Introduction To Decoupling Method

Intraday day trading is devised into three types.

1.Stop loss Trading Technique : In this technique trader initiate one position keeping some stop loss and exit out of the position upon getting the stop loss triggered.

2.Swing Trading Technique: In this method trader initiate one position keeping some stop loss and at the point of stop loss reverse the trade keeping opposite view.

3.Decoupling Method: In this method trader identify the indices, stocks those are showing opposite behavior and assuming this behavior will continue or vanish after some time in a day then took the position.

The method of decoupling trading strategy is complex in its structure and bit complex in implementation too. However the success ratio is quite impressive.

Since Decupling method is my own invention I will give some idea about this method in this article. When we talk about the decoupling the exact meaning is deviation or detachment.. for example if I choose two public sector bank stocks for my study assuming they have similar business vertical and market penetration ,I will conclude their stock price will exhibit similar behavior in a day. Provided no bad news, good news, result or any other external factors influence them. At this junction if I want to study their pricing patterns in a day in order to identify existence of the decoupling then I can take the help of followings.

A. if any one technical indicator is giving buy signal for one stock and sell for the other stock then I will say decoupling exists. This phenomenon is due to the run up or sharp correction in any one of these stock.

B.I can take the help of past 10 trading days beta value to know the sensitivity of both the counters and study their intraday movement.

C.I can take the help of Fibonacci Retracement to identify if it suggest buying in one counter and sell in the other.

D.I can take the help of Gann method to identify the opposite trading view.

E.I can take the implied volatility of at the money options of the stocks to find the decoupling in volatility.