I am getting many questions related to Breakout Trading.

I have mentioned all the rules in this book

https://t.co/UIwiwggEUg

Bhav Bhagwan Hai (Price is God)

Lekin Open Interest (OI) Bhagwan ka Baap Hai (OI is Father of God)

This is what some traders claim about Open Interest (OI)😄

Is it True or Not?

Check These Features about OI & Decide Yourself!

Thread 🧵

#openinterest #OI
(1/N)

Check the ZEEL OI Change Chart as of 22/Sep/2022

There was a huge spike in 270 Puts (PE).

It means people sold 270 PE anticipating the price would not close below 270 before this month's expiry.

But the closing price of ZEEL on the next day (23/Sep) is 260.95.

(2/N)

Now can you imagine the conditions of these 270 PE sellers?

They have trapped - Either they have to book a huge loss or shift their position (it brings more risk to the table).

On 23/Sep, most people closed their position in 270 PE.

(3/N)

Also, many traders sold 270 CE, which adds more pressure to the fall.

270 PE opened at 6.9 and closed at 13.5 (close to 100% losses for options sellers) on 23/Sep.

(4/N)

Open Interest (OI) provides all this information (and many more).

What is Open Interest (OI)?

OI is the total number of outstanding derivative contracts (both futures and options) that have not been settled (still open).

(5/N)

Are you looking for a successful intraday trading strategy in Banknifty?

Well here is one along with entry, exit rules, and backtested results!

The best place to lose money in this world is Trading.

Trading is misunderstood!

I understand why — it’s a complex process with lots of conflicting advice.

Here’s the good news.

With a little effort & dedication, you can do better in

Breakout Trading is the most underrated trading technique in the trading community!

Every trader (intraday, swing, positional, or scalper) should know how to differentiate between a genuine breakout and a false breakout.

Do you know why?

Read this thread!

(1/N)

It’s important to understand two herds that exist in the market:

1. Smart Money &

2. Dumb Money

‘Smart Money’ refers to big sharks who have money & information power who give direction & momentum.

‘Dumb Money’ refers to retail traders who often try to make quick money.

(2/N)

You should know one secret now.

Participation from smart money creates a "genuine breakout."

And the absence of smart money participation results in a "false breakout."

Hence, it is always a good idea to follow smart money (by knowing real or false breakout)

(3/N)

What is Breakout?

As per Investopedia

“A breakout is a stock price moving outside a defined support or resistance level with increased volume. A breakout trader enters a long position after the stock price breaks above resistance.”

(4/N)

The price broke the resistance trend line with high volumes in this image.

Similarly, few recognize it as a breakdown if the price breaks the support trend line.

To keep it simple, we will focus only on the breakout.

(5/N)

This is in response to the question by @unseenvalue

If I had to buy 1 stock today, anywhere in the world, no avg. up or down, 5 year holding period (I will make that as 10 year for thesis to play out)

Since I track mainly Indian equities, restricting the choice to this space

Few points to look for
1. Strong macro tailwind rather than headwind, huge growth runway for company/segment. It can't be in a niche space & demand must not be easily substitutable
2. Strong Biz Model, high growth curve (15%+ over the period), strong ROE profile (hurdle rate 20%)

3. Low or no leverage, efficient capital allocation, (read minimal or zero fresh dilution requirements), strong cash flows and correspondingly high dividend payout ratios (consistent dividend history) and finally strong moat and with limited regulatory involvement / no reg issues

4. Promoter quality and intention must be beyond reproach, proven management with skin in the game
5. Capability to manage disruption, and if possible to even profit from it. If you can't be disrupted easily, you will eventually adapt your game to gain scale

6. There must be a possibility of non-linear growth if the scale-up hypothesis gets proven right. It's like an FD with low fixed return plus significant upside optionality. Multiple revenue streams / margin levers / IP that can provide non linearity in growth

A rising wedge when broken decisively on the upside turns into a channel and stretches a little on the top of channel after a non stop move. Expecting this trajectory as of now.
#DXY