Rules Before We Trade

FOR TRADING AND INVESTMENT TRY OUR STRATEGY

A) SCALPING (MINUTES TRADE) : Use algorithmic software for your trading activities
B) DAY TRADING (INTRADAY) : Focus your trades on NIFTY 50 stocks and primarily on derivatives stocks.
C) SWING TRADING (WEEKLY) : Engage in trading futures and weekly options, particularly in the case of indices.
D) POSITIONAL TRADING (MONTHLY) : Consider option writing and may opt for equity market delivery with a defined stop loss.
E) INVESTING (LONG TERM) : Participate in the equity market or invest in mutual funds through SIP, lump sum, or small cases. Leverage the support of fundamental analysis.
F) NEW TRADER : Focus on trading exclusively in the equity market.

G) CONTRA TRADER : Focus solely on intraday trading, concentrating on stocks that are achieving new highs even in a weak market. For instance, if NIFTY is down by 1% to 2%, and certain stocks are surging by 3% or more, consider taking a long position with a strict stop loss. This strategy is suitable for experienced traders as it involves trading against the overall market trend. Exercise caution, as if the market continues to decline, positive stocks may also turn negative, and there’s a possibility of them trading in the red. Therefore, engage in contra trading with a disciplined approach and set stop losses.

IF YOU SEE CHART GIVE YOU BUY OR SELL SIGNAL THEN ALWAYS WATCH FOLLOWING DATA

A) Stock current trend vs past trend
B) Peer stock performance (Most of time stock do not move alone they move in sector)
C) Market trend vs trend of selected sector
D) Global Market condition (IF ALL GLOBAL MARKET PLUS THEN GO LONG, IF ALL GLOBAL MARKET MINUS THEN GO SHORT, DO NOT TRADE WHEN GLOBAL MARKWT MIX OR SIDE WAYS)

HOW TO TAKE BTST OR STBT TRADE (STOCK SELECTION RULE)

A) If a stock has recently achieved a 52-week high or a new high, consider opting for BTST (Buy Today Sell Tomorrow).
B) If the price exhibits a breakout on the chart, consider opting for BTST (Buy Today Sell Tomorrow).
C) Monitor price action in the last 20 minutes. If the price rises with high volume, consider going long; if the price falls with high volume, consider STBT (Sell Today Buy Tomorrow) in the derivatives segment.
D) Avoid trading in stocks with very low volume. Aim for a minimum daily trading volume of at least 10 lakh shares. NIFTY 100 is preferable, and NIFTY 500 is the maximum recommended for trading. Exercise caution with other stocks; consider chart analysis and think twice before taking a trade.

FASTEST WAY TO MAKE HIGH RETURN IN SHORT TERM TRADING, FOLLOW THE BELOW GIVEN TECHNICAL AND PERCENTAGE BASED STRATEGY

A) Look for breakout patterns like Triangle, Pennant, or Flag in stock charts. Once you identify a breakout on either side, initiate your trade and observe price action. Identify profit booking levels and implement a stop loss in case a reversal pattern appears in the chart.

B) Exercise caution when considering stocks that have reached a 52-week low or are trading at their bottom. Avoid buying solely based on a 3% to 5% increase, as this could be due to short covering or positive movements in the peer group or index. Only consider buying such stocks when receiving confirmation from technical indicators like RSI, Stochastic Oscillator, or Bollinger Bands. Avoid investing in penny stocks that often seem undervalued, as they may continue to underperform in the market.

If a chart provides a technical signal or specific price levels for buy/sell, take a position and maintain patience in the market. Regardless of news, rumors, or negative sentiments, avoid emotional decision-making and adhere to technical analysis. Even if the market moves 2% to 3% against your trade, it may impact your stock, but it’s unlikely to break your technical levels. Always implement a stop loss in such trades. Confidence, adherence to rules, and understanding the market responsibly are key to achieving good returns. “Understanding the stock market is wisdom; responsibly entering and exiting trades in a timely manner is a commitment.”

Ensure timely profit booking without seeking advice when in a profitable trade. Consider partial profit booking in options and complete profit booking in future contracts. The emotions of fear and greed often accompany price turning points, especially at extreme and reversal levels. Remember, trading is an investment in acquiring a skill, allowing you to attain financial freedom in the future.

Trade with a stop loss at all times. In technical analysis, a fundamental principle is that a market’s price reflects all relevant information. Avoid taking significant risks if the expected gains are small. Engage in speculation only after a thorough analysis of all relevant facts. Technical analysis involves studying market action, primarily through past volume history, statistical data analysis, and understanding chart patterns using graphical views, such as line charts or candlestick charts.

The market provides everyone with an opportunity to make money, so trade according to your convenience. Your counterpart also has the same chance to profit or incur losses. It’s crucial to decide whether to actively participate in the market or adopt a wait-and-watch approach for opportune moments when there’s no trade signal, using Technical Analysis as a guide. Avoid trading based on emotions. Remember,

“The market always leads the economic trend and adjusts for any news before it becomes public,”

signifying turning points in the business cycle where stocks bottom out or find support for a reversal, as per technical analysis.

Exercise caution and think twice before purchasing shares immediately after a significant rise or drop in their price. For instance, if a stock opens with a gap up and is trading 10% higher, consider avoiding immediate purchase. Explore alternative stocks, and if you still wish to buy, look for potential breakouts, assess the volume, and research company results or news. Remember, an uneducated trader tends to buy after a rally and sell after a price fall. Avoid buying shares solely because they are market favorites.

If on any trading day, the market shows an up or down movement of 2% to 2.5%, consider going with the trend and, if you are an aggressive or high-risk trader, even take exposure. The key is to utilize charts to identify trends and changes in those trends, while also considering the global market trend. Ensure you investigate the reasons for such volatility using indicators like ADX, market news, or data. In the stock market, luck doesn’t always work, and if luck turns unfavorable, you may have to pay for its value in money. As Seneca stated, “Luck is what happens when preparation meets opportunity.”

Avoid trading on days where stop losses are frequently triggered, as investors often incur their highest losses during such periods.

A) Significant market movements often occur during government announcements, particularly during RBI monetary policy meetings. Bank Nifty and banking stocks experience high volatility, while other sectors may exhibit comparatively lower movement.

B) Other crucial economic indicators include GDP data, WPI inflation data, India Industrial Production (IIP data), trade balance data, forex reserves, etc.

C) Global political news, meetings on important data (such as OPEC meetings on oil, G7 international meetings), and global economic data can significantly impact our share market due to global investments in India through FII.

D) Company results, meetings for any change in management, or the launch of new products are crucial factors. Additionally, keep an eye on government policies affecting sectors, especially in terms of exemptions or taxation.

The optimal approach during news or data periods is to wait and watch. Allow the data to be released and analyze its impact on the market or sector before considering any trades.

FOR DERIVATIVES TRADER

In derivatives contracts, volume measures the number of contracts exchanged during a trading session and the number of contracts carried over to the next month. This carryover, known as open interest, represents near-month contracts that are not settled or liquidated by traders. Open interest serves as an indicator of trend strength. In simpler terms, an increase in open interest indicates positive strength, while a decrease suggests weakness in the stock or index.”

HOW TO READ AND UNDERSTAND DERIVATIVES DATA

A : INCREASE IN OI & INCREASE IN PRICE
A rise in open interest, coupled with an increase in price, typically signals the buildup of long positions. However, it’s worth noting that in the case of very weak stocks, some traders may opt to short the stock during a rally.
B : INCREASE IN OI & DEC. IN PRICE
An increase in open interest combined with a decrease in price generally points to the accumulation of short positions, except in the case of exceptionally strong stocks where some traders might opt to buy the stock during declines.
C : DECREASE IN OI & DEC. IN PRICE
A decline in open interest alongside a decrease in price typically signals long unwinding.
D : DECREASE IN OI & INCREASE IN PRICE
A reduction in open interest alongside an uptick in price generally suggests short covering, except for weak stocks where traders might choose to book profits or cut losses at higher levels. This scenario may also indicate delivery-based buying by institutions, leading to a price increase that speculators use as an opportunity to unwind their positions.

Always consider rolling over your position two to three days before the contract expiry. For future positions and in-the-money options, it’s advisable to exit or rollover to the next month’s expiry. New SEBI and exchange guidelines stipulate that margins will start increasing in the last four days before expiry. For instance, if you have a futures contract for ABC stock with a contract value of Rs. 5, and the exchange charges Rs. 1 lakh as margin to take a position, margin calls will start four days before expiry, increasing by 20% each day (Friday 20%, Monday 20%, Tuesday 20%, and Wednesday 20%), totaling 100% by expiry. This margin calculation is applicable for futures contracts and in-the-money options. In the case of index options, this calculation does not apply. If a client fails to provide margin on time, a violation penalty will be charged to the client’s ledger account.

Trading Psychology: Adhere to the right trading processes, and you’ll be content with the outcomes. Every successful trader initiated their journey as a beginner. Trust the process, maintain discipline, and understand that trading is a challenging path to earning easy money. Once the process is grasped, money naturally follows. Key Trading Rules:

A : Consistency is crucial; substantial gains come from patiently allowing winning trades to run.
B : Less is more; making Rs. 0 on the day is preferable to losing Rs. 5000. Clearly define your risk level before entering any trade.
C : Patience is invaluable; avoid overreacting to news. Accept small losses as a natural part of trading while aiming for significant gains.
D : Avoid Bad Trading Habits: Overtrading, Deviating from the Plan, Premature Entry, Revenge Trading, Exiting Before Stoploss, Entering Late, and Risk-Reward Ratio Below 2. Never trade with money you can’t afford to lose. When uncertain, consider taking profits or exiting, reassessing the situation from the sidelines.
E : There will always be another trade. It’s wiser to cut losses than wait to be proven right. The Pareto Principle holds true in the market: 80% of your gains will come from 20% of your trades.
Technical analysis skills generate profit, while risk management skills ensure you retain that profit.
Weak traders blame the markets, while smart traders beat the market!

Novice traders often lack discipline, take high risks, and trade emotionally without following a strategy. For instance, a novice trader might initiate an intraday trade that goes against them, leading them to turn it into a long-term position, especially when stop-loss and exit strategies are not adhered to. Such mistakes, like trading with excessive exposure, can result in debit in the ledger account, and brokers may charge high interest rates. It’s crucial to trade within one’s capital limits, and professional investors typically use 25% margin trading funding. Uninformed individuals often rely on tips, fake news, calls from friends, or incorrect SMS suggestions, trading with emotions and poor discipline. This approach can lead to small profits followed by significant losses, attempting to recover without discipline, and eventually losing the principal amount. As the old saying goes,

“HARA HUVA JUGARI DOUBLE JUVA KHELTA HAI AUR SARA PAISA AAKHIR ME HAAR JATA HAI” (A defeated gambler tries to double the stakes and eventually loses all the money).”

Clients who overtrade without proper knowledge tend to experience continuous losses and eventually cease trading. Therefore, it’s essential to remember never to fight the market, as the market is always right.

When choosing stocks or indices for trading or investment, focus on analyzing price action and volume strength in daily charts. Use indicators like Price Volume Pattern, Support and Resistance, Moving Averages, Trend lines, Momentum, and Volatility indicators. Keep your approach simple by selecting one or two theories to understand charts, avoiding unnecessary complexity. Prioritize the studies that have proven accurate in predicting the future patterns of specific stocks or indices. Chart analysis is akin to mathematics, requiring consistent practice and experience for accurate predictions.

Successful traders always align with the market trend, avoiding conflicts. In case of an adverse move, they promptly follow their pre-set stop-loss, maintaining excellent discipline and trading without emotional interference. Swing traders hold positions for two to four days, with predetermined targets, exit points, and stop-loss orders. On the contrary, novice traders lack discipline, take high-risk trades driven by emotions, and often deviate from their strategies.

We utilize charts and various technical tools to identify chart patterns that can indicate future stock activity. In this process, price indicates the trend and direction of shares, while volume provides insight into the strength of the trend. Additionally, derivatives open interest data adds an extra layer, offering confidence when taking positions.