NIFTY Fut 30 min chart
SBI 30 min chart
I am posting 2 charts to illustrate the concept, the first chart is Nifty Fut 30 min chart and the second chart is State Bank cash 30 min chart.
The first thing which we want when trading large positions is that the market should quickly go in the direction of our trade. We would not like to take large position and see that market does nothing for next 1-2 hours or worst, goes against us.....no one likes it psychologically. So the first principle is trade in the strong trend, uptrend or downtrend....but avoid meandering sideways trends....just stay out of sideways......
Many will wonder why I am showing 30 min charts in daytrading examples. Small timeframes such as 3 min or 5 min give noise sometime....larger timeframes of 30/20 or 15 min are much more stable.....I am taking 30 min for illustration.
The next area is how do we define strong up/down trend....there are many ways....some of them are listed below :
1) An uptrend on daily timeframe, and some sideways movement and a breakout/breakdown from this sideways zone on daily timeframe.....this analysis is required to be done the earlier evening for shortlisting trading candidates next day morning.
2) Market trading above important level/pivot...
3) Market trading above the previous day's high or previous days lows.
4) Market trading above 21 SMA on 30 minand the gradient of 21 SMA is steep...( dont trade when the gradient is flat and market is going up/down of 21 SMA )
5) Market trading above Blue TDST for long side trades and trading below Red TDST for short side trades.
The above list can be expanded based on each trader's favourite trend detection techniques.
Now we come to actual position sizing. Suppose we are in uptrend, we locate a bar as under :
1) a small inside bar ....we go long over the high of this bar and our stops are just below the low.....
2) A small range doji ...signifying a pause in the ongoing trend....
3) a small bar which is of different colour than the main trend...so for long trades we will identify small red bar...long above the high of the red bar and stop below the low.
So here the thought is we are trading in the direction of the trend, strong trend, small pause in the main trend and the trend resumes and we get into the trade....the small bar enables us to take large positions with very low risk...tight stops and we will get atleasr 65 % and above success rate.
The chart shows few long trades on Nifty Fut and few short trades on SBI ( cash ) for those who trade futures or cash markets.if our trading capital is say Rs 5 Lacs....we risk 1 % so we rish Rs 5000 on a trade....if we get a NF trade with 12 points stops we go for 400 NF position.and we sell 1/3 at 2R or 24 points profits, 1/3 at 3 R or 36 points profits and 1/3 at 4R or 48 points profits. We can bring our stops to our entry point when the market moves 1 R or 12 points in our favour.......the last lot can be put on the trailing stops instead or 4R .....
We can even trade a 5-6 stocks group on this ...each time trading 0.25 % risk....so our total risk on all positions is never above 1.25 -1.5 % of our capital and we diversify our risk to some degree...so on some days NF is in sideways but Tata Motors or SBI is moving and we get trades in those counters....
Now we come to the maths.....assuming very conservative 40 trades in a month, and 50 % success rate....and average 2.5 R profits....we loose on 20 trades so we loose 20 % gross and we make 2.5 R on 20 trades so we make 50 % ...that still leaves us 30 % per month......even discounting this and we make 50 % of this ie 15 % per month still a very good return with risk never exceeding 1-1.25 of our capital.
The above are the trading ideas, everyone has to use these ideas in whatever methods he/she is trading......but it just opens our views that large returns with small controlled risk is possible . I have seen some traders making huge profits of say 4 R to 8 R on each trade on methods based on this concept and their profits are beyond the figures given above ( let me also clarify that I am much below these achievements ) ....but small steps...let us start walking in that direction ....
Smart_trade
