Secure Bank Nifty ETF Strategy: How to Earn ₹1 Lakh+ Monthly with a ₹25 Lakh Investment

 Step-by-Step Strategy Logic for the ETF Strategy:

Introduction: Welcome, friends! Today, we are discussing a powerful strategy based on a popular quote by W. Edwards Deming: “A system works, people fail.” Deming, an American engineer and management consultant, emphasized that systems can be reliable, but human emotions often interfere, leading to failure. Trading, just like any other field, is influenced by emotions such as fear and greed, which can cloud judgment. However, if you follow a strategy with discipline and consistency, the system will work in your favor.

In this blog, I will share an options trading strategy called the ETF Swing Momentum Combined Strategy (ETF Strategy) that has the potential to help you earn ₹1 lakh per month or even more if followed systematically. Let’s dive in and break down this strategy step-by-step, so you can apply it effectively. I will also cover which instrument to use, which indicators to apply, how much capital is required, and the back-testing results. So, make sure you read the entire blog to avoid missing any important steps.

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Step 1: Understanding the Instrument - Why ETFs?

Before diving into the strategy, it’s essential to know the instrument we are trading. I’ve chosen ETFs (Exchange Traded Funds) for this strategy. ETFs are safe, low-risk instruments, and since they are a basket of stocks or an index, there’s minimal risk of them going to zero.

ETFs track an index, and their portfolios are periodically balanced. If any stock in the portfolio underperforms, it’s removed and replaced with a better-performing one. The management of the ETF is handled by NSE, making it a relatively safe investment.

For this strategy, we will focus on Bank Nifty ETFs because Bank Nifty is a highly volatile index, making it perfect for swing trading. Some popular Bank Nifty ETFs include:

1. Bank BeES ETF
2. SETF Bank ETF (SBI AMC)
3. ICICI Bank ETF
4. HDFC Bank ETF
5. Axis Bank ETF

For the sake of simplicity, we will primarily use Bank BeES ETF and SETF Bank ETF for our trades.

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Step 2: Setting Up Indicators

For this strategy, we’ll use two technical indicators:

1. Moving Average (60-day Simple Moving Average)
2. RSI (Relative Strength Index)

Indicator 1: 60-day Simple Moving Average (60 SMA) -Daily Timeframe

• First, apply the 60-day Simple Moving Average on the daily time frame.
• This moving average will help us determine whether the market is in a bullish or bearish phase.
  • If the price is above the 60 SMA, the market is in a bullish phase.
  • If the price is below the 60 SMA, the market is in a bearish phase.

Indicator 2: Relative Strength Index (RSI)

• The default settings for RSI will be slightly adjusted.
  • Change the upper level from 70 to 60.
  • Leave the middle level at 50 and the lower level at 30.
• RSI will help us identify overbought and oversold conditions in the market.
  • A level of 30 or below signals an oversold condition (potential buying opportunity).
  • A level near 60 signals a potential exit.

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Step 3: Entry and Exit Logic

Now that the indicators are set, let’s define our entry and exit points.

Bullish Market (Above 60 SMA)

When the Bank Nifty ETF is trading above the 60 SMA, the market is considered to be in a bullish phase. This indicates a stronger and more sustained upward trend. Traders should primarily look for long positions during this phase.

Use RSI to Time Your Entry:

To fine-tune your entries within this bullish market condition, use the Relative Strength Index (RSI) indicator:

• Watch for RSI Approaching 60: If the RSI approaches 60 from below while the price remains above the 60 SMA, this signals a good potential entry point.

• Entry Signal: Enter the trade when RSI crosses 60 from below, or is close to doing so. This indicates that the stock, or in this case, Bank Nifty ETF, is regaining strength after an oversold condition but still within a bullish trend.

Exit Strategy:

• Exit on RSI Reversal: Once in the trade, keep an eye on the RSI. When RSI reaches 60 from top to bottom (i.e., when it falls below 60 after being above), it's time to exit. This signals a potential loss of momentum, and exiting at this point helps lock in profits.

Bearish Market (Below 60 SMA):

1. When the ETF is trading below the 60 SMA, the market is in a bearish phase.
2. Entry will occur when:
   • RSI reaches 30 or below, signaling a potential short-term bounce in a bearish market.
   • Enter the trade when RSI hits 30 in a bearish trend.
3. Exit Strategy:
   • Once the ETF touches or comes close to the 60 SMA, exit your position.
   • This ensures you capitalize on any temporary recovery before the bearish trend resumes.

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Step 4: Example Trade Execution

Let’s break down a hypothetical trade for clarity:

1. Bank Nifty ETF is trading below the 60 SMA, indicating a bearish phase.
2. RSI drops to 30 on August 6th, signaling a potential buying opportunity at 49,700.
3. You enter the trade at this level, anticipating a temporary recovery.
4. On August 12th, the ETF touches the 60 SMA level around 50,700.
5. You exit the trade here, capturing a 1,000-point gain in just 6 days.

This simple but effective approach ensures you systematically capture momentum in both bullish and bearish markets.

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Step 5: Capital Requirement and Backtesting Results

To start this strategy, you don’t need a massive capital investment. ETFs are affordable, and you can begin with a relatively small amount. However, to comfortably manage risk and maximize returns, a capital of around ₹1 lakh is recommended.

Backtesting Results:

In backtesting this strategy with Bank Nifty ETFs, we observed consistent gains. Trades that followed the rules systematically yielded around ₹1 lakh per month. The key to success is maintaining discipline and following the entry/exit rules strictly.

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Conclusion:

This ETF Strategy offers a disciplined, systematic approach to trading Bank Nifty ETFs, minimizing risk while maximizing potential returns. By using technical indicators like the 60 SMA and RSI and following a clear entry/exit strategy, you can remove emotional biases from your trading decisions and work towards consistent profits. If followed correctly, this strategy can help you earn ₹1 lakh per month or even more.