Stock trading strategies in Indian Market for Beginner

Let me share the two trading strategies that I have already shared in another question.

Here's one of the best and simple intraday strategy you can try.

Opening Range Breakout (ORB) is a commonly used trading system by professional and amateur traders alike and has the potential to deliver high accuracy if done with optimal usage of indicators, strict rules and good assessment of overall market mood. This system is applicable only for intraday trading.

ORB trading has several variations practiced by traders all over the globe. Some traders trade on a significant breakout from opening range, while others trade immediately on opening range breakout. Time window for the trades also varies from 30 minutes to 3 hours.

Over a period of time observing and trading Indian markets, I have devised with the below system suiting our markets. Below method is both a scalping and a trending system combined into one, hence it is possible to take the advantage of quick moves and trending markets with multiple lots of trades.

Trading Strategy

Quite Simple and straightforward. Rules in the next section needs to be adhered to increase the success rates dramatically.
Any stock creates a range in the first 30 minutes of trading in a day. This is calling Opening Range. The highs and lows of this timeframe is taken as support and resistance.

1. Buy when the stock moves above the Opening Range high.
2. Sell when the stock moves below the Opening Range low.

PLEASE NOTE THAT THE ABOVE SYSTEM IS GENERIC, THE RULES BELOW WILL MAKE IT A SPECIFIC SYSTEM. IF YOU ARE FOLLOWING THIS SYSTEM, PLEASE FOLLOW ALL THE RULES FOR BUY / SELL STRICTLY.

General Rules – Applicable for both Buy and Sell:

Opening range is defined by the high and low made in the first 30 minutes.

5 min chart with 5 EMA and 20 EMA used for making trading decisions.

Entry should be made only on close of the 5 min candle outside the opening range.

20 EMA is one of the key technical indicators used in this system for trend trading. Stop loss is always kept at 20 EMA for riding the profits.

Volume confirmation – Breakout candle should show increase in volume.

Optional confirmation- One of the two indicators - MACD or Stochastics should be favorable for the trade. (We have four indicators in Simplified Technical Analysis - Moving Averages, RSI, MACD, Stochastics. The idea here is at least two indicators should confirm the trade.).

This is purely optional condition to enter trade.

• Respect support and resistance levels. Do not buy just below a resistance or sell just above a support.
• Always trade with 2 lots and book 50% as soon as you see few points profit. Second lot will be used for taking advantage of days trend.

Rules for Buy

• Stock should be trading above the 20 EMA line before the breakout.
• Buy when the 5 minutes candle closes above the opening range.
• 5 EMA line should be above the opening range at the time of breakout.

Where to keep Stoploss

Initial Stoploss – Low of the Opening Range.
Trailing Stoploss - As the stock moves in your direction and you are in profits, book 50% , trail the stoploss at 20 EMA. A close of 5 min candle below 20 EMA confirms exit.

When to book full profits

When the 5 min candle closes below the 20 EMA in the case of longs.

Rules for Sell

• Stock should be trading below the 20 EMA line before the breakdown.
• Sell when the 5 minute candle closes below the opening range.
• 5 EMA line should be below the opening range at the time of breakout

Where to keep Stoploss
Initial Stoploss – High of the Opening Range.
Trailing Stoploss - As the stock moves in your direction and you are in profits, book 50% , trail the stoploss at 20 EMA. A close of 5 min candle above 20 EMA confirms exit.

When to book full profits

When the 5 min candle closes above the 20 EMA.
High Probability Trade Setups

Below additional conditions will give high probability of success:

• The Opening Range breakout is above previous day’s high for buy.
• The Opening Range breakout is below previous day’s low for sell.
• Trade is in the direction of higher time frame charts (15 min /30 min).
• Overall Market is moving in the direction of the trade.
• Opening range breakout happens after brief period of consolidation.

Important Additional Points

• If the opening range is too wide, better do not trade ORB, since the SLs will be very far in our system. You can use other trading systems in such a case.
• Avoid Opening Range Breakout trades in case of a heavy news flow day. ( Like Inflation, Manufacturing, Policy decisions etc.). Use other trading systems once the market settles down after the news.

Even if the above rules looks bit complicated to you, then follow just one simple rule.

Mark the High-low range for 1st 15 mins,

1. Go Long if High range is broken, with stop loss as low range.
2. Go Short if low range is broken, with stop loss as high range.

Long Example:

LT Stock price - 1st 15 mins range is marked below. The stock has given a breakout by moving above the high range. Hence we go long at that level and exit the stock at the end of the day with profit.

MARUTI - Short trade example. The stock has given a breakdown by going below the 1st 15 mins range low. So we make short trade here and make profit.

Here’s another strategy:

There are many positional trading strategies available publicly to trade on any kind of markets. One such strategy is NR7. The profit really comes from the strategy that you are most comfortable to trade with.

Trading using NR7 Method:

Market goes through regular contraction (i.e. daily trading range getting shorter and shorter) and expansion (i.e. daily trading range getting bigger) cycle. Expanding range is followed by Contraction and vice-versa. So if we can indetify the narrow range days, then it give us a step ahead of everybody to benefit from coming expansion.

NR7 is term given to a day that has the daily range smallest of last 7 days including that day.

How to Find NR7 day..

1) Get the High and Low data of last few period
2) Calculate the range of each day i.e. high - low) for each day
3) Compare the range of a today and previous 6 days range (to get NR7. To get NR4 get last 3 days range)
4) If today's range is smallest of all 7 days, then today is NR7 day..else not.

It is that simple.

This is one of my favorite setup. It gives u a chance to be ahead of trade follower / indicator followers who will jump in the trend after you.

One of the easiest way to trade this setup will be to go long above the Day's high ofNR7 day with stop at the Day's Low of NR7 day.
Or Go short below the Day's Low of NR7 day with stop at the Day's High of NR7 day.

Observing this pattern gives day trader /swing trader a distinct edge to trade next 1 or 2 days. In many cases, NR7 break-out is found near the start of a new wave. For day trader, this setup indicates that they can anticipate wide range days, so they should be prepared to chase the trend and use trailing stops so that they can get maximum from
the coming trend.

Examples:

On 02/09/2014, Auropharma had the lowest range day in last 7 days. i.e NR7 day. on 2nd, the high price was 818.3 and low price was 805.25
On next day, if the stock hits the high of 818.3, we will go long with stop loss of that day's low which is 805.25.

You can see that stock was moved out of contraction phase and started trending from 800 to 900 within few days.

On 24/6/14, Tech Mahindra had the NR7 day with high of 2007 and low of 1987.15, next day if the stock hits 2007 we go long with 1987.5 as stop loss. The stock zoomed in next 3 days to Rs. 2135

This method works well with many stocks.