Using High Probability Support and Resistance Levels
Research, strategy and execution are pillars of successful trading. Here are some of the points you can consider in your trading:
Analyze the overall market first. You must try to know the direction in which the overall market is going. It is good to take a look at the daily chart of important indices like Nifty, Banknifty and Sensex. Not only that it is a good idea to track international markets with indices like S&P 500, Dow, Nasdaq, FTSE etc.
See where short term support and resistance levels lie. Write down these levels
and monitor them throughout the trading day. Analyze which sectors are strong and which are weak. You would want to be long in the strongest sector in a bull market and short in the weakest sector in a bear market. Monitor the money flow from one sector to the other.
Once you have an idea based on your analysis as to which direction the market is going and which industry is the one to be long or short, analyze individual stocks and write out a trading plan for each candidate you have chosen for your trading. Here you would observe that better idea is to let market decide which stocks to trade rather than first selecting the stock and then deciding what to do with that stock.
Always trade in your comfort level and do not put all the eggs in one basket. You can follow the ‘Using our Services’ and ‘position sizing’ guidelines to decide on the quantity or how much to trade.
Adhere to your trading plan’s price targets and stop loss. Sell at least a part of your position at your price target to put yourself in a win/win situation. If a stock gaps up or jumps over your entry price, do not chase it. If you still like it try and buy a pullback. And another way to handle such situation is to chase down that stock but reduce your trading size so that your overall maximum theoretical loss would remain in check.
In choppy markets, take quick profits but at the same time be ready to take losses. When you are a trend following trader you might get stopped out several times in succession but it would be a good idea to stick to your trading rules and trading plans as this is unavoidable part of profitable stock trading. In trending markets, squeeze your winners. Be diversified if you are taking overnight positions. While managing your trades, keep an eye on the major indexes. including the currency markets and commodities markets.
When your position is in the money, move your stop accordingly. Put your stop losses in a manner that your significant profit do not turn into a loss and at the same time try and make sure that stop loss is not so small that you are out of position is very small fluctuations in the market. “In the money” is different for each and every stock, depending on volatility. For instance, being up 5-7 point on RELIANCE or HDFC is not really being in the money, because the stock can move 20 points in 10 minutes, so a five–seven point movement is a must wiggle However, being up a point on a stock like Renuka or IFCI or GMR means that you are in the money, so do not let that position turn into a big loss. Trail your stop with a logical risk reward ratio. For instance, if you buy XYZ stock at 75 and your price target is 95 witha n SL of 70, and the stock is trading at 90, you can’t let the stock fall back to 70 or 75 oe even 80 to exit the stock. You can’t risk 10 points to try and capture 5 points. In this case, I would be stopped out at 85-87 depending on the volatility of the stock and if I feel that the stock may go over 95.
Time stops are to be placed as well. This has to do with the opportunity cost of sitting in a trade for a longer period of time than the time frame you have allowed for the trade.
Happy Trading!
Team Garima Bajaj
www.GarimaBajaj.com Articles 