Lessons for the beginners :

*Why I lost money in the share market ?*

90% of intraday traders loose money in the stock market and they are the poor retail public.
Only few traders earn and what makes them different from others ?

I too lost many Lakhs & Lakhs in trading and still not able to be a successful player after having
learned variety of indicators, strategies, youtube lessons etc, etc. Finally I learned one thing
from the market the main reason and root cause for the loss/gain is nothing but DISCIPLINE,
and the lesson cost me very expensive.

Whenever we go undisciplined, market punishes everyone ruthless irrespective of you are an

expert or beginner. A disciplined ordinary trader can make big money than an undisciplined
expert.

DISCIPLINE IN TRADING

Discipline is nothing but stick to our own set of strategy and framed rules ! One can have their
own strategy to enter / exit the trades but important is howmuch we respect the framed rules

The main barrier is controlling emotions. Infact the whole stock market operates on the two
emotions GREED & FEAR. That’s why greed and fear index is also measured for its extreme
conditions and thereby gauging the investor sentiment.

When you are at good profit immediately greed tries to overtake your discipline and will not
allow us to book profit in right time, finally ends up in a big loss. This happens & happened to
many of us, pl observe.

Fear of loss is the other enemy and difficult to control, that’s the reason when market falls it
would be steeper & faster than when it raised . Fear causes us not to believe in our own
experience & expertise, adjusting/removing stop losses, panic selling, looking for other’s
opinion, mis reading of charts etc. The decision taken out of fear/haste always proves to be
wrong and leaves us with big losses

Everyone have these emotions but one who limit and moderate these factors can be successful.
Please set a criteria and rules in trading, try follow it like a machine keeping emotions out.
Sometimes sticking to our discipline may bring small loss but eventually saves from the big
losses.
Here are some guide lines/rules to follow the discipline.

Do's & Don't !

- avoid to trade in first 15min of market opening, don't show hurry to enter when stock opens
with big gap up or gap down beyond 4-5% on some news. It could be a bull/bear trap for
retailer, let it settled first, confirm the direction and enter in a reasonable correction.

- Trend is your friend. Go as per market direction, do not try to sail opposite the trend, contra
bets are always risky.

- Always trade in most active stocks in terms of value and volume. Avoid trading in illiquid stocks
otherwise face difficult in exit many times.

- Trading without stoploss is a suicidal. Never keep the trade without SL, don't bother if it hits
and return back but saves you from bigger losses always. Maintain proper & correct SL and
don't adjust it afterwards on fear of hitting. SL is to be revised or trailed only in case of gains.

- Over trading is always harmful. Don't trade in many stocks at a time, keep focused on, advise
not more than 3 at a time.

- Intraday players don't carry overnight positions unless sure about tomorrow's market direction
particularly when market trades in volatile.

- Avoid buying OTM calls/ puts in the expiry week. Options premium will be wiped out fast in the
market volatility.

- Never average a loosing position. People have tendency to average when in loss but many
times proved wrong. (case for investment is different)

- don't keep all your capital in one single trade and do not risk more than 5% of your trading
capital

- keep a target for the day, close everything when achieved it and packup for the day. Don't
attempt to recover the losses when day is not good. Revenge trading is dangerous and can
loose everything.
Use of Trading indicators:

1. 50EMA
(Exponential Moving Average - 50period)

It is one of the most reliable and highly used indicator by many traders. Most of the times we
can see stock's movement & it’s direction either side once it's price is crossed above / below
this moving average line. I term this trend line as Laxman Rekha where entry & exit positions
are decided almost at high accuracy.

I enter a buy trade only if the candle is trading above the 50ema line. If price/candle is just
crossing the 50ema line, we can see lot of struggling/volatility hence one should not be in hurry
to enter, and need to wait till candle closes above the line. The same is applied vice versa for
short position too.

Golden crossover : confirmation of bullish trend

When 21ema too is crossed above 50ema line, it indicates positive & more upside for the stock

Death crossover : confirmation of bearish

When 21ema crossed below 50ema line, it indicates negative & possibility of more downside.

How to draw - go to studies/indicators, select moving average.

Settings - select Exponential and select time period to 50 or preferred

Note : no indicator solely can offer 100% accuracy hence it has to be in combination with other
indicators such as RSI, super trend, ADX, Volume etc.. for a profitable trade.

2. RSI (Relative strength index)

This is highly popular & widely used for all types of markets and is one of the reliable indicators
on which trader can make his decision for entry & exit conditions. As it's name indicates, it
shows the strength of a particular stock from it's price action. RSI line moves between 0 -100%
and based on it's value one can evaluate the overbought and oversold conditions. Generally it is
termed RSI above 70 is overbought and below 30 is oversold.

It is also foolish to think above 80 we should sell and buy below 20 or so. In a strong
momentum RSI value can continue to oscillate in it's range from 70-95% for a longer period
also and stock can see higher highs, in the same way on downside when oscillate between 30-
5% can see lower lows too.
I personally enter in a buy position only when RSI value crosses above 60 along with other
indicators, if they meet the set criteria. one can exit their buy position when RSI start falling from
50 level. I do not trade anything when RSI is between 40-60, and if intend to take short position
it is only below 40%.

RSI indicator default setting is 14 period and not recommend to change

3. ADX / DI (Average Directional Index / Directional Index).

Before going into the details, please note that Trend is your friend. when we trade in the
direction of a strong trend it reduces the risk of losses and increase the profitability.
ADX helps in identifying the strength of that trend and also gives idea when not to trade while
running in sideways. Without ADX, Trade with other previous indicators alone ( RSI & EMA )
cannot ensure the chance of a winning trade.

ADX is plotted as a line which it's value varies from 0-100. It derives from average of two other
directional indicators +DI & -DI that can be seen in the same indicator setup. ADX default
setting is 14 period and not recommended to change.

when price reverse it's trend from positive to negative +DI crosses below -DI,
in the same way if trend turns negative to positive +DI crosses above -DI.

Taking both directional indicators average values into calculations, ADX calculate its value.
If the trend is strong (irrespective of upside or downside) ADX value goes on increase.

value of ADX from 0-25 is to be considered as very weak or assume trend is running sideways.
value from 25-50 is strong and above 50 is considered extremely strong.

Sometimes it may happen that before ADX value reaches above 25, much of the movement in
stock has already have happened. hence +DI / -DI value and crossover of each other is also
important to be seen. If respective DI value increases above 30, it also satisfies for trade entry.
Successful traders use ADX along with other indicators efficiently
4. Volume analysis

Volume price action is the ultimate ruler ! the one who better understands the behavior of
volume comes out as a winner finally. A skilled trader even doesn't require any other
indicator’s support having focused on volume analysis.

Volume plays a big role in the price movement.

High volume indicates more interest in the stock and presence of buyers and sellers in that
stock. when there is increase in volumes and price is going up then uptrend will continue to
extend further. It means more and more buyers are interested in that stock.

Similarly when price is going down with higher volumes downtrend likely continue further,
means more sellers are interested in selling the stock.

Low volume indicates lack of interest in that particular stock.

If the stock is moving up and volume is falling then it indicates the interest of buying is reduced
and uptrend is probably going to end & may reverse.

In the same way if stock is moving down with lesser volumes then it indicates interest of the
sellers have reduced and downtrend is going to end soon.

To summarize

Price up & volume up - bullish

Price up & volume down - caution for trend reversal

Price down & volume up – bearish

Price down & volume down - caution for trend reversal

Understanding volume price action is little complex and based on the behavior of it's earlier
volumes. If the current average volumes exceed the past average volumes, it will mostly
decide the price action/trend.
In simple terms and based on my study, when 7period moving average volume exceeds
21period moving average volume, we may see a good momentum in that stock (here period is
referred as one candle)

The big question remains here is how to know if a stock's 7ma volume crossed 21ma volume,
and out of so many stocks traded in nse how to identify that particular behaved stock.

Many traders use scanner to identify such stocks and it continuously scans the defined set of
stocks on real time basis throughout market timing. (it can be nifty 50 / nifty 500 or whatever
configured). when condition meets the predefined conditions scanner releases a notification.
upon seeing the notification we may check, confirm & decide for entry in a suitable opportunity.

When we observe a big jump in price and volume, let's not hurry to enter at the first candle of
the trade, sometimes it could be bull/bear trap for the retail investor/trader. One should wait and
watch if the same trend continues for another one/two candles, then decide to enter the trade in
a suitable opportunity or after a reasonable retracement.

There are some good technical indicators like OBV, MFI, VWAP, PVT, volume chart, etc. to
follow the volume behavior. They may also be used in combination with other indicators already
explained.

Now let’s focus on the implementation of above indicators for a profitable trade.

Indicators setup :

Use 15min candle chart for Intraday trades and 1Hr chart for positional trades

Conditions for a BUY trade ( long position )

1. Candle close price should be above 50EMA line

2. RSI (14) value > 60

3. + DI value > 30 & ADX value > 25

4. 7 period MA Volume > 20 period MA Volume (those who can not check this condition, can
setup a volume indicator “Positive Volume index (PVI)”

5. PVI index Line should have crossed above PVI Moving Avg Line.
(PVI settings : Period- 255, Moving Avg type-Weighted)
Conditions for a SELL trade (short position)

1. Candle close price should be below 50EMA line

2. RSI (14) value < 40

3. - DI value > 32 & ADX value > 25

4. 7 period MA Volume > 20 period MA

5. PVI index Line should be running below PVI Moving Avg Line.

The explained indicators setup is suitable keeping in view of the intraday / positional trades
only and does not apply to an Investor for investment purpose. Investor should look for the
oversold & support conditions preferably in/after panic conditions/corrections hence criteria will
be different.

When to Enter a trade :

There will be lot of ruckus and volatility in the market for initial 10-15min. We should better
avoid trades during this period. Once price settles down, one should look for the stocks
where indicator setup is meeting the conditions. A big gap-up or gap-down opening of a
stock with high volumes usually may extend its momentum for some period and afterwards
price may tend to correct slowly with lesser volumes for an intermittent period.
Out of impatience If we make the entry at extreme levels, Risk / Reward ratio will be high and
probability of loosing in intraday is also high. Also do not attempt the trade when price is in
correction mode. If price takes a reversal & starts moving again in its trend with volume, it is
advisable to make an entry there for a safe and profitable trade.

Where to Exit :

A) Exit on profit –

This is the point where greed comes into and people finally end up with losses hence booking
profit is also important. When a stock is in trending, “with the given indicator setup”, usually F&O
category stocks may move from 2-5% and Non-F&O stocks from 4-12% in a day (with some
exceptions). Intraday player may look for a profit target of 1.5-2% whereas positional player can
look for 8-10% target.

Alternatively, one can book 50% partial profit and move the stop loss to our cost price once our
target is reached and balance can wait for the next move
Else while you are profit, check for the formation of two consecutive loss making candles “on
5min chart” and exit the whole quantity with the whatever available profit.
B) Exit on Loss –

Keeping Stop loss is a good practice and a trader should make a habit of placing SL order
once buy/sell order is executed. Sometimes when the stock price goes against the trade &
making loss due to market uncertainties, people tend to either adjust/remove the SL hoping
for a recovery. This is infact a suicidal attempt in trading ultimately erase all the previous gains
in one go. Only disciplined trader can make money else no indicator can save, finally ends up
as a looser.

Setting SL at fixed percent is only a thumb rule, however it all depends on our entry point and
Indicators movement. For the practical purpose keep SL at 50EMA line and can be trailed as
price goes in our favor.

Exit the trade very strictly when Price is crossing 50EMA line / RSI line when cross 45 /
crossover of + DI indicators each other / 1.5% loss whichever is early.
while stoploss of 3% is to be considered for a positional trade

Finally I would wish the reader or learner to become the part of that successful 10% trading
group.

Happy Trading !

by T.V.Rao