weTrade Charts

weTrade Charts

23-01-2021

16:10

I will cover my trading process in this thread. Objective is to enter trades for short to medium term at low-risk point and capture extended moves. @PAVLeader @ST_PYI @VRtrendfollower @blazingbhat @StocksNerd @Rishikesh_ADX @iManasArora Would love to hear your thoughts (1/n)

Process has been mainly inspired by “How to Trade in Stocks” by William O’Neil & “Trade Like a Stock Market Wizard” by @markminervini. Aspects have been updated based on my experience. Following steps summarize the process: 1.Screen 3.Enter 4.Exit (2/n)

SCREEN Use fundamental and/or technical criteria to filter the universe of stocks to a small number of high potential stocks for deeper review. (3/n)

...SCREEN Fundamental: Use operational metrics or fundamental criteria to filter companies. Eg: 1.Increase in qtrly earnings >25% and increase in qtrly sales >10% (preferably last 2-3 qtrs) 2.Young companies (IPO <10 years) in modern industries (4/n)

...SCREEN Multiple tools are available for technical/fundamental screening including @screener_in , @MarketSmithIND , @ChartinkConnect , @mystockedge , @Tijori1 and @TickertapeIN. (5/n)

...SCREEN Other considerations: ~ Use combination of fundamental & technical screeners ~ Use stricter criteria to filter down the stocks further in case a large number is present in a single screen (6/n)

WATCH ~ For all stocks within a screen, review the current price structure & trend on weekly charts. ~ Identify bases developing in price. ~ Bases are areas of price consolidation where the stock takes a pause where resuming its up-trend. (7/n)

...WATCH Characteristics of a sound base: ~Prior uptrend of at least 30% ~At least 7 weeks long in time ~Price retreat within base on lower volume than it had on prior uptrend ~Floor of the base at a logical support level like moving average or previous support (8/n)

...WATCH Characteristics of a sound base: ~Possible drying up of volume due to lack of selling around the floor ~Price rise on high volumes towards the top of the base ~Possible shakeouts to remove weak hands ~Narrow consolidation on low vol prior to breakout (9/n)

...WATCH Typical bases ~Cup/Saucer Base: Base has a rounded bottom. Cup if like letter U or Saucer if shallow & wide. Pivot at high of pattern ~Cup/Saucer & Handle: Appears like cup/saucer followed by a handle with down-drifting narrow congestion. Pivot at high of handle (10/n)

...WATCH Typical bases ~Flat Base: Price moves within well defined floor & ceiling. Pivot is high of ceiling. ~Double Bottom: Appears like the letter W. Pivot at high of middle of W. (11/n)

...WATCH Typical bases ~Tight Flag: Sharp move up followed by narrow sideways or down-drifting price movement ~Volatility Contraction Pattern – Depth of price consolidation lessens with time (12/n)

...WATCH Create watchlist ~Shortlist stocks that are within 10% of pivot & have little near (<20%) overhead resistance ~Add to watchlist ~Set alerts for pivot points to get timely reminder of breakout Tools for alerts include @BeSensibull and Sentinel by @zerodhaonline (13/n)

...WATCH Other considerations: ~Late-stage bases (3rd or more) have lower probability of working out as the stock has already had a significant run-up ~Longer bases generally results in longer trends when price breaks out (14/n)

ENTER Initial Stop-Loss ~Identify initial Stop Loss price level which should be within 8-10% of entry price: 1. Low of the recent consolidation phase 2. Low of the breakout candle (15/n)

...ENTER Position Size Risk about 0.5% capital on initial position. Calculate position size: ~Risk value (Entry Price – SL Price) ~Portfolio value (Total capital) ~Capital Risk % (% capital to be risked on trade) Initial Value = Portfolio Value * Cap Risk % / Risk value (16/n)

...ENTER Entry As pivot point is reached ~Enter 1st with 50% of initial size 0.5% above pivot ~Add 2nd with 25% of initial size if stock moves 2-2.5% above pivot ~Add 3rd with 25% of initial size if stock moves 4-5% above pivot (17/n)

...ENTER Adding ~If the stock moves well after initial entry, use opportunities to add further to positions. ~Each follow-up buy should be smaller than the previous position. ~Higher qty can be considered if partial qty was sold into strength. (18/n)

...ENTER Following provide opportunities to add ~Pullback If pulling back on low volume & finds support. Enter on price & volume expansion from support ~Breakout Fresh break-out post another minor/major consolidation. Enter on breakout with price & volume expansion (19/n)

...ENTER Other considerations ~Reversal on breakout day can be a sign of weakness. Can be due weakness in wider market or presence of more sellers. I would exit position same day (esp. on bearish close) even before initial SL is hit. Then keep watch if it breaks out again (20/n)

...ENTER Other considerations ~After a conclusive breakout on volume, the stock may fall back to breach breakout level on volume. This can be a sign of weakness and partial/full exit is considered. ~Decrease Stop-Loss % in a weak broader market (21/n)

...ENTER Other considerations ~In case pivot point is missed, look for re-test of breakout level. Post re-test price moving back up with volume presents a good entry point. (22/n)

EXIT ~Exits could be either partial or full. ~I prefer exiting partial positions into strength and rest on weakness. (23/n)

...EXIT ~Initial Stop-Loss: 8-10% away from entry 1. Low of the recent consolidation phase 2. Low of the breakout candle 3. Fixed to 8-10% if either of above if further away (24/n)

...EXIT ~Selling into Strength 1. Climax tops – 20-30% move within a week; 40-50% move within 2-3 weeks 2. Touch/Break of upper channel trendline 3. Hit supply zone (25/n)

...EXIT ~Selling into Weakness 1. Break below horizontal support 2. Break below major up-trendline 3. One-Day Reversals - Large volume reversal day after a major move-up (>20%) i. Bearish Engulfing ii. Bearish Doji iii. Inverted Hammer (26/n)



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