using technical indicators, understanding psychological market trends, and managing risk effectively

 

Divide the Strategy into Two Key Parts

• Identify the Direction:
  First, figure out whether the market or specific stock is in an uptrend or downtrend.

• Find Stocks That Follow That Direction:
  Look for stocks that are trending in that direction. If a stock is moving steadily in one direction (either up or down), it could be the right candidate for entry.

4. Three Key Indicators for Stock Selection:

• Bollinger Bands
  Identify price movements that are nearing the outer bands, indicating volatility and potential breakout or breakdown.

• 9 Moving Averages (EMA)
  Helps identify the trend and potential reversal points.

• VWAP (Volume-Weighted Average Price)
  Indicates where the price should ideally be if the stock is following its average trend with significant volume.

5. Setup for Breakout Identification

• Look for stocks that are top gainers of the previous day, but are positioned below key moving averages or indicators like Bollinger Bands. This could signal a potential breakout.

• Small-cap or mid-cap stocks are often more volatile and have higher potential for rapid gains compared to blue-chip stocks.

6. When to Enter: The 'Sangam' Setup

• The term 'Sangam' refers to a point where multiple indicators align, indicating a strong signal for entry. The ideal setup occurs when:

  • Bollinger Bands, EMA, and VWAP align in a way that suggests the stock is about to break out or shift momentum.

  • Focus on stocks near their all-time highs. If the stock is breaking out from that point, it's a potentially strong signal.

• Avoid Entering at Breakouts
  Many retail traders enter at breakouts, but you should focus on entering before the breakout, especially when multiple indicators align.

7. Focus on the Monthly and Daily Time Frames

• Always analyze the stock on a monthly chart first to understand its long-term trend and direction. This gives clarity on where the stock might be in the next 6 months.

• After the monthly chart, move to the daily chart to fine-tune your entry points based on your strategy.

8. Importance of All-Time High (ATH)

• Stocks near All-Time Highs are crucial because they often signify strong momentum and the potential for future gains.

• When the stock is breaking out of an ATH zone, understand that the momentum comes from institutional players, not just retail traders.

9. Entry and Stop-Loss Strategy

• Once the Sangam setup aligns, look for entry points at the lowest possible price within the defined setup.

• Stop-loss should be set at a level where the trade would be invalidated, but this depends on your risk tolerance. If you are targeting long-term gains, your stop-loss might be wider.

• For short-term trades, use tight stop-loss levels.

10. Diversification: Using Multiple Stocks for Risk Management

• Risk Management: Allocate your capital to 4-5 different stocks in the same setup, dividing your investment equally. This minimizes the risk of a total loss if one stock doesn't perform.

• Portfolio Allocation: If you have ₹1,00,000, divide it into 4 equal parts and invest in 4 different stocks. This helps manage risk because even if one stock performs poorly, others can still yield good returns.

• If you are confident in your analysis, you might choose not to set a stop-loss, but for those less confident, stop-losses are critical to avoid significant losses.

11. Monitor Stocks Regularly

• The key is consistency. Set aside time each week to track stocks that are near ATHs. For example, on weekends, review the Nifty 500 stocks and identify those that are at or breaking ATHs.

12. Patience and Focus on Market Trends

• Trading requires patience. After identifying stocks, do not rush into trades. Wait for confirmation of trends and the setup before entering.

• Understanding when to take profits and when to let the stock run is crucial. Ideally, when a stock is in a strong trend, allow it to ride for a larger portion of your returns, only booking profits as it approaches significant resistance levels.

13. Adapting to Changing Conditions

• In case the stock goes against you, manage your losses effectively. Your strategy must always allow for flexibility and adaptability as market conditions can change unexpectedly.

• Regularly backtest and refine your approach by reviewing past trades and outcomes.

Summary

The strategy is about using technical indicators, understanding psychological market trends, and managing risk effectively. The primary goal is to identify the Sangam (alignment of key indicators) and enter stocks with high potential just before a breakout, not at the breakout. By carefully analyzing both monthly and daily charts, diversifying across stocks, and using strategic entry and stop-loss levels, this approach aims to optimize your trades for significant gains while managing risk effectively.

5. Breakout Identification Conditions:

A breakout happens when a stock moves past a defined resistance level, such as a recent high, or when it exits a consolidation range. To set this up, we will use several conditions:

Condition 1: Price Breaks Above Resistance (Recent High)

• Price > Previous High (Resistance Breakout):

  • This identifies stocks that are breaking above their previous day's high or a recent resistance level.

  • Use the following condition: