Chapter 5 - Trade Selection on Nifty Futures
Index
5.1 Trade Selection on Nifty: The Real Edge Lies in What You Don’t Trade
5.2 Trade Selection on Nifty: Understanding the Longer-Term Trend
5.3 Trade Selection on Nifty: Setup Strength – The Win Ratio
5.4 Trade Selection on Nifty: Chart Patterns
5.5 Trade Selection on Nifty: Support & Resistance
5.6 Trade Selection Tool on Nifty - Where Everything Comes Together for Better Trading Decisions
5.7 Trade Mechanics - Trade Preparation
5.8 Trade Mechanics - Trade Execution
5.1 Trade Selection on Nifty: The Real Edge Lies in What You Don’t Trade
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
When it comes to putting capital at risk, there are only three things that matter:
Trade Selection. Trade Selection. Trade Selection.
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 with them.
Our Trade Selection Framework for Nifty Futures
To bring objectivity into the process, we use a structured framework built on multiple timeframes:
Longer-Term (Daily & Weekly)
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Identify the weekly trend of Nifty
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Confirm the daily trend of Nifty
This forms the directional bias.
You are not predicting—you are aligning with what price is already doing.
Shorter-Term (1H Timeframe for Intraday and Daily for Positional)
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Setup strength (measured through Win Ratio)
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Chart patterns
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Support and resistance levels
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.
Morning Trades for Intraday Trading (C1 / C2)
Pre-Market Preparation: (Overnight / Pre-9 AM):
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Define daily and weekly trend
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Mark key support and resistance levels
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Identify existing or developing chart patterns/ price ranges
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Be aware of potential breakouts or breakdowns
Intraday Preparation (Around 9:45 – 10:00 AM):
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Evaluate if setup could form by the time C1 completes
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If yes, evaluate the Short Term variables like setup strength, breach of support/ resistance and chart pattern/ range breakout or failure
Afternoon Trades for Intraday Trading (C4 / C5)
Pre-Market Preparation:
Same as morning.
Intraday Preparation (12:45–1:00 PM for C4, 1:45–2:00 PM for C5):
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Adjust support/ resistance levels based on price action from earlier candles during the day, if required
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Identify any new patterns/ ranges or breakouts/breakdowns
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Evaluate if a tradable setup could form by the time C4/C5 completes
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If yes, evaluate the Short Term variables like setup strength, breach of support/ resistance and chart pattern/ range breakout or failure
Positional Trading
End of Day (EOD) Trades before 3:30 PM
Pre-Market Preparation: (Overnight / During the day before 3:00 PM):
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Define daily and weekly trend
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Mark key support and resistance levels
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Identify existing or developing chart patterns/ price ranges
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Be aware of potential breakouts or breakdowns
Intraday Preparation (Around 3:00 – 3:30 PM):
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Evaluate if a tradable setup could form by the time C7 (3:00 – 3:30 PM) completes
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If yes, evaluate the Short Term variables like setup strength, breach of support/ resistance and chart pattern/ range breakout or failure
Bringing It All Together
Each variable in this framework contributes to a scoring system. Only trades that meet a minimum threshold are taken. This ensures objectivity, consistency and narrowed down focus on high quality setups only.
Final Thought
You don’t need more trades. You need better trades. Because “Less is more” in trading.
5.2 Trade Selection on Nifty: Understanding the Longer-Term Trend
In the previous section, we introduced the Trade Selection Framework and the importance of filtering trades through objective variables.
At the foundation of this framework lies one critical element: the longer-term trend, applicable for both intraday and positional trading. It matters because trading against the higher timeframe trend reduces your probability of success. Alignment with the trend improves consistency and risk control.
The Directional Compass
Before you focus on entries, setups, or execution, you must first identify the direction the market is already moving in, if there is a direction at all.
This is defined using two key variables:
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The weekly trend of Nifty
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The daily trend of Nifty
Together, they act as your directional compass. They don’t predict where the market will go - they tell you where it is already going.
How to Identify the Trend
The methodology for identifying the daily and weekly trend has already been covered in detail in “Understanding Long Term Trend – A Comprehensive Guide” (from the Technical Tools section)
The same principles apply across both timeframes.
5.3 Trade Selection on Nifty: Setup Strength – The Win Ratio
In the previous section, we established the importance of the longer-term trend.
We now move to the second key component of trade selection on the 1H timeframe:
Setup Strength — measured through the Win Ratio.
What is the Win Ratio?
The Win Ratio (WR) reflects the historical probability of success for a specific setup, derived from rigorous backtesting over the past two years or more. Each setup behaves differently. The Win Ratio quantifies that difference and brings objectivity into decision-making.
In simple terms: Higher WR = Stronger setup.
How to Use It
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WR ≥ 70% → Tradeable setups
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WR ≥ 90% → High-conviction setups
Refer to the tables below for the Win Ratios of mainstream bullish and bearish setups for both intraday and positional trading (derived from 2 years of backtesting till the end of March 2026).
5.4 Trade Selection on Nifty: Chart Patterns
Continuing with the short-term variables in our Trade Selection Framework, we now focus on Chart Patterns
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1H chart for intraday trading
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Daily chart for positional trading
Chart Setup vs Chart Pattern
At this point, it’s important to remember the distinction between the two :
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Chart Setup: A single or collection of candles forming a tradable structure that meets stringent conditions as defined by our system.
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Chart Pattern: Classical technical structures such as Head & Shoulders, Double Top/Bottom, 1-2-3 formations, Triangles, Flags, Pennants, and Rectangles.
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A Chart Pattern may or may not be a tradable setup as defined by our system
A setup gives you a signal. A pattern gives it context. When both align, the trade gains conviction with higher probability of success. For example, a strong Bullish Engulfing pattern that forms at a double bottom and breaks out is more convincing than one that is not part of any chart pattern.
Where the Edge Lies
High-quality setups typically occur:
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Just before a breakout/breakdown (final leg of the pattern)
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During the breakout/breakdown
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Immediately after the breakout/breakdown, on the same or next candle
Within smaller patterns embedded in larger structures.
5.5 Trade Selection on Nifty: Support & Resistance
We now come to the third and final short-term variable in our Trade Selection Framework:
Support & Resistance (S&R)
This has been covered in detail in the chapter on Technical Tools. To recap, S&R is classified into four types:
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Horizontal
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Pivot
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Congestion
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Gap
Why S&R Matters
Support and Resistance act as a natural filter in trade selection.
They help you:
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Avoid trades into strong opposing levels
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Identify high-probability zones for entry and exit
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Improve timing and risk management
S&R ensures that you trade not just the setup - but the right setup at the right place.
With this, we conclude all variables of Trade Selection—both long-term and short-term.
5.6 Trade Selection Tool on Nifty - Where Everything Comes Together for Better Trading Decisions
So far, we’ve discussed the long-term and short-term variables that influence a trade. 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. The first 2 are long term and hence need to be determined on charts of a higher timeframe before the trading day whereas the other 3 are short term to be determined on the chart in the same timeframe of the trade:
Scoring Logic
Trade Decision 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.
Intraday Trading Example 1
Date: Monday, 1st July 2024
Setup: Bullish setup identified as C1 nears completion - “Strong Green on C1 with Low below Support”
Fig 1.1 - Strong Green on C1 with Low below Support - Bullish Setup on C1
Step 1: Identify Long-Term Variables
To be identified as part of the pre-open preparation.
Both trends are aligned — strong positive context.
Step 2: Identify Short-Term Variables
To be determined between 9:45 to 10 AM, before C1 completes
Step 3: Final Score
✅ Trade Selected
A high-conviction setup, which in this case resulted in a profitable trade.
Intraday Trading Example 2
Intraday Trading Example 1
Date: Monday, 1st July 2024
Setup: Bullish setup identified as C5 nears completion - “1-2-3 Bottom Pattern Breakout”
Fig 1.2 – 1-2-3 Bottom breakout - Bullish Setup on C5
Step 1: Identify Long-Term Variables
To be identified as part of the pre-open preparation.
Though the weekly trend is still down, the daily trend has turned up after a hammer at support formed 2 days back. So the long term trend seems mildly supportive.
Step 2: Identify Short-Term Variables
To be determined between 1:45 to 2:00 PM, before C5 completes
Step 3: Final Score
✅ Trade Selected
A high-conviction setup, which in this case resulted in a profitable trade.
Positional Trading Example 1
Date: 30th Jun 2025
Setup: Bearish Engulfing
Fig 1.2 – Bearish Engulfing on 30th Jun, 2025 – a bearish setup
Step 1: Identify Long-Term Variables
To be identified as part of the overnight preparation every day (irrespective of setup)
Both trends are against the trade— suggesting strong caution.
Step 2: Identify Short-Term Variables
To be determined as part of preparation in the 3 PM – 3:30 PM window
Step 3: Final Score
❌ No Trade
Even though the setup looked valid, it was against the larger trend—hence avoided.
Positional Trading Example 2
Date: 10th July 2025
Setup: 1-2-3 Top Breakdown
Fig 1.2 (repeated) – A 1-2-3 Top breakdown on 10th Jul, 2025 – A bearish setup
Step 1: Identify Long-Term Variables
To be identified as part of the overnight preparation every day (irrespective of setup)
Step 2: Identify Short-Term Variables
To be determined as part of preparation in the 3 PM – 3:30 PM window
Step 3: Final Score
✅ Strongest Possible Trade
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.
Trade Selection is a crucial element of Trade Preparation. In the next section, we move to Trade Mechanics which deals with Trade Preparation as a whole, Trade Execution and Trade Management.
5.7 Trade Mechanics - 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
For trades executed at C1 (10:00 AM) as per our system, your focus on price action should begin around 9:45 AM. However, the real preparation starts off-market (overnight or before 9:00 AM) and typically requires no more than 15 minutes.
Step-by-Step Trade Preparation
Before 9:00 AM
1. Determine the Long Term Trend of Nifty - Your trades should align with the larger market direction.
2. Identify Key Support & Resistance Levels - Use the 2H and 4H charts to mark:
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Horizontal levels
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Pivot zones
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Congestion areas
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Price gaps
These levels provide the context and boundaries for your trades.
At 9:45 AM – C1 (10:00 AM Window)
3. Look for Valid Setups - Shift to the 1H chart (Nifty Futures) and check if a clear, tradable setup is forming at C1.If no setup is visible → Wait for C4
Only act on setups that are well-formed, easily recognizable and compliant with rules
4. Trade Selection - Once a setup is identified, 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 10:00 AM, 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
At 1:00 PM (C4) & 2:00 PM (C5)
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Take a new trade only if no existing position is open
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Repeat the same preparation and selection process
Positional Trading
For positional trading as per our system, your focus on price action should begin around 3:00 PM. However, the real preparation starts off-market (overnight or before 9:00 AM) and typically requires no more than 15 minutes.
Step-by-Step Trade Preparation
Overnight or Before 9:00 AM
1. Determine the Long Term Trend of Nifty - Your trades should align with the larger market direction.
2. Identify Key Support & Resistance Levels - Use the daily and weekly charts to mark:
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Horizontal levels
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Pivot zones
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Congestion areas
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Price gaps
These levels provide the context and boundaries for your trades.
At 3:00 PM
3. Look for Valid Setups on the daily chart (Nifty Futures) and check if a clear, tradable setup is forming for the day.
Only act on setups that are well-formed, easily recognizable and compliant with rules
4. Trade Selection - Once a setup is identified, 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 - By 3:15 PM, 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
Key Takeaways
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Ensure complete preparation before candle close - C1, C4, or C5 for intraday and daily candle for positional trading
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Trade only after:
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Proper selection
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Clear setup validation
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Defined risk control
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Final Note
Discipline in preparation leads to clarity in execution. Stay consistent and trust the process - the trade will take care of itself.
5.8 Trade Mechanics - Trade Execution
Once your preparation is complete, executing trades at C1 (10 AM), C4 (1 PM), or C5 (2 PM) for Intraday and at C7 (3:30 PM) for Positional Trading 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 completing at 10:00 AM (C1), 1:00 PM (C4) or 2:00 PM (C5). 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 C1, C4, or C5) 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 C1 after 10 AM, cancel the order if not filled by 11 AM.
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 3:20 – 3:30 PM before the close of the daily candle.
Unlike the intraday limit order, this should be placed at the market as you want a fill before the candle close.
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.
5.9 Trade Mechanics - 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.
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)
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These levels must already be predefined as per your risk management plan, part of Trade Preparation. Please refer to the chapter on Trade Setups to know more about these predefined levels for our trading system, based on backtesting for past several years.
Risk Management
Once the trade moves in your favour, you need to look for preserving capital by making the trade “risk free”. If the trade continues moving in your favour, 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
Profit Management
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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.
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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.
Exit Management
Intraday
For intraday trades taken at C1 (10 AM), review at hourly intervals starting C4 (1 PM) as you want to give the trade some time to develop. Exit the trade at C4, C5 or C6 if price action turns unfavourable or a setup forms in the opposite direction, even if SL is not hit.
For intraday trades taken at C4 (1 PM) or C5 (2 PM), review at hourly intervals. Exit the trade at C5 or C6 if price action turns unfavourable, even if SL is not hit.
Example 1 : For a long trade taken at C1, exit the trade proactively if C4 is a Bearish Engulfing or Reverse Hammer, even if SL is not hit.
Exampe 2 : For a short trade taken at C4 on a range breakdown, exit the trade proactively if C5 or C6 is a bullish harami, even if SL is not hit
Close all open trades by 3:25 PM without exceptions
Positional
For positional trades, exit even if the SL is not hit when
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A setup in the opposite direction appears
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2 adverse candles form consecutively
Even though there is no time limit for closing positional trades, you should consider closing the trade when the price starts drifting without a direction. 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 favour
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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.
A complete Trading System would not work without the right trading mindset. This is where Trading Psychology becomes critically important to understand and imbibe. Click on “Next Post” to move to Trading Psychology.