Sunday, 24 June 2018

Guidelines on how to let your winners run

In my last post, I tried to write something about sitting tight and letting our winning trades run so that we can maximize profits from the winning trade.  Now today, I would like to formulate some guidelines on how we can let our winners run more.  Here they are.

Guidelines on holding on to the winning trade to maximize gains:

  • As per trading data of “Champion Futures Trader” a paid Telegram trading channel, where we trade in stock and Index futures for last one and half years, it has been observed that 3 to 4 trades out of 10 stock future trades make big profits like 15k to 30k per trade.  The following guidelines will help us squeeze maximum juice out of these big winning trades.  Please keep in mind, these are applicable to stock futures only because stocks will only move 5-10% or more in a day, Index will never move that much.
  • After entering into the trade at desired level and placing SL order, we can wait for some time and see how the price moves.  Always first one hour into the trade is crucial.  If it were to hit SL, it will mostly hit it in first 10-15 minutes into the trade.  If the trade survives first one hour (most probably we have got our super winning trade), we can trail SL to half.  For example, if we initiated trade at 305 level and SL is at 303.50, we can trail it to 304.25 after one hour into the trade.
  • Now after trailing the SL, we don’t need to do anything.  If it suddenly reverses or becomes volatile, it will hit our trailing SL.  If it doesn't hit it, it again confirms that the trade is moving very well.
  • When to book out:  In trading, there are only two important factors, price and time.  In day trading, as you know, time is against us because we need to close the trade before the market close.  We don''t have luxury of time.  So we need to take into consideration both these factors for profit booking, i.e. price as well as time.  As per my trading data analysis, it makes sense to book out either once we get 7 to 8 times of profit of initial risk or between 2 and 2:30 pm.  For example, let's say we entered at 305 with SL at 303.50, i.e. initial risk of 1.50.  For that we can expect profit of 11 to 12 points in that trade before 2 pm.  If the trade does not move that much, i.e. 7 to 8 times of initial SL and let's say it is 2 pm, we can book out any time between 2 to 2:30 pm and lock whatever profits we have made.
  • So in other words, we will either book out at 7 to 8 times profit of our initial risk or between 2 and  2:30 pm, whatever occurs first.

This way as per data, typical trade performance will be like this.  Out of 10 trades, 3 to 4 trades will give us big profits.  3 to 4 trades will hit initial SL and 2 to 3 trades will hit half SL.  Keeping this in mind, if we initiate all trades with 1:8 risk to reward, the trades will most probably perform like this.

4 trades = 8 points of profit.  Total = 32
4 trades = 1 point SL.            Total = -4
2 trades =  0.5 point SL.        Total = -1

So gross profit will be like 27 points in average 10 trades.

We need to understand very clearly that we can follow these guidelines only if we have a proper mindset for trading and we are financially and mentally prepared for 5 to 6 SLs in a row.  Because most of the time, though the trade will move well in favor eventually, we may still end up getting a SL hit.  But whenever it works, the jackpot trade will take care of all SLs and give us a good profit at the end.

Now to make it more clear to you, I post here this current month's stock future trading performance along with charts marking entry and likely exit levels per guidelines that we have discussed here.
(click on image to enlarge or zoom)



Here are intraday charts of all Jackpot trades along with markings of entry and exit as per guidelines, so that you too can understand how the Jackpot trade really moves during the day.
(click on charts to enlarge or zoom)


 






These are all real trades witnessed by 18 other traders during live market. 

If you are interested in day trading and want to benefit from such trades, you too can witness it during live market by joining "Champion Futures Trader" on a trial basis for 2 weeks before you decide to risk your money at very nominal charge.  Send a mail to charttechnicals@gmail.com for more details.

Friday, 22 June 2018

Let your winners run

Should you let your winners run or take profit off the table?  This was the question I was trying to find an answer for my day trading setups in stock futures.  Nifty & Bank Nifty being an Index and less volatile typically remain range bound most of the trading days, so taking profit off the table once prices stall at good level, I thought, was a good exit strategy whenever in profit.  I tried to apply the same logic to my stock futures intraday trades and booked out profits at predetermined profit targets.  Some time later I realized this is not the correct way to book profits.  If the stock is moving nicely in favor and is looking good for further move, 2%-3% or even 5%-7% more, then why to kill the winning trade so early.

I maintain my trading data, so I decided to analyze those data more closely.  It was clear after some number crunching that 3 to 4 trades out of 10 stock future trades moved a lot during the day and turned out to be a jackpot trade.


Let's try to understand this Jackpot sort of trade better with today's trade example.  I took a short trade in SRF futures at 1755.50.  It started moving quickly in favor with momentum almost immediately.  So I decided to let it run.  Earlier I used to book out such trades at 2 times of my initial risk in the trade, but this time was different.  Finally, it kicked me out hitting my trailing stop at 1701.50.  It gave me reward of Rs. 27K on an initial risk of just Rs. 3K


It still continued to move further, but I had no regret this time as I remained in the trade as long as it allowed my stay there.

Let winners run and cut losers short & quickly!

Monday, 18 June 2018

Nifty Future 18062018


It was a quiet day after a volatile previous day.  Remained in a tight range for whole day and did not give any good setup to trade.

Friday, 15 June 2018

Nifty Future 15062018


It opened within previous day's range and moved up to PDH.  This PDH of 10830 was the area of interest in my price reading.  Yesterday, at the same level, price got rejected twice.  Today, also it made two attempts to break it.  When the second time today it failed to break it with good volume, a high probability BOF trade setup appeared as marked.  It moved well and filled the gap of 11th June which was the probable target.  Note, this chart is up to 3 o'clock only.

Earlier I used to have difficulty booking out big profits once I started to trade with slightly big quantity (for me 10-15 lots is still a big quantity for Index futures).  As a result, I could not book big profits in any single trade as I was booking out either early or giving away most of the profits in hopes of making big.  As most traders say, entry is the easiest part of trading and exit is the most difficult part, exit remained a most difficult part of trading for me.  But slowly and gradually, I am finding my way out with trailing, part booking, position size and strict discipline. Today I share with all of you my joy of booking highest profit in any single trade.  As you know, normally I don't share but today could not resist myself.  Here is the snap shot.  Now next personal target is Rs. 1 lac in a single trade with the same quantity and I wish to conquer that hurdle soon.


Thursday, 14 June 2018

Nifty Future 14062018


It opened below PDL and moved lower.  A short trade was possible below BRN as marked.  It yielded some.  In fag end it failed to break high of the day and PDL and gave good setup to short but it was too late.

Wednesday, 13 June 2018

Nifty Future 13062018


It opened above PDH but no follow-through and started to trade in a narrow range creating a barbed wire pattern around PDH.  The best way to trade barbed wire is just wait patiently for the prices to fail at tight range extremes and then initiate trade as marked on the chart.

Every day at the time of taking the trade, I need to find an answer to a key question, should I chase or should I wait?  Chasing the price makes sense only if there is a momentum ongoing and an expectation of momentum at time of taking the trade.  Breakout or breakout pullback setups are momentum chasing setups. If there is no valid reason to chase, it means better to wait, wait for the prices to fail at good support/resistance or important levels because lack of momentum will never make price to run away.

Trading a narrow range like today is not everyone's cup of tea.  But with DP and price action trading tactics and a little bit of understanding of market behavior, it is possible.

I took 3 trades in an attempt to fade upper range extreme like this and all 3 trades made money.  The range itself was very narrow, hence not big profits but still worth trading it.



Tuesday, 12 June 2018

FNO OI and Breakout

As you might know, a new trend starts once it breaks out of the range.  Normally trend followers, breakout traders drive the breakout, however in futures market this new trend post breakout is not driven by trend followers but by those who are caught on the wrong side and are now forced to square off their positions in the direction of new trend.  If it traps more number of traders or positions, we can get a furious move post breakout.  Study of FNO data and open interest will help us understand what kind of positions are getting built up while prices are stuck in the range and who is going to rush to square off once prices break out of the range.

If open interest of futures rises during a range bound action, it may suggest traders or market participants are building up positions.  In other words, price is in the range and OI is rising, which means that new positions have been created but no one dominates as buying and selling pressure is in balance and that is why price is still in the range. Let's say OI was 20 lacs at around beginning of price consolidation and it rose to 40 lacs in a period of one or two weeks but the price is still in the range. In this 40 lacs OI, there are 40 lacs long side speculators and 40 lacs short side speculators (for every one long position there must be one short position).  Now let's imagine, prices breakout on the up side.  In that case, this 40 lacs short side traders will be in panic and will rush to liquidate their positions and fuel the rally.  So even before long side traders drive the up move, the rally is fueled by short sellers who are covering their shorts.  Once the breakout is successful, then come the trend followers who join the party and take the prices more higher.  Sometimes we may see OI falling on breakout.  That is because old short contracts are being covered.

Now think about the case where price breaks out on the down side.  40 lacs long side positions will be in panic and rush to unwind their longs.  This will promote the downside further and as it gathers momentum, new shorts will get created which will further drag the price.

The more the OI in the range, the more the panic by those who got caught on the wrong side and the more the momentum in the direction of breakout.

Let's try to understand this further with the example of SBI stock.

Stock Futures chart:

As you can see, it has been range bound since 24th May, for almost 12 trading sessions.

Now let's see what is happening on the OI side.

Futures Open Interest:

As marked by green circle, OI at beginning of consolidation was 1.36 Crore which rose to 7.53 Crore on 8th June.  So almost 6 Crore positions got built while the prices were still trading in a narrow range.  Out of this 6 Crore, all short positions will be in trouble if prices break out on the up side. Also on a closer look at OI data of last 3-4 days, it appears long buildup was happening.  Long buildup means OI rises along with price increase.

Also we can study options data to get more clues like this.

SBI spot chart:

Option Chain:

As per option chain, max OI is at 260PE and 300CE.  On closer look, almost similar OI is at 270CE which is in the money now as the underlying spot price is at 273.  PCR is 1.05.  On last Friday, huge OI got added in put side from 260 till 245.  On the other hand, call OI witnessed unwinding at 280CE and almost no change in 275CE & 270CE.  So as per option chain, it is clear that lower range extreme (260) has highest put OI indicating put writers accepting this range extreme as a boundary.  Upper range extreme is 275 but the highest call OI is at 270 and all those call writers are now in pain as the current underlying price is above 270.

  • Future OI suggests long buildup.
  • Call OI suggests max open interest strike 270CE in pain, no further shorting and unwinding at 280CE.
  • Put OI suggests 260 level as boundary and more shorting below 260 level.
  • PCR of 1.05 suggests slight bullishness.

Now let's see what happened post 8th June.

Stock Futures chart:

As anticipated from study of FNO data, it did break out on the upside on 11th June trapping all short sellers. See how furious the breakout move was.  On shorter timeframe chart it will look really furious when it broke out.  Post breakout, it did pull back to breakout level to test it.  The test turned out to be successful and it did get follow-through on 12th June.


On the breakout day, i.e. 11th June, OI data suggested covering of positions and on follow-through again a buildup of positions.