September 9, 2013

My trading checklist


Instrument: nifty futures or at-the-money options

Time frame: intraday

Trading strategy:
- Identify the trend
- buy AFTER a dip when nifty is in uptrend
- short AFTER a bounce when nifty is in downtrend
- breakout failures.

The "AFTER" is a very important part of the trade and is identified using candlestick patterns.



Entry checklist/ strategy:
  • Identify trend using 5 min charts... read this for examples
  • Identify market bias or path of least resistance... where is pressure coming? Are supports holding? Is there selling at higher levels? How does the chart look on a higher timeframe? Who will get trapped? bulls or bears? If the current candlestick reverses, who will get trapped?
  • In case of gap up/ gap down events... focus on how price reacts AFTER the gap formation
  • Check for Master candle (min size 20 points) ... if present, check next 2-3 bars for signs of buying or selling pressure.
  • If trend is up, buy when a candlestick indicates end of minor correction or when short positions start getting trapped.
  • If trend is down, short when a candlestick indicates end of minor rally or when long positions start getting trapped.
  • Trade AFTER completion of decision bar/ candlestick
  • Confirm stoploss BEFORE placing a trade. 

Exit checklist/ strategy:
  • Check if trade is profitable
  • If market is not doing anything after you have taken a position, your trade may be wrong. Exit if predetermined stoploss is hit.
  • Update trailing stoploss regularly when in profit.
  • Alternatively consider exiting a trade only if your system gives a signal for the opposite trade.
  • Cover positions by market close.

Sample setups:

Bias is down on open... 2nd circle show failure of longs and invitation to short... last circle hints at end confirmed by next candlestick



Bias is down.. first circle gives sell signal while 2ndis profit booking


Bullish breakout... despite first bar giving mixed signal


Bullish breakout in first circle... thereafter use trailing SL.. last circle indication of possible short trade.. confirmation came after 2 candles.



First candle bullish despite gapdown.. no follow through buying ...Sell on new low... take profit at trailing SL (this is also a trap area for new shorts)


First bar is bullish but shows selling at higher levels... first circle breakout bar fails... clear short... use trailing SL 



Breakout bar fails... clear indication to short around 10.15-10.30 ... use trailing SL 


First circle shows selling (upper tails)... 2nd circle shows trend reversal... use trailing SL


First circle bullish breakout... 2nd circle shows inability to continue trend meaning look for short positions

34 comments:

  1. can you please explain the sample charts with the entry and exit points. It would be quite helpful for a naive trader like me to understand. Thanks in advance.

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  2. Really great post.Thanks for showing the right way

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    Replies
    1. Thanks.... he key is to keep studying, know the method works and then develop the confidence to trade

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  3. Sir,

    I have studied gaps so many times they follow one rule each time, if the gap down is below yesterday low, in the first few hours not able to cross or touch yesterday low give few points for noise, then that day will be in serious down trend, for this the gap down should be less than 20 -30 points, if the gap is more than true range, then trading gap is difficult with the above concept, the same is applicable to gap up also.

    ReplyDelete
    Replies
    1. After a gap, the size of the first candle and the close becomes very important. You can have a gapup opening but if selling sets in from the first bar, then problems ahead for the market.

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  4. dear kpl sir
    is the same law applicable to stock futures also ?
    please advise
    thanks

    ReplyDelete
    Replies
    1. You can use this for any stock, currency, commodity... the requirement is the underlying should have very good liquidity.

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  5. dear kpl sir
    sorry one more doubt . when we are doing intraday trade in stock futures which chart one should watch for . cash chart or future chart .usualy i watch cash chart and trade

    ReplyDelete
    Replies
    1. Should not make much of a difference except for 1-2 days after expiry

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  6. pls update infy levels kpl sir.........

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  7. Great Post KPL, thanks a lot for this.

    At VFM every post of yours gives me a new learning and confidence to trade. Please keep it up.

    Thanks once again.

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  8. Using candle stick can alone may not be sufficient for intraday trade. The position of market in the first hour of trade in relation to S1,S2,P,R1,R2 is also important. Initiating trade after one hour is often recommended by KPLji. Low and High of the day are often decided by the first hour trade. If no breakout of L and H in the subsequent hour, there will not be no opportunity for intraday trade. If done it is for the benefit of the broker. If there is a breakout we can initiate trade using candle stick based on market bias either bull or bear. If such an opportunity is visible around 11.30 to 11.45, the trade will be multibagger. If the break out is around 2.30 it will be small but one have to trade cautiously with strict SL. In all these intraday trades one should have no opinion about market and no place for emotions and bias but the chart should decide everything. I prefer 10 min. TF instead of recommended(KPLji) time frame of 15 min. Google time frame of 2 min. TF is also helpful. Only drawback is not interactive.

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  9. I am regular learner from your post.. which boost my knowledge.
    Thanks for your minor learning but sound learning in this market on regular basis...........

    ReplyDelete
  10. dear kpl, do you mean the circle means a group of candle sticks?

    ReplyDelete
    Replies
    1. Yes... you have to see the combined behavior and attempt to understand what is happening in that circle.

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  11. sir , where do we get google 2 min tf intraday chart?

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    Replies
    1. http://www.google.com/finance?chdnp=0&chdd=0&chds=0&chdv=0&chvs=maximized&chdeh=0&chfdeh=0&chdet=1290679200000&chddm=782&chddi=300&chls=CandleStick&q=NSE:.NSEI&ntsp=0

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  12. Earlier your post regarding is updated in this post.. very useful.. sir,

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  13. sir, where do i get intraday historical charts for further studies?

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    Replies
    1. Free stuff you will get at yahoo finance, google, etc

      Paid data you can get at icharts.in, globaldatafeeds.in etc

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    2. Nse website also provides historical and intraday charts for free. Can we use them too?

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    3. Realtime intraday datafeed charts is a paid service... the reason is exchanges charge 30-50 lakhs per year to bulk resellers as realtime datafeed charges... these sellers in turn break up the service and resell to retail and institutional customers.

      Obviously NSE cannot give realtime datafeed free to end users.

      Delete
  14. KPL,
    I am using spider software for real time data feed. they charged me 20000 for first year and will charge 17000 from next year onwards, so is it worth ?

    ReplyDelete
    Replies
    1. I do not rate spider software very highly but their datafeed is reliable and they offer the ability to identify top gainers/ losers realtime. The monthly cost comes to Rs.1450 pm (I assume for atleast 200 stocks)..,.. which in my opinion is reasonable.

      For eg., I pay Rs.1650/- for 10 symbols in Amibroker and icharts.in is cheaper for more symbols.

      Ultimately all this depends on how good are you able to use the info generated by spider software... I know some people who trade only the crossover of high/ low signals in spider and they have minted money.

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  15. sir,
    I don't understand what is this symbol in amibroker? is it number of stocks only?
    I can use data of all the stocks on NSE. No bar on number.
    pls clarify.

    ReplyDelete
    Replies
    1. Use the method prescribed in this post... all indicators have limited usability.

      In addition, follow examples posted at http://www.vfmdirect.in/search/label/nifty

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