Trade secret of successful stock traders and investors...

"All the successful traders & investors lose almost as many times as they earn but 'loosing the least when wrong & earning the most when right' is their trade secret" - Prof. Pravin Mokashi

Effective Strategy for Day Trading & Investing (Delivery Buying)

In this trading strategy, safety is given foremost importance & profitability comes next. It is presumed that some of the trades are bound to go wrong & traders must lose the least in such trades. Similarly, when trades are accurate, traders must be able to make maximum profit. Initially, till the time stop loss risk is not covered, trades are in 'Red Zone' but once this stage is crossed, trades enter the 'Green Zone' & remain there till either the targets are hit or traders decide to exit.

There are seven clear steps in this trading strategy:

1. Enter only after the Breakout – Place Stop Order: Identifying Breakout level is a job of Technical Analysts (you will get SMS). Traders have to place stop orders above the Breakout level for long trades & below the Breakout level for short trades, so that when the rates are reached, orders get automatically executed.
2. Place Stop Loss immediately after the Entry: When stop order is executed, immediately the stop loss must be placed. A stop loss must be placed below a certain level in long trades & above a certain level in short trades. Identifying the stop loss level is a job of Technical Analysts (you will get SMS). No trade should be kept uncovered i.e. without a stop loss & this rule must be strictly observed. At this stage, the trade is in the 'Red Zone' (risky).
3. Offload 50% of the lot, once the Stop Loss risk is covered:
   If the stock advances (in long trades) or declines (in short trades) sufficiently enough to cover the stop loss risk, offload 50% of the lot so that even if the stop loss is triggered, you will not lose money. Once this stage is reached, you enter the 'Green Zone' (safe) of trade.
4. Place Trailing Stop, when a new level is identified:
   If the stock advances (in long trades) or declines (in short trades) & indicates a new stop loss level, move the stop loss closer to that level. This is the trailing stop & the Technical Analysts (you will get SMS) can precisely identify this level.
5. Load 50% of the lot, only if, the Trailing Stop covers the additional risk:
   Once the trailing stop loss is placed, trades become safe. If this level is sufficient to cover the risk of additional 50% of the lot, load the quantity. At this point your entire lot is intact & your entire trade is in 'Green Zone'.
6. Place Stop Loss for 100% of the lot:
   Now increase the stop loss quantity for the entire 100% of lot. The trade is safe & fully loaded. Now you will have 100% of your lot fully covered by the trailing stop loss & your trade is in 'Green Zone'.
7. Hold the position till the Target is reached or weakness is observed: At this stage, wait till the stock hits the predetermined target or if weakness is observed, square-up the position. Technical Analysts (you will get SMS) can guide you in this process.

Example of a Long Trade

Suppose you have received an SMS -
SMS Trade: Buy ABC Ltd. above Rs.500. Stop loss below Rs. 495. Target 1- Rs.525, Target 2 – Rs. 550. Current Price Rs.496.

On receiving this SMS, you place stop order to buy 100 shares of ABC Ltd. above Rs. 500.10 with an upper limit of Rs. 502 (this limit should be more, if your trading lot is of more than 300 shares).

If price rises above Rs. 500.10, your trade will get automatically executed & you will have 100 shares in your account.

Suppose the trade gets executed @ Rs. 501, you have to immediately place a stop loss below Rs. 495. You place the stop loss below Rs. 494.90 with a lower limit of Rs. 493 (this limit should be more, if your trading lot is of more than 300 shares).

If the stock slides below Rs. 494.90, your stop loss will get automatically triggered & you will have to bear the loss of Rs. 500 to Rs. 700. Therefore till the time ABC Ltd. does not move above Rs. 505, your trade is in the 'Red Zone' (risky).

If the stock moves up, above Rs. 506, you will have to sell 50 shares held by you. This will cover your stop loss risk & your trade will enter the 'Green Zone' as your trade becomes safe. (SMS for this action will be sent to you)

If the stock moves down after this stage & triggers your stop loss, you will neither earn nor lose anything.

If the stock moves up, wait till it gives the first top (suppose Rs. 520) & then correction up to Rs. 515. This is the price at which correction ends & a new up move starts. This is a new support level. Shift your stop loss below Rs. 515 level. (SMS for this trailing stop will be sent to you).

The current price is Rs. 517. You can buy 50 more shares now at this rate & place the stop loss below Rs. 515 for all the 100 shares held by you. Now, even if your stop loss gets triggered @ 513, you will make good profit, as you continue to be in the 'Green Zone'. (SMS for this action will be sent to you).

After this stage you can wait & shift the trailing stops (SMSs for trailing stops will be sent to you) till the targets of Rs. 525 or Rs. 550 are hit or if any weakness is observed, you can sell 50% or 100% of the shares held by you. (SMS for this will be sent to you).

The same strategy is effectively used for Short Selling & Delivery Buying (short & long term investment).