Thread by @chartians

Tickmark these 7 things every time you enter a trade:

7 important things to check before entering a trade 🧵

1/ Basic Understanding of Charts:

There are various types of charts that you can use, a few of them are Line, Bar, Candle, Heiken Ashi, Renko, Point & Figure, etc.

Get a basic understanding of these charts and pick one type that suits you.

2/ Free Charting Platform:

Now, there are many trading platforms that are available and one could be your broker charts itself.

Another charting platform that you can use is Tradingview.

Here you can get various tools and indicators.

3/ Time Frame:

There is no perfect time frame defined. But based on experience, you can try this time frame.

⚡️Intraday - 5 mins - 15 mins
⚡️Short term - 1 hour - Daily
⚡️Positional - Daily - Weekly

Based on your style of trading, pick up a suitable time frame.

4/ Identifying Trend:

Most traders don't check the trend of the stock on the higher frame before doing a primary analysis.

In the time frame, if you selected a one-time frame for your primary analysis, then select one higher time frame to identify trend.

For example, for the short term if I select the Daily time frame then I will identify trend in Weekly Time Frame.

If I select Intraday time frame then I will identify trend in the Hourly or Daily Time frame.

Few ways of Identifying Trend:

⚡️ Moving Average: If the price is above a certain moving average then it is in uptrend otherwise downtrend
⚡️ Dow Theory: If the price is making higher lows then the stock is in uptrend and if the price is making lower highs then it is downtrend.

5/ Entry Point:

Your entry point and exit point both are important. Never ever enter at any random point just because someone gave you a tip, there is some news or stock has rallied in the day.

Generally, this type of entry is a trap for retail traders, so avoid this.

Some ways of identifying the correct entry point:

⚡️ Price Action:
- Breakout or breakdown at resistance or support
- Retest happening at resistance or support
- If the price is taking support or facing resistance

⚡️ Moving Average: If the price is near Moving Average

6/ Exit Plan:

In trading, it is said to ride the winners and cut the loses early.

There can be two exits in trading:
⚡️ Stoploss - While entering, fix some stoploss based on charts where your entry is invalidated
⚡️ Target: Partially or completely exit if your target is hit

Most important exit plan is Trailing Stoploss.

Never exit your winners early, there is a possibility that the stock can give you a big profit.

How to Trail SL:
⚡️ Moving Average: Trail your position as long as the price is above MA
⚡️ Swing Low: Exit if swing low is taken out.

Now, your entry and exit plan is very clear, so should you start taking trades immediately?

The answer is No.

After doing all this, position sizing is what matters. You can't put your entire capital in one trade.

So how much capital to put into a single trade?

7/ Risk Management:

Sharing a simple rule that you can follow in Risk Management:

You know the Stoploss and Entry Price of any trade.
You also know your total capital.

So never risk more than 3% of your capital in a single trade based on entry and stoploss.

Let's understand this with an example:

Capital: Rs 1 Lakh
3% Risk: Rs 3,000 on one trade
Entry of a stock: Rs 100
Stoploss: 90
So Risk per unit stock: 100 - 90 = Rs 10

In 1 unit, your risk is Rs 10, so with Rs 3,000 at risk how much quantity you can buy?

Formula is simple = Rs 3000×1unit/Rs 10 = 300 units

So the max number of stocks that you can buy should be 300 units.

Note: We don't consider capital allocation per trade in this scenario, as we are not risking more than 1% of the capital in any trade.

Let's see a live example on #THEMISMED trade that we have shared.

Trend: Stock is near All Time High and above 200 EMA so an uptrend.
We entered on breakout at 1220.
Stoploss was previous swing low: 1040

With 1 Lakh Capital and 3% risk, max quantities I can take is 17 units.

These are the seven simple steps that a trader should follow while taking any stock trades.

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