Decision Point Trading System

Decision points are the price level where market has reacted stronger earlier. Market will always
continuously make decision points irrespective of time frame.

Trade Location: As per system rules, trade location are near a DP and entry will be based on acceptance
or rejection of that decision points.

Meaning of Acceptance and Rejection of DP is either breakout or reversal from DP.

Decision points used:

1. Previous Day high & Previous Day Low (PDH-PDL)

2. Initial Range high & Initial Range Low (IRH-IRL)
3. Current Day high and Current Day Low ((DH-DL)
4. Previous Day VWAP (PVWAP)
5. Previous Day Close (PDC)
6. Layer-over-Layer (LOL) – Two DP close to each other.
7. Major swing point (MSP)

These Decision points are marked on chart before day open except IRH, IRL, CDH and CDL as these
DP’s will be marked as they are formed. Initial Range High and Low Decision Points are not available to
mark every day, as a trending move on one side in first Hour is needed which will be marked using Bill
William’s Fractal 5-Bar Indicator.
Time frame:

1. 3-Minutes

2. Daily and 60-Minutes for Trend Identification using Price action.

Instrument:

1. Signal generation using Nifty and Bank nifty Futures Contract and taking trades in At the Money
CE or PE through naked option buying.

Preparation of Plan

1. Identification of Trend in Daily and 60 Minutes Time Frame:

Trend is identified by using swing levels, Uptrend is defined by higher high and higher low
and Downtrend is lower high and lower low. When market is going sideways, no bias is kept
during signal generation.
2. Location of Current Day Open :
Whether if the opening price is outside or inside of previous day range.

Signal Generation – Entries: Using 3 Setups:

1. Breakout Pullback(BPB) – Acceptance of DP

After a breakout of a DP, if price pullbacks to DP and forms a Rejection candle or Bullish
candle, entry is triggered.
 2. Breakout Failure(BOF) – Rejection of DP
Breakout failure means rejection of a DP which is price coming back below or above DP for
upside or downside breakout respectively. Entry is taken after a formation of bearish candle
which is wide in spread
3. Test of DP(TST) – Rejection of DP
Testing of any DP needs confirmation with price action in way of HH’s - HL’s for long side
and LH’s - LL’s for short side.

Signal Generation – Exits:

1. Profits are trailed using swing levels

2. Profits are partially booked, if a price has reached a significant DP.
3. Remaining position is Exited on generation of opposite signal near a DP or on Trailing stop loss.

Extra steps:

1. Trades in favor of TREND are preferred.

2. Counter Trend trades are taken if it has high probability. High probability is defined by
confluence of levels, for example, even if there is a gap up on opening and Trend is up but a
signal is generated by BOF of PDH and IRH, trade is taken.
3. Available Space: Space has to be present in order for trade. If another DP is very near to my
entry, which may act as resistance or support, I shall wait for acceptance of DP for confirmation.
This also helps to take trades which have good Risk to Reward Ratio.

Risk Management and Position Sizing:

1. Risk per trade is not defined. As my entry, defines my SL which is below a decision point or
swing low/high. My average risk in terms of Futures for Nifty is 30 to 40 Points and for Banknifty
is 100 to 120 points.
2. Position sizing is kept based on amount of capital for one lot buying. For now, 50K margin is
used for one lot buying.
3. Maximum risk per day on all trades is kept at 3%, this is indeed aggressive. As option buying
incurs theta decay, this is offset by increase in Delta of option when it becomes ITM from ATM
in trending moves.
4. Slippages are not taken into account, as I use Limit Orders, but on larger position, Banknifty
option usually Have 12 to 14 points slippage and Nifty Has 4 to 6 points. This increases when the
India VIX is greater than 20 and also near the significant Decision points.