Day Trading Setup
Here's a framework that could be followed for day trading. I mainly day trade during bear markets, the primary reason being that I prefer going long than short. I believe that the short side works dramatically different than the long side on longer term charts, and am not comfortable playing shorts for swings. However, I find the long and the short side to be relatively more symmetrical in intraday moves, hence the habit of day trading mainly during bear markets.
I trade the open mainly on stocks that have gapped up/down the most. I look for the first swing high/low to be formed with an inside bar, and trade a breakout of that. Have a look:
View attachment 42266
This is a setup in Hindalco from today. It's a 5 minute chart. Why Hindalco? I check the pre-open market. Companies down a few % pre-open are obviously going to gap down when they open. Vedanta and Hindalco were the top losers pre-open (there were no gainers today, the top was Sun Pharma at 0%, lol). Also, I tend to follow monthly and weekly sectoral action and relative strength, which I post about on my blog. Last month, Vedanta and Hindalco were among the top gainers of Nifty.
It's good to trade in stocks that have been moving and are at new milestones at odd times, they usually give good moves. For example, Torrent Power today was at a 52w high during such a bloodbath, check it out, Torrent Power did give a setup and it would've been a good one to take. However, note that we do not get setups before every big move, we can't catch it all and that's something we have to be comfortable with.
Also note that we do not wait for 2 bars after the inside bar to be within the range, we take the setup as it forms. I'm not saying it because that's what works on cherry picked examples, I'm saying it because we're trading intraday momentum during the open, and we need to be much quicker trading that. The idea for daily charts trading is to wait for a consolidation for a while, which is why we require a couple of candles to stay within the range. But not while day trading. What we're doing is figuring out which concept/property of the markets we want to trade, and try to objectify and standardize them in the form of simple, repeatable setups.
The examples of Hindalco and Vedanta are not cherry picked as well. Have a look at the pre open market top movers. Yes, setups would have appeared on much more stocks. Yes, some wouldn't have worked. If you show me a chart of a failed setup and ask me why it didn't work, I'll probably say that it didn't work because it's not supposed to. A setup doesn't have to work, we have to position ourselves with favourable odds in a way that we are in a comfortable place if we lose, and we stand the chance of making a multiple of the amount we risk should we be right.
I would insist that you view my posts as a framework rather than a black box. Some decisions involve discretion on our part. For example, stock selection. Which stocks will we look to trade and find a setup? I've traded a variant of this setup earlier (nearly a year back), and my stock selection criteria was to trade the names that appear in the Economic Times Stocks in the News posts. I figured these would have a high likelihood of moving and I would take the first long and short setups that trigger. Does it sound too simple? Do you feel skeptical? It did for me too, but I simply tried it out with a small sum of money, day after day, with consistency, following and improving a process. And for those wondering, it turned out to be profitable, though of course its success depended on many other factors, some external.
I do not think intuition is bad, it's just something that needs to be kept in check. By figuring out ways to objectify certain properties of the market (momentum, corrections, volatility breakouts, or even investing related stuff), we will be figuring out a way to play our beliefs and assumptions in the market. Have conviction in that. Build a framework. Try using an existing one.
Would be great to have questions, I can't recollect and type every minute detail but there are nuances that may need to be covered. @TracerBullet asked a couple of questions and mentioned a few insightful things which I had to cover in future posts. It speeds up the process.
Feel free to explore these setups and discuss trade ideas arising out of them!
-Smeet
Here's a framework that could be followed for day trading. I mainly day trade during bear markets, the primary reason being that I prefer going long than short. I believe that the short side works dramatically different than the long side on longer term charts, and am not comfortable playing shorts for swings. However, I find the long and the short side to be relatively more symmetrical in intraday moves, hence the habit of day trading mainly during bear markets.
I trade the open mainly on stocks that have gapped up/down the most. I look for the first swing high/low to be formed with an inside bar, and trade a breakout of that. Have a look:
View attachment 42266
This is a setup in Hindalco from today. It's a 5 minute chart. Why Hindalco? I check the pre-open market. Companies down a few % pre-open are obviously going to gap down when they open. Vedanta and Hindalco were the top losers pre-open (there were no gainers today, the top was Sun Pharma at 0%, lol). Also, I tend to follow monthly and weekly sectoral action and relative strength, which I post about on my blog. Last month, Vedanta and Hindalco were among the top gainers of Nifty.
It's good to trade in stocks that have been moving and are at new milestones at odd times, they usually give good moves. For example, Torrent Power today was at a 52w high during such a bloodbath, check it out, Torrent Power did give a setup and it would've been a good one to take. However, note that we do not get setups before every big move, we can't catch it all and that's something we have to be comfortable with.
Also note that we do not wait for 2 bars after the inside bar to be within the range, we take the setup as it forms. I'm not saying it because that's what works on cherry picked examples, I'm saying it because we're trading intraday momentum during the open, and we need to be much quicker trading that. The idea for daily charts trading is to wait for a consolidation for a while, which is why we require a couple of candles to stay within the range. But not while day trading. What we're doing is figuring out which concept/property of the markets we want to trade, and try to objectify and standardize them in the form of simple, repeatable setups.
The examples of Hindalco and Vedanta are not cherry picked as well. Have a look at the pre open market top movers. Yes, setups would have appeared on much more stocks. Yes, some wouldn't have worked. If you show me a chart of a failed setup and ask me why it didn't work, I'll probably say that it didn't work because it's not supposed to. A setup doesn't have to work, we have to position ourselves with favourable odds in a way that we are in a comfortable place if we lose, and we stand the chance of making a multiple of the amount we risk should we be right.
I would insist that you view my posts as a framework rather than a black box. Some decisions involve discretion on our part. For example, stock selection. Which stocks will we look to trade and find a setup? I've traded a variant of this setup earlier (nearly a year back), and my stock selection criteria was to trade the names that appear in the Economic Times Stocks in the News posts. I figured these would have a high likelihood of moving and I would take the first long and short setups that trigger. Does it sound too simple? Do you feel skeptical? It did for me too, but I simply tried it out with a small sum of money, day after day, with consistency, following and improving a process. And for those wondering, it turned out to be profitable, though of course its success depended on many other factors, some external.
I do not think intuition is bad, it's just something that needs to be kept in check. By figuring out ways to objectify certain properties of the market (momentum, corrections, volatility breakouts, or even investing related stuff), we will be figuring out a way to play our beliefs and assumptions in the market. Have conviction in that. Build a framework. Try using an existing one.
Would be great to have questions, I can't recollect and type every minute detail but there are nuances that may need to be covered. @TracerBullet asked a couple of questions and mentioned a few insightful things which I had to cover in future posts. It speeds up the process.
Feel free to explore these setups and discuss trade ideas arising out of them!
-Smeet
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