TRADING MOMENTUM

YOGESH NANDA
JITENDRA JAIN
 REASONS OF FAILURE IN MARKET

• We come here to make money without the efforts needed to achieve that

• No pre-defined Trading Plan – only impulse trades

• We have to fight against demons like Greed / Fear

• Going against the trend

• Failing to understand the demand supply forces of markets

 1. WHAT IS MOMENTUM

What is momentum Trading?

Technique in which trader buys or sells according to strength of recent price trends of stock

What you mean by strength of a stock?

Strength can be Absolute Strength and Relative Strength

When stock catches a momentum?

• Change in the Perception/ View of stock as per broader market participants
• Then stock comes out of compression of prolonged period
• When future / Option players are Trapped

Why I play momentums?

• Optimum utilization of capital – as less time in trade.
• Can play with smaller stop losses and effective trailing
• Always try to playing with the trend and not against the trend
 1. WHAT IS MOMENTUM

Characteristics: [so we know where to look at?]

• Outperforming in down markets [Bullish stocks] or underperforming in Up Markets [Bearish]

• Supported by much above average volumes.

• History of holding bigger gains [ Acceptance at higher level]

Means consolidation post bigger moves.

• Bigger and strong moves

• Strong Catalyst
[earnings catalyst, FDA approval, analysts upgrades, and other guidance related catalysts]

• Heavy Derivative Activity [ short covering / long unwinding / huge short builtup]
 ABOUT THE TRADING PROCESS

Good Risk Reward

Find a such a zone where we can enter with minimal stop loss

higher Success Rate – not in our hands

If we identify outperforming stocks & underperforming stocks

In Shorter period of time

So if we time our entries can try to have quick entry and quick exits
 FINDING A TRADING SYSTEM

Always begin with Why – then How will follow itself

What is the best indicator?

Price itself as all indicators are derived from price itself

Key skills of a momentum Trader

1. Trade Like a SNIPER
Wait for a Best view and the takes a shot.

2. Trade with the TREND

Find strong stocks for Going Long & Weak stocks for going short
 BACK TO BASICS

When you play with fixed risk on capital..Your returns depends on your
• Success rate and
• Risk Reward Ratio
• Time in the Trade

Now success rate is not really in you hand right??

so we are left with just 2 options improve the risk reward ratio..

So if we find the levels which offer the max risk reward ratio can we get – means …level where risk is
minimal and reward is highest… is it possible.. ??

I call it High probability Reversal zones..

Best Entry level:

• Where Cost of Going Wrong is Less [ lower SL]
• Probability of Going Right is higher [Higher Success Rate]
 PIVOT POINTS SYSTEM

What is pivot points:

Pivots-Purely are derived from price.
Are pure leading indicator, not lagging indicators like MACD, RSI, etc

Formula for pivots:

Pivot point (PP) = (previous High + previous Low + previous Close) / 3
R1 = (2 x PP) – Low
S1 = (2 x PP) – High
R2 = PP + (High – Low)
S2 = PP – (High – Low)
R3 = High + 2(PP – Low)
S3 = Low – 2(High – PP)
Same calculation for daily/ weekly/monthly/yearly pivots.
 2. PIVOT POINT SYSTEM

How it is Useful? – Dual purpose

1) Forming a view
2) Important levels for Entry / Exit & Stop loss

Significance of levels:
Levels serve as important support and resistance.
Can gauge the aggressiveness of buyers and sellers at important levels with candlestick patterns.

SO WHAT NEW IN THIS?

We know this………….
 SO TWIST IS

Higher Time PIVOTS

• Monthly
• Weekly

Now same formula if applied to previous month High, Low, Close data …
Pivot = (prev month high + Low + Close)/3

Similarly weekly data.

And for whole month [for monthly pivot] & week [for weekly pivot] this level remains static
 IDEAL SYSTEM SHOULD

1. Provide good levels where Risk Reward is higher

 IDEAL SYSTEM SHOULD

2. Differentiate between bullish stocks /

bullish & bearish periods in same stock
 IDEAL SYSTEM SHOULD

3. Save you from bad stocks like IBULL, DHFL

 LAYERS OF UNDERSTANDING

Layer 1:

Defining Bullish & Bearish stocks:

• Bullish stocks – stocks above Pivots Point

• Bearish Stocks – Stocks below Pivots Point

 LAYERS OF UNDERSTANDING

Layer 2:

When momentum picks up:

• Upside momentum– Above the R1 Level

• Downside momentum – Below the S1 Level

 MULTI-TIME FRAME ANALYSIS

Layer 3:

Combining Different time frame pivot points:

• Bullish stocks – stocks above Monthly & Weekly Pivots [both]

• Bearish Stocks – Stocks below Monthly & Weekly Pivots [both]

• Consolidating – stocks Between 2 pivot points….

[1. stocks above monthly pivot & below weekly pivot]
[2. stocks below monthly pivot & above weekly pivot]
 LEVEL AS SUPPORT & RESISTANCE

Layer 4:

Levels as Support and Resistance :

• Single Level: These Levels act as a Good Support and Resistance

• Multiple Levels: When Levels from different time frame – converge at one level
they act as strong support and resistance level.

Now, Key thing is – at these levels you can trade with very small stop loss…
So RR and definitely improve..
SUMMARY
 TRADING PATTERNS

A] Breakout:

Bullish Trade:
• Price Above Monthly & Weekly Pivot point
• Stock is Breaking out any Pivot point [Monthly R1 or weekly R1,R2]
• Stock has shown strong up move before the breakout
• Price above 15 minute Super Trend indicator [ 7, 3 ]

When to buy:
On 15 min or hourly chart candle closes above the Breakout level

Stop Loss:
Super Trend on 15 min chart [ 7 , 3]
 TRADING PATTERNS

A] Breakout:

Bearish Trade:
• Price below Monthly & Weekly Pivot point
• Stock is Breaking Down any Pivot point [Monthly or weekly S1,S2]
• Stock has shown strong down move before the breakout
• Price below 15 minute Super Trend indicator [ 7, 3 ]

When to Sell:
On 15 min chart candle closes below the breakdown level

Stop loss:
Super Trend on 15 min chart [ 7 , 3]
 TRADING PATTERNS

B] Reversal Trade:

Bullish Trade:
• Price Above Monthly Pivot point
• Currently stock has pulled back from recent high
• Strong upmove before Recent pullback
• Price testing or breaking out Weekly S1

When to buy:
Strong Reversal candle at or above weekly S1 [15min or 1 hour]

SL:
Low of candle before Entry Candle
 TRADING PATTERNS

Reversal Trade:
Bearish Trade:
• Price Below Monthly Pivot point
• Currently stock has pulled back from recent lows
• Strong down move before Recent pullback
• Price testing Weekly R1 or breaking down

When to Sell:
Strong Reversal candle at or below weekly R1 [15min or 1 hour]

SL:
Swing high before Entry Candle
 FEW GUIDELINES

Some changes in how you look at stocks:

• Change little how you observe chart

• Start observing how stock behaves at particular level

• Any compression pattern near important level can give a good entry point
 RISKS

Risks :
1. You need a strong trend for this indicator – many stop losses in sideways market or weak trend
2. Over night position - gap up or gap down Risk on stock.
3. Be careful in mid cap stocks … try using 60 min chart for that.
4. Pick up the correct stock – with breakouts of stocks reversing from support.
 IT’S A JIGSAW PUZZLE

What to Buy /
When to book
Sell?
profit?

When to Buy? What will be

Stop loss?
How much to
Buy?
 1. TRADING PROCESS

My trading Process: [every one should document their trading process]

1. Stock Selection [ What to buy?]
2. Money Management [ How much to buy?]
3. Trade Management [Entry , Exit and STOP LOSS] [ when to buy & when to exit ?]

Few Rules:
• Have strict discipline for stop loss and profit booking and Trailing
• Have standard betting size per trade [for every trade – standard stop loss amount]
• Trade only in Nifty, Bank Nifty and top 200 companies (CNX 200 index).
• Trading in the direction of the Medium term Trend of the Stock
• Never long down trending stocks and never short up trending short.
 1. TRADING PROCESS

1. Monitoring Process [can use screeners]

Daily study charts of stocks which were:
• Up by more than 3%
• Witnessed a jump in volume as compared to last 10 days average
• Stocks with Long built up and short built-up in F&O data >10%
• I prefer Manually watching all charts on watchlist
For new: start with 5-10 stocks and gradually increase the watchlist

2. How to analyze a chart:

• Mark major swing high and low on the chart – Support and Resistances
• Identify a Major Trend of the stock – using pivot points
• Draw Trendlines on the chart joining major top and bottom
 1. TRADING PROCESS

3. Stock Selection for trade:

• Trade in the direction of the medium term trend
• Identify stocks at major supports/Resistance and its reversing
[double bottoms / Triangle/Trendlines/Ranges[Rectangles]]
• Stocks giving fresh breakouts
• Stock has recently given breakout and its retesting its breakout

Prepare a Journal – make entry in Journal –

 1. TRADING PROCESS

4. Entry / Exit / and stop loss:

we already discussed the patterns

5. Money Management:
• Pre-defined stop loss
• System determined Position Sizing linked to capital and stop loss
• Maximizing Risk Reward Ratio
• Profitability at low success rate
 1. TRADING PROCESS

Risk Parameters
Capital and Risk How each trade works
Capital 2,000,000 Entry 100.00 Stop loss 3
Stop 97.00 Profit 9
Per trade Risk (as % of capital) 0.50% Target 109.00 Risk reward 3.00

[Per trade risk / stop

Per trade Risk (Rs.) SL amount 10,000 Quantity 3,333 loss ] [i.e 10,000 / Rs. 3 ]

Max loss 10,000

Exp profit 30,000

 1. TRADING PROCESS

6. Post Trade Analysis

• Record Keeping – Record all trades and its outcome – with reason of success/Failure
• At End of week / month – analyze the past record to see for any improvement you can bring to
your process
 EXCERCISE

Make a habit to analyze minimum 5 charts daily..

You will be amazed with the result after doing this for 30 days...

Purpose of this exercise is to train your eyes to spot the patterns this way..
 OPTION TRADERS

Sr. no Period of Expiry Strategy to Use

1 First 12 days of month For Long - Buy Call
For Short - Buy Put

2 13 – 20 of the month For Long – Buy ATM Call and Sell OTM Call
[Bull Call Spread]
For Short – Buy ATM Put and Sell OTM Put
[Bear Put Spread]

3 6 – 7 days to expiry [ never Buy Options in this For Long – Bull Call Ladder
time.. As theta decay is fast ] For short – Bear Put ladder
[only for experienced Traders ]
 OPTION TRADERS

• Stop loss should be kept on stock price – when it hit – exit from option

• Second thing is Time factor in Options – Don’t stay in option buy trade more then 3 days

• In last 10 days of expiry avoid carrying option buy overnight.

WE ARE OPEN TO DISCUSS ANY QUESTIONS

You can reach me at

Yogesh Nanda
Yogesh.nanda1@gmail.com
Twitter @yogeshnanda1