Chapter 5 - Trade Selection
5.1 Trade Selection : The Real Edge
One of the most critical skills in trading is the ability to select trades objectively — free from opinions, emotions, or the need to be right. This is what defines your survival.
In many ways, a trader is no different from an insurance company. You are in the business of accepting risk selectively. And just like insurance companies don’t insure everything, you shouldn’t trade everything.
The Only Thing That Matters
Before managing risk, you must take on risk. That is true for anything in life.
In trading, you take on risk by entering trades. If you enter trades indiscriminately, your capital could erode faster than you can think. If your capital is gone, it is game over for you. You must protect your capital at all costs. Losing financial capital also erodes your mental capital, critical for sound trading decisions.
First and foremost, you need to protect your capital, both financial and mental, by being very selective about entering trades. Managing money and risk comes later.
Every trade you take must:
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Be based on clear, well-defined chart structures
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Align with the prevailing trend or the inception of a trend reversal
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Pass through a strict filtering process
At the same time, you must remain flexible. Markets evolve — and your interpretation of price must evolve.
Our Trade Selection Framework for GFAs (Futures and CFDs)
To bring objectivity into the process, we use a structured framework that uses five variables.
Before we go into details of each variable, you need to know about Win Ratio (WR).
WR reflects the historical probability of success for a specific setup, derived from rigorous backtesting over the past data (at least 1 year). In simple terms: Higher WR = Stronger setup
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WR ≥ 70% → Tradeable setups
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WR ≥ 90% → High-conviction setups
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WR < 70% → No trade
Note : Refer to the appendix for the Win Ratios of mainstream bullish and bearish setups for our preferred instruments for both both intraday and positional trading based on backtesting. As mentioned before, this is subject to change as more data becomes available to reflect changing market dynamics.
Variables for Trade Selection
Variable 1 and 2 - Trend on Higher Timeframe - Identify the daily and weekly trend of the instrument to be traded, applicable for intraday and positional trading. This forms the directional bias.
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Variable 1 - Weekly Trend (on Weekly chart)
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Variable 2 - Daily Trend (on Daily chart)
The methodology has been covered in detail in Chapter 2.4 - “ A Guide to Identifying the Trend on the Higher Timeframe”. The same principles apply across both timeframes.
Variable 3 - Setup Strength - Upon identifying the chart setup forming on the chart as the candle nears completion, determine the Setup Strength as measured by the Win Ratio (WR).
Variable 4 - Chart Patterns - Identify and annotate the Chart Patterns on the charting landscape, including potential breakouts and breakdowns.
This should preferably be completed as part of the pre open preparation. Make any adjustments/ changes as new data become available intraday.
Mainstream Chart Patterns have been covered in detail in Chapter 2.2 - “Chart Patterns that you need to know”
Variable 5 - Support & Resistance - Draw horizontal S/R lines through lower and higher timeframes to mark Horizontal and Pivot S/R. Draw rectangles to mark Congestion and Gap S/R.
This should preferably be completed as part of the pre open preparation. Make any adjustments/ changes as new data become available intraday.
The 4 types of S/R have been covered in detail in Chapter 2.3 - “Introduction to Support and Resistance”
Each of these variables adds a layer of confirmation. No single factor is enough — confluence is the edge.
Structured Trade Preparation
Trade Selection is part of the trade preparation routine. Preparation is what allows execution without hesitation.
The following routine is recommended. However, you can build your own routine as long as the principles are adhered to.
For Intraday Trading - Preparation as per the trade selection framework for Variables 1,2, 4 and 5 (as detailed above) needs to be completed at least 15 minutes before the trading window commences. For example, for the morning session on Nikkei that starts at 6:30 AM IST (refer Chapter 3, Section 1), the preparation needs to be comepleted the night before or latest by 6:15 AM IST, every day. Similarly, for the afternoon session on WTI Crude that starts at 11:30 AM IST, the preparation needs to be completed the latest by 11:15 AM IST, every day.
As new intraday data becomes available, you need to mark any new chart patterns, S/R, breakouts/breakdowns on the charting landscape. For example, a big gap open needs to be marked by drawing a rectangle extending to the right as the price may retest the gap later in the day.
Identification of setup and determining the WR, Variable 3, needs to happen as the hourly candle is in the process of completion, say 5-10 minutes before completion.
The final decision to trade should be taken only after the hourly candle completes. This is to preempt the possibility of the setup being no longer valid or becoming distorted by the time the candle finally completes.
For Positional Trading - Preparation as per the trade selection framework given above (including the detrmination of WR, Variable 3) needs to be completed between 6:30 to 8:30 AM IST every day for the daily candle that completed previous night IST before taking the positional trade (refer Chapter 3, Section 1).
5.2 Trade Selection Tool - Where Everything Comes Together for Better Trading Decisions
So far, we’ve discussed the five variables that influence trade selection. This section brings it all together.
We now focus on how the Trade Selection Tool converts these variables into an objective score, helping you decide whether to take a trade—or skip it. This is one of the most critical parts of the system. Because in trading, what you choose not to trade is just as important as what you trade.
Why Trade Selection Matters
At its core, trade selection is about capital preservation. Good trades mostly lead to profit and add to your capital whereas bad trades do exactly the opposite. Apart from preserving capital, the positive psychological impact of making good trades adds to your conviction and confidence. So it is a virtuous cycle.
Adhering to the Trade Selection process (part of Trade Preparation) requires discipline and character. You need to work on it to make it stronger every day. We will talk about it in the next section when we discuss the Trading Psychology.
The Trade Selection Framework
The tool evaluates a trade using five key variables as explained in the previous section. The first 2 variables are about the weekly and daily trend that need to be determined on charts of a higher timeframe whereas the other 3 need to be determined on the chart in the same timeframe.
Scoring Logic
Trade Selecion Rules
Note:
Higher the score, more the conviction. Ideally, you should take trades only if the score is 4 or 5. However, with experience, you can even take trades that have a minimum score of 3, provided there is trading logic behind your decision.
Note: Any mention of time across the examples below refers to IST. For those of you outside India, please adjust according to your time zone.
Intraday Trading Example 1
Instrument: Nikkei
Date: Friday, 26th June 2026, morning session
Trading time window starts at 6:30 AM (during DST) i.e. at the completion of the 3rd hourly candle for the day. The trade selection drill begins @ 6:15 AM, ~15 mins before candle completion
Setup: Bearish setup identified as the 1st hourly candle of the morning session nears completion ~6:15 AM - “H&S Breakdown”
Fig 5.1 - 1H chart on Nikkei Index - Emphatic H&S Breakdown at 6:30AM
Step 1: Identify Variable 1 and 2 - Trend on Higher Timeframe
To be identified as part of the pre-open preparation, before 6:15 AM.
While the price is in a strong uptrend on the weekly chart, the daily chart has shown strong signs of a reversal.
Step 2: Identify Variables 3, 4 and 5 on the Same Timeframe
To be determined between 6:15 to 6:30 AM, before hourly candle completion.
Step 3: Final Score
✅ Trade Selected
A high-conviction setup, which in this case resulted in a profitable trade.
Intraday Trading Example 2
Instrument: WTI Crude
Date: Friday, 17th July 2026, afternoon session
Trading time window starts at 11:30 AM (during DST). The trade selection drill begins @ 12:15 PM, ~15 mins before the completion of the 2nd candle of the session.
Setup: Bearish setup identified as the 2nd hourly candle of the afternoon session nears completion ~12:15 PM - “Bulllish Harami at S”
Fig 5.2 - 1H chart on WTI Oil Spot - Bullish Harami at lower boundary of a wide range at 12:30 PM, providing strong support.
Step 1: Identify Variables 1 and 2
To be identified as part of the pre-open preparation, before 12:15 PM.
Both the daily and weekly trends are in sync with the trade, a healthy sign.
Step 2: Identify Variables 3, 4 and 5 on the Same Timeframe
To be determined between 12:15 to 12:30 PM, before hourly candle completion.
Step 3: Final Score
✅ Trade Selected
A high-conviction setup, which in this case resulted in a profitable trade.
Intraday Trading Example 1
Intraday Trading Example 3
Instrument: DJIA Futures
Date: Tuesday, 9th June 2026, evening session
Trading time window starts at 08:30 PM (during DST). The trade selection drill begins @ 8:15 PM, ~15 mins before the completion of the 1st candle of the session.
Setup: Bearish setup identified as the 1st hourly candle of the evening session nears completion ~ 8:15 PM - “Bearish Engulfing at R”
Fig 5.3 - 1H chart on DJIA Futures - Bearish Engulfing at a Double Top within a wide range.
Step 1: Identify Variables 1 and 2
To be identified as part of the pre-open preparation, before 8:15 PM.
Both the daily and weekly trends are in sync with the trade, a healthy sign.
Step 2: Identify Variables 3, 4 and 5
To be determined between 8:15 to 8:30 PM, before hourly candle completion.
Step 3: Final Score
✅ Trade Selected
Maximum Score = Strongest Possible Trade
Positional Trading Example 1
Instrument: Silver CFDs
Date: Wednesday, 6th May 2026
Trading time window starts at 06:30 AM the following day (during DST). The trade selection drill begins @ 6:30 AM.
Setup: Bullish setup identified ~ 6:30 AM - “Pattern breakout”
Fig 5.4 - Daily chart on Silver CFDs - 1-2-3 Bottom breakout with the low of the pattern testing a narrow congestion zone that offers strong S.
Step 1: Identify Variables 1 and 2 - Trend on Higher Timeframe
To be identified after 6:30 AM to prevent interference with the intraday trading window.
While the price action on the weekly chart appears to be making a 1-2-3 bottom after a hammer in the preceding week, there is no discernible trend on the daily chart.
Step 2: Identify Variables 3, 4 and 5 on the Same Timeframe
To be determined after 6:30 AM along with Variable 1 and 2 as the candle is already complete.
Step 3: Final Score
✅ Trade Selected
A high-conviction setup, which in this case resulted in a profitable trade.
Positional Trading Example 2
Instrument: Bitcoin / USD CFDs
Date: Thursday, 15th Jan 2026
Trading time window starts at 07:30 AM the following day (no DST). The trade selection drill begins @ 7:30 AM.
Setup: Bearish setup identified ~ 7:30 AM - “Bearish Engulfing @ buy failure”
Fig 5.4 - Daily chart on BTC CFDs - Bearish Engulfing after breakout from a prominent range, a buy failure. A trap for the bulls, hence a strong signal.
Step 1: Identify Variables 1 and 2 - Trend on Higher Timeframe
To be identified after 7:30 AM to prevent interference with the intraday trading window.
The trend on the weekly as well as daily chart does not support the trade, however, these are perfect conditions for a “failure” trade provided other variables set up rightly.
Step 2: Identify Variables 3, 4 and 5 on the Same Timeframe
To be determined after 7:30 AM along with Variable 1 and 2 as the candle is already complete.
Step 3: Final Score
❌ No Trade
The score < 3 invalidates the trade. However, the price does decline rapidly. The trade would have proved successful had it been taken.
It follows that a different yardstick needs to be applied to failure trades as these are quick reversal trades mostly against the daily and weekly trend. This is the subject of advanced analysis and cannot be covered as part of this content.
Key Takeaways
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Trade selection is about stacking probabilities in your favour
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The tool ensures:
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No emotional decisions
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No missed variables
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Consistent evaluation
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It forces you to:
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Respect trend
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Validate setups
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Be aware of key levels
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The Bigger Picture
As you would have noticed, effective trade selection comes down to having a clear understanding of the broader chart landscape—knowing whether the market is trending or range-bound, recognizing chart patterns as they develop, and keeping key support and resistance levels well marked. It’s not overly complex, but it does require consistent effort and discipline to keep your charts updated and stay in tune with how market conditions are evolving.
5.3 Trade Mechanics
Note: Any mention of time across the examples below refers to IST. For those of you outside India, please adjust according to your time zone.
Trade Preparation
You’ve likely heard the phrase: “Plan your trade and trade your plan.” This is not just advice—it is a cornerstone of consistent trading success.
Trade preparation goes hand-in-hand with Trade Selection (covered in detail in the previous section). Here, we outline the broad, actionable steps both for Intraday and Positional Trading.
Intraday Trading - Step-by-Step Trade Preparation
Before 6:15 AM
1. Determine Variable 1,2, 4 and 5
(Refer to the previous section on Trade Selection section for detailed methodology and examples).
15 minutes before the trading window start
1. Look for Valid Setups - Shift to the 1H chart and check if a clear, tradable setup is forming for the instruments that can be traded in a particular trading window.
For example, start looking for tradable setups for Gold and Nikkei at 6:15 AM as these are the only two instrumnets that can be traded in the morning session.
2. If no valid setup can be found → Wait for the next hourly candle.
As in the above example, start looking for a valid setup at 7:15 AM.
3. Repeat till a trade is found until the trading window concludes.
To continue with the above example, start looking for the last valid setup on either of the two instruments at 8:15 AM. No more trades after that as the window concludes at 8:30 AM.
Only act on setups that are well-formed, easily recognizable and compliant.
4. Trade Selection - Once a setup is identified, check for Win Ratio (Variable 3) and then perform the Trade Selection Drill.
(Refer to the previous section on Trade Selection section for detailed methodology and examples.)
5. Define Risk and Position Size - Before the candle close, perform the money and risk management drill to define position sizing and total risk given your SL. Ensure the risk is within acceptable limits as mandated. If not:
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Reduce position size, or
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Skip the trade entirely
Note: For our Trading System we have fixed position sizes and SL. Hence this step does not take time or effort. However, you can define your pwn position sizes and SL as long as you adhere to R1 and R2.
Important tips to keep in mind
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No additional positions should be opened for a particular instrument if a trading position is already open for the same instrument.
For example, if a position in crude is already open from the afternoon session IST, no fresh positions should be opened in the evening session unless the earlier position carries no risk. This would be the case when at least the target on the first lot is met so that the SL has been moved to breakeven or profits have been locked on balance lots.
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Do not have positions open in more than 2 instruments at one time, even if R2 is not violated, unless the open trade/s have already become risk free. This is to ensure that your focus does not get diluted with too many open positions.
This is particularly relevant for the IST evening session as all the instruments are open for trading. If a particularly convincing trade is opening up but you already have 2 open positions that still carry open risk, then liquidate one position to open a new, more convincing, trade.
When there are more than 2 valid setups competing with each other, then you would need to choose to trade the setup with a comparatively higher score in the tool. For setups with an equal score, you would need to use your experience to choose the better and more reliable setup.
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Use a spreadsheet to construct a table that calculates the open risk based on the SL and position size for each trade as well as the cumulative open risk.
Once a position becomes risk free or hits SL, ensure that the table is updated accordingly. Always keep the table open and updated to monitor the total open risk dynamically. This is a much more organized way of ensuring compliance with R1 and R2 than doing it in your head.
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Do not mix intraday and positional trades within the same account to avoid confusion. Always use 2 different firms (or 2 different accounts with the same firm).
Positional Trading
For positional trading as per our system, your focus on price action should begin after 6:30 AM, typically after the first hour of the intraday trading window that consludes at 6:30 AM so that there is no interference between the two.
Step-by-Step Trade Preparation
Between 6:30AM to 8:30 AM
1. Determine Variable 1,2, 4 and 5
(Refer to the previous section on Trade Selection section for detailed methodology and examples).
2. Look for valid Setups on the daily chart and check if a clear tradable setup has formed on yesterday’s daily candle.
3. Determine WR, Variable 5, if a valid setup has been discovered.
4. Once a setup is identified, perform the Trade Selection drill.
Refer to the previous section on Trade Selection section for detailed methodology and examples.
Only act on setups that are well-formed, easily recognizable and compliant.
5. Perform the Money and Risk management drill to define position sizing and total risk given your SL. Ensure the risk is within acceptable limits. If not:
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Reduce position size, or
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Skip the trade entirely
Intraday Trading Example 1
Important tips to keep in mind
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No additional positions should be opened for a particular instrument if a trading position is already open for the same instrument.
For example, if a position in DJIA is already open from before, no fresh positions should be opened unless the earlier position carries no risk. This would be the case when at least the target on the first lot is met so that the SL has been moved to breakeven or profits have been locked on balance lots.
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Do not have positions open in more than 2 instruments at one time, even if R2 is not violated, unless the open trade/s have already become risk free. This is to ensure that your focus does not get diluted with too many open positions.
If a particularly convincing trade is opening up but you already have 2 open positions that still carry open risk, then liquidate one position to open a new, more convincing, trade.
When there are more than 2 valid setups competing with each other, then you would need to choose to trade the setup with a comparatively higher score in the tool. For setups with an equal score, you would need to use your experience to choose the better and more reliable setup.
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Use a spreadsheet to construct a table that calculates the open risk based on the SL and position size for each trade as well as the cumulative open risk.
Once a position becomes risk free or hits SL, ensure that the table is updated accordingly before opening new positions in the morning. This is a much more organized way of ensuring compliance with R1 and R2 than doing it in your head.
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Do not mix intraday and positional trades within the same account to avoid confusion. Always use 2 different firms (or 2 different accounts with the same firm).
Key Takeaways
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Ensure complete preparation before the hourly candle close for intraday and daily candle for positional trading
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Trade only after proper selection, clear setup validation and defined risk control
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Skip the trade if any of the above is not performed for whatever reason instead of taking a trade on assumptions or beliefs. Better not to trade than trade without following the process. Remember the market rewards discipline first and talent later!
Trade Execution
Once your preparation is complete, executing trades should be simple and mechanical.
A well-defined plan removes subjectivity. It allows you to act with clarity, consistency, and confidence—bringing you one step closer to sustained success.
Trade Entry Guidelines
Intraday
Your trade entry must be based on the close of the 1H candle. Avoid entering before the candle closes. Early entries often lead to false signals and poor decision-making.
Place a limit order at the identified entry price (close of the hourly candle) once the candle is complete. If the order is not filled within the next 1H candle, cancel it. For example, for a limit order placed for a trade at 6:30 PM, cancel the order if not filled by 7:30 PM.
Do not chase the price if it moves away from your entry level. Entering at a worse price distorts your risk-reward ratio and compromises your system. If the trade is missed, accept it. There will always be another opportunity
Positional
Your trade entry should be in between 6:30 -8:30 AM based on the previous day’s candle.
However, as the trade happens the next day morning with a significant gap of at least 4 hours, there could be different scenarios for the price at the time of taking the trade at 6:30 AM, as below:
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Price is at or near the closing level of the previous day’s close.
Place a limit order at yesterday’s close at 6:30 AM to be kept open till 8:30 AM. Do not chase if the order does not get filled and the price gets away from you.
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Price is at a favorable level compared to previous day’s close.
See if the daily setup is not invalidated, considering the subsequent price action in the morning after the close and before 6:30 AM. If you are in doubt, it is much safer to skip the trade altogether and wait for another opportunity.
The exception to this rule is when an intraday setup is triggered in the same direction as the positional setup in the window of 6:30 - 8:30 AM. In that case, you should enter the positional trade at the close of the hourly candle that triggers the intraday setup (similar to an intraday trade).
For example, a long setup occurs on the daily chart based on pattern or range breakout. However, if the price has already reverted deep into the range or pattern by 6:30 AM to cast a doubt over the continuing validity of the setup, enter the long positional trade if and only if a bullish intraday setup is triggered by the hourly candle that forms at 7:30 or 8:30 AM.
Though you could use your discretion to take the trade even later in the day, the golden rule of thumb is to stay out when in doubt.
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Price is at an adverse level compared to previous day’s close.
Do not chase the price if it has already run away. Entry at an adverse level skews the risk and reward calculations that are based on back testing. It is much safer to skip the trade altogether and wait for another opportunity.
The exception to this rule is when an intraday setup is triggered in the same direction as the positional setup in the window of 6:30 - 8:30 AM. In that case, you should enter the positional trade at the close of the hourly candle that triggers the intraday setup (similar to an intraday trade).
For example, a valid bearish setup occurred on the daily chart of WTI Crude. However, if the price has already declined significantly by 6:30 AM the next morning, enter the short positional trade if and only if a bearish intraday setup is triggered by the hourly candle that forms at 7:30 or 8:30 AM. Though you could use your discretion to take the trade even later in the day, the golden rule of thumb is to stay out when in doubt.
The trading logic behind 2 and 3 above is to ensure that the entry to a trade in the lower timeframe (hourly) is in sync with the setup in the higher timeframe (daily) to minimize risk and timing errors. This is because the entry to the positional trade is at least 4 hours later than the close of the daily candle.
Key Takeaway
Execution is not about thinking—it is about a quick entry. Thinking has already happened as part of the preparation including trade selection. Do not hesitate to pull the trigger once the setup appears and is tradable. Consistent execution, even when you have doubts about the outcome, is key.
Trade Management
After entering the trade, managing the trade in a structured and disciplined manner is key. A well-defined process reduces subjectivity and ensures that your actions are rule-based, not emotion-driven.
Trade Management involves:
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Placing Stop Loss (SL) and Profit Targets
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Locking in profits as the trade evolves by moving SL in the direction of the trade
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Exiting decisively when conditions turn unfavourable
Core Trade Management Rules
Minimum Position Size
Trade with a minimum of three lots. This allows you to book profits progressively as the trade moves in your favour, eliminate risk and stay positioned for larger moves.
If you trade in more than 3 lots - the trade management structure for the basic 3 lots should be replicated as below.
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For 4 lots - Lot 1, 2 and 3 as below. Lot 4 should be managed exactly like Lot 1 i.e. similar SL and Profit Target.
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For 5 lots - Lot 1, 2 and 3 as below. Lot 4 and 5 should be managed exactly like Lot 1 and 2 respectively.
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For 6 Lots - Lot 1, 2 and 3 as below. Lot 4, 5 and 6 should be managed exactly like Lot 1, 2 and 3 respectively.
The same basic 3 lot structure should be replicated for higher number of lots.
Stop Loss & Profit Targets
Both SL and profit targets need to be placed on the system immediately after execution
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Stop Loss (SL) for the full position
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Separate Profit Targets for each lot (Lot 1, Lot 2, Lot 3)
Principles for determining Stop Loss & Profit Targets
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SL needs to be at a sufficient distance from the entry price so as to prevent it from being hit by the normal price volatility but not too distant to avoid being too risky - has to be balanced.
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The target for Lot 1 should be relatively smaller as you want to move the SL to entry to eliminate risk, booking minimal profits in the process to cover costs and a small reward for your efforts.
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Once that is achieved, the target for Lot 2 should be wide enough lot to book reasonable profits based on the Nifty’s current volatility.
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The target for Lot 3 should be at a sufficiently large distance to capture large trending moves. The target can even be open ended, to be exited only when there an adverse development on the chart or a signal in the opposite direction.
These levels must already be predefined as per your risk management plan, part of Trade Preparation. Our Trading System already predefines the above SL and Profit Targets for the 3 Lot structure for all our preferred trading instruments. You can define your own levels based on backtesting.
Please refer to Appendix to know more about recommended predefined levels for our preferred instruments, based on backtesting for past several years. These levels are subject to change with change in price levels of the respective instrument or change in market conditions.
Risk Management
Once the trade moves in your favor, you need to look for preserving capital by making the trade “risk free”. If the trade continues moving in your favor, you also need to “lock in” profits.
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Once Lot 1 target is achieved - Move your Stop Loss for the remaining 2 lots to the Entry Price (Cost)
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After Lot 2 target is achieved - Trail your Stop Loss for the 3rd lot to Target Price for Lot 1
Exit Management - Intraday
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Review at hourly intervals starting from the 3rd candle (For example : For a trade entered at 6:30 AM, review starting the hourly candle that completes at 9:30AM) as you want to give the trade some time to develop.
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Exit the trade if price action turns unfavorable or a setup forms in the opposite direction, even if SL is not hit.
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Exit the trade at the predetermined time as per the table given in Section 1 of Chapter 3 if the trade is still open.
Exit Management - Positional
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Review daily starting from the 3rd candle (For example : For a trade entered on Monday, review starting the daily candle starting Thursday) as you want to give the trade some time to develop.
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Exit the trade if price action turns unfavorable (such as 2 consecutive adverse candles) or a setup forms in the opposite direction, even if SL is not hit.
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Exit the trade when the price starts drifting without a direction for 4 candles consecutively even though there is no time limit for closing positional trades. This is to ensure that your capital does not get stuck and you can move on to better opportunities.
Final Thought
Good trade management is not about reacting—it is about consistently following a predefined structure with discipline. It is all about
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Preserving capital
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Protecting your downside
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Paying yourself as the trade moves in your favor
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Letting your winners play out
This concludes our section on Trade Mechanics. With this, we complete the third pillar of the Trading System: Trade Selection and Trade Mechanics.
The three pillars - Setups, Strategies and Selection form the basis of our Trading System, a holistic approach to trading for consistent success.