Frequently Asked Question

Technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.

Intraday trading or day trading means buying & selling of the stock on the same day.

Swing Trading is a short term trading method that can be used when trading stocks and options. Whereas Day Trading positions last less than one day, Swing Trading positions typically last two to six days, but may last as long as two weeks.

To learn about technical analysis and trading in general please refer "Trading Resources" section of our website.

Accumulation/Distribution Line: An upward trend shows increasing buying. Even if the price of a stock is moving sideways, an increasing A/D line shows that the stock was being accumulated.

ADX: Measures the strength and momentum of a trend. Because ADX is non-directional it doesn’t show the direction of the trend, which is why investors typically plot two other indicators alongside ADX. Values above 20 indicate that a trend is increasing, while a value of 40 indicates that a trend is exhausted and may reverse.

Aroon Oscillator: Used to determine whether a stock is in a trend, and how significant that trend is. The higher the number, the more bullish the predictor is. An investor may consider an increasing value a sign that a stock is potentially undervalued.

Use our tool ‘Performance Chart’. Select the Chart Type and add the sectors.

Highest Line will the outperforming sector and lowest line will be the underperforming sector. Also if you are consider NIFTY as a benchmark index then the sector line above the NIFTY line are the ones who are outperforming whereas below the NIFTY line are the ones who are underperforming.

Option traders look to volatility and trend strengths because of the time-sensitive nature of options; there are no buy-and-hold strategies in options trading. Traders need to be able to assess the relative strength of their positions quickly and time their transactions efficiently.

Bollinger Bands use standard deviations to highlight extremely overbought and oversold conditions even as volatility changes over time. Since volatility impacts options valuation, Bollinger Bands are popular for buyers and sellers.

The relative strength index (RSI) compares recent price gains to recent price losses, potentially helping the options trader anticipate corrections and overbought/oversold levels. The RSI works best with liquid, flexible assets. The money flow index (MFI) is very similar to the RSI, but it places more emphasis on trading volume.

Use Indicator ‘Comparative Relative Strength’. If green line is moving higher than the stock is outperforming the NIFTY.

Comparative Relative strength can be useful for many purposes. A simple use is to measure the strength of a stock's current trend versus that of the general market. An alternative use is when comparing two potential investments and trying to determine overall which one has the strongest overall trend. Finally, you could use the comparison tool to help monitor the profitability of a pair trade.

Markets go through the cycle of expansion and contraction. Trading ranges represents contraction which should lead an expansion.

Use indicator ‘Geometric Rectangle’. If prices are inside the Blue and Red Lines then the stock is trading inside a range.

It shows the breakout & breakdown levels from where the stock can move in a direction. If the lines are not shown in the chart that means stock is in a strong trend.

Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

Use indicator ‘Bollinger Bands Width’. If the red Line is moving higher than the volatility is rising and if the Red Line is moving lower than the volatility is cooling off. This alerts traders to prepare for a move in either direction.

Use indicator ‘Stop Loss’. There are three type of Stop Loss;
Aggressive:
• Very loose stop loss.
• Spend maximum time in the trade.
• With a Long term View (It will triggered in a deep correction).
Normal:
• Less tight stop loss.
• Giving advantage of full rally (upward or downward).
• Very effective in a Weak uptrend or downtrend.
Conservative:
• Very tight stop loss.
• Take away you very early from the trade.
• Very effective in a trending market.

Use our strategy ‘TA Forecast’. The box represents the expected target. Blue Box is for the long trades whereas purple box is for the short trades.

The boxes represent two things
(a) Where a stock price can go (Target). The vertical lines of the box represent the range of the stock price i.e. a stock can reach between these price levels.
(b) When the target can be reached (Time period). The horizontal lines of the rectangle represent the range of the time i.e. when a stock price can make a high or low.

Use our tool ‘Live Grid’. 

Open Live Grid. First chose data type. Then select the sector folder. You can also compress the data interval on a higher timeframe which you have selected. At last select Rank from the setting. Now click on Go.
A gird will be open. In the Rank column you will find the ranking of each sector. The green colored ranking suggests an increase in Rank whereas Pink colored ranking suggests a decrease in ranking.

We have a tool ‘Portfolio Manager’. You can track multiple portfolios there.
First you need to create a portfolio. Then add your position in it. You need to fill all the trade details like Stock Name, Buy/Sell Rates, Volume, Stop and Target. You can also put your important notes about the trade.

We have an advance feature ‘Alert’ in Trend Analyser. You can easily set price based alerts for any number of stocks. The main features are:
• A pop up message appears on the screen, whenever the condition specified in the alert is met.
• Queries can also be included in the alert.
• Alert runs in background.
• It allows user to create customized alert based on different alert types.
• There can be only one alert per company.
• Alerts can save as file for later use.

Trade simulation option recreates a complete real-time market picture. It is an easy way for beginners to trade markets without the risk of losing their hard earned capital. Simulator allows experienced traders to see how their trading ideas and strategies would perform under “real-time” market conditions – with no financial risk whatsoever.

Trade simulations can playback market data at different speed. You have complete control over the speed of the market data to be displayed.

Note: To watch chart simulation the chart must be opened.

Please click on order page. Here you will get a good idea about our products and pricing. Once you shortlist your product purchase, just add it to the cart and proceed to the checkout page. On the checkout page, you have an option of 2 payment gateways and where you can also review your order. (If you have any coupon, you can apply that). Having reviewed your order to satisfaction, you may now make the payment.

We accept Credit card, Debit Card, Net Banking, Cash & Cheque, thus payment can be made using any credit card, debit card or net banking. You can also make the payment by using variable payment section of our website.

Accounts are usually activated within 1 hours of realization of payment. Below are the approximate time taken to realize payments based on the payment option chosen:

Debit Card/Credit Card: To have your account activated fast, we recommend using Debit Card/Credit Card payment option.

Cheque/DD: Cheques/DD payments take around 48 hours to realize the payments once we receive the cheque/DD.

Internet Banking: Usually takes between 48 and 72 hours to realize the payment.

Please note: The above approximate realization times are given to help you make a decision on the payment option to choose. S2 Analytics does not guarantee the above realization times as they are done solely at the discretion of the banks involved in the transaction.

Login to your S2 Analytics Account. Go to “My Subscriptions” menu. The table shows your subscriptions list. Here you will get order summary, order details and invoice etc. You can also renew your product directly by clicking on icon i.e. Renew Your Subscription.

Login to your S2 Analytics Account. Go to “My Subscriptions” menu. The table shows your subscriptions list. Here you will get order summary, order details and invoice etc. You can also renew your product directly by clicking on icon i.e. Renew Your Subscription.

Free trial / demo activation allows users to use our products for free of cost for during a limited period of time. They can use the services, benefit from all the features, for free. You can activate your demo by registering with us.

If due to any reason you are not able to use our service or you are not satisfied or you wish to suspend the services or subscription of our products, the company is not liable to refund you any amount for your non-usage of the service or against such cancellation or suspension, however you can adjust such amount against our any other products or services.

You can get support from us through multiple channels such as email, phone, message center and remote support. Message center is our inbuilt tool that allows you to send and receive messages from us. This is present in all of our products.

You can also contact us through email or through our contact form present in our website.

Through remote we access your computer remotely and solve any problems you may be facing. We can also help you understand our product by talking you through it.

My Account gives you quick access to products, tools & settings. Here you will get details related to your profile, your subscriptions; demo, seminar, referral, calendar, announcements, support & settings.

Click on “forgot password” link from login tab. Enter your email Id. Your password will be sent to your email id. Go to your mailbox and reset your password.

First check if you are using your correct email ID for logging into your S2 account. If yes and you still do not receive the password reset email, please check your spam folder. If you are still unable to locate it, contact our support team at support@s2analytics.com.

Login to your S2 Analytics Account. Go to “My Profile” menu. Here you can change your personal details, contact details & additional contact information.

Login to your S2 Analytics Account. Go to “My Subscriptions” menu. The table shows your subscriptions list. In "Action" column, you will get order summary, order details and invoice etc. You can also renew your product directly by clicking on icon i.e. Renew Your Subscription.

Login to your S2 Analytics Account. Go to “My Subscriptions” menu. The table shows your subscriptions list. In "Action" column, you will get order summary, order details and invoice etc. You can download the invoice by clicking on icon i.e. Download Invoice.

Login to your S2 Analytics Account. Go to “My Subscriptions” menu. The table shows your subscriptions list. In "Action" column, you can view expiry of your subscription by clicking on icon i.e. View Details. You can also check expiry of your subscription by click on profile menu of your active product.

After logged in to your S2 Analytics account, go to “Seminar” menu. This page shows list of past and upcoming seminars. Your status regarding payment and reservation will also be shown.

The referral program allows you to invite people to try and buy our products. Every person you invite can use your referral code to avail discount. You also benefit as you get credits which you can use when you purchase or renew a subscription.

You can mention the name of your company in "My profile" menu and from "Settings" you can select option to generate invoice on company name.

Deactivation means permanent deletion of your account with S2 Analytics. If you decide not to use our services at all and do not wish to be contacted by us then you can de-activate your account. Once you deactivate your account, you’ll no longer be able to access any information.

To create a S2 Analytics account:
1. Go to www.s2analytics.com.
2. Click on Sign up, then signup form will appear.
3. Fill your details (Name, Mobile number, email id etc.)
4. Review terms & conditions and privacy policy, click the checkbox, and then click SIGN UP.
5. We will share an OTP on your mentioned mobile number. Please fill the OTP
6. Once OTP is verified, your account will be created.
7. You can login by using your login credentials.

Using login tab, you will be able to access the entire website including access of product. Whereas quick login enables user to access the product directly.

You can visit "Compare Products" section of our website. This section will help you to understand the important features of our products and may help you in deciding which product is right for you.

Free trial / demo activation allows users to use our products for free of cost for during a limited period of time. They can use the services, benefit from all the features, for free. You can activate your demo by registering with us.

Seminar page enables you will find details of upcoming and past Seminars. If you wish to attend any upcoming seminars please click on the "Enquire now" button. You can make the payment by using variable payment section of our website. After logged in to your S2 Analytics account, go to “Seminar” menu. Your status regarding payment and reservation will also be shown there.

We seek long term partnership with individuals and institutions as well, which is enduring and mutually beneficial. You can get associated with us. Feel free to contact us by sending us an e-mail or calling between business hours or by filling up the form prescribed at dealership section.

We are always happy to hear from you. Please feel free to call us at 011 42563333 or fill the CONTACT US form.

Trend Analyser is a professional charting and analysis software that comes with state-of-the-art tools to determine trend, momentum, buy and sell points for stocks. It is critical to have the right charting software to trade on the stock, futures, and other financial instruments. The right software can give you an edge in today’s competitive markets. Our product ‘Trend Analyser’ has been developed keeping all the key ingredients in mind such as trading tools, data management, ease of use and performance.

Trend Analyser is windows desktop software. Currently it supports only windows systems.
Supported OS: Windows XP - 10
RAM: 4 GB+
HDD: 1 GB
Note: Internet connection is required to use the product.

You will get complete product overview and user manual in the help section of this product.

How to open a chart
1. Click on File menu.
2. Click on Open menu.
3. Click on Company. ( Shortcut: CTRL + O )
4. An Open Company dialogue box will appear.
5. Select the appropriate tab for which you want to create chart.
6. For Real-time future data select 5min.
7. For Cash data select 30min.
8. For End of Day data select EOD.
9. For virtual & custom folders select Folders.
10. Select the company from the list.
11. Click OK to create new chart of selected company.

Free trial / demo activation allows users to use our products for free of cost for during a limited period of time. They can use the services, benefit from all the features, for free. You can activate your demo by registering with us. Please note that if the last time you tried demo for a product was 4 months before the current date then you can try the demo again.

Login to your S2 Analytics Account. Go to “My Subscriptions” menu. The table shows your subscriptions list. In "Action" column, you will get order summary, order details and invoice etc. You can also renew your product directly by clicking on icon i.e. Renew Your Subscription.

Use Live Grid and Market Watch for live tracking of stocks, indices and your query/scans.

Use Portfolio Manager to keep records

Use Alert to get notify if a stock met with your desired condition.

Use Sector Performance Chart to evaluate the underperforming and out performing sector. You can also use this tool to evaluate a pool of stocks as well.

Use Comparative Relative Strength Indicator for comparing two instruments.

Use Rank Indicator to identify the current ranking of an instrument within a selected group of instrument.

Use our proprietary Strategy if you do not have a trading plan or Strategy.

Use TA Forecast Strategy to identify time range and price range for a swing high or swing low.

Use our Script Editor to code your own Indicator, Strategy and Query.

Use Muse Stock Scanner to Scanning and making a scan/query.

Use Tabbed Charting Option if you have Multiple Workspaces.

Use Sector Analysis to see a sector movement and how many stock have closed in gain/loss within a sector.

Use Show Indicators in Group option to know about the category of an indicator.

Use Advanced option to create an indicator from an indicator.

Use Trend Paint to show the precise indicator movement on the chart.

Use Volatility Indicator if you are a breakout trader.

Use Trend Indicator if you are a trend following trader.

Use Momentum Indicator if you are a Mean Reversion Trader.

Use our Fibonacci tools to identify the scope of a swing extension or correction.

Use our Stop Loss/ TCI Stop Indicator for Trailing Stop.

Downloads page shows the platforms supported by our products. You can click respective icon to download for a specific platform.

Free trial / demo activation allows users to use our products for free of cost for during a limited period of time. They can use the services, benefit from all the features, for free. You can activate your demo by registering with us. Please note that if the last time you tried demo for a product was 4 months before the current date then you can try the demo again.

You will get complete product overview and user manual in the help section of this product.

Login to your S2 Analytics Account. Go to “My Subscriptions” menu. The table shows your subscriptions list. In "Action" column, you will get order summary, order details and invoice etc. You can also renew your product directly by clicking on icon i.e. Renew Your Subscription.

Have a view on markets. If your view is up then prefer taking long trades and avoid taking short trades.

You must follow the entry level. However, for exits (stop & target) should not be rigid for few points.

Do not dabble with volume. Stick with your trading quantity. Do not change it often.

It is not wise to take or hold upon a short trade on a day where the whole market is moving up.

It is not wise to take or hold upon a long trade on a day where the whole market is moving down.

Do not take trade in more than 5 instruments.

Limit your number of trade per day to a maximum of 5. You can choose the top 5 recommended stocks from our list.

Take multiple lots initially so that you can book profits time to time.

One can average out positions near to the stop loss point and wait for the prices to go in our favor.

Do not be stock specific. You should trade the index also.

Our research shows long trades are more profitable compared to short trade if you carry your position next day.

Always use limit orders instead of market orders.

Always place your stop and target once you take a position.

Your trade direction should match with the intermediate trend. If trend is up then try to take more long trade and if the trend is down then try to take more short trades.

Diversify your position on the basis of sectors also. Do not more than 2 trades in the same sector.

Try to have a view on sectors. Long trades are more profitable in an outperforming sector while short trades are more profitable in an underperforming sector.

In general, a swing move last for one and a half day to two and a half day. So if there is an expansion for more than two days then you should take partial profit either on the closing on the second day or at the opening on the third day.

If you are trading in equity then keep track on intermediate trend. Increase your volume in an uptrend while trade with lower volume if intermediate trend is down or sideways.

Markets do not have a fixed structure. Price movements are fluid, unpredictable at times and well defined at other times. Yet, within this unpredictable framework, there is a structure that applies to stock markets.

Dow Theory: Four principles of the theory:

The Averages discount everything (except acts of god): The first and most important principle is that everything is discounted and reflected in market prices.

All knowledge, regardless of type (fundamental, economic, political, psychological, or other), is already reflected in market prices. Price movements are simply a reflection of changes in supply and demand.

If demand is greater than supply then prices will increase. On the other hand, if supply is greater than demand, prices will decline. The study of market prices is all that is necessary.

There are two major markets: Bull and Bear: A BULL MARKET in which share prices are rising, encouraging buying whereas A BEAR MARKET in which share prices are falling, encouraging selling.

Successive rallies advancing above previous high points with ensuing declines terminating above preceding low points are taken as bullish indication. Rallies that fail to penetrate preceding high points with ensuing declines breaking preceding low points carry bearish indication.

In other words, Higher Highs and Higher Lows constitute a bull market, while Lower Highs and Lower Lows represent a bear market.

Each Major Market has three trends - primary, secondary and minor: Dow considered a trend to have three parts, primary, secondary and minor.

A primary trend is the largest trend lasting for more than a year, & possibly for several years.

A secondary trend is an intermediate trend that lasts three weeks to three months and is often associated with a movement against the primary trend.

The minor trend often lasts less than three weeks and is associated with the movements in the intermediate trend. This near term trend represents fluctuations in the intermediate trend.

A trend is assumed to continue until a reversal is definitely indicated: The overall technical approach in market analysis is based upon the idea that trends continue in motion until there is an external force causing it to change its direction.

Dow only took in consideration closing prices. Averages had to close higher than a previous peak or lower than the previous trough to be significant. Intraday penetrations did not count.

Wyckoff: He said that prices move through four stages:

Stage 1: Accumulation: when smart money begins to buy at low prices.

Stage 2: Markup: when retail and other investors begin to buy and prices rise to catch up with improving fundamentals.

Stage 3: Distribution: when prices rise more than justified, and, smart money begins to liquidate or sell positions.

Stage 4: Markdown: when stock prices begin to fall rapidly, with panic setting in.

Trend Indicators:

Moving Average: The process of identifying a trend is the same weather you are using SMA or EMA or WMA. One thing is more important to understand here is the value of MA.

Highest Value = More time to turn = Less whipsaws = More Drawdown = Useful for investment

Lowest Value = Less time to turn = More whipsaws = More Drawdown = Useful in Breakout Trading

Medium Value = Lag behind the price = More whipsaws = Moderate Drawdown = Useful in riding a trend

With 1 MA: Here we look for the slope of MA line. If slope of line is up then trend is up. If slope of line is down then trend is down.

With 1 MA & Price: Here we look at the relationship between price and MA. If the price is trading above the MA line then the trend is up and if prices are trading below the MA line then the trend is on the downside.

With 2 MA: Here we look at the relationship between two MA lines. One is fast and another one is slow. If fast line is trading above the slow line then the trend is up and if fast line is trading below the slow line then the trend is on the downside.

With 3 MA: In Dow Theory, we have discussed the three trends of the market are Primary, Intermediate and Short term. Here we look at the direction of three MA lines and try to use them as the three trends. For this purpose we need to use very slow value for the Primary trend, less slow for Intermediate trend and a fast value for short term.

Momentum Indicators:

Momentum indicators like RSI, Stochastics, CCI and Williams%R have setup to identify overbought and oversold conditions. This is the theory.

In reality, the indicators will almost always fail when a strong trend starts.

In an uptrend, as we are witnessing, the indicators will soon reach overbought areas. But, this could just be the start of the trend.

These indicators can stay overbought or become choppy in the overbought area while prices keep on going up.

Early warning comes in the form of divergences.

Confirmation of a trend comes when the indicator moves into overbought oversold zone.

For RSI the level for uptrend is above 60 and for downtrend is below 40.

Bulls are in Control:
Springs
Wide Range White Candles
Gaps – upward
Black Candles, Declines are Narrow Ranges
Trading Ranges are breaking on upside
Pivot Highs are crossed in a higher high / higher low pattern
Support holds
Lower Shadows

Bears are in Control:
Up thrusts
Wide Range Black Candles
Gaps – down
White Candles, Rallies are Narrow Ranges
Trading Ranges are breaking on down side
Pivot Lows are broken down in a lower high / lower low pattern
Resistance Holds
Upper Shadows

No one in Control:
Mainly when prices are in a trading range
Such periods are not worth trading.
Active instruments will soon break from the range.

“Contraction leads to an Expansion and vice versa.”

Contraction: Markets go through periods of contraction when prices move in a narrow range while trader interest comes down. When markets are doing nothing, they are giving a message: the periods of contraction see a balance between bulls and bears. Neither one is strong enough to take the market in their direction.

Expansion: Soon enough, one of the two forces – either the bulls or the bears will emerge as the stronger force. When the winning force will take the market sharply in its favor, trapping the losing force, then comes a period of expansion. This is the period when markets will move with large ranges, in any one direction.

We should always look for contraction. The reason is big profits always come in Expansion phase.

Contraction comes in two types:

A. Consolidation (Time period is short)
B. Shift from expansion into a trading range (Spends more time in trading range)

First type of contraction is not tradable. However we can trade the second type. We also called the second type as Regime Change.

What are central banks doing?

Is there a potential crisis event on the horizon?

Are interest rates going up or coming down?

How the major world markets are moving?

Left side of the chart: It means the bars or candles on the chart on your left side.

If slope is higher (first bar is at the left down corner, current bar is at the right up corner and in between bars move from one end to another) then our view should favors buying only.

If slope is lower (first bar is at the left top corner, current bar is at the right down corner and in between bars move from one end to another) then our view should favors selling only.

If slope is sideways (bars are all over the chart in a random nature) then our view should favor bot buying and selling or avoid.

Intuition & Perception: These two factors sometimes give great advantage while sometimes they leave traders with lots of pain. They develop over time. Important points here they never come when you are looking for it. They come on their own and we should never fight it. Either we follow it or we avoid it.

Should one take long or short or both trades?

In general, long trades make more money compared to short trade.

If you trade intraday then, in general, short trades are more profitable compared to long trade.

Traders also have their own bias. Few traders like to take long trades only while few likes to trade short only.

Positional and Investors uses hedging to overcome from price fluctuation impact on their portfolio. They use option (buying puts or selling calls) to do this. They also have a bias to choose one only.

If you use stocks as a trading instrument then this bias is also apply on those stocks. Few stock gives maximum profit in buying whereas few stocks gives maximum profits in shorting. So it is also important to keep this fact in mind.

Is there any price pattern?

Price patterns are the graphic record of the recurring turns in the crowd, expressed through price and volume.

For intraday traders, Opening range of the first few minutes represents the bias for the rest of the day. For example, if prices are trading below the low of first 15 minutes then the bias is on the down side.

For short term traders, NR4, NR7 and Inside Day represent a likely directional move while WR7 and Outside Day represent a likely choppy session. They also have Candle Patterns to gauge the next likely direction.

For Positional Traders and Investors, Trading Range and Chart Patterns provide a roadmap.

What is the price action narrow, choppy or wide?

If you see a lot of long wicks, it means that volatility and uncertainty are increasing.

Wicks that stick out to the downside typically signal rejection and failed bearish attempts.

Wicks that stick out to the upside typically signal rejection and failed bullish attempts.

Is the body of a candle positioned closer to the top or bottom of the candle? Bodies that close near the top often signal bullish pressure.

Candles with a large body and small wicks usually indicate a lot of strength whereas candles with a small body and large wicks signal indecision.

A combination of few candles are in up slope, down slope or there is no clear direction.

Which sectors are out performing and which are under performing?

Sector rotation is one of the most powerful tools which we can add in our trading and investing.

Not all sectors of the economy perform well at the same time. Our aim should be gaining exposure to multiple sectors through sector rotation.

Attempt is to take profit through timing a particular economic cycle and exiting a sector as it begins to struggle while entering another on the rise.

Sector rotation is a term normally applied to stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business.

Sector Rotation Models exist primarily to help investors identify and participate in new trending sectors of the stock market.

A sector rotation investment strategy is not a passive investment strategy like indexing, and requires periodic review and adjustment of sector holdings.

Tactical asset allocation and sector rotation strategies require patience and discipline, but have the potential to outperform passive indexing investment strategies.

The stocks that move intraday are the stocks that are in play.

A stock with fresh news

A stock that is likely to open with a gap up or down.

A stock that has a travel ranges (total of intraday swings) of more than 3 percent every day.

A stock that is close to important levels, which we can trade off.

If yesterday was an NR7, then expect a breakout in either direction.

Two periods RSI was below 10 or above 90 levels.

If yesterday was a trend day where the market or stock opened at one extreme and closed at the other extreme, look for a reversal in the short term trend.

If there is a strong trend (ADX > 30) then look for a 15 minute breakout trade.

A cluster of 2 or 3 small daily ranges

Prior day’s action in last 90 minutes shows a longer consolidation potentially leading to a range break next day. Confirmation comes with a gap.

If the price makes a strong move in the last hour of a trendless day, expect this move to continue the next day.

Trading assumes the availability of capital, the more the better. Technical Analysis is the means to preserve and increase the money; it does not create money out of nothing.

Always trade with capital which you can risk and can also provide you satisfactory return.

If you are using a capital which you cannot afford too loose, then you will keep fluctuating with your emotions.

If you are also not using enough capital for trading, then the outcome could be positive but not satisfactory.

You should have 100 times more money as your capital of the risk you can take on a single trade. For example, if you can afford to lose Rupees 100 on a single trade then you must have 100*100 = 10000 as your capital.

A minimum of three times of margin money: If you are trading NIFTY FUTURE 1 Lot then the margin required will be around 1,00,000. So you should have at least 1,00,000 * 3 = 3,00,000 as your trading capital.

The trading cost makes a big difference on returns. For most traders, trading costs is purely about the cost of brokerage. But it’s not.

Brokerage costs: It is the charge you pay the broker for executing the transaction and for additional services like research, advisory support etc. Brokerage charges can be either fixed or variable depending on your agreement with the broker.

Statutory costs: This includes GST, STT and Stamp Duty. In most cases, these statutory costs add up to more than the brokerage costs, especially when the brokerage charges are very low.

Exchange costs: These include exchange level charges, SEBI turnover fee etc. These are levied by the exchange on the broker and the broker in turn levies it on the customer. However, these charges are extremely nominal in the overall scheme of things.

Liquidity costs: A stock is liquid if you can buy or sell sufficient quantity of a stock at a particular price. If not then this can be a huge amount depending upon how much quantity you are going to trade. We also called it Slippage

Impact costs: If your buy or sell order has the potential to move the price up or down then it increases your cost of buying or reduces your cost of selling. This cost will be high in less liquid stocks.

Demat charges: This includes opening charge, an annual maintenance charge etc. You need to factor all these into your overall costs.

Always trade with that much quantity which does not disturb your sleep.

When trade size gets out of hand and too large, all the analysis in the world is worthless.

Percent risk you’re willing to accept per trade –We recommend less than 2%.
Capital 20 lakhs

Available for margin: 7 lakhs (1/3rd of total capital)

We can build positions for about 7 lots in Nifty futures

IF nifty moves 1 point against your favor then you can lose 75*7 = 525 rupees.

If NIFTY is at 11200 then Exposure = 60 Lakhs (7*11200*75)

Risk per position = 60,00,000 * 1% = 60,000/-

So if you can afford to lose Rupees 60,000 in a single trade then your trade size should be 7 lots.

Suppose you can afford to lose only rupees 20,000 in a single trade then your lot size should be 2 lots.

If NIFTY is at 11200 then Exposure = 17 Lakhs (2*11200*75)

Risk per position = 17,00,000 * 1% = 17,000/-

The number of times you win or lose doesn’t matter. It is how much you lose when you are wrong and how much you win when you are right that matters.

To manage risk: Only risk 2% of trading capital per trade (Prefer 1%).

Not more than 5% of your capital at risk, at any given time.

Define the risk from losing trades.

Limit the risk from a much larger-than-expected losing trade.

Limit the risk from a series of losing trades.

Limit the total risk from a set of highly correlated positions.

Limit the total amount of equity placed at risk at any one time.

Allow easy scaling as the account balance changes.

The focus of this process is on limiting risk, not maximizing returns.

This is how you stay in the game.

If you are trading with an edge, the most important thing is to manage the downside so that no one risk can take you out of business.

Profits, to a great extent, will take care of themselves; the first and most important job of any trader is to correctly manage the risk.

Intraday trading is different. Ideally there are three types of days; Trend Days (One direction move), Failed Trend Days (Two Direction Move), Range Days (Multiple ups and Downs).

You need to have a trading plan where action required for all three days will be covered.

Basically you need a trend following trading plan, a breakout trading plan and a reversal trading plan.

You also require a method to identify these days in advance or during the day.

You need to identify a proper entry and exit levels for all three setups.

You also limit yourself to overtrading.

You also need to set a stop and target for each setup.

A trend following system require more than 1:2 risk rewards ratio whereas a reversal system requires not more than 1:1.5 risk reward ratio.

You also require identifying a method which tells you not to trade today.

You also need to set a limit of the day for both profit and loss for stop trading on that day.

Record keeping is actually a crucial task in any performance or goal-oriented endeavor. The key is to have some way to measure, track, and stay focused on improving your performance.

A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline.

A trading journal isn’t just about writing your entry, exit and time but it is about your individual emotional psychology before, during, and after the trade.

In order to consistently grow as a trader you must have something to measure your progress and keep you on track. This is what a trading journal does.

The more you measure, the more you can fine-tune your approach and become a better more consistent trader.

Things to keep track of are entry date, exit date, entry price, exit price, trade management details, slippage, commission, strategy, profit/loss, original target and notes. Of course do not be limited to this list but these are just some ideas.

Reviewing your trades is essential because by reviewing your trades you become more aware of what your best trading setups look like. When you know what your best setups look like you are able to execute the trades easily and effortlessly.

When you see a mistake being made multiple times within your trading journal you can then write that mistake down to ensure that you do not make it again.

Growth only happens by learning from previous experiences and this is exactly what keeping a trading journal allows you to do.

If you want to be a professional trader you must do what professional traders do. They all keep journals and this is why you must as well!

Never trade opposite of the Market trend in Day trading.

Never follow rumors and news tips.

Never take more than 3 trades in a single day. Ideal number should be either a 1 or 2.

Never make a judgment on emotion. The stock market is unpredictable, so you’ll see wild swings, unforeseen dips, and inexplicable turnarounds in a stock’s price.

Don’t be surprised when things go wrong. Instead, have an exit strategy in place.

Never take it casually as Day trading is a business endeavor just like any other income-producing endeavor.

Never trade without a stop loss.

Never add to a losing trade. Averaging is a no in day trading.

Don't risk more than you can afford to lose.

Never go all in.

Don’t look for a golden key day trading, because there is none.

Don’t Change Your Strategy Too Often.

It means review your view on markets as new information comes.

Please understand flexibility is good but sometimes too much flexibility can harm your existing position and leave you with whipsaws.

So if you can differentiate between flexibility and too much flexibility only then you need to do this exercise else avoid it.

Let us understand it with an example: Suppose you are long and suddenly NIFTY moved down 20 points and now just 10 points far from your stop loss.

Now you can assume this fall may continue and might break the stop loss. So you take a decision to not follow the stop loss and exiting at current levels. This is a classic case of too much flexibility.

Now we add few more information in this scenario. There is a negative new which increases the volatility and that is the reason for NIFTY to see a fall of 20 points. In this case if you not following the stop loss and exiting at current level then this may be a wise decision and a clear case of flexibility.

Context can be validated on the following criteria:

If there is a fresh news

Shift in momentum. It means narrow to volatile or volatile to narrow

If there is a support & resistance nearby

If there is a new price pattern

If higher high higher low or lower high lower low pattern is broken

This is important. Studies show that it is the exits from your trade that really matter. Many professional traders and investors say that one area that they have never mastered is of exiting their trade.

Every trade requires an exit, at some point. Getting into a trade is the easy part, but where you get out determines your profit or loss.

Exit can be differentiate in 3 categories

Exit with loss: These are generally kept as close to the entry point as possible, but at the same time ensuring that they are not taken off easily. Traders use the following rules to set a stop loss.

High/Low of previous N Bar

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Money Management Stop

Volatility Based Stop

Price Pattern Stop

Fibonacci Levels

Exit with profit: Placing a profit target is like a balancing act—you want to extract as much profit potential as possible based on the tendencies of the market you are trading, but you can't get too greedy otherwise the price is unlikely to reach your target. So you don't want it too close, or too far. Traders use the following rules to set a stop loss.

Money Management Target

Price Pattern Target

Fibonacci Levels

Indicator Based Target

Volatility Based Target

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Trailing Exits: These exits are adaptive in nature. They move as our position moves in favor. These exit start with a fixed level. Then once prices move in our favor the stop also comes closer to entry price. This process continues until prices turned back and break it. Traders use the following rules to set a trailing exit.

Volatility based trailing

Indicator based trailing

Fixed Point bade trailing

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Time exit: Intraday traders need to close their position before the market closes. For taking the benefit of margin (which nowadays many brokers provide) they need to close position few minutes before the market closes by using Bracket Order (BO).

News affecting whole market:

Change in interest rates, monetary or fiscal policies.

Major policy changes

Major government changes

Geopolitical uncertainty

Storms, Hurricanes, low rains (especially for agricultural economies) etc.

News affecting a particular stock:

Earnings and profits reports

Launch of new products or features.

Changes in management

Bagging of large contracts

Financial scandals, court cases, patents etc.

Big news about competitors

Overtrading is a common problem that most traders don't even know they have. New and/or inexperienced traders often come in thinking that trading is all about constant motion, multiple charts and indicators firing at once, and working all day, every day to plan, execute, and manage trades. This misconception that traders must always be trading is the main cause of overtrading.

Ask yourself first, “not trading today is a viable option or not.”

After a Big Loss, Take a Break

Only Trade a Set Number of Stocks per Day

Set Profit and Loss Limits for the Day

Limit the Number of Setups you Trade

Limit How Long You Look At Filters

Do not Trade All Day

Execute Your Trading Plan

Mistakes, if any

We learn from our mistakes, we gain experience from our past actions and learn from their reactions. That is how we develop ourselves day by day.

To make the best, we need to be brutally honest with ourselves.

We are trying to get to the root cause of our actions and trying to plug loopholes in our trading process.

This is the more difficult part of the exercise.

Most of us are quick to express where we went right.

It is much harder to acknowledge where we went wrong.

When the market volatility leads to losses, we normally blame the market or some reason.

The truth is that was never in our control.

The focus should be what was within our control but we did not take action. That is more important.

Trading Plan Validation

The strategy is one of the most important factors while analyzing post trades.

Strategies vary depending on the market scenario. So, in the post-trade analysis, we have to look for execution of having applied the perfect strategy or not.

It may also happen that at the time of analyzing we find out that there was a better strategy which could have been applied.

Fear of losing the money or opportunity loss plays the main role while we take an entry/exit decision.

Because of this fear factor sometimes we miss great trades which we were confident about and sometimes we exit from a good trade too early.

If we have taken a breakout trade then we must see that the entry level was a breakout point or not.

In the same context, if we have taken a reversal trade then we must see that the entry level was around the reversal point or not.

Profit/Loss/Cost

We need to observe these three points very carefully while doing a post trade analysis.

If our trading plan has a 1:2 risk reward ratio then are we getting it.

If yes then it is good.

If not then we must find the reason for not getting the desired ratio.

We have to see also that our losses must be less than the profit.

Sometimes our trade is in profit on paper but when we trade it, we were not able to get that much profit. Reason behind this is cost.

Let us understand it with an example;

Suppose our strategy’s profit of a particular trade is 20 points in NIFTY. Now when we trade, we lose 5 points as cost and then lose 5 points as slippage. So in reality we get only 10 points instead of 20 points.

This analysis will help us to find a benchmark profit per trade.

We cannot and should not review trades one by one.

So we have to maintain a timetable for the purpose of review.

For intraday trading, a weekly or monthly review may be more appropriate.

Use good judgment in determining how frequently to review your performance.

Reviewing performance after every trade does not offer much perspective on how well the trade performed.

Reviewing performance after too long, you may miss opportunities to make needed adjustments.

Review trading performance to gain insight into the factors impacting your trades.

Take the time to understand what is working well and what could be improved

Trade the trend rather than contradicting the largest force around.

Tweak your stop losses with stock volatility

Filter stocks that fit your money management or tweak your money management to a variable depending on stocks behavior.

Avoid trading short-term pullbacks within overall trend

It’s important to lose small and gain big

Trail stop losses to ride it to the maximum possible.

Knowing when not to trade can contribute big. It’s not necessary to trade every day.

Some days will be beyond your understanding or beyond any rationality.

Define your exits before you enter in a trade

To get proficient at implementing a method, practice it, a lot.

Be focused every day you trade, and if you are not, don't trade that day.

Watching fluctuation in prices

Watching net profit / loss on a regular interval

Not counting the brokerage and other charges

Following the news and not the trend

Taking others advice as a proof for may positions

Roaming around the multiple stocks

Averaging the losing trade and taking early profit from winning trades

Not considering the risk and reward ratio

Try to call every market move.

Markets do not have a fixed structure. Price movements are fluid, unpredictable at times and well defined at other times. Yet, within this unpredictable framework, there is a structure that applies to stock markets.

Dow Theory: Four principles of the theory:

The Averages discount everything (except acts of god): The first and most important principle is that everything is discounted and reflected in market prices.

All knowledge, regardless of type (fundamental, economic, political, psychological, or other), is already reflected in market prices. Price movements are simply a reflection of changes in supply and demand.

If demand is greater than supply then prices will increase. On the other hand, if supply is greater than demand, prices will decline. The study of market prices is all that is necessary.

There are two major markets: Bull and Bear: A BULL MARKET in which share prices are rising, encouraging buying whereas A BEAR MARKET in which share prices are falling, encouraging selling.

Successive rallies advancing above previous high points with ensuing declines terminating above preceding low points are taken as bullish indication. Rallies that fail to penetrate preceding high points with ensuing declines breaking preceding low points carry bearish indication.

In other words, Higher Highs and Higher Lows constitute a bull market, while Lower Highs and Lower Lows represent a bear market.

Each Major Market has three trends - primary, secondary and minor: Dow considered a trend to have three parts, primary, secondary and minor.

A primary trend is the largest trend lasting for more than a year, & possibly for several years.

A secondary trend is an intermediate trend that lasts three weeks to three months and is often associated with a movement against the primary trend.

The minor trend often lasts less than three weeks and is associated with the movements in the intermediate trend. This near term trend represents fluctuations in the intermediate trend.

A trend is assumed to continue until a reversal is definitely indicated: The overall technical approach in market analysis is based upon the idea that trends continue in motion until there is an external force causing it to change its direction.

Dow only took in consideration closing prices. Averages had to close higher than a previous peak or lower than the previous trough to be significant. Intraday penetrations did not count.

Wyckoff: He said that prices move through four stages:

Stage 1: Accumulation: when smart money begins to buy at low prices.

Stage 2: Markup: when retail and other investors begin to buy and prices rise to catch up with improving fundamentals.

Stage 3: Distribution: when prices rise more than justified, and, smart money begins to liquidate or sell positions.

Stage 4: Markdown: when stock prices begin to fall rapidly, with panic setting in.

Trend Indicators:

Moving Average: The process of identifying a trend is the same weather you are using SMA or EMA or WMA. One thing is more important to understand here is the value of MA.

Highest Value = More time to turn = Less whipsaws = More Drawdown = Useful for investment

Lowest Value = Less time to turn = More whipsaws = More Drawdown = Useful in Breakout Trading

Medium Value = Lag behind the price = More whipsaws = Moderate Drawdown = Useful in riding a trend

With 1 MA: Here we look for the slope of MA line. If slope of line is up then trend is up. If slope of line is down then trend is down.

With 1 MA & Price: Here we look at the relationship between price and MA. If the price is trading above the MA line then the trend is up and if prices are trading below the MA line then the trend is on the downside.

With 2 MA: Here we look at the relationship between two MA lines. One is fast and another one is slow. If fast line is trading above the slow line then the trend is up and if fast line is trading below the slow line then the trend is on the downside.

With 3 MA: In Dow Theory, we have discussed the three trends of the market are Primary, Intermediate and Short term. Here we look at the direction of three MA lines and try to use them as the three trends. For this purpose we need to use very slow value for the Primary trend, less slow for Intermediate trend and a fast value for short term.

Momentum Indicators:

Momentum indicators like RSI, Stochastics, CCI and Williams%R have setup to identify overbought and oversold conditions. This is the theory.

In reality, the indicators will almost always fail when a strong trend starts.

In an uptrend, as we are witnessing, the indicators will soon reach overbought areas. But, this could just be the start of the trend.

These indicators can stay overbought or become choppy in the overbought area while prices keep on going up.

Early warning comes in the form of divergences.

Confirmation of a trend comes when the indicator moves into overbought oversold zone.

For RSI the level for uptrend is above 60 and for downtrend is below 40.

Bulls are in Control:

Springs
Wide Range White Candles
Gaps – upward
Black Candles, Declines are Narrow Ranges
Trading Ranges are breaking on upside
Pivot Highs are crossed in a lower high / lower low pattern
Support holds
Lower Shadows

Bears are in Control:

Up thrusts
Wide Range Black Candles
Gaps – down
White Candles, Rallies are Narrow Ranges
Trading Ranges are breaking on down side
Pivot Lows are broken down in a lower high / lower low pattern
Resistance Holds
Upper Shadows

No one in Control:

Mainly when prices are in a trading range
Such periods are not worth trading.
Active instruments will soon break from the range.

“Contraction leads to an Expansion and vice versa.”

Contraction: Markets go through periods of contraction when prices move in a narrow range while trader interest comes down. When markets are doing nothing, they are giving a message: the periods of contraction see a balance between bulls and bears. Neither one is strong enough to take the market in their direction.

Expansion: Soon enough, one of the two forces – either the bulls or the bears will emerge as the stronger force. When the winning force will take the market sharply in its favor, trapping the losing force, then comes a period of expansion.

This is the period when markets will move with large ranges, in any one direction.
We should always look for contraction. The reason is big profits always come in Expansion phase.

Contraction comes in two types:
A.  Consolidation (Time period is short)

B. Shift from expansion into a trading range (Spends more time in trading range)

First type of contraction is not tradable. However we can trade the second type. We also called the second type as Regime Change.

What are central banks doing?

Is there a potential crisis event on the horizon?

Are interest rates going up or coming down?

How the major world markets are moving?

Left side of the chart: It means the bars or candles on the chart on your left side.

If slope is higher (first bar is at the left down corner, current bar is at the right up corner and in between bars move from one end to another) then our view should favors buying only.

If slope is lower (first bar is at the left top corner, current bar is at the right down corner and in between bars move from one end to another) then our view should favors selling only.

If slope is sideways (bars are all over the chart in a random nature) then our view should favor bot buying and selling or avoid.

Intuition & Perception: These two factors sometimes give great advantage while sometimes they leave traders with lots of pain. They develop over time. Important points here they never come when you are looking for it. They come on their own and we should never fight it. Either we follow it or we avoid it.

Should one take long or short or both trades?

In general, long trades make more money compared to short trade.

If you trade intraday then, in general, short trades are more profitable compared to long trade.

Traders also have their own bias. Few traders like to take long trades only while few likes to trade short only.

Positional and Investors uses hedging to overcome from price fluctuation impact on their portfolio. They use option (buying puts or selling calls) to do this. They also have a bias to choose one only.

If you use stocks as a trading instrument then this bias is also apply on those stocks. Few stock gives maximum profit in buying whereas few stocks gives maximum profits in shorting. So it is also important to keep this fact in mind.

Is there any price pattern?

Price patterns are the graphic record of the recurring turns in the crowd, expressed through price and volume.

For intraday traders, Opening range of the first few minutes represents the bias for the rest of the day. For example, if prices are trading below the low of first 15 minutes then the bias is on the down side.

For short term traders, NR4, NR7 and Inside Day represent a likely directional move while WR7 and Outside Day represent a likely choppy session. They also have Candle Patterns to gauge the next likely direction.

For Positional Traders and Investors, Trading Range and Chart Patterns provide a roadmap.

What is the price action narrow, choppy or wide?

If you see a lot of long wicks, it means that volatility and uncertainty are increasing.

Wicks that stick out to the downside typically signal rejection and failed bearish attempts.

Wicks that stick out to the upside typically signal rejection and failed bullish attempts.

Is the body of a candle positioned closer to the top or bottom of the candle? Bodies that close near the top often signal bullish pressure.
Candles with a large body and small wicks usually indicate a lot of strength whereas candles with a small body and large wicks signal indecision.

A combination of few candles are in up slope, down slope or there is no clear direction.

Which sectors are out performing and which are under performing?

Sector rotation is one of the most powerful tools which we can add in our trading and investing.

Not all sectors of the economy perform well at the same time. Our aim should be gaining exposure to multiple sectors through sector rotation.

Attempt is to take profit through timing a particular economic cycle and exiting a sector as it begins to struggle while entering another on the rise.

Sector rotation is a term normally applied to stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business.

Sector Rotation Models exist primarily to help investors identify and participate in new trending sectors of the stock market.

A sector rotation investment strategy is not a passive investment strategy like indexing, and requires periodic review and adjustment of sector holdings.

Tactical asset allocation and sector rotation strategies require patience and discipline, but have the potential to outperform passive indexing investment strategies.

The stocks that move intraday are the stocks that are in play.

A stock with fresh news.

A stock that is likely to open with a gap up or down.

A stock that has a travel ranges (total of intraday swings) of more than 3 percent every day.

A stock that is close to important levels, which we can trade off.

If yesterday was an NR7, then expect a breakout in either direction.

Two periods RSI was below 10 or above 90 levels.

If yesterday was a trend day where the market or stock opened at one extreme and closed at the other extreme, look for a reversal in the short term trend.

A cluster of 2 or 3 small daily ranges

Prior day’s action in last 90 minutes shows a longer consolidation potentially leading to a range break next day. Confirmation comes with a gap.

If the price makes a strong move in the last hour of a trendless day, expect this move to continue the next day.

Trading assumes the availability of capital, the more the better. Technical Analysis is the means to preserve and increase the money; it does not create money out of nothing.

Always trade with capital which you can risk and can also provide you satisfactory return.

If you are using a capital which you cannot afford too loose, then you will keep fluctuating with your emotions.

If you are also not using enough capital for trading, then the outcome could be positive but not satisfactory.

You should have 100 times more money as your capital of the risk you can take on a single trade. For example, if you can afford to lose Rupees 100 on a single trade then you must have 100*100 = 10000 as your capital.

A minimum of three times of margin money: If you are trading NIFTY FUTURE 1 Lot then the margin required will be around 1,00,000. So you should have at least 1,00,000 * 3 = 3,00,000 as your trading capital.

The trading cost makes a big difference on returns. For most traders, trading costs is purely about the cost of brokerage. But it’s not.

Brokerage costs: It is the charge you pay the broker for executing the transaction and for additional services like research, advisory support etc. Brokerage charges can be either fixed or variable depending on your agreement with the broker.

Statutory costs: This includes GST, STT and Stamp Duty. In most cases, these statutory costs add up to more than the brokerage costs, especially when the brokerage charges are very low.

Exchange costs: These include exchange level charges, SEBI turnover fee etc. These are levied by the exchange on the broker and the broker in turn levies it on the customer. However, these charges are extremely nominal in the overall scheme of things.

Liquidity costs: A stock is liquid if you can buy or sell sufficient quantity of a stock at a particular price. If not then this can be a huge amount depending upon how much quantity you are going to trade. We also called it Slippage

Impact costs: If your buy or sell order has the potential to move the price up or down then it increases your cost of buying or reduces your cost of selling. This cost will be high in less liquid stocks.

Demat charges: This includes opening charge, an annual maintenance charge etc. You need to factor all these into your overall costs.

Always trade with that much quantity which does not disturb your sleep.

When trade size gets out of hand and too large, all the analysis in the world is worthless.

Percent risk you’re willing to accept per trade –We recommend less than 2%.

Capital 20 lakhs

Available for margin: 7 lakhs (1/3rd of total capital)

We can build positions for about 7 lots in Nifty futures

IF nifty moves 1 point against your favor then you can lose 75*7 = 525 rupees.

If NIFTY is at 11200 then Exposure = 60 Lakhs (7*11200*75)

Risk per position = 60,00,000 * 1% = 60,000/-

So if you can afford to lose Rupees 60,000 in a single trade then your trade size should be 7 lots.

Suppose you can afford to lose only rupees 20,000 in a single trade then your lot size should be 2 lots.

If NIFTY is at 11200 then Exposure = 17 Lakhs (2*11200*75)

Risk per position = 17,00,000 * 1% = 17,000/-

The number of times you win or lose doesn’t matter. It is how much you lose when you are wrong and how much you win when you are right that matters.

To manage risk: Only risk 2% of trading capital per trade (Prefer 1%).

Not more than 5% of your capital at risk, at any given time.

Define the risk from losing trades.

Limit the risk from a much larger-than-expected losing trade.

Limit the risk from a series of losing trades.

Limit the total risk from a set of highly correlated positions.

Limit the total amount of equity placed at risk at any one time.

Allow easy scaling as the account balance changes.

The focus of this process is on limiting risk, not maximizing returns.

This is how you stay in the game.

If you are trading with an edge, the most important thing is to manage the downside so that no one risk can take you out of business.

Profits, to a great extent, will take care of themselves; the first and most important job of any trader is to correctly manage the risk.

Swing traders generally concern with small swings within a larger trend. For that purpose, you need to have a trading plan where action required for this will be covered.

Basically you need a trend following trading plan or Buy on dip or sell on rally trading plan or a breakout trading plan.

You also limit yourself to overtrading.

A trend following system require more than 1:2 risk rewards ratio whereas a breakout system requires not more than 1:1.5 risk reward ratio.

First you require a method of trend identification.

You need to identify a proper entry and exit levels for all three setups.

You also need to set a stop and target for each setup.

You also require identifying a method which filters the whipsaws or false signal.

Record keeping is actually a crucial task in any performance or goal-oriented endeavor. The key is to have some way to measure, track, and stay focused on improving your performance.

A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline.

A trading journal isn’t just about writing your entry, exit and time but it is about your individual emotional psychology before, during, and after the trade.

In order to consistently grow as a trader you must have something to measure your progress and keep you on track. This is what a trading journal does.

The more you measure, the more you can fine-tune your approach and become a better more consistent trader.

Things to keep track of are entry date, exit date, entry price, exit price, trade management details, slippage, commission, strategy, profit/loss, original target and notes. Of course do not be limited to this list but these are just some ideas.

Reviewing your trades is essential because by reviewing your trades you become more aware of what your best trading setups look like. When you know what your best setups look like you are able to execute the trades easily and effortlessly.

When you see a mistake being made multiple times within your trading journal you can then write that mistake down to ensure that you do not make it again.

Growth only happens by learning from previous experiences and this is exactly what keeping a trading journal allows you to do.

If you want to be a professional trader you must do what professional traders do. They all keep journals and this is why you must as well!

Watching the market too closely, too often

Making many small moves without much thought

Getting distracted by a stock’s fundamentals

Lacking patience and discipline

Focusing on profits without managing risk

Trying to pick tops and bottoms in the market

Never trade opposite of the main trend.

Never follow rumors and news tips.

Never take more than 3 trades in a single day. Ideal number should be either a 1 or 2.

Never make a judgment on emotion. The stock market is unpredictable, so you’ll see wild swings, unforeseen dips, and inexplicable turnarounds in a stock’s price. Don’t be surprised when things go wrong. Instead, have an exit strategy in place.

Never take it casually.

Never trade without a stop loss.

Don't risk more than you can afford to lose.

Never go all in.

Don’t look for a golden key day trading, because there is none.

Don’t Change Your Strategy Too Often

It means review your view on markets as new information comes.

Please understand flexibility is good but sometimes too much flexibility can harm your existing position and leave you with whipsaws.

So if you can differentiate between flexibility and too much flexibility only then you need to do this exercise else avoid it.

Let us understand it with an example: Suppose you are long and suddenly NIFTY moved down 20 points and now just 10 points far from your stop loss. Now you can assume this fall may continue and might break the stop loss. So you take a decision to not

follow the stop loss and exiting at current levels. This is a classic case of too much flexibility.

Now we add few more information in this scenario. There is a negative new which increases the volatility and that is the reason for NIFTY to see a fall of 20 points. In this case if you not following the stop loss and exiting at current level then this may be a

wise decision and a clear case of flexibility.

Context can be validated on the following criteria:

If there is a fresh news

Shift in momentum. It means narrow to volatile or volatile to narrow

If there is a support & resistance nearby

If there is a new price pattern

If higher high higher low or lower high lower low pattern is broken

This is important. Studies show that it is the exits from your trade that really matter. Many professional traders and investors say that one area that they have never mastered is of exiting their trade.

Every trade requires an exit, at some point. Getting into a trade is the easy part, but where you get out determines your profit or loss.

Exit can be differentiate in 3 categories

Exit with loss: These are generally kept as close to the entry point as possible, but at the same time ensuring that they are not taken off easily. Traders use the following rules to set a stop loss.

High/Low of previous N Bar

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Money Management Stop

Volatility Based Stop

Price Pattern Stop

Fibonacci Levels

Exit with profit: Placing a profit target is like a balancing act—you want to extract as much profit potential as possible based on the tendencies of the market you are trading, but you can't get too greedy otherwise the price is unlikely to reach your target.

So you don't want it too close, or too far. Traders use the following rules to set a stop loss.

Money Management Target

Price Pattern Target

Fibonacci Levels

Indicator Based Target

Volatility Based Target

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Trailing Exits: These exits are adaptive in nature. They move as our position moves in favor. These exit start with a fixed level. Then once prices move in our favor the stop also comes closer to entry price. This process continues until prices turned back and break it. Traders use the following rules to set a trailing exit.

Volatility based trailing

Indicator based trailing

Fixed Point bade trailing

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Time exit: Swing traders are concerned with short term swing within a large trend. In general a swing last for a maximum of 5 trading days and on an average 3 trading days. So time stop for swing trader should be somewhere between 3 to 5 trading days.

News affecting whole market:

Change in interest rates, monetary or fiscal policies.

Major policy changes

Major government changes

Geopolitical uncertainty

Storms, Hurricanes, low rains (especially for agricultural economies) etc.

News affecting a particular stock:

Earnings and profits reports

Launch of new products or features.

Changes in management

Bagging of large contracts

Financial scandals, court cases, patents etc.

Big news about competitors

Overtrading is a common problem that most traders don't even know they have. New and/or inexperienced traders often come in thinking that trading is all about constant motion, multiple charts and indicators firing at once, and working all day, every day to plan, execute, and manage trades. This misconception that traders must always be trading is the main cause of overtrading.

Ask yourself first, “not trading today is a viable option or not.”

After a Big Loss, Take a Break

Only Trade a Set Number of Stocks per Day

Set Profit and Loss Limits for the Day

Limit the Number of Setups you Trade

Limit How Long You Look At Filters

Do not Trade All Day

Execute Your Trading Plan

Mistakes, if any

We learn from our mistakes, we gain experience from our past actions and learn from their reactions. That is how we develop ourselves day by day.

To make the best, we need to be brutally honest with ourselves.

We are trying to get to the root cause of our actions and trying to plug loopholes in our trading process.

This is the more difficult part of the exercise.

Most of us are quick to express where we went right.

It is much harder to acknowledge where we went wrong.

When the market volatility leads to losses, we normally blame the market or some reason.

The truth is that was never in our control.

The focus should be what was within our control but we did not take action. That is more important.

Trading Plan Validation

The strategy is one of the most important factors while analyzing post trades.

Strategies vary depending on the market scenario. So, in the post-trade analysis, we have to look for execution of having applied the perfect strategy or not.

It may also happen that at the time of analyzing we find out that there was a better strategy which could have been applied.

Fear of losing the money or opportunity loss plays the main role while we take an entry/exit decision.

Because of this fear factor sometimes we miss great trades which we were confident about and sometimes we exit from a good trade too early.

If we have taken a breakout trade then we must see that the entry level was a breakout point or not.

In the same context, if we have taken a buy on a dip trade then we must see that the entry level was around the reversal point or not.

Profit/Loss/Cost

We need to observe these three points very carefully while doing a post trade analysis.

If our trading plan has a 1:2 risk reward ratio then are we getting it?

If yes then it is good.

If not then we must find the reason for not getting the desired ratio.

We have to see also that our losses must be less than the profit.

Sometimes our trade is in profit on paper but when we trade it, we were not able to get that much profit. Reason behind this is cost.

Let us understand it with an example;

Suppose our strategy’s profit of a particular trade is 20 points in NIFTY. Now when we trade, we lose 5 points as cost and then lose 5 points as slippage. So in reality we get only 10 points instead of 20 points.

 This analysis will help us to find a benchmark profit per trade.

We cannot and should not review trades one by one.

So we have to maintain a timetable for the purpose of review.

For swing trading, a monthly or quarterly review may be more appropriate.

Use good judgment in determining how frequently to review your performance.

Reviewing performance after every trade does not offer much perspective on how well the trade performed.

Reviewing performance after too long, you may miss opportunities to make needed adjustments.

Review trading performance to gain insight into the factors impacting your trades.

Take the time to understand what is working well and what could be improved.

Trade the trend rather than contradicting the largest force around

Tweak your stop losses with stock volatility

Filter stocks that fit your money management or tweak your money management to a variable depending on stocks behavior.

Avoid trading short-term pullbacks within overall trend

It’s important to lose small and gain big

Trail stop losses to ride it to the maximum possible.

Knowing when not to trade can contribute big. It’s not necessary to trade every day.

Some days will be beyond your understanding or beyond any rationality.

Define your exits before you enter in a trade

To get proficient at implementing a method, practice it, a lot.

Be focused every day you trade, and if you are not, don't trade that day.

Watching fluctuation in prices

Watching net profit / loss on a regular interval

Not counting the brokerage and other charges

Following the news and not the trend

Taking others advice as a proof for my positions

Roaming around the multiple stocks

Averaging the losing trade and taking early profit from winning trades

Not considering the risk and reward ratio

Try to call every market move.

Widening your stop loss order when you see price going against you

Believing that price cannot move higher/lower.

Markets do not have a fixed structure. Price movements are fluid, unpredictable at times and well defined at other times. Yet, within this unpredictable framework, there is a structure that applies to stock markets.

Dow Theory: Four principles of the theory:

The Averages discount everything (except acts of god): The first and most important principle is that everything is discounted and reflected in market prices.

All knowledge, regardless of type (fundamental, economic, political, psychological, or other), is already reflected in market prices. Price movements are simply a reflection of changes in supply and demand.

If demand is greater than supply then prices will increase. On the other hand, if supply is greater than demand, prices will decline. The study of market prices is all that is necessary.

There are two major markets: Bull and Bear: A BULL MARKET in which share prices are rising, encouraging buying whereas A BEAR MARKET in which share prices are falling, encouraging selling.

Successive rallies advancing above previous high points with ensuing declines terminating above preceding low points are taken as bullish indication. Rallies that fail to penetrate preceding high points with ensuing declines breaking preceding low points carry bearish indication.

In other words, Higher Highs and Higher Lows constitute a bull market, while Lower Highs and Lower Lows represent a bear market.

Each Major Market has three trends - primary, secondary and minor: Dow considered a trend to have three parts, primary, secondary and minor.

A primary trend is the largest trend lasting for more than a year, & possibly for several years.

A secondary trend is an intermediate trend that lasts three weeks to three months and is often associated with a movement against the primary trend.

The minor trend often lasts less than three weeks and is associated with the movements in the intermediate trend. This near term trend represents fluctuations in the intermediate trend.

A trend is assumed to continue until a reversal is definitely indicated: The overall technical approach in market analysis is based upon the idea that trends continue in motion until there is an external force causing it to change its direction.

Dow only took in consideration closing prices. Averages had to close higher than a previous peak or lower than the previous trough to be significant. Intraday penetrations did not count.

Wyckoff: He said that prices move through four stages:

Stage 1: Accumulation: when smart money begins to buy at low prices.

Stage 2: Markup: when retail and other investors begin to buy and prices rise to catch up with improving fundamentals.

Stage 3: Distribution: when prices rise more than justified, and, smart money begins to liquidate or sell positions.

Stage 4: Markdown: when stock prices begin to fall rapidly, with panic setting in.

Trend Indicators:

Moving Average: The process of identifying a trend is the same weather you are using SMA or EMA or WMA. One thing is more important to understand here is the value of MA.

Highest Value = More time to turn = Less whipsaws = More Drawdown = Useful for investment

Lowest Value = Less time to turn = More whipsaws = More Drawdown = Useful in Breakout Trading

Medium Value = Lag behind the price = More whipsaws = Moderate Drawdown = Useful in riding a trend

With 1 MA: Here we look for the slope of MA line. If slope of line is up then trend is up. If slope of line is down then trend is down.

With 1 MA & Price: Here we look at the relationship between price and MA. If the price is trading above the MA line then the trend is up and if prices are trading below the MA line then the trend is on the downside.

With 2 MA: Here we look at the relationship between two MA lines. One is fast and another one is slow. If fast line is trading above the slow line then the trend is up and if fast line is trading below the slow line then the trend is on the downside.

With 3 MA: In Dow Theory, we have discussed the three trends of the market are Primary, Intermediate and Short term. Here we look at the direction of three MA lines and try to use them as the three trends. For this purpose we need to use very slow value for the Primary trend, less slow for Intermediate trend and a fast value for short term.

Momentum Indicators:

Momentum indicators like RSI, Stochastics, CCI and Williams%R have setup to identify overbought and oversold conditions. This is the theory.

In reality, the indicators will almost always fail when a strong trend starts.

In an uptrend, as we are witnessing, the indicators will soon reach overbought areas. But, this could just be the start of the trend.

These indicators can stay overbought or become choppy in the overbought area while prices keep on going up.

Early warning comes in the form of divergences.

Confirmation of a trend comes when the indicator moves into overbought oversold zone.

For RSI the level for uptrend is above 60 and for downtrend is below 40.

Bulls are in Control:

• Springs
• Wide Range White Candles
• Gaps – upward
• Black Candles, Declines are Narrow Ranges
• Trading Ranges are breaking on upside
• Pivot Highs are crossed in a lower high / lower low pattern
• Support holds
• Lower Shadows

Bears are in Control:

• Up thrusts
• Wide Range Black Candles
• Gaps – down
• White Candles, Rallies are Narrow Ranges
• Trading Ranges are breaking on down side
• Pivot Lows are broken down in a lower high / lower low pattern
• Resistance Holds
• Upper Shadows

No one in Control:

• Mainly when prices are in a trading range
• Such periods are not worth trading.
• Active instruments will soon break from the range.

“Contraction leads to an Expansion and vice versa.”

Contraction: Markets go through periods of contraction when prices move in a narrow range while trader interest comes down. When markets are doing nothing, they are giving a message: the periods of contraction see a balance between bulls and bears. Neither one is strong enough to take the market in their direction.

Expansion: Soon enough, one of the two forces – either the bulls or the bears will emerge as the stronger force. When the winning force will take the market sharply in its favor, trapping the losing force, then comes a period of expansion. This is the period when markets will move with large ranges, in any one direction.

We should always look for contraction. The reason is big profits always come in Expansion phase.

Contraction comes in two types:

• Consolidation (Time period is short)
• Shift from expansion into a trading range (Spends more time in trading range)

First type of contraction is not tradable. However we can trade the second type. We also called the second type as Regime Change.

What are central banks doing?

Is there a potential crisis event on the horizon?

Are interest rates going up or coming down?

How the major world markets are moving?

Left side of the chart: It means the bars or candles on the chart on your left side.

If slope is higher (first bar is at the left down corner, current bar is at the right up corner and in between bars move from one end to another) then our view should favors buying only.

If slope is lower (first bar is at the left top corner, current bar is at the right down corner and in between bars move from one end to another) then our view should favors selling only.

If slope is sideways (bars are all over the chart in a random nature) then our view should favor bot buying and selling or avoid.

Intuition & Perception: These two factors sometimes give great advantage while sometimes they leave traders with lots of pain. They develop over time. Important points here they never come when you are looking for it. They come on their own and we should never fight it. Either we follow it or we avoid it.

Should one take long or short or both trades?

In general, long trades make more money compared to short trade.

If you trade intraday then, in general, short trades are more profitable compared to long trade.

Traders also have their own bias. Few traders like to take long trades only while few likes to trade short only.

Positional and Investors uses hedging to overcome from price fluctuation impact on their portfolio. They use option (buying puts or selling calls) to do this. They also have a bias to choose one only.

If you use stocks as a trading instrument then this bias is also apply on those stocks. Few stock gives maximum profit in buying whereas few stocks gives maximum profits in shorting. So it is also important to keep this fact in mind.

Price patterns are the graphic record of the recurring turns in the crowd, expressed through price and volume.

For intraday traders, Opening range of the first few minutes represents the bias for the rest of the day. For example, if prices are trading below the low of first 15 minutes then the bias is on the down side.

For short term traders, NR4, NR7 and Inside Day represent a likely directional move while WR7 and Outside Day represent a likely choppy session. They also have Candle Patterns to gauge the next likely direction.

For Positional Traders and Investors, Trading Range and Chart Patterns provide a roadmap.

If you see a lot of long wicks, it means that volatility and uncertainty are increasing.

Wicks that stick out to the downside typically signal rejection and failed bearish attempts.

Wicks that stick out to the upside typically signal rejection and failed bullish attempts.

Is the body of a candle positioned closer to the top or bottom of the candle? Bodies that close near the top often signal bullish pressure.

Candles with a large body and small wicks usually indicate a lot of strength whereas candles with a small body and large wicks signal indecision.

A combination of few candles are in up slope, down slope or there is no clear direction.

Sector rotation is one of the most powerful tools which we can add in our trading and investing.

Not all sectors of the economy perform well at the same time. Our aim should be gaining exposure to multiple sectors through sector rotation.

Attempt is to take profit through timing a particular economic cycle and exiting a sector as it begins to struggle while entering another on the rise.

Sector rotation is a term normally applied to stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business.

Sector Rotation Models exist primarily to help investors identify and participate in new trending sectors of the stock market.

A sector rotation investment strategy is not a passive investment strategy like indexing, and requires periodic review and adjustment of sector holdings.

Tactical asset allocation and sector rotation strategies require patience and discipline, but have the potential to outperform passive indexing investment strategies.

Bottom up and Top down is two basic ways to analyze the market.

In Top down analysis, the big picture is examined first, slowly going down to stock identification.

Thus, the analysis starts at the very big picture, then moves down to smaller pictures / views. The steps in top down could be:

• Country economic outlook
• Stock market response to country outlook
• Sectors performance
• Stocks in outperforming sectors

Bottoms up starts at the stock / company directly

If the technical / fundamental analysis of the company meets analyst parameters, the stock is selected for investing. Investors focus attention on a specific company rather than on sectors or the macroeconomic picture.

There is a lot to be said in favor of both approaches.

In stock markets, a bottom up approach may be superior if technical analysis is used. There are opportunities in individual charts based on chart analysis even when the sector or the bigger economic picture is subdued. Charts also ensure that risk is managed carefully, therefore eliminating the need to get confirmation by sectors and macro.

When the macro and sectors are in favor, bigger price moves may emerge. Therefore, a view of sectors and macro is helpful.

Traders may first identify suitable chart patterns then check out the fundamentals including sector analysis. Often hidden gems emerge suddenly without any sector confirmation. It is wise for traders to start their analysis bottoms up.

Trading assumes the availability of capital, the more the better. Technical Analysis is the means to preserve and increase the money; it does not create money out of nothing.

Always trade with capital which you can risk and can also provide you satisfactory return.

If you are using a capital which you cannot afford too loose, then you will keep fluctuating with your emotions.

If you are also not using enough capital for trading, then the outcome could be positive but not satisfactory.

You should have 100 times more money as your capital of the risk you can take on a single trade. For example, if you can afford to lose Rupees 100 on a single trade then you must have 100*100 = 10000 as your capital.

A minimum of three times of margin money: If you are trading NIFTY FUTURE 1 Lot then the margin required will be around 1,00,000. So you should have at least 1,00,000 * 3 = 3,00,000 as your trading capital.

The trading cost makes a big difference on returns. For most traders, trading costs is purely about the cost of brokerage. But it’s not.

Brokerage costs: It is the charge you pay the broker for executing the transaction and for additional services like research, advisory support etc. Brokerage charges can be either fixed or variable depending on your agreement with the broker.

Statutory costs: This includes GST, STT and Stamp Duty. In most cases, these statutory costs add up to more than the brokerage costs, especially when the brokerage charges are very low.

Exchange costs: These include exchange level charges, SEBI turnover fee etc. These are levied by the exchange on the broker and the broker in turn levies it on the customer. However, these charges are extremely nominal in the overall scheme of things.

Liquidity costs: A stock is liquid if you can buy or sell sufficient quantity of a stock at a particular price. If not then this can be a huge amount depending upon how much quantity you are going to trade. We also called it Slippage

Impact costs: If your buy or sell order has the potential to move the price up or down then it increases your cost of buying or reduces your cost of selling. This cost will be high in less liquid stocks.

Demat charges: This includes opening charge, an annual maintenance charge etc. You need to factor all these into your overall costs.

For trading in Future/Options

Always trade with that much quantity which does not disturb your sleep.

When trade size gets out of hand and too large, all the analysis in the world is worthless.

Percent risk you’re willing to accept per trade –We recommend less than 2%.

Capital           20 lakhs

Available for margin: 7 lakhs (1/3^rd of total capital)

We can build positions for about 7 lots in Nifty futures

IF nifty moves 1 point against your favor then you can lose 75*7 = 525 rupees.

If NIFTY is at 11200 then Exposure = 60 Lakhs (7*11200*75)

Risk per position = 60,00,000 * 1% = 60,000/-

So if you can afford to lose Rupees 60,000 in a single trade then your trade size should be 7 lots.

Suppose you can afford to lose only rupees 20,000 in a single trade then your lot size should be 2 lots.

If NIFTY is at 11200 then Exposure = 17 Lakhs (2*11200*75)

Risk per position = 17,00,000 * 1% = 17,000/-

For trading in Equity

Positional Traders are generally concerned with short term investing. So most favored strategy to use is allocating a specific amount of capital to each trade. The amount is determined by the trader based on account size and how diversified they wish to be.

Assume a 1,00,000 investment account. The investor decides they will only take up to 5,000 in any stock trade they make. The investor can therefore buy 20 stocks, investing 5,000 in each.

A more conservative investor, wishing to be more diversified, may buy 40 stocks, only investing 2,500 in each.

Given this scenario, assume our investor wants to invest 2,500 in RELIANCE. The current share price is 1,360. Divide the desired investment amount by the share price to get the position size: 2,500 / 1,360 = 2 shares.

A not-so-conservative investor may decide to invest 20,000 in each stock, and only take five positions. For such a non-diversified portfolio, a stop loss strategy is recommended, as discussed above (For Future/Option trading).

The Capital Allocation method is mostly used by passive investors, because it is an easy and efficient way to allocate capital.

With this method it is best to invest a small portion of the total account in each stock, achieving some level of diversification. That way, if some stocks go down, hopefully some of the others will rise, offsetting the loss.

A stop loss can also be utilized with this method to control risk within each trade. When buying 2,500 worth of stock, the trader may not wish to risk all that capital should the company fail. A stop loss can therefore be placed below the entry price to close out of the position if a loss becomes too large.

If an investor has a lot of positions they may choose to simply close out a position if the stock declines by 15%. Therefore, a stop loss order is placed 15% below the entry price. If the stock declines 15%, the trade is closed out and the trader preserves 85% of the capital allocated to that stock.

The number of times you win or lose doesn’t matter. It is how much you lose when you are wrong and how much you win when you are right that matters.

To manage risk: Only risk 8% of trading capital per trade (Prefer 5%).

Not more than 8% of your capital at risk, at any given time.

Define the risk from losing trades.

Limit the risk from a much larger-than-expected losing trade.

Limit the risk from a series of losing trades.

Limit the total risk from a set of highly correlated positions.

Limit the total amount of equity placed at risk at any one time.

Allow easy scaling as the account balance changes.

The focus of this process is on limiting risk, not maximizing returns.

This is how you stay in the game.

If you are trading with an edge, the most important thing is to manage the downside so that no one risk can take you out of business.

Profits, to a great extent, will take care of themselves; the first and most important job of any trader is to correctly manage the risk.

Positional Trading concerns with the trend.

Basically you need a trend following trading plan.

You also require a method to identify momentum.

You need to identify a proper entry and exit levels.

You also limit yourself to overtrading.

You also need to set a trailing stop.

You also need to set up a plan for Position Sizing and Diversification.

You also need to set up a plan for Capital Allocation for each position.

Record keeping is actually a crucial task in any performance or goal-oriented endeavor. The key is to have some way to measure, track, and stay focused on improving your performance.

A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline.

A trading journal isn’t just about writing your entry, exit and time but it is about your individual emotional psychology before, during, and after the trade.

In order to consistently grow as a trader you must have something to measure your progress and keep you on track. This is what a trading journal does.

The more you measure, the more you can fine-tune your approach and become a better more consistent trader.

Things to keep track of are entry date, exit date, entry price, exit price, trade management details, slippage, commission, strategy, profit/loss, original target and notes. Of course do not be limited to this list but these are just some ideas.

Reviewing your trades is essential because by reviewing your trades you become more aware of what your best trading setups look like. When you know what your best setups look like you are able to execute the trades easily and effortlessly.

When you see a mistake being made multiple times within your trading journal you can then write that mistake down to ensure that you do not make it again.

Growth only happens by learning from previous experiences and this is exactly what keeping a trading journal allows you to do.

If you want to be a professional trader you must do what professional traders do. They all keep journals and this is why you must as well!

Never trade opposite of the Market trend.

Never follow rumors and news tips.

Never make a judgment on emotion. The stock market is unpredictable, so you’ll see wild swings, unforeseen dips, and inexplicable turnarounds in a stock’s price. Don’t be surprised when things go wrong. Instead, have an exit strategy in place.

Don't risk more than you can afford to lose.

Never go all in.

Don’t look for a golden key day trading, because there is none.

Don’t Change Your Strategy Too Often

Only buying companies you know or like.

Buying high, selling low

Performance chasing

Trying to time the market

Having unrealistic expectations

Getting greedy

Assuming a stock with a low price is undervalued

Assuming a stock that has sold off is now undervalued

Blindly following a “buy and hold” strategy

Holding losers for too long & selling winners too soon

It means review your view on markets as new information comes.

Please understand flexibility is good but sometimes too much flexibility can harm your existing position and leave you with whipsaws.

So if you can differentiate between flexibility and too much flexibility only then you need to do this exercise else avoid it.

Let us understand it with an example: Suppose you are long and suddenly NIFTY moved down 20 points and now just 10 points far from your stop loss. Now you can assume this fall may continue and might break the stop loss. So you take a decision to not follow the stop loss and exiting at current levels. This is a classic case of too much flexibility.

Now we add few more information in this scenario. There is a negative new which increases the volatility and that is the reason for NIFTY to see a fall of 20 points. In this case if you not following the stop loss and exiting at current level then this may be a wise decision and a clear case of flexibility.

Context can be validated on the following criteria:

If there is a fresh news

Shift in momentum. It means narrow to volatile or volatile to narrow

If there is a support & resistance nearby

If there is a new price pattern

If higher high higher low or lower high lower low pattern is broken.

This is important. Studies show that it is the exits from your trade that really matter. Many professional traders and investors say that one area that they have never mastered is of exiting their trade.

Every trade requires an exit, at some point. Getting into a trade is the easy part, but where you get out determines your profit or loss.

Exit can be differentiate in 3 categories

Exit with loss: These are generally kept as close to the entry point as possible, but at the same time ensuring that they are not taken off easily. Traders use the following rules to set a stop loss.

High/Low of previous N Bar

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Money Management Stop

Volatility Based Stop

Price Pattern Stop

Fibonacci Levels

Exit with profit: Placing a profit target is like a balancing act—you want to extract as much profit potential as possible based on the tendencies of the market you are trading, but you can't get too greedy otherwise the price is unlikely to reach your target. So you don't want it too close, or too far. Traders use the following rules to set a stop loss.

Money Management Target

Price Pattern Target

Fibonacci Levels

Indicator Based Target

Volatility Based Target

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Trailing Exits: These exits are adaptive in nature. They move as our position moves in favor. These exit start with a fixed level. Then once prices move in our favor the stop also comes closer to entry price. This process continues until prices turned back and break it. Traders use the following rules to set a trailing exit.

Volatility based trailing

Indicator based trailing

Fixed Point bade trailing

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Time exit: Overstaying in a position which is not moving in either side will block your capital. So you need to identify a time limit for a position to move.

News affecting whole market:

Change in interest rates, monetary or fiscal policies.

Major policy changes

Major government changes

Geopolitical uncertainty

Storms, Hurricanes, low rains (especially for agricultural economies) etc.

News affecting a particular stock:

Earnings and profits reports

Launch of new products or features.

Changes in management

Bagging of large contracts

Financial scandals, court cases, patents etc.

Big news about competitors

Overtrading is a common problem that most traders don't even know they have. New and/or inexperienced traders often come in thinking that trading is all about constant motion, multiple charts and indicators firing at once, and working all day, every day to plan, execute, and manage trades. This misconception that traders must always be trading is the main cause of overtrading.

Obviously, owning five stocks is better than owning one, but there comes a point when adding more stocks to your portfolio ceases to make a difference. There is a debate over how many stocks are needed to reduce risk while maintaining a high return.

The most conventional view argues that an investor can achieve optimal diversification with only 15 to 20 stocks spread across various industries.

Mistakes, if any

We learn from our mistakes, we gain experience from our past actions and learn from their reactions. That is how we develop ourselves day by day.

To make the best, we need to be brutally honest with ourselves.

We are trying to get to the root cause of our actions and trying to plug loopholes in our trading process.

This is the more difficult part of the exercise.

Most of us are quick to express where we went right.

It is much harder to acknowledge where we went wrong.

When the market volatility leads to losses, we normally blame the market or some reason.

The truth is that was never in our control.

The focus should be what was within our control but we did not take action. That is more important.

Trading Plan Validation

The strategy is one of the most important factors while analyzing post trades.

Strategies vary depending on the market scenario. So, in the post-trade analysis, we have to look for execution of having applied the perfect strategy or not.

It may also happen that at the time of analyzing we find out that there was a better strategy which could have been applied.

Fear of losing the money or opportunity loss plays the main role while we take an entry/exit decision.

Because of this fear factor sometimes we miss great trades which we were confident about and sometimes we exit from a good trade too early.

If we have taken a breakout trade then we must see that the entry level was a breakout point or not.

In the same context, if we have taken a reversal trade then we must see that the entry level was around the reversal point or not.

Profit/Loss/Cost

We need to observe these three points very carefully while doing a post trade analysis.

If our trading plan has a 1:2 risk reward ratio then are we getting it.

If yes then it is good.

If not then we must find the reason for not getting the desired ratio.

We have to see also that our losses must be less than the profit.

Sometimes our trade is in profit on paper but when we trade it, we were not able to get that much profit. Reason behind this is cost.

Let us understand it with an example;

Suppose our strategy’s profit of a particular trade is 20 points in NIFTY. Now when we trade, we lose 5 points as cost and then lose 5 points as slippage. So in reality we get only 10 points instead of 20 points.

 This analysis will help us to find a benchmark profit per trade.

We cannot and should not review trades one by one.

So we have to maintain a timetable for the purpose of review.

For Positional trading, a half yearly or yearly review may be more appropriate.

Use good judgment in determining how frequently to review your performance.

Reviewing performance after every trade does not offer much perspective on how well the trade performed.

Reviewing performance after too long, you may miss opportunities to make needed adjustments.

Review trading performance to gain insight into the factors impacting your trades.

Take the time to understand what is working well and what could be improved

Trade the trend rather than contradicting the largest force around

Tweak your stop losses with stock volatility

Filter stocks that fit your money management or tweak your money management to a variable depending on stocks behavior.

Avoid trading short-term pullbacks within overall trend

It’s important to lose small and gain big

Trail stop losses to ride it to the maximum possible.

Knowing when not to trade can contribute big. It’s not necessary to trade every day.

Some days will be beyond your understanding or beyond any rationality.

Define your exits before you enter in a trade

To get proficient at implementing a method, practice it, a lot.

Be focused every day you trade, and if you are not, don't trade that day.

Watching fluctuation in prices

Watching net profit / loss on a regular interval

Not counting the brokerage and other charges

Following the news and not the trend

Taking others advice as a proof for may positions

Roaming around the multiple stocks

Averaging the losing trade and taking early profit from winning trades

Not considering the risk and reward ratio

Try to call every market move.

Markets do not have a fixed structure. Price movements are fluid, unpredictable at times and well defined at other times. Yet, within this unpredictable framework, there is a structure that applies to stock markets.

Dow Theory: Four principles of the theory:

The Averages discount everything (except acts of god): The first and most important principle is that everything is discounted and reflected in market prices.

All knowledge, regardless of type (fundamental, economic, political, psychological, or other), is already reflected in market prices. Price movements are simply a reflection of changes in supply and demand.

If demand is greater than supply then prices will increase. On the other hand, if supply is greater than demand, prices will decline. The study of market prices is all that is necessary.

There are two major markets: Bull and Bear: A BULL MARKET in which share prices are rising, encouraging buying whereas A BEAR MARKET in which share prices are falling, encouraging selling.

Successive rallies advancing above previous high points with ensuing declines terminating above preceding low points are taken as bullish indication. Rallies that fail to penetrate preceding high points with ensuing declines breaking preceding low points carry bearish indication.

In other words, Higher Highs and Higher Lows constitute a bull market, while Lower Highs and Lower Lows represent a bear market.

Each Major Market has three trends - primary, secondary and minor: Dow considered a trend to have three parts, primary, secondary and minor.

A primary trend is the largest trend lasting for more than a year, & possibly for several years.

A secondary trend is an intermediate trend that lasts three weeks to three months and is often associated with a movement against the primary trend.

The minor trend often lasts less than three weeks and is associated with the movements in the intermediate trend. This near term trend represents fluctuations in the intermediate trend.

A trend is assumed to continue until a reversal is definitely indicated: The overall technical approach in market analysis is based upon the idea that trends continue in motion until there is an external force causing it to change its direction.

Dow only took in consideration closing prices. Averages had to close higher than a previous peak or lower than the previous trough to be significant. Intraday penetrations did not count.

Wyckoff: He said that prices move through four stages:

Stage 1: Accumulation: when smart money begins to buy at low prices.

Stage 2: Markup: when retail and other investors begin to buy and prices rise to catch up with improving fundamentals.

Stage 3: Distribution: when prices rise more than justified, and, smart money begins to liquidate or sell positions.

Stage 4: Markdown: when stock prices begin to fall rapidly, with panic setting in.

Trend Indicators:

Moving Average: The process of identifying a trend is the same weather you are using SMA or EMA or WMA. One thing is more important to understand here is the value of MA.

Highest Value = More time to turn = Less whipsaws = More Drawdown = Useful for investment

Lowest Value = Less time to turn = More whipsaws = More Drawdown = Useful in Breakout Trading

Medium Value = Lag behind the price = More whipsaws = Moderate Drawdown = Useful in riding a trend

With 1 MA: Here we look for the slope of MA line. If slope of line is up then trend is up. If slope of line is down then trend is down.

With 1 MA & Price: Here we look at the relationship between price and MA. If the price is trading above the MA line then the trend is up and if prices are trading below the MA line then the trend is on the downside.

With 2 MA: Here we look at the relationship between two MA lines. One is fast and another one is slow. If fast line is trading above the slow line then the trend is up and if fast line is trading below the slow line then the trend is on the downside.

With 3 MA: In Dow Theory, we have discussed the three trends of the market are Primary, Intermediate and Short term. Here we look at the direction of three MA lines and try to use them as the three trends. For this purpose we need to use very slow value for the Primary trend, less slow for Intermediate trend and a fast value for short term.

Momentum Indicators:

Momentum indicators like RSI, Stochastics, CCI and Williams%R have setup to identify overbought and oversold conditions. This is the theory.

In reality, the indicators will almost always fail when a strong trend starts.

In an uptrend, as we are witnessing, the indicators will soon reach overbought areas. But, this could just be the start of the trend.

These indicators can stay overbought or become choppy in the overbought area while prices keep on going up.

Early warning comes in the form of divergences.

Confirmation of a trend comes when the indicator moves into overbought oversold zone.

For RSI the level for uptrend is above 60 and for downtrend is below 40.

Bulls are in Control:

• Springs
• Wide Range White Candles
• Gaps – upward
• Black Candles, Declines are Narrow Ranges
• Trading Ranges are breaking on upside
• Pivot Highs are crossed in a lower high / lower low pattern
• Support holds
• Lower Shadows

Bears are in Control:

• Up thrusts
• Wide Range Black Candles
• Gaps – down
• White Candles, Rallies are Narrow Ranges
• Trading Ranges are breaking on down side
• Pivot Lows are broken down in a lower high / lower low pattern
• Resistance Holds
• Upper Shadows

No one in Control:

• Mainly when prices are in a trading range
• Such periods are not worth trading.
• Active instruments will soon break from the range.

“Contraction leads to an Expansion and vice versa.”

Contraction: Markets go through periods of contraction when prices move in a narrow range while trader interest comes down. When markets are doing nothing, they are giving a message: the periods of contraction see a balance between bulls and bears. Neither one is strong enough to take the market in their direction.

Expansion: Soon enough, one of the two forces – either the bulls or the bears will emerge as the stronger force. When the winning force will take the market sharply in its favor, trapping the losing force, then comes a period of expansion. This is the period when markets will move with large ranges, in any one direction.

We should always look for contraction. The reason is big profits always come in Expansion phase.

Contraction comes in two types:

• Consolidation (Time period is short)
• Shift from expansion into a trading range (Spends more time in trading range)

First type of contraction is not tradable. However we can trade the second type. We also called the second type as Regime Change.

What are central banks doing?

Is there a potential crisis event on the horizon?

Are interest rates going up or coming down?

How the major world markets are moving?

Left side of the chart: It means the bars or candles on the chart on your left side.

If slope is higher (first bar is at the left down corner, current bar is at the right up corner and in between bars move from one end to another) then our view should favors buying only.

If slope is lower (first bar is at the left top corner, current bar is at the right down corner and in between bars move from one end to another) then our view should favors selling only.

If slope is sideways (bars are all over the chart in a random nature) then our view should favor bot buying and selling or avoid.

Intuition & Perception: These two factors sometimes give great advantage while sometimes they leave traders with lots of pain. They develop over time. Important points here they never come when you are looking for it. They come on their own and we should never fight it. Either we follow it or we avoid it.

Should one take long or short or both trades?

In general, long trades make more money compared to short trade.

If you trade intraday then, in general, short trades are more profitable compared to long trade.

Traders also have their own bias. Few traders like to take long trades only while few likes to trade short only.

Positional and Investors uses hedging to overcome from price fluctuation impact on their portfolio. They use option (buying puts or selling calls) to do this. They also have a bias to choose one only.

If you use stocks as a trading instrument then this bias is also apply on those stocks. Few stock gives maximum profit in buying whereas few stocks gives maximum profits in shorting. So it is also important to keep this fact in mind.

Price patterns are the graphic record of the recurring turns in the crowd, expressed through price and volume.

For intraday traders, Opening range of the first few minutes represents the bias for the rest of the day. For example, if prices are trading below the low of first 15 minutes then the bias is on the down side.

For short term traders, NR4, NR7 and Inside Day represent a likely directional move while WR7 and Outside Day represent a likely choppy session. They also have Candle Patterns to gauge the next likely direction.

For Positional Traders and Investors, Trading Range and Chart Patterns provide a roadmap.

If you see a lot of long wicks, it means that volatility and uncertainty are increasing.

Wicks that stick out to the downside typically signal rejection and failed bearish attempts.

Wicks that stick out to the upside typically signal rejection and failed bullish attempts.

Is the body of a candle positioned closer to the top or bottom of the candle? Bodies that close near the top often signal bullish pressure.

Candles with a large body and small wicks usually indicate a lot of strength whereas candles with a small body and large wicks signal indecision.

A combination of few candles are in up slope, down slope or there is no clear direction.

Sector rotation is one of the most powerful tools which we can add in our trading and investing.

Not all sectors of the economy perform well at the same time. Our aim should be gaining exposure to multiple sectors through sector rotation.

Attempt is to take profit through timing a particular economic cycle and exiting a sector as it begins to struggle while entering another on the rise.

Sector rotation is a term normally applied to stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business.

Sector Rotation Models exist primarily to help investors identify and participate in new trending sectors of the stock market.

A sector rotation investment strategy is not a passive investment strategy like indexing, and requires periodic review and adjustment of sector holdings.

Tactical asset allocation and sector rotation strategies require patience and discipline, but have the potential to outperform passive indexing investment strategies.

Bottom up and Top down is two basic ways to analyze the market.

In Top down analysis, the big picture is examined first, slowly going down to stock identification.

Thus, the analysis starts at the very big picture, then moves down to smaller pictures / views. The steps in top down could be:

• Country economic outlook
• Stock market response to country outlook
• Sectors performance
• Stocks in outperforming sectors

Bottoms up starts at the stock / company directly

If the technical / fundamental analysis of the company meets analyst parameters, the stock is selected for investing. Investors focus attention on a specific company rather than on sectors or the macroeconomic picture.

There is a lot to be said in favor of both approaches.

In stock markets, a bottom up approach may be superior if technical analysis is used. There are opportunities in individual charts based on chart analysis even when the sector or the bigger economic picture is subdued. Charts also ensure that risk is managed carefully, therefore eliminating the need to get confirmation by sectors and macro.

When the macro and sectors are in favor, bigger price moves may emerge. Therefore, a view of sectors and macro is helpful.

Traders may first identify suitable chart patterns then check out the fundamentals including sector analysis. Often hidden gems emerge suddenly without any sector confirmation. It is wise for traders to start their analysis bottoms up.

Trading assumes the availability of capital, the more the better. Technical Analysis is the means to preserve and increase the money; it does not create money out of nothing.

Always trade with capital which you can risk and can also provide you satisfactory return.

If you are using a capital which you cannot afford too loose, then you will keep fluctuating with your emotions.

If you are also not using enough capital for trading, then the outcome could be positive but not satisfactory.

You should have 100 times more money as your capital of the risk you can take on a single trade. For example, if you can afford to lose Rupees 100 on a single trade then you must have 100*100 = 10000 as your capital.

A minimum of three times of margin money: If you are trading NIFTY FUTURE 1 Lot then the margin required will be around 1,00,000. So you should have at least 1,00,000 * 3 = 3,00,000 as your trading capital.

The trading cost makes a big difference on returns. For most traders, trading costs is purely about the cost of brokerage. But it’s not.

Brokerage costs: It is the charge you pay the broker for executing the transaction and for additional services like research, advisory support etc. Brokerage charges can be either fixed or variable depending on your agreement with the broker.

Statutory costs: This includes GST, STT and Stamp Duty. In most cases, these statutory costs add up to more than the brokerage costs, especially when the brokerage charges are very low.

Exchange costs: These include exchange level charges, SEBI turnover fee etc. These are levied by the exchange on the broker and the broker in turn levies it on the customer. However, these charges are extremely nominal in the overall scheme of things.

Liquidity costs: A stock is liquid if you can buy or sell sufficient quantity of a stock at a particular price. If not then this can be a huge amount depending upon how much quantity you are going to trade. We also called it Slippage

Impact costs: If your buy or sell order has the potential to move the price up or down then it increases your cost of buying or reduces your cost of selling. This cost will be high in less liquid stocks.

Demat charges: This includes opening charge, an annual maintenance charge etc. You need to factor all these into your overall costs.

Investors are generally concerned with long term investment (more than a year). So most favored strategy to use is allocating a specific amount of capital to each trade. The amount is determined by the investor based on account size and how diversified they wish to be.

Assume a 1,00,000 investment account. The investor decides they will only take up to 5,000 in any stock trade they make. The investor can therefore buy 20 stocks, investing 5,000 in each.

A more conservative investor, wishing to be more diversified, may buy 40 stocks, only investing 2,500 in each.

Given this scenario, assume our investor wants to invest 2,500 in RELIANCE. The current share price is 1,360. Divide the desired investment amount by the share price to get the position size: 2,500 / 1,360 = 2 shares.

A not-so-conservative investor may decide to invest 20,000 in each stock, and only take five positions. For such a non-diversified portfolio, a stop loss strategy is recommended, as discussed above (For Future/Option trading).

The Capital Allocation method is mostly used by passive investors, because it is an easy and efficient way to allocate capital.

With this method it is best to invest a small portion of the total account in each stock, achieving some level of diversification. That way, if some stocks go down, hopefully some of the others will rise, offsetting the loss.

A stop loss can also be utilized with this method to control risk within each trade. When buying 2,500 worth of stock, the trader may not wish to risk all that capital should the company fail. A stop loss can therefore be placed below the entry price to close out of the position if a loss becomes too large.

If an investor has a lot of positions they may choose to simply close out a position if the stock declines by 15%. Therefore, a stop loss order is placed 15% below the entry price. If the stock declines 15%, the trade is closed out and the trader preserves 85% of the capital allocated to that stock.

The number of times you win or lose doesn’t matter. It is how much you lose when you are wrong and how much you win when you are right that matters.

To manage risk: Only risk 8% of trading capital per trade (Prefer 5%).

Not more than 8% of your capital at risk, at any given time.

Define the risk from losing trades.

Limit the risk from a much larger-than-expected losing trade.

Limit the risk from a series of losing trades.

Limit the total risk from a set of highly correlated positions.

Limit the total amount of equity placed at risk at any one time.

Allow easy scaling as the account balance changes.

The focus of this process is on limiting risk, not maximizing returns.

This is how you stay in the game.

If you are trading with an edge, the most important thing is to manage the downside so that no one risk can take you out of business.

Profits, to a great extent, will take care of themselves; the first and most important job of any trader is to correctly manage the risk.

Investor concerns with the trend.

Basically you need a trend following trading plan.

You also require a method to identify momentum.

You need to identify a proper entry and exit levels.

You also limit yourself to overtrading.

You also need to set a trailing stop.

You also need to set up a plan for Position Sizing and Diversification.

You also need to set up a plan for Capital Allocation for each position.

Record keeping is actually a crucial task in any performance or goal-oriented endeavor. The key is to have some way to measure, track, and stay focused on improving your performance.

A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline.

A trading journal isn’t just about writing your entry, exit and time but it is about your individual emotional psychology before, during, and after the trade.

In order to consistently grow as a trader you must have something to measure your progress and keep you on track. This is what a trading journal does.

The more you measure, the more you can fine-tune your approach and become a better more consistent trader.

Things to keep track of are entry date, exit date, entry price, exit price, trade management details, slippage, commission, strategy, profit/loss, original target and notes. Of course do not be limited to this list but these are just some ideas.

Reviewing your trades is essential because by reviewing your trades you become more aware of what your best trading setups look like. When you know what your best setups look like you are able to execute the trades easily and effortlessly.

When you see a mistake being made multiple times within your trading journal you can then write that mistake down to ensure that you do not make it again.

Growth only happens by learning from previous experiences and this is exactly what keeping a trading journal allows you to do.

If you want to be a professional trader you must do what professional traders do. They all keep journals and this is why you must as well!

Never trade opposite of the Market trend.

Never follow rumors and news tips.

Never make a judgment on emotion. The stock market is unpredictable, so you’ll see wild swings, unforeseen dips, and inexplicable turnarounds in a stock’s price. Don’t be surprised when things go wrong. Instead, have an exit strategy in place.

Don't risk more than you can afford to lose.

Never go all in.

Don’t look for a golden key day trading, because there is none.

Don’t Change Your Strategy Too Often

Only buying companies you know or like.

Buying high, selling low

Performance chasing

Trying to time the market

Having unrealistic expectations

Getting greedy

Assuming a stock with a low price is undervalued

Assuming a stock that has sold off is now undervalued

Blindly following a “buy and hold” strategy

Holding losers for too long & selling winners too soon.

It means review your view on markets as new information comes.

Please understand flexibility is good but sometimes too much flexibility can harm your existing position and leave you with whipsaws.

So if you can differentiate between flexibility and too much flexibility only then you need to do this exercise else avoid it.

Let us understand it with an example: Suppose you are long and suddenly NIFTY moved down 20 points and now just 10 points far from your stop loss. Now you can assume this fall may continue and might break the stop loss. So you take a decision to not follow the stop loss and exiting at current levels. This is a classic case of too much flexibility.

Now we add few more information in this scenario. There is a negative new which increases the volatility and that is the reason for NIFTY to see a fall of 20 points. In this case if you not following the stop loss and exiting at current level then this may be a wise decision and a clear case of flexibility.

Context can be validated on the following criteria:

If there is a fresh news

Shift in momentum. It means narrow to volatile or volatile to narrow

If there is a support & resistance nearby

If there is a new price pattern

If higher high higher low or lower high lower low pattern is broken.

This is important. Studies show that it is the exits from your trade that really matter. Many professional traders and investors say that one area that they have never mastered is of exiting their trade.

Every trade requires an exit, at some point. Getting into a trade is the easy part, but where you get out determines your profit or loss.

Exit can be differentiate in 3 categories

Exit with loss: These are generally kept as close to the entry point as possible, but at the same time ensuring that they are not taken off easily. Traders use the following rules to set a stop loss.

High/Low of previous N Bar

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Money Management Stop

Volatility Based Stop

Price Pattern Stop

Fibonacci Levels

Exit with profit: Placing a profit target is like a balancing act—you want to extract as much profit potential as possible based on the tendencies of the market you are trading, but you can't get too greedy otherwise the price is unlikely to reach your target. So you don't want it too close, or too far. Traders use the following rules to set a stop loss.

Money Management Target

Price Pattern Target

Fibonacci Levels

Indicator Based Target

Volatility Based Target

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Trailing Exits: These exits are adaptive in nature. They move as our position moves in favor. These exit start with a fixed level. Then once prices move in our favor the stop also comes closer to entry price. This process continues until prices turned back and break it. Traders use the following rules to set a trailing exit.

Volatility based trailing

Indicator based trailing

Fixed Point bade trailing

Recent Support/Resistance Levels

Recent Swing High/Swing Low Levels

Time exit: Overstaying in a position which is not moving in either side will block your capital. So you need to identify a time limit for a position to move.

News affecting whole market:

Change in interest rates, monetary or fiscal policies.

Major policy changes

Major government changes

Geopolitical uncertainty

Storms, Hurricanes, low rains (especially for agricultural economies) etc.

News affecting a particular stock:

Earnings and profits reports

Launch of new products or features.

Changes in management

Bagging of large contracts

Financial scandals, court cases, patents etc.

Big news about competitors

Overtrading is a common problem that most traders don't even know they have. New and/or inexperienced traders often come in thinking that trading is all about constant motion, multiple charts and indicators firing at once, and working all day, every day to plan, execute, and manage trades. This misconception that traders must always be trading is the main cause of overtrading.

Obviously, owning five stocks is better than owning one, but there comes a point when adding more stocks to your portfolio ceases to make a difference. There is a debate over how many stocks are needed to reduce risk while maintaining a high return.

The most conventional view argues that an investor can achieve optimal diversification with only 15 to 20 stocks spread across various industries.

Mistakes, if any

We learn from our mistakes, we gain experience from our past actions and learn from their reactions. That is how we develop ourselves day by day.

To make the best, we need to be brutally honest with ourselves.

We are trying to get to the root cause of our actions and trying to plug loopholes in our trading process.

This is the more difficult part of the exercise.

Most of us are quick to express where we went right.

It is much harder to acknowledge where we went wrong.

When the market volatility leads to losses, we normally blame the market or some reason.

The truth is that was never in our control.

The focus should be what was within our control but we did not take action. That is more important.

Trading Plan Validation

The strategy is one of the most important factors while analyzing post trades.

Strategies vary depending on the market scenario. So, in the post-trade analysis, we have to look for execution of having applied the perfect strategy or not.

It may also happen that at the time of analyzing we find out that there was a better strategy which could have been applied.

Fear of losing the money or opportunity loss plays the main role while we take an entry/exit decision.

Because of this fear factor sometimes we miss great trades which we were confident about and sometimes we exit from a good trade too early.

If we have taken a breakout trade then we must see that the entry level was a breakout point or not.

In the same context, if we have taken a reversal trade then we must see that the entry level was around the reversal point or not.

Profit/Loss/Cost

We need to observe these three points very carefully while doing a post trade analysis.

If our trading plan has a 1:2 risk reward ratio then are we getting it.

If yes then it is good.

If not then we must find the reason for not getting the desired ratio.

We have to see also that our losses must be less than the profit.

Sometimes our trade is in profit on paper but when we trade it, we were not able to get that much profit. Reason behind this is cost.

Let us understand it with an example;

Suppose our strategy’s profit of a particular trade is 20 points in NIFTY. Now when we trade, we lose 5 points as cost and then lose 5 points as slippage. So in reality we get only 10 points instead of 20 points.

 This analysis will help us to find a benchmark profit per trade.

We cannot and should not review trades one by one.

So we have to maintain a timetable for the purpose of review.

For investors, a yearly review may be more appropriate.

Use good judgment in determining how frequently to review your performance.

Reviewing performance after every trade does not offer much perspective on how well the trade performed.

Reviewing performance after too long, you may miss opportunities to make needed adjustments.

Review trading performance to gain insight into the factors impacting your trades.

Take the time to understand what is working well and what could be improved.

Trade the trend rather than contradicting the largest force around

Tweak your stop losses with stock volatility

Filter stocks that fit your money management or tweak your money management to a variable depending on stocks behavior.

Avoid trading short-term pullbacks within overall trend

It’s important to lose small and gain big

Trail stop losses to ride it to the maximum possible.

Knowing when not to trade can contribute big. It’s not necessary to trade every day.

Some days will be beyond your understanding or beyond any rationality.

Define your exits before you enter in a trade

To get proficient at implementing a method, practice it, a lot.

Be focused every day you trade, and if you are not, don't trade that day.

Watching fluctuation in prices

Watching net profit / loss on a regular interval

Not counting the brokerage and other charges

Following the news and not the trend

Taking others advice as a proof for may positions

Roaming around the multiple stocks

Averaging the losing trade and taking early profit from winning trades

Not considering the risk and reward ratio

Try to call every market move.