Learning to catch High Probability Breakouts

[amitrandive]

Hello everyone,

First of all, sorry for the lateeee update. I am little busy with my work and am not getting enough time to post charts over here and to go through the posts. Hope all are getting good profits , especially amit and indianbank ji.

I will try to use this post particularly for 2 things :

1) To give my views which would help others to have some realistic views (especially for new or traders with un-real expectations)
2) To review the charts I posted earlier in this thread and the stock performance

1)
I have gone through some posts recently and see there are still many traders who have very very unreal and high expectations(which is no sin but it only comes to you with some proper study and trade management).

First of all let me tell you a little bit about me :

I completed my graduation in 2011 and was a topper through out my life. I never gave a sh*t about a job so with my brother started trading in stock market with half-knowledge(yes, half-knowledge is a big sin) and lost about 50 K . Then learnt about candle-sticks, strategies etc etc and came back with a big 5-6 L because we wanted to make some real big money in a very very short period and took position in some stocks, some did bad and some other did worse.(It was a period of 2011-12 where the market fell to 4000+ levels). We still had some stocks left which we took position at a very low price but due to emergency had to get out of all the positions to liquidate them and have cash to repay debts. The positions we had became about 5 times in just 6-12 months period.

Lessons learnt from the above experience : Never trade with borrowed money.

Then I learnt more and more and started doing well in equities with a decent amount. Here the greed factor came into play which didn't gave me satisfaction even after making almost 1% of my trading cap on intraday basis for some good trading sessions. Then I got into F & O and started playing with options. Some did extremely well(because I was not bad with chart reading) but I paid heavy price by not booking the profits and letting them run into losses with the time decay. At the very same time I had a low paying job which was not fulfilling all my needs and had a bad breakup so had a emotional unbalance too. I left my job. I started showing all my anger, ego, aggression, greed, fear and all kind of emotions in my trades and burst my account multiple times.

I ran out of money and the very people who were praising me and wanted to be like me in studies started making fun of my position and even relatives too did the same(BTW, I lost my father too in the same period which did add up responsibilities and also emotional stress to me). I took a good 6 months break and kept on learning all kind of things and improved on the things which I already know but wasn't implementing.
I started working as a freelancer and did some really good work(I am skillful but the only thing was I wasn't using it well before). One of the client I worked for offered me a very good paying remote job. I then started working for him and also started my own company. Now, most people in my city working in this industry know me(We work for our competitors too as most of them were outsourcing to us in our early days, we started as web development company and are now a good name in Digital marketing and SEO too apart from website development, I don't want to take my company name as I don't want to use this for advertisement). You can't even imagine the respect which people have for me now and especially the financial peace that I have now. Then I started mostly positional trading and it is paying me really really well especially because I am no way worried about the positions or the money in my trading account. I clearly know my risk apatite and am investing the same. I can easily hold for the stocks in my account for next 5-10 years if required.

Moral : I would like to ask all the new/novice or traders who are still struggling to make money, please take a break for some time and apply your skill to earn some money in the mean time with a full time job/freelancing. If possible, have a job and once you have a decent amount in your account which you can keep in a locker without opening it for next 5-10 years, get back to trading(if you are still passionate about it) , start picking good stocks or if you are not aware of it, you can check some threads in traderji to get a decent knowledge. I strongly believe it will make a huge difference to you especially from the emotional perspective. Trust me, the level of confidence you would have once you are financially relaxed is above imaginable. Just be true to yourself.

I am really busy with my work and value my time more than anything(maybe more than money) but am taking so much of time not to get any recognition or anything, this is my sincere effort to give back to the trading community as it is very sad to see so many people lose so much money which they can't afford. I will be happy even if this helps a single person.

2) Performance of the charts I posted :

Tata motors @ 468-469 high - 556 went upto 440 on Brexit CMP- 550 gave about 20%

Jayant Agro @ 246-250 high - 358 CMP- 345 about 40-45 %

Uflex @ 242 high - 259 CMP-257 about 5-10 %

Gujrat Ambuja Expo @ 65-66 high-93.5 CMP-86.75 about 40-45 %

JVL Agro @ 22-23 high-25 CMP-17.5 about 10 % to high and about 15-20 % to CMP

Escorts @200-201 high-337 CMP-332.5 about 65-70 %

Almost all are found between 20-25 June,16

Among the picks, JVL agro is a real bad pick(it was a suggested stock which I got tempted to, I got out early from this though ).

Uflex is a strong stock, it was consolidating in the same range and seems broke out of the range last week so expect it to move now.

Escorts, Gujrat ambuja, Jayant gave some good returns as I believe in any type of market 40-70 % returns in about 2 months period is a solid returns. Tata Motors on the other hand is looking super hot to me. Technically it is looking good to me(I might be wrong) but fundamentally it is trading at a very low P/E and Cost to Book value among all its peers. Maybe there is still lot of steam left in this. Brexit effect and pound value will be more or less managed by the company as Brexit will take 3 years.

Disclaimer : The above expressed are only my view points and they might differ for you so please see if you can apply it to you and get some value or else have your own approach. I am no stock market expert and recommend your own analysis combined with risk management before trading in any of my picks. BTW, I am not a tips provider If you feel this post doesn't belong here, you can move it to any relevant location.

Great Stuff,thanks for posting your views in detail.

:clapping::clapping::clapping:

 

[manojborle]

 

[Sunnyraj]

nikki5_me - Your post was very enlightening. Being a positional or long term trader, how do you select stocks ?

Is it based on fundamentals or technical screens ? and for trading purpose, which time frame do you use ? Weekly or monthly ?

 

[amitrandive]

Swing Trading , can we identify the swing points ?

Source:http://goo.gl/IkHXgu

 

[Sunnyraj]

NETWORK18 ~ DAILY

After 5 months of consolidation...seems breaking out & retest ? Will it be good entry at these levels or above previous swing high ?? lets see

Hi sunny_cool. When we trade on daily charts, our SL's are large.Just wanted to know what methods do you use to set stops.

Is it based on previous swing high/low? or ATR based stop? or any other method?

Also, do you follow the risking 2% rule on a single trade in positional trades ?

 

[nikki5_me]

nikki5_me - Your post was very enlightening. Being a positional or long term trader, how do you select stocks ?

Is it based on fundamentals or technical screens ? and for trading purpose, which time frame do you use ? Weekly or monthly ?

Hi Sunnyraj,

Glad to know you found my post helpful.

1) Being a positional or long term trader, how do you select stocks ?

It depends mainly on the type of trade I am looking to take. I do trades based on trend/momentum or do a positional trades or invest for a very long term. For any type of trade be a short/medium/long I have some levels in mind before taking a trade and a period in which the stock might achieve it.(I don't try to define the stock to go to a certain levels but based on the charts and fundamentals I try to get some levels). Often the levels I see are very modest and easily achievable.

Eg: If I am looking to get into a trade in a stock like TataMotors (it has good fundamentals too with the least P/E and Cost to BV among all its peers) My basic view point is to make about 5% on a monthly basis consistently.

a) For a short term trade 2-5 days, I try to make 2-3 % so I get it in a single day, I see the charts and decide if it is wise to book profit or still ride the trend. (Once my targets are achieved, I believe in my instinct to exit combined with the market type and stock charts, because in a bull market it doesn't make much sense to exit too early ).

b) For medium term any where from 7-90 days, I try to make about 15 % which is decent in my view so once I achieve that I follow the same rule as above but I have a leverage of some percentage to keep a trailing SL compared to the first scenario.

c) For Long term anything above 90 trading sessions to at least 1 year(may go to 5-10 years easily), I try to make about 30-50 % of the invested amount, so in some cases I might get it lot quicker, (you can see Escorts, I posted it at 200 in last week of June, now it is trading at 367 which is about 85% from the price I started and that too in a very short period) so I try to book part of my profits and trade with free cash. Say if I invest 1,00,000 in Escorts at 200 and moved my trailing SL to cost once it moved to 275-300 and once it moved to 350, I want to book some profit, then I would book stocks worth 1,00,000 at 350 and keep the remaining stocks as they are free cash to me. (it purely depends on the stock, if I feel the stock has good fundamentals combined with technicals, I keep stocks with free cash or I liquidate them).

2) Is it based on fundamentals or technical screens ? and for trading purpose, which time frame do you use ? Weekly or monthly ?

Depends on the type of trade I am willing to take, say if I was trading sugar stocks or NBFC's about 2-3 months back, I wouldn't worry about the fundamentals because they were having a good momentum. I would just look at the charts and ride the momentum and exit once I see any sort of reversal indications(low volumes/ bearish patterns etc).
Most for Medium and long term trades I see fundamentals of the stock too and I think of future say 5-10 years from now, which would be a sector in demand or performing well and pick a good stock from that sector. Apart from that, I look at technicals for each and every trade because fundamentals doesn't work every time. Some mad rallies are purely based on technicals and it is not wise to miss out such trades because they can give you very good money in a short time. ( but be careful as they can take out equal amount of money in a very short time too).

For time frames, I prefer multi time frame, I see charts any where from 1 hour/1 day/1 week/ 1 month based on the type of the trade I am willing to take. For example, I found maruti today morning at 2450 gave a bearish signal on hourly charts with support at 2350 before the market started falling, it was a very good trade. I will try to post the chart if possible.

Hope this helps, sorry if I confused you at any point.

As always, the above are just my views, I suggest you to adopt them to your style and other experts over here can throw more light on this is possible as we all can benefit from it. :thumb:

 

[sunny_cool]

Hi Sunnyraj,

1. There is no method to set stop...its just TA like in this Network18 chart if any candle closes below the rising TL ( lower one ), its exit. In some charts its privious swing high/low...depend how & why you enter.
Even I use TSL if it moves in my direction.

2. About Risking, I never put more than 10% of my money in any of my script
& never take position if SL is more than 10%. So any SL hit on script will not take more than 1% of my total money.

Regards

Hi sunny_cool. When we trade on daily charts, our SL's are large.Just wanted to know what methods do you use to set stops.

Is it based on previous swing high/low? or ATR based stop? or any other method?

Also, do you follow the risking 2% rule on a single trade in positional trades ?

 

[Sunnyraj]

nikki5_me - Thanks for the detailed explanation to my queries One more thing i would like to ask is regarding capital allocation and risk management.

Is your position size based on your SL or is it some fixed% ( like allocating 10% to each position and then adding as trade goes in favour )


Also, do you trade positional in stock futures or is it only deliver based.In positional there's always risk of gaps and uncertain events, so both profits as well as losses can be big...how do you mange it ?

 

[nikki5_me]

nikki5_me - Thanks for the detailed explanation to my queries One more thing i would like to ask is regarding capital allocation and risk management.

Is your position size based on your SL or is it some fixed% ( like allocating 10% to each position and then adding as trade goes in favour )


Also, do you trade positional in stock futures or is it only deliver based.In positional there's always risk of gaps and uncertain events, so both profits as well as losses can be big...how do you mange it ?

Hi Sunnyraj,

1) capital allocation

Till now I used 80-20 rule for capital allocation, so at any given point in time, I have at least 20% of my capital in free cash so that I can buy some exceptional opportunities or to balance any uncertainties and the remaining 80% invested. I used to take position in 8-10 stocks both position and long term.

Now, I am planning to(started implementing slowly) reduce the size and number of positions and separate the capital based on the type of trade, so I will be having a separate for medium term/short term and for long term, I think it will help us judge the trades better. I might even have a same stock in both short/medium and long portfolio but the exits would be different based on the targets as the time frames are much different . I am looking to make a 75-25 type portfolio with 3 open positions(each 25%) and 25% free cash or 80-20 with 4 open positions(each 20%) and 20 % free cash.
I feel taking positions in less but precise stocks would help the portfolio perform better than getting into too many stocks.
I usually don't add positions if trade goes in favor for short term trades but I might add positions when it comes to long term positions, I usually have a buy range for long term positions, say for a breakout stock, I start buying at breakout and add more positions when the stock retests the breakout level and starts moving up.

2) risk management.

First thing is , there is always a risk in any type of trade. I trust charts and take positions with a SL in place. It might depend on the upside I see in stock, for some stocks, I might have 5% or 20 % based on the type of trade and the upside potential or high beta stocks etc.

Say I am having a portfolio with 1,00,000

According to 75-25 , I would have 3 open positions with 25,000 allocated to each.

If 1 of the stocks opens gap down, with 5 %, it would be 1250 rupees which is 1.25 % of my total capital, such cases are rare as we trade breakouts and as all stocks are in momentum and even if 1 of them doesn't perform well, others mostly cover up for it. Also, 1.25 % of capital is a normal thing for positional trades(Even if all 3 stocks gap down 5% each, it would be 3.75 % of PV). If the stock is looking good after that 5% dip, I might even invest the idle cash into it based on the levels. For example, I bought Tata Motors at 460 and it went to 500+ levels before brexit, I closed my positions before Brexit day and it opened with a gap down around 440 that looked at very good level to me and I got into it with free cash. I would have done the same even if I had not closed my existing position. Unless there is a big event, it is not a wise thing to close positions in fear when you see a clear uptrend in charts. Plan your trades and risk potential before entry and your portfolio will reward you for the same.

I also look for some things before investing into any stocks, like promoter holding, did it increase/decrease recently and some other trust factors which would help me decide whether the management of the company has trust in the business or not. I would try to stay away from pledged stocks.

Hope this helps

 

[ravi2126]