Hindalco
CMP 220
Target 180
Stop 237
APART FROM THE TRADE SETUP, I HAVE ALSO EXPLAINED THE MOST IMPORTANT ASPECT WHICH IS POSITION SIZING AND RISK MANAGEMENT.
THIS FORMS 80% OF A TRADING STRATEGY AND THE BALANCE 20% IS THE TRADING SETUP. FOLLOWING THIS WILL INCREASE THE PROBABILITY OF SUCCESS IN TRADING BUSINESS.
Higher time frame (weekly).
1) Stock has breached 30 ema.
2) Stock has breached the previous weekly support zone of 220.
3) Falling RS confirms the beginning of a possible downtrend for this stock.
4) Next weekly support zone is 180.
Intermediate time frame (daily)
1) Stock has breached 200 ema.
2) Stock has also breached the support zone with good volumes.
3) MACD / RS etc are pointing towards a possible continuation of downtrend.
Lower time frame (hourly) - Trade entry time frame
1) Wait for the price to come to the value zone which is between 20 ema and 30 ema.
2) Once the price is into the value zone, next step is to watch out for a trigger to enter a short position. Trigger is a bearish candle which could potentially be identified by confirming stochastic 533 crossunder above 50. In all probability that should rest somewhere around 229-230 making it as the ideal entry point for a short trade.
Position sizing and Risk mgmt:
1) Assuming trading capital of Rs 10 lacs.
2) Assuming risk appetite is 5% of trading capital, which is Rs 50,000.
3) NRML Margin required for this trade = Rs 1 lac.
4) Loss willing to accept as per stop loss = (Stop price - Entry price) X Lot size = (225-237)*3500 = Rs 42,000. Since this is less than the risk appetite, ie item 4, this trade is ACCPETABLE.
5) In other words,
Risk appetite = Rs 50,000
Entry point = Rs 225
Stop = Rs 239
Risk = Rs 14 per 1 stock (not 1 lot).
Number of stocks permitted to enter as per risk appetite = 50,000 / 14 = 3571.
Futures standard lot size = 3500
Since futures lot size is less than no. of stocks permitted to trade, this trade is ACCEPTABLE.
Hence, no. of lots permitted to trade with a capital of Rs 10 lacs is 1.
Exact capital required to trade this setup = Risk X lot size X no. of lots / Risk appetite % = 14 X 3500 X 1 / 5% = Rs 9.8 lacs.
ie, FOR EACH LOT AS PER THE RISK APPETITE OF 5% OF TRADING CAPITAL, RS 9.8 LACS IS REQUIRED AS TRADING CAPITAL.
Trading is my passion.