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Disclaimer: Everything shared here is for educational purpose only and nothing discussed here to be taken as a buying or selling call. Please trade at your own risk management. Not SEBI registered.
Reasoning behind this Newsletter?
I know the importance of having someone around who can hold your hand and guide you when one is starting their trading journey by answering your queries from time to time. Through this medium will try to provide detailed explanation on various topics as we move on from newsletter to newsletter where a step by step guide will be provided to connect the dots with time.
Topic of the Week: Swing Trading in Continuation setups
First of all, a swing trader buys a stock with the intention to hold it from a day to few weeks depending on the feedback from the particular stock. Swing trading can be done in various ways like Buying breakouts above the base high, Buying a stock when it comes to retest , buying continuation patterns etc. Here we will deep dive into continuation setups.
Continuation Setups:
There is already an established uptrend in the stock, meaning the stock has already broken out of its big base or it has already reversed and now trending upwards as shown in the figure. Once we find these up-trending stocks we place them in a separate list where we can check then frequently.
Now a stock can not keep on moving in one direction, it needs a breather and we as a swing trader look out for such breathers which we call continuation setup. As shown in the figure stock moves in a certain range for few days to few weeks where we keep track of the stock so that we can catch it for its next up leg. The reason behind the breather is traders who bought the stock and now sitting at a profit after the previous up move will start booking profits which causes the stock to fall and like that it takes some time to absorb the selling before it continue the uptrend. So, this is how a continuation setup forms.
In this newsletter we will be understanding the basics of continuation setups. Now lets proceed and see how actual stock moves in pauses.
As shown in above example, It Breaks out from a long base establishing the trend in upward direction then after a certain move it goes into a pause and from there after few weeks it takes off again. Similarly it follows the same pattern as it move upwards.
We aim for the pauses in the stock and try to get on it when it starts its further upward moment.
How to Swing trade these setups?
Once the stock has established an uptrend, we put them on watchlist where we will look out for the stocks in pauses and then will attempt to take entry in them as they try to resume the trend. Now how to enter these is itself a topic to be covered in detail which we will be discussing in coming newsletters but lets understand the basics of these setups.
Lets call these pauses in the stock as “Bases”. Now we will divide the pauses/bases in 2 major categories.
Daily base- Pauses which will resume the uptrend within few days.
Weekly base - Pauses which will take few weeks break before resuming the uptrend.
Lets understand it with example!
Now we have categorized the pauses into Daily and weekly bases. Major difference in these is the duration of consolidation. For giving objectivity we will call the bases of 7-10 days as Daily bases and bases of 4-6 weeks as weekly bases.
One important thing that the expectation from both can not be same in any condition. Weekly bases are the longer duration pauses so if entered correctly we can expect longer moves like from few days to few weeks, these moves from Weekly bases will have daily bases in their moves. It means that if you are entering a weekly base then you can expect a longer move and if you are trading it for the longer move then you may have daily bases on the way and will have to give time & space to the stock for it to have those daily pause before it continues further up move.
Meanwhile if you are entering in daily bases then they mostly may give you short quick moves for few days and then may either go in the process of forming weekly bases or they may reverse. The crux of the point is that here you will get in to ride the stock for few days for up move and then close the trade as waiting here can be costly because chances of larger pause and significant fall are likely.
That was all about basics of Continuation setups, we will discuss all the aspects like Entry, Stoploss, Watchlist preparation etc. in further newsletters in details. So, subscribe for regular updates on the same.
Weekly Bases in July 2023
Lets now study weekly base which occurred in July 2023 and gave good moves. This study helps in training your eyes for better setup identification.
Shakti Pumps
This Counter gave a strong move on volumes showing good leadership characteristics and established an uptrend. Then after forming a short base, it started formation of Weekly base which went on for 5-6 weeks. During this period there hardly any big red days also the depth of the base is low which signifies that there is not much supply or selling in the stock and It has good probability to resume its uptrend.
NCC
Here it established the uptrend but later on did a deep shakeout which makes the setup even better. Shakeout like these throw out many people holding these stocks by hitting Stop losses. But what matters is how it comes back after it, here it came with even higher volumes and then gave a good 4-5 weeks base where selling was really low and later on trend resumed.
Zen tech
This one is a very good example on how a leader moves, after coming out of a big base it gave a weekly base in May-June and then went on to form another weekly base breaking out in July. This is how many leaders will move in a staircase pattern, where they will give a up move and then will go on sideways absorbing the supply to resume further uptrend.
What to look for ?
As we understood basic qualities a counter must have by going through some July 2023 month mover, now on the same pattern we shall analyze to find future opportunities. We will discuss some counters moving on the similar lines but these are only for study purpose to make our understanding better on how base works.
Now open them in your PC’s and go through them in details on whether they qualify above studied criteria’s or not. Also try to do a detailed study on as much as stocks possible to locate Daily & Weekly bases
In closing, try to do a detailed study on as much as stocks possible to locate Daily & Weekly bases as we studied and then try to dive deeper in them to see how and when they start their up moves, how volumes are during up move & consolidation. Create a data base of these setups to train your eyes on them.
Newsletters with even deeper & detailed knowledge will keep on coming. For regular updates Subscribe.
Congratulations bro.. Keep it up
Very nice content brother! Keep it up!