How does a Trader plan his/her next trade?

There are ‘n’ number of strategies and mindsets to plan and execute a trade & I am showing one of them.

This is basically a top-down approach at first, then additional pointers for best outcomes.

First, we look for market structure. Is it trending or sideways and if we found a trend, then which trend?

1) Bullish

2) Bearish

Then we look for Sectors as per different scenarios and newsflow.

1) If the market is bullish then which sectors are most bullish or giving signals to be highly bullish.

2) If the market is bearish then which sectors are most bearish or giving signals to be highly bearish.

After understanding sectors, now it’s time to research stocks. Stocks that are showing higher relative strength or weakness are taken for further research to narrow down watchlists for trading.

When we have 10–15 stocks, we look for stock which is having a clear Candlestick pattern or a sharp & clean setup to take a nice Risk: Reward trade with a good amount of supportive volume into it. Then we use different technical tools by zooming out the chart and searching for important Support and Resistance levels is 1st and most important and simple work on the chart, then we look for price patterns in it. To add additional confirmation or I should say conviction, we add some indicators in the study.

For example-

Bollinger bands to understand the volatility of price movements.

If the stock is giving a bearish signal from the higher end of a highly stretched Bollinger band then it can be considered an additional signal to short sell.

A squeeze and burst of Bollinger bands with a good setup to enter into trade usually end up one of the most profitable trades.

ADX shows the strength of a trend in price. So, an over-stretched trend gives a signal that the breather is near, and any good signal of reversal is usually taken into consideration.

Rising ADX also shows a good hold over trend, any dip in price with a continuation pattern is usually taken into consideration to gain an advantage of the ongoing trend.

Pivot points are levels taken from the average of previous price action, so this works in reversal or continuation of price action.

And many many more indicators are there in the market which can give additional confirmation to your trade. So, yes we traders learn and add 2–3 indicators into our setups for a better winning ratio.

So, trading is a business of managing risk & money properly. Any setup with a 40–50% win ratio with a 1:1.5 or 1:2 Risk Reward ratio works very well in long-term trading into the markets.

Yes, that is how a trader can plan his/her next trade. I have mentioned an example of the chart below-

As we know, currently the broader market is weak. So, as a trader, one looks for taking advantage of this weakness. 1st picture shows the Nifty Metal sector which is showing weakness and then 2nd picture which shows Tata steel, which is part of the Nifty metal sector shows weakness on both weekly and daily setups.

It’s just an example and posted here for educational purposes, with no recommendation for trade or investment.

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