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Stock Selection For Trading - Unencrypted

The document provides guidelines for creating a daily watchlist based on 6 key criteria: 1) Price structure, 2) Momentum, 3) Volume, 4) Volatility, 5) Relative strength, and 6) Derivative data analysis. Each criteria is described in detail. The author then explains that they shortlist 10-20 scripts initially but usually only 2-3 pass the final cross-check. Keeping a written record is important to avoid biases and think objectively. With persistence over 3 years refining the methodology using indicators and code, the author has developed a strong ability to select winning trades.

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Ramesh Kutadi
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631 views

Stock Selection For Trading - Unencrypted

The document provides guidelines for creating a daily watchlist based on 6 key criteria: 1) Price structure, 2) Momentum, 3) Volume, 4) Volatility, 5) Relative strength, and 6) Derivative data analysis. Each criteria is described in detail. The author then explains that they shortlist 10-20 scripts initially but usually only 2-3 pass the final cross-check. Keeping a written record is important to avoid biases and think objectively. With persistence over 3 years refining the methodology using indicators and code, the author has developed a strong ability to select winning trades.

Uploaded by

Ramesh Kutadi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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How do I prepare a Watchlist

Every day I prepare the watch list based on the following criteria

1. Price Strcture
2. Momentum
3. Volume
4. Volatility
5. Relative Strength
6. Derivative Data Analysis

1. Price should be making either higher highs or higher lows (or both together) on
higher TF. Here we are ensuring that price is trending. One should make sure that price
is not trading against a new resistance in the last EOD candle. Chances are very high that
excessive amount of supply comes from there next day. Preferably, minor pullbacks into
supports in lower timeframes is a very desirable set up. There are chances that this
support might well push the stock up on next day.

2. There should be enough Momentum to support the price rally. For that u need to
look back into the last 5-10 candles (2 weeks). There should be strong green candles
with very less wicks on either side. They should have made a total body range which is
well above the average total candle range for the last 20 bars.

3. In the last 2 weeks, there should be strong Volume in the stock. Here one need not to
look for increase in volume. Even consistently steady high volume scrip will be enough
to qualify. Higher volumes in the scrip will ensure tighter spread and less irregular
moves. Also higher volume scrips are usually controlled by smart money. In these scrips,
once trend is set, there will smooth one sided moves if we catch a trend day perfectly.

4. Perhaps volatility is the second most important parameter after price structure. You
need to make sure that volatility is not increasing in last 2-3 bars. Not only that, it
should decrease as well. Its called volatility compression. There are standard setups like
NR4/NR7 to identify such dip in volatility. By picking a level of least volatility we r in for a
very good chance to catch a volatility expansion move. The reason is volatility has
cyclical nature, once it compressed, it will expand soon.

5. The scrip you choose should have a history of moving more than how much index
moves. Its called high relative strength. If u r able plot relative strength as an indicator,
it should slope up signaling that even a small push from the overall market condition, it
can make a move big enough that u catch a big winner out of it.
6. Derivative data; Futures OI, Option chain, PCR, these should b analyzed properly and
confirm that they are aligned with the bullish trend u were able to decode from the 5
pointers mentioned above. For example futures should have a positive build up in OI, it
shouldn't have more liquidations compared with build up. In a similar way, there should
not be huge fresh positions in the near OTM CE strikes. These factors makes sure that
big players are not betting against us

Secret:

Once I short list the scrips which satisfies these conditions, I write them down. And
confirm again, that whether these parameters are actually satisfied. What happens is
that everyday i get around 10-20 scrips in primary filtration. After writing them down
and cross checking it, hardly 2-3 passes out. The mistake everyone does is
predetermining the analysis result and then analyze them for justifying what they want.
I always say, only thing u need in making better scrip selection is Common Sense &
Logical Thinking.

What makes the difference is when you are writing it down, your mind can no longer
play the tricks with your brain. You are becoming objective. You cannot tick a
parameter which otherwise u would oversee. Holding yourself accountable to what u r
doing makes big difference in the way u do things here.

Its seemingly a simple trick. But, its way too powerful than one would imagine in the
hindsight. Entire approach to trading will take a vertical turn around once you are
confident on your pre-live trade preparation methods

So either make an excel sheet or even a ledger book will be enough to start this. Excel
will be better as once u compile data for 2-3 months, you can easily find out the
common parameters in big winning trades which would tough if its ledger book. That's
how trading edge develops.

I have been practicing this methodology since 3 years now. I have made quite a few
indicators to gauge the above motioned parameters and wrote so many codes to
sharpen them. There was and still is tremendous amount of hard work went into this.
Working so hard and deep into this for this long, i got pretty good at this & that reflects
on my watchlist picks. The persistence for constantly evolving into a better trader makes
a big role in reaching to a level of excellence. There is no other secrets.

Happy Learning to all


Cheers

Aneesh Philomina Antony


Twitter: @prodigal_trader

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