Lately a thought came to my mind. And i am very sure that it would have caught the mind of many traders out there.
To catch stocks that are going to breakout.
For eg. I took a trade that broke out its trend and I know is going to make a huge gain at the same time I have to limit my losses. Following cases may arise.
1. Once I enter, I set a mental stop loss that this is the point where my stoploss is hit and no matter what I will exit. But lets say it hits the stop loss and then continues its breakout. I am literally screwed in money and psychological terms.
2. Once I eneter, It was rather a failed breakout and my stoploss is hit. I may exit and get a loss. I got psychologically trapped waiting for it to recover and even lose more.
So to counter it, lets propose a method and see if it works.
1. Paper fund of Rs. 5,00,000/-.
2. Traded value of LTP or the trade that occured between 3:15pm to 3:20 pm.
3. Buy/Sell a future in the direction we propose a breakout.
4. Buy a Call or Put with equal lots and money for stoploss.
5. Let the trade run till expiry/rollouttonextexpiry.
6. Take windfall profit where we are happy.
7. Or let them expire with Loss.
Some points worth remembering will be: -
1. Accumulation of distribution has to be real within a proper channel. I will my self consider rectangle breakouts that are rangebound for long periods.
2. Volumes will be considered during the breakout.
3. 50/200 DMA will be consulted for the basic average trend.
4. An indicator might be consulted for strength in the direction through divergence.
5. Overall market breadth or of the sector may be considered for reference.
Views or discussion appreciated to make it work.
Will refine it as with the learning and share the excel sheet of hows it going on. It is all hypothetical just to see if the method can work or any refinement can be done.
To catch stocks that are going to breakout.
For eg. I took a trade that broke out its trend and I know is going to make a huge gain at the same time I have to limit my losses. Following cases may arise.
1. Once I enter, I set a mental stop loss that this is the point where my stoploss is hit and no matter what I will exit. But lets say it hits the stop loss and then continues its breakout. I am literally screwed in money and psychological terms.
2. Once I eneter, It was rather a failed breakout and my stoploss is hit. I may exit and get a loss. I got psychologically trapped waiting for it to recover and even lose more.
So to counter it, lets propose a method and see if it works.
1. Paper fund of Rs. 5,00,000/-.
2. Traded value of LTP or the trade that occured between 3:15pm to 3:20 pm.
3. Buy/Sell a future in the direction we propose a breakout.
4. Buy a Call or Put with equal lots and money for stoploss.
5. Let the trade run till expiry/rollouttonextexpiry.
6. Take windfall profit where we are happy.
7. Or let them expire with Loss.
Some points worth remembering will be: -
1. Accumulation of distribution has to be real within a proper channel. I will my self consider rectangle breakouts that are rangebound for long periods.
2. Volumes will be considered during the breakout.
3. 50/200 DMA will be consulted for the basic average trend.
4. An indicator might be consulted for strength in the direction through divergence.
5. Overall market breadth or of the sector may be considered for reference.
Views or discussion appreciated to make it work.
Will refine it as with the learning and share the excel sheet of hows it going on. It is all hypothetical just to see if the method can work or any refinement can be done.
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