Advanced Swing Trading Strategy (Good Risk Reward Following Positional Trading Strategy)

Basic Components​ ​In this chapter we are going to discuss about the basic components which we are going to use for our trading setup. ​Basic components are nothing but our chart type and the technical indicators. ​The book is totally dedicated to trading strategy therefore here we are not going to give more emphasis on basics of technical indicators. ​Here we only discuss the use of technical indicators in our trading setup. ​At first here we are going to use candlestick chart. We here use the duration of candlestick chart as daily means our one candlestick is of one day. On candlestick chart we have number of candles. Each candle depicts the open, close, high and low of respective duration. Because candlestick gives us more information here we prefer candlestick chart for our trading purpose. ​In our trading setup we are going to use 50 SMA (Simple Moving Average). Generally, when stock trades above 50 SMA then it is considered as it is trading in its short term up trend. And when stock is trading below 50 SMA then it is considered as the stock is trading in its short term downtrend. Here we use 50 SMA to only find out the stocks which are trading in its short term uptrend for buying purpose. ​Our trade is going to execute with respect to 50 SMA only. Means if stock is near 50 SMA then only we prefer to trade in such stock if our other indicators are as well giving us buy signals. Here we may have two situations that are, first, stock may give breakout to 50 SMA and other one is stock takes support at 50 SMA and reverse. ​Our next technical indicator is Supertrend. Here we are going to use the value of supertrend as ST(10,3.00). Supertrend is trend following indicator. When supertrend is above the candle then it is consider as stock is trading in its downtrend. And when supertrend is trading below the candles then it is considered as the stock is trading in its uptrend and we prefer to buy. When supertrend shifts from up to down or down to up then it is a trend reversal signal so we can as well use this signal to identify trend reversal locations. ​Next indicator is volume. Here we use volume to understand how many people are there who are interested to trade in security. If any breakout of candle is done to 50 SMA with higher volume, then it is the indication of good up move possible because many people are interested to move the prices of stock upside. So for breakout type of situation we prefer higher volume. If breakout not happens and stock is near 50 SMA then it is not necessary to look into volume. ​Our next technical indicator is RSI (Relative Strength Index). Here the values of RSI are RSI (E,9,14, close). Here we are going to use RSI to check only the crossover of green line and red line. If in case of RSI green line is above red line, then it is considered as the buying pressure in stock is increases. So we prefer to buy in such stock. One more important point is when we get cross over then the distance between the green line and red line should be high to correctly identify the potential of stock to move in upward direction. ​Our next and last technical indicator is Stochastic. Here we use the values of stochastic as Stoc(S,3,5,close). Here as well we are going to use stochastic to identify the buying pressure in stock. If green line is trading above red line with sufficient distance, then it is considering as the stock will move in upward direction for coming days. ​So here I have explained about our main components of our trading setup. Here I have explained everything about technical indicators in text format only if you have to get detailed information about each and every indicator then you can refer our other books published on Amazon or you can simply google it. ​In coming chapter, we are going to discuss how to use above indicators on stock charts for trading purpose. Chapter 3. Chart Setup​ ​In previous chapter we have discussed basic information about our technical indicators. In previous chapter we have discussed every information textually only. In this chapter we are actually going to see how our chart set up is prepared and how to use all above mentioned indicators in our trading setup. ​ Figure: - VijayaBank Daily Candlestick Chart with our all Technical Indicators. (Analysis Date 14 Dec 2018) ​In above figure we have taken the daily candlestick chart of VijayaBank. On chart we have drawn all our technical indicators. ​When we look into chart then we can easily see that 50 SMA and Supertrend are drawn with our candlestick price chart. And Volume, RSI and Stochastic are drawn below the price chart. ​Here in this book whatever examples we are going to discuss are all for buy side. So our all scenarios are according to buy side only. ​Now look at above figure, the candlestick on date 14 Dec 2018 is trading above 50 SMA and very near to 50 SMA. Just stock prices crossed 50 SMA upper side before one to two days and at the same time supertrend is trading below the stock price. So both are according to our buy setup. ​When we look volume then volume is not so good. But it is considerable when candlestick is taking support at 50 SMA. When any candlestick gives breakout to 50 SMA with big candle then it is mandatory to have good volume for trade confirmation. And if we are not getting good volume then our other indicators should show some strength to prefer buy trade in stock. ​In RSI green line is above red line and trading with good distance. And as well in stochastic green line is above red line and trading with good distance. ​So according to our chart set up stock is giving good buy signal for short term. ​So in this manner we interpret the stock chart. ​Now when to make position in stock, what would be the stop loss and how to calculate target that all we are going to discuss in coming chapter.