Trading Setup (Which setup to trade on)
If you trade on the basis of technical analysis, I’m going to tell you the steps that will make it easier for you to take a trade and give you a clear view of what things we need to follow. In simple terms, this is about what things to combine to make trading easier.
- Find support & resistance and buying and selling pressure in candles.
- Find liquidity and pending liquidity in the support or resistance zone.
- Find a 1:2 trade setup, otherwise, do not trade.
Let’s understand the first setup in detail.
Preparation and Market Timing
You should come to the market at 8:00 AM in the morning. After coming, you must look at the business news, both national and international. Do not trade on the tips they give, nor should you take trades based on the advice to buy or sell calls and puts. You just need to see if there has been any change in any company or stock exchange, or if there is any news that could take the market up or down.
For example, if you get news in the morning that there is a meeting today about inflation decreasing, the market might show bullish sentiments, and if inflation is increasing, a bearish trend might follow. Or, check if the stocks with high weightage are falling; if they are, find out why. Because if the highest – weightage stocks fall, the index also falls.
Market Movement Timing
Secondly, between 11:30 AM – 12:00 PM and 12:00 PM – 01:30 PM, you won’t see much activity in the market because buyers and sellers are less active, and you will see less liquidity. You should plan your trade after 1:30 PM, meaning from 2:00 PM to within 3:00 PM, and in the morning, plan your trade after 9:30 AM – 10:00 AM if your setup forms.
Finding Support & Resistance and Candle Pressure
Now you need to find where the support and resistance are. You should mark the areas where the market has survived, using a larger timeframe. This will give you a clear view that the market can reverse below this level or that the market might pause in that zone.
Once this is done, you need to look at the candles to see if any specific candle, such as a Hammer candle, is forming or has formed at the support. If you see this, you must check one more thing: what was the previous trend in the market? Meaning, were there too many buyers or sellers? How do you know? You need to see if more red candles or green candles have formed, and after seeing that, check the size of the candle to see if buyers or sellers are pushing the market more.
Finding Liquidity and Pending Liquidity
After this is done, you need to see where the candle’s liquidity is. Let’s understand this in simple terms: when you see some candles close together and the next candle does not break the low of the previous candle, it means there is still pending liquidity. This is because there are many buyers present at that support, and until their stop loss is hit, they will not exit the market, and the market cannot move up for a significant rally. It might move a little, but you won’t get a good rally.
You should not plan a trade until you find pending liquidity, or until the market reverses from that spot. If you find a candle at a support or resistance, and the trend is in the same direction, and the market has taken the pending liquidity, then you can expect a good rally, meaning excellent profit.
Risk and Reward (1:2 Trade Setup)
In risk and reward, you need to see if you will get 1:2 in this trade or less. If you are getting less than 1:2, you will not take the trade. And if you are getting 1:3 – 1:4, you should only keep your reward up to 1:2. Because if you wait for more than 1:2, all the running profit might turn into a loss, so you shouldn’t go beyond this. And you should not take a trade until you get a 1:2 reward.
Note: Pro traders don’t trade every day; they wait for their setup. They only trade if everything has formed correctly in the market. We should come to the market daily, but we should not trade until our setup forms. As I said, if the first trade is profitable, you don’t need to take any more trades, no matter how big or good the move is. If the first trade is not in your favor and results in a loss, then you should look for a second trade, and only plan a trade if you find one; otherwise, shut down the system.
Everything I have explained is based on technical analysis.
Technical analysis is the basic knowledge of trading and investing, and it’s not just basic; if you learn it well, you can become a better trader in the future, because everyone works on this. There is nothing else besides it.
And even more important than this is managing your money (money management). You must take a trade only after calculation.