s Delta, Theta, Gamma and Vega.

An option’s “Greeks” describe its various risk parameters.

1. Delta is the measure of the change in an option’s price or premium resulting from a change in the underlying asset.

2. Theta measures its price decay as time passes.

3 Gamma measures the Delta’s rate of change over time as well as the rate of change in the underlying asset. Gamma helps forecast price moves in the underlying asset.

4. Vega measures the risk of changes in implied volatility or the expected volatility of the underlying asset price in the future.


7. Risk Management using Options

Options are used to offset risk when trading in the market. Using options to hedge helps traders reduce market risk at a lower cost.

Here, we will look at a few option trading strategies that traders use to minimize their risks:

1. Protective put or Married Put

In a protective put, the trader invests in a security assuming that its price will increase.

They also hedge their position by buying put options of the same underlying security.

Thus, if the price increases, they will earn as the security price rises. And if the price falls, they will minimize their losses by making money on the put options. This strategy limits the losses and profits of the trader.

The only downside to this strategy is that the trader has to let go of some gains as risk mitigation.

protective put

2. Covered call:

A covered call is used by traders who intend to hold the underlying stock for a long time, but do not expect a considerable rise in price in the near term.

Selling a call (covered call) protects against a fall in the stock price and thus hedges their position.

The maximum profit from a covered call is if the stock price rises to the strike price that has been sold. Thus, this strategy is not meant for very bearish or very bullish expectations.
covered call
These are the simple strategies for risk management in options. There are more complex option spreads too, which traders use to mitigate risk.


8. Using Leverage effectively in Options Trading:

Let us first understand what is leverage and how it relates to options trading.

There are two ways leverage is used in options trading.

A. Avoid: Using the same amount of capital to bet on a larger position

This means that 1 rupee invested in a stock and the same 1 rupee invested in an option does not equal the same risk.

Consider the following example. You’re planning to invest Rs.10,000 in an Rs.50 stock, but also have the option to buy options contracts worth Rs.10 as an alternative. After all, investing Rs.10,000 in a Rs. 10 option allows you to buy 10 contracts (one contract is worth 100 shares of stock) and control 1,000 shares. Meanwhile, Rs.10,000 in an Rs.50 stock will only buy 200 shares.

In this example, the options trade is riskier than the stock trade. With the stock trade, your entire investment can be lost, but only if the stock price falls 100% from Rs.50 to Rs.0.

However, you stand to lose your entire investment in the options trade if the stock drops to the strike price.

So, if the option strike price is Rs.40 (for an in-the-money option), the stock only needs to drop below by 20%, i.e., below Rs.40 by expiration for the entire investment to be lost.

B. Better: Maintaining the same position by spending less money

This is the definition of leverage that a consistently successful trader incorporates into his/her trades. Understanding the risk in this way of leverage is as explained below:

There is a huge risk disparity between owning the same amount of stocks and options. To understand this, let us examine two ways to balance risk disparity while keeping the positions equally profitable.

i. Conventional Risk Calculation

The first method to balance risk disparity is the standard and most popular way.

Let’s go back to our example to see how this works:

If you were going to invest Rs.10,000 in a Rs.50 stock, you would receive 200 shares. Instead of purchasing the 200 shares, you could also buy two call option contracts of 100 shares each at a considerably lower cost. By purchasing the options, you spend less money, but still control the same number of shares.

This excess money which you saved when buying an option can be used in other trading opportunities with greater diversification. Thus, this leveraging strategy can free up your funds for other trades.

ii. Alternative Risk Calculation

In this alternative risk strategy, the trader balances cost and quantity based on risk.

For example, if you buy a stock at Rs. 50, keeping a stop loss at Rs. 40.

You are ready to lose Rs. 10 in case the stock does not behave according to your expectations.

So, for these Rs. 10 you can buy a put option of the same underlying security with strike price Rs. 40.

What you can achieve with this strategy is that you can limit your loss to Rs. 10 in this trade. All other price movements, like above Rs.50 and below Rs. 40 will generate profits for the trader.

Thus, the trader needs to determine the right amount of money to invest in an options position, which allows the investor to unlock the power of leverage.

The key is managing risk while maintaining your exposure and profit probability.

Before we conclude, here are some advantages and disadvantages of option trading:


9. Pros and Cons of Options Trading:


Pros of Options Trading:

Options trading can be very helpful for traders. Some of them are listed below

1. Leveraging potential:

Options come with huge leveraging power. A trader can get an options position equal to a stock position at a much lower cost and margin, or at the same investment cost, the trader can control a much greater number of securities using options.

2. High Return Potential:

The returns on options trading would be much higher than buying shares on cash. This is because the trader can get options on lower margin and get the same profitability, hence, the percentage return on investment would be much higher comparatively.

3. Lowering Risk of Holding Underlying:

Options are surely riskier than owning equities, however; there are also times when options are used to mitigate risk. Options are used widely to hedge positions. The risk in options is pre-defined as the losing the premium paid to buy the option.

4. Risk Management in Options Trading:

There are more strategies which are used by regular traders to trade options along with trading equity. The trades can be combined to create a strategic position with the help of a call and put options to mitigate and control risk when trading in the market.


Cons of options trading:

As we have seen above, options can be highly rewarding. However, there are some drawbacks to options trading.

1. Less Liquidity:

Some stock options have lower liquidity, which makes it very difficult for a trader to enter and exit trades.

2. High Trading Costs:

Option trading is typically more expensive as compared to stock trading, as most full-service brokers charge higher fees for trading in options.

3. Time Decay:

The value of your option premium decreases by some percentages each day irrespective of movement in the underlying.

4. Non Availability of All Stock Options:

All the stocks registered with exchanges do not have options contracts. This makes it difficult for a trader to hedge his position with options strategies.

Wow! Looks like you’ve got it all ‘covered’!

Which platform would you prefer to try out these learnings?

We’d say a platform that offers not just free and accurate F&O data but also allows you to see payoffs, try out any options trading strategy, backtest and simulate it, and all this while placing your trade with a broker of your choice!

Option Leg Builder

Image caption: Here’s a married put example while the trader is holding Axis Bank shares and how easy PHI 1 makes trading options.

Add to this, our robust support and resources section!

Get more from Option Trading with PHI 1.

Simply visit for a free trial and choose a plan that suits you if you like us.

8 Indicator-based Trading Strategies you can try right away on PHI 1

Traders usually combine a variety of technical indicators to come up with trading ideas and strategies to execute a trade profitably. That said, some tried and tested trading strategies can always be deployed to make some quick trades.

All you need to do is insert the parameters into an automated trading system like PHI 1.

You can even paper test these strategies before you actually start placing trades with real money.

Let us look at some popular trading strategies you can use now on PHI 1:


I. Moving average strategies

1. Price Crossover – Whenever the price of security crosses the moving average line, traders take it as a signal of a change in trend.

For example, if the price crosses above the moving average line, it depicts a positive trend and when the price crosses below the moving average line, it depicts a negative trend.

Using MA in Form Based Strategy Creator On PHI 1-min

Using MA in Form-based Strategy Creator on PHI 1

MA Strategy Testing Results on PHI 1

MA Strategy Testing Results on PHI 1

MA Charts on PHI 1

MA Charts on PHI 1

2. Two moving averages – In this strategy, 2 moving average lines are plotted on the chart, one longer moving average and another shorter moving average.

The traders recognize it as a positive trend or a buy signal when the shorter moving average line crosses above the longer moving average line. This is the golden cross.

For example, when the short-term moving average (50 SMA) passes above the long-term moving average (100 SMA).

After the formation of the golden cross, the price of stock has increased gradually. Therefore, we can say that it is a good time for the trader to buy the stock.

When the shorter moving average line crosses below the longer moving average line, traders recognize it as a negative trend or a sell signal. This is the death cross.

For example, the death cross forms when the short-term moving average (50 SMA) crosses below the long-term moving average (100 SMA).

After the formation of the death cross, the price of the stock declines sharply. Therefore, we can say that most of the time, the death cross shows that there is the potential of a massive sell-off.

Using 2 MA in Form-based Strategy Creator on PHI1

Using 2 MA in Form-based Strategy Creator on PHI 1

Strategy with 2 MA Testing Results on PHI 1

Strategy with 2 MA Testing Results on PHI 1


II. Average Directional Index strategies

The strength and direction of a trend is measured by the average directional index or ADX. It consists of 3 lines on the indicator – ADX, +DI and –DI.

It is considered that when the +DI line crosses the –DI line while the ADX is above 25, traders see it as a signal that an uptrend is about to start, and they could consider entering a long position.

On the other hand, if the –DI line crosses the +DI line while the ADX is above 25, traders can take it as a signal that a downtrend is imminent, and there is an opportunity to enter a short position.


III. On-Balance Volume strategies

As is well-known, on-balance volume indicators are used to depict the positive or negative flow of volume in the traded security over a fixed period.

Up volume is the volume of a security traded on the day when the price of the security has rallied, and down volume is the volume of security traded on the day when the price of the security has fallen.

We get the on-balance volume of the day by adding or subtracting the day’s volume from the indicator if the price goes higher or lower, respectively.

When on-balance volume rises, it depicts that there are more buyers and pricing is being pushed higher, whereas if on-balance volume falls, it shows that there are more sellers than buyers, thus pricing will be pushed down.

In case the price and the on-balance volume indicator go in different directions like the price rising but the on-balance indicator falling, the rising prices are not supported by buyers in the market, and the upward trend could reverse.


IV. Accumulation/Distribution Line strategies

A/D line considers the closing price of the security as well as the trading range for the trading period.

Traders view the A/D line trending upwards as buying interest in the security, and thus, infer an uptrend in the security’s price. And if the A/D line is falling, it depicts a fall in volume and thus infer a downtrend.

Also, if the A/D line and the price of the security moves in different directions, it signals a reversal of trend.


V. Relative Strength Index (RSI) strategies

The relative strength index (RSI) moves between 0 and 100, as per price gain or price loss of the security. The traders could thus understand the momentum and strength of the trend using RSI.

Also, some traders consider RSI above 70 as an indicator of the security being overbought and thus expect a negative trend. This indicates an exit point.

An RSI below 30 is understood as the security being oversold and thus signaling an upward trend and an entry point for a long position.

When RSI is moving in the opposite direction of the price, it signals a weakening of the price trend which could reverse, eventually.

Using RSI in Code Mode Strategy Creator on PHI 1

Using RSI in Code Mode Strategy Creator on PHI 1


RSI Strategy Testing Results on PHI 1

RSI Strategy Testing Results on PHI 1

RSI Strategy Testing Results on PHI 1


VI. Aroon Oscillator strategies

This indicator is used to determine if the price of the security is reaching new highs or lows over the time for which it is calculated.

There are 2 lines in this indicator – Aroon up line and Aroon down line.

When the Aroon up line crosses above the Aroon down line and the up line reaches near the 100 level and the down line remains near 0 levels, traders infer a positive uptrend and vice versa.


VII. Moving Average Convergence Divergence (MACD)

The moving average convergence divergence (MACD) is used by traders to ascertain the trend direction and the trend momentum.

When the MACD rises over zero, the price is believed to be in an upward trend and as the MACD goes below zero; the price is in a downward trend.

Also, if the MACD line crosses above the signal line, traders depict a price uptrend, and vice versa.

Both these methods are used together by traders.

Thus, if the MACD is below zero and MACD crosses below the signal line, one may enter a short trade and vice versa.


VIII. Stochastic Oscillator strategies

A stochastic oscillator is used to measure the current price of a security relative to a price range over other periods. It is plotted between 0 and 100.

It shows that when an uptrend is on; the price makes new highs and in case of a downtrend; the price makes new lows.

Also, when the stochastic oscillator is above 80, the security is overbought and if it is below 20, then it is considered being oversold.

You can easily try these strategies on PHI 1.

PHI 1’s Form-Based Strategy Creator is super easy to use. All you need to do is choose the indicator, add criteria and values, and hit Run and Save. Your trade is executed when the requisite criteria are met.

PHI 1’s automated trading aims to make life easy so you can trade better. Explore its unique features on

Try these strategies on PHI 1 for free.


Disclaimer: The purpose of sharing these strategies is purely educational. Please do not consider these for investment purposes.

8 Popular Chart Trading Patterns You Must Know

We’ve discussed indicators and trends as well as popular trading strategies using technical indicators in our previous articles. In this blog, we discuss the most popular stock chart patterns for trading.

Chart patterns are essentially shapes formed on trading charts, which may help identify price action signals like reversals and breakouts.

Over the years, several stock chart patterns have been widely recognized. Using these chart patterns can give your trading an edge by allowing you to confirm a specific signal or trend.

Whether or not you’re new to stock patterns, it’s time to familiarize and refresh yourself with these 8 popular chart patterns.

1. Head and shoulders pattern:

This pattern forms when a stock’s price increases and reaches a certain level and then comes back to the base from where it started earlier.

After this, it again starts rising and crosses the previous peak, reaches a new high price, and then declines to reach the base.

Finally, the stock price again rises but goes only to the level of the first peak. Then, it falls, and while declining, if it breaks the established baseline with a reasonable volume, the bearish reversal occurs.


2. Double Top:

This is a bearish reversal chart pattern that is formed when a stock is on an uptrend for some time.

The stock’s price increases and reaches a level and declines to the support after creating a peak.

This support level is called the neckline.

It rises after getting to the neckline, reaches the previous level, and forms a peak.

Finally, the formation of this pattern completes when the price comes back to the neckline after creating the second peak. If the price breaks through the neckline while retracing back, it confirms a bearish trend reversal. 


3. Double Bottom:

This is a bullish reversal trading pattern comprising two lows below a resistance level referred to as the neckline.

The price will hit the first low just after the bearish trend. However, it stops at this level and retraces back to the neckline.

After hitting the neckline, the price rebounds and enters a bearish trend, reaching a price almost the same as the previous low.

Finally, the price again starts increasing and comes to the neckline. Further, if this bullish trend breaks the neckline and continues moving upwards, it confirms the uptrend.


4. Rounding bottom:

This pattern shows a bullish upward trend and can be divided into three parts.

First, excess supply forces the stock price to go down, thus forming the declining slope of a rounding bottom.

The transition to an upward trend occurs when buyers enter the trade after seeing the stock at a low price, thus increasing the demand for the stock.

After completing the rounding bottom, the stock’s price breaks the resistance line and continues the uptrend. The trading volume is less at the lowest point of the chart and high at the decline and when the stock price reaches its previous high.


5. Cup and handle pattern

This pattern shows a bullish market trend after a pullback.

It features a rounding bottom followed by a handle-like consolidation, which might look like a pennant, wedge, or a smaller rounding bottom followed by a solid upward trend after that.

The breakout towards the upward trend must be confirmed by a substantial volume above the handle’s resistance, or it might come out to be a fake breakout.

The limitation of this pattern is that it takes a longer duration to form, leading to late decisions. Further, sometimes a very shallow cup can be a signal, whereas other times, even a deep cup can be a false signal.


6. Wedges:

This pattern is formed by converging trend lines on the chart.

Two trend lines are generated by connecting the highs and lows of the price of a stock over a period.

Highs and lows either rise or fall at a different rate, resulting in a wedge-like appearance.

Wedge patterns are primarily used for forecasting price reversals and can signal both bullish or bearish price reversals.

There are three standard features in both cases: converging trend lines, a decline in volume with the price progression, and finally, a breakout from one of the trend lines.

The two types of wedge patterns that form are the rising wedge and the falling wedge.

Rising wedge patterns result in a decline in stock prices after the breakout at the lower trend line.

This offers an opportunity for short-selling.

In the case of falling wedges, price breaks the upper trend line, and the stock price reverses and trends higher. This provides an opportunity for entering a long position.



7. Pennants and flags:

Flags are consolidation phases where the trend lines are parallel to each other.

This pattern is formed by a sharp counter-trend (flag), which is succeeded by a short-lived trend (flag’s pole).

This pattern is primarily used in combination with volume indicators and signifies trend reversal or breakouts after consolidation.

Pennants are identical to flags in their implications, but the trend lines converge instead of being parallel in pennants. Further, it’s crucial to observe the volume in a pennant. Volume should be low during consolidation, whereas during the breakouts, it should be on the higher side.



8. Triangles:

Perhaps one of the most commonly used patterns is triangles – ascending, descending, and symmetrical. Go to our blog post to read up on the triangle pattern.

You may have seen above how easy it is to spot patterns on PHI 1.

Why don’t you try it for yourself?

PHI 1 is not just a technical analysis charting software but also offers strategy creation, testing, and order execution. It is a unique algo trading software that allows you to trade using a single tool.

Plus, there’s no need to download or install anything. You can also explore the new automated options trading feature.

Give it a go: Try PHI 1 for free today!