The lower the time frame, the more trades you will see, the more trades you will take, the more time you will spend in front of the charts, the more losses you will have, the bigger psychological impact in your trading career and results.

The more time spent in front of the trading platform, the higher the odds you will end up modifying the final outcome of the trades you take. You will get addicted to and hooked to trading. So that’s why we shall try to stick only with higher time frames as our primary rationale on trade spotting!

Daily time frame also gives us a relaxed life. Instead of sweating in front of screen you need to give only 10 minutes of your day and go chill out all day long.

Step 1: Identify the trend in the daily time frame

Like shown in the above image, all you need to do is to find a HTHBHTHB (Higher Top, Higher Bottom, Higher Top, Higher Bottom) Pattern. When a scrip makes higher highs and higher lows; that scrip is considered to be in uptrend. So this is a confirmed uptrend.

All you need to do is to write down the point of last higher top (higher high).

The Downtrend

Like shown in the above image, all you need to do is to find a LTLBLTLB (Lower Top, Lower Bottom, Lower Top, Lower Bottom) Pattern. When a scrip makes lower highs and lower lows; that scrip is considered to be in downtrend. So this is confirmed downtrend.

All you need to do is to write down the point of last lower bottom (lower low).

Step 2: Place the Entry Buy Order or Stop Order

Now how to place an order at some price, let’s say 100. If it is a buy order and you put a buy order at 100, brokers will execute the trade immediately when the script’s price is 100.

But in this, although the scrip is trading at 80 (let’s say) we want to buy at a higher level. (In case of a sell order, lower levels). The only creative way to deal with this scenario is to use the stop loss function. So, in this case, we will place a stop loss buy order at 100; hence it will execute if the price reaches 100.

In the above image, it will execute the buy order of SBI when SBI touches 313.55.

Now Place your entry trades if you spot a trend in the scrip –

  • In case of Uptrend, Place buy stop order at last higher high.
  • In case of Downtrend, Place sell stop order at last lower low.

Buy Stop – Putting a Stop Loss order although there is no sell position (i.e to open a buy position at that specified price) is called a Buy Stop Order.

Once you get the entry in the trade, put stop losses –

  • In case of Uptrend, Place stop loss at last higher low.
  • In case of Downtrend, Place stop loss at last lower high.

Step 3: Update the Trailing Stop Loss

We have already discussed on how to use trailing stop loss using swing highs and swing lows. Here we shall add few points to remember –

Sometimes the stop loss is far making the trade risky. One can consider nearest support and resistance in these scenarios. But, always use the support resistance lines in horizontal levels when dealing with the daily time frame to avoid the confusion and multiple perceptions.

Always avoid not to update the stop loss to the Higher Highs (in case of an uptrend) or the Lower Lows (in case of a downtrend)

Sometimes we aggressively change our trailing stop loss to higher (lower, in case of a downtrend) levels. Like, let’s say a doji is formed after a huge trending move.

Here is one such case in BankNIFTY. BankNIFTY has been in strong uptrend and formed a red candle today. One may update the trailing stop loss to the low of the candle as shown above. But in many cases, it hit the stop loss and reverse back within the day itself. Its quite usual due to the huge volume induced by day traders.

So we use CBSL i.e Closing Basis Stop Loss.

Instead of closing immediately when the stop loss level is hit; we wait for the day to end and if we speculate the day is getting closed below that level in the later half of market, we close the trade. Like NSE closes in 15:30, so we can check at 15:28 if the trade is still below (or, above in case of sell order) the stop loss and close it accordingly.

If we have moved the stop loss to the low or high of a Doji or to a higher high in uptrend or to a lower low in downtrend, it is always closing basis trailing stop loss!

  • Trailing Stop Loss Preference
  • For a long trade in an uptrend, latest higher low is more significant stop loss than any other higher highs made in the past in that trend.
  • For a short trade in a downtrend, latest lower high is more significant stop loss than any other lower lows made in the past in that trend.

Step 4: Avoid Catalyst Based Price Action

Stocks will trend in the same trend with the overall market direction unless there have a reason not to. We need to find the catalyst for a stock to move. Any fundamental events like earnings, corporate announcements etc are called a catalyst.

Avoid entering a stock if it has any fundamental events that day or aftermarket!  

SBI was in an amazing downtrend and it is an amazing short as per the strategy shared here. But our Finance Minister announced a positive news relating to SBI. As you can see, the next day was a massive gap up followed by a huge bull run as the news was hugely positive. Stop Loss can not save this case.

One should immediately exit the trade. Even if one don’t manage to exit on time, close it immediate on the gap up or gap down if the stop loss is hit.

In case of earnings, You can keep eye on http://moneycontrol.com/markets/earnings. Companies post their results four times a year. One should get extra cautious during that time.

But events like these are gambling. But if your entry triggers, you should just enter with your stop loss. Like, yesterday night, Wock Pharma posted bad results than expected and it triggered our sell order at the first half of the market –

It gave a handsome profit.