Buy and Sell Setups

Introduction

Now it is time to combine everything you have learned: trend, support and resistance, volume and candlesticks. This lesson gives you a complete, simple swing trading strategy based on buy setups and sell setups.

The 3-Day Rule

One day's price move tells you very little. Swing traders wait for at least three consecutive days of movement in one direction before looking for a reversal. This filters out random noise.

The Buy Setup

A buy setup appears after a short-term fall, when the stock is likely to swing back up.

• Trend: the stock is above its 200 DMA (long-term uptrend preferred).
• Pullback: the stock falls for 3 or more days with lower highs and lower lows.
• Level: the price reaches support or a key moving average (20 EMA or 50 DMA).
• Signal: a bullish reversal candle appears: hammer, dragonfly doji or bullish engulfing.
• Volume: volume is higher on the reversal day.

The Sell Setup

A sell setup appears after a short-term rise, when the stock is likely to swing back down.

• The stock rises for 3 or more days with higher highs and higher lows.
• The price reaches resistance.
• A bearish reversal candle appears: shooting star, gravestone doji or bearish engulfing.
• Use the sell setup to exit your long position, or for advanced traders, to take a short position.

Complete Trade Example

MNO Ltd. Support Rs 700, resistance Rs 760. The stock is above its 200 DMA.

• Monday to Wednesday: falls Rs 752, Rs 731, Rs 712.
• Thursday: opens Rs 705, dips to Rs 698, closes strong at Rs 716 with high volume. Buy setup confirmed.
• Friday: buy 50 shares at Rs 717, stop-loss Rs 694. Risk = Rs 23 x 50 = Rs 1,150.
• Next week: rises Rs 728, Rs 741, Rs 755. A shooting star forms near Rs 760. Sell setup.
• Exit at Rs 752. Profit = Rs 35 x 50 = Rs 1,750.

Entry Methods

• Aggressive: buy near the close of the reversal day.
• Conservative: buy the next day only if the price goes above the reversal candle's high.

Beginners should use the conservative method. It avoids many false signals.

Exit Methods

• Target exit: sell at the next resistance.
• Signal exit: sell when a sell setup appears.
• Trailing stop: keep moving the stop-loss up below each new higher low.
• Stop-loss exit: exit immediately if the stop-loss is hit.

When There is No Setup

If there is no clean 3-day move, no key level and no reversal candle, do nothing. Waiting is part of the strategy.

Pre-Trade Checklist

• Is the bigger trend in my favour?
• Is the price at support (for buying)?
• Did I see at least 3 days of pullback and a reversal candle?
• Is volume confirming?
• Is my risk-reward at least 1:2?
• Have I calculated my position size?

Placing the Trade on GoPocket

• Search the stock on the GoPocket app and tap Buy.
• Select Delivery and Limit order, enter your price and quantity.
• After execution, place a stop-loss sell order below support.
• Stop-loss orders are valid for the day, so re-check and re-place them daily. You can use AMO in the evening.

Frequently Asked Questions

How many setups will I find per week?

With a watchlist of 15 to 20 stocks, you may find 1 to 4 good setups a week.

What win rate should I expect?

A realistic range is 40% to 60%. With good risk-reward, that is profitable.

Key Takeaways

• Buy setup: 3-day pullback + support + bullish candle + volume.
• Sell setup: 3-day rally + resistance + bearish candle.
• Always follow the checklist and use a stop-loss.

Disclaimer: Hypothetical example for education only. Investments in the securities market are subject to market risks. Read all related documents carefully before investing.