2 Candle Theory | Options Strategies

A scalping strategy for index futures & options →

Hey there!

Today we’ll discuss the 2-candle theory, a scalping strategy for F&O.

The 2-Candle Theory

The 2-candle theory is about finding breakout trades in index futures and index options. To take a trade, you need to find 2 consecutive candles, each having volumes:

  • Greater than 50K, for BankNifty or

  • Greater than 125K, for Nifty

According to the theory, you should take a position at the 3rd candle, and aim for a profit of 100-150 points. Under the right conditions, you should reach your target within 15-20 minutes.

A stop loss can be placed at the low or high of the first candle, depending on whether it’s a buy or sell trade.

Get confirmations from indicators and open interest

A good way to strengthen your trades is to look for the following signs of confirmation along with the 2 candles:

For a Long Trade

  • Open interest should show a long build-up / short covering.

  • Candles should be above the VWAP, Parabolic SAR, Supertrend, & VWMA.

  • The RSI line should be in the 50-75 zone. Avoid a fresh trade if it is above 80, i.e. in the overbought zone.

For a Short Trade

  • Open interest should show a short build-up / long unwinding.

  • Candles should be below the VWAP, Parabolic SAR, Supertrend, & VWMA.

  • The RSI line should be in the 25-40 zone. Avoid a fresh trade if it is below 20, i.e. in the oversold zone.

We’ve covered more about the above indicators here.

Note that for a successful trade, you should consider other factors and data points in addition to the ones mentioned above.

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