Trading remains a complex carrier
for anyone. It needs a perfect discipline and lot of study. There are many
times when we felt that we missed out some part of trading. It led us towards
two thoughts. These are –
1. Oh, I was trying
this stock many times but it moved today when I was not watching.
2. This stock moved
after eating my stop loss.
Most of us faced this problem
many times. Question is how not to miss most stock which are moving. Very
clearly, every one of us wants to be on winning stock rather than dead stock.
After many years of trading and research I divided trading in to two parts. One
is when we are trading and other is when we are not trading.
If you are also facing given two
problems very frequently then I have solution for you which can apply to
improve trading. Remember, you should be trader during trading hours and you
must switch to ‘an analyst’ aftermarket hours. Never trade without your
aftermarket home work. Applying
technical analysis and charting you need to have right stock on your
screen. Preparation of right stock one
your trading screen is called ‘Preparation of watch list’.
So, how to do it? When to do it?
Firstly, let us conclude when to
do it?
Time to prepare 'Market watch' -
This preparation should start one day in advance. Suppose, you need to prepare
'watch list' for Tuesday then your first preparation must start on 3 pm on
Monday itself during trading hours. You should short list the stock which gives
rise in volume or price or both.
Then, take a break after market
hours to relax you. It will refresh your mood to make unbiased study or it will
release your hangover of trading. This break is a need to switch your mode from
trader to analyst. Being a trader, you are always dealing with lots of human
emotions like, greed, fear!!! Do not think that it’s easy to deal with profit
and loss and its psychological effect.
Do not give a big gap to prepare
for your next day study as you should not completely disconnect from what were
the formations during trading hours. Most suitable time will be evening hours,
say from 5pm onwards till you finish your study. Do not opt to work late night.
On trading day, it is suitable to
start working at least one hour in advance before market start. I always prefer
to work in morning hours as those hours are most suitable for calculations.
Morning peace helps to make good and quick study.
So, here is in short, when to do
it?
Start from 3:00 pm to 3:30 pm
Then, work from 5 pm till the end
of your study. In general, you need 2-3 hours.
Next is from 8:00 am onwards.
Remember, it’s just not to
prepare watch list. It is the minimum suitable time that a trader needs to
devote off-market hours. Are you giving this much time for your study? Note
down one thing, whatever you do during market hours are just what you prepare
in off market hours. If you lose money then it just means that you either did
nothing in off market hours or you did in wrong ways.
Now, let us move to how to
prepare watch list.
This plays major role for your
performance in your trading return. Surely, it is not deciding your success or
failure. One thing is for sure that a trader must have habit of screening
stocks for 2-3 hours every day after market hours. I say this simply; spend
time with chart to understand it. Let me make it more simple and clear.
Start searching stocks from 3 pm
on trading itself. What you should do at 3 pm?
Remember two basics of technical analysis. These are,
1.
Trend
once established is expected to continue than to truncate.
2.
Price
follows volume.
3:00 pm (Weekdays): Start with volume and its direction for next
day. A stock which is likely to move tomorrow must have gather volume in the
same direction a day ahead. Those are catchable in last 30 minutes of trade in
a day advance. Many trading soft wares
have a facility called, “HeatMap” or something like market action. Open that part;
it will give you an idea about which stock is shaping for next day. Then, read
the chart to note down the rise in volume. Note – never make a study for fall
in volume. Which volume is sufficient for you to include one stock for your
study list? There are two conditions – one is, if it is 30% higher than
previous day with 1-2% change in price. Second is, if it is higher than its
normal 10 days average volume.
Above were my observations during
years of trading. You may develop your own parameter for volume. In general, I
trade in blue chip so those are most suitable in blue chip stocks. Stock
behaviour varies time to time so a continuous study for volume helps a lot.
5:00 pm (Weekdays): This is most important hours for me and I try
to finish my works in 2-3 hours without any break. You have already got which
stocks you need to analyse.
I start with indices first. Nifty
is my bench mark for my buy and sell deals. Then, I study mid cap and small cap
indices to identify the momentum. Trend of a broader index always gives a true
picture of the market. Like, if rise goes in 500 stock’s indices are more
reliable than rise of 30 stocks’ indices.
Many times traders ask me how
technical analysis can help me. Well, here is the basic assumption of technical
analysis. Just note it down –
“Trend once establishes is likely
to continue.” So, just try to find some group of stocks from your above list
which are just confirming for a trend. Believe me; it will help you a lot.
Now you can ask me how to figure
out those.
Use trend reversal pattern to
find those like H&S pattern, triangle breakout, diamond formation, cup and
handle, breakout of double top or double bottom etc . You can make candle stick
patterns too, like, Doji, shooting start, hammer head and so on. Now, I must
expect that you are aware of those. Now, above pattern are visible on charts.
Next task is – study of moving
average. At any stage of my analysis, I always use at least three moving
averages.
First is shorter moving average, for trend.
Second is medium moving average, for cross over or trigger.
Third is longer moving average, for unlikely reversal to use stop
losses.
I have few such combinations from
practise. Like, for trading, I use 5, 20 and 50 Simple moving average very
commonly. For short term investment, I use 20,50 and 100 SMA on daily charts.
For long term trend, I use 50,100 and 200 DMA.
Is it sufficient to study one
stock on one time frame? NO, simply not.
If you are intraday trader, do
your homework on 15 minutes, 60 minutes and daily chart. Set your charting
software in such a way that it opens one stock in all three time frames on one
screen. It will give you better visibility for your judgement. (Ask software
providers, how to do it or make google-ing. You will find your answer).
NEXT step is moving a step ahead in technical analysis. This is to
use technical indicators. Any conclusion coming from moving must be supportive
by some key momentum technical indicators. One must looks if there is any
positive or negative divergence emerging. It happens many times that stocks
giving some signal on moving averages are not reacting in expected way. Most of
the time, this happens due to negative divergence near top or bottom. You must
be aware about such stocks and their behaviour.
Third step is applied by mostly highly active traders or technician
who I like to do. This is applying Elliott wave theory on technical charts with
different time frame. I will not go in deep in to this in this article. Just
saying trade in third wave only. It really creates massive wealth. You must
know how to count a wave. In my upcoming articles, I will update about how to
choose a time frame, moving average and charting patterns. It is a need to
understand those patterns and analysis with the psychology of mass behaviour.
Above are examples of how to do.
You can develop your own strategy where you feel great comfort. Idea is – you
start up with 20 stocks but your study end with 3-4-5 stocks maximum for next
day to trade. I have suggested few ways which one can use as filter to get
those best suited 3 stocks for trading.
8:00 am (Weekdays): I always suggest traders to sit in front of
your research desk at least one hour before trading starts. Add above selected
stock in your watch list. Mostly, I make separate watch list on daily basis
with above selected 3-4-5 stocks. Do track all necessary news that can affect
your trading positions. Do track global indices and sector specific news. There
are flood of such news portal. You find one and you will get hundreds. It is
always better to save those web portals in your favourite lists.
You can read your favourite
analyst newsletter in those hours but do not get carried away by those. Last
but not the list; never keep cigarettes or liquor in your isolated room for
trading. It makes you impulsive an impulse can burn your money quickly. Take it
just like, smoking and drinking is not allowed in any work places so not
allowed in trading too.
If you are habitual of smoking,
then also avoid smoking during trading hours. Keep some snacks and water with yourself.
Looks like childish advice but it helps a lot.
Follow above, you will find some
improvements in your trading if not a very magical one. I am sure that
discipline is a need and hence it must be a habit.
