Lecture Notes on Stock Selection Strategy

Overview

The lecture discusses stock selection strategies using sectoral analysis and relative strength. The focus lies on leveraging the Nifty index, sector indices, pre-open data, and relative strength for picking stocks each morning.

Key Steps in Stock Selection Process

1. Check Nifty Movement
   • Open Position: Determine if Nifty opens gap-up, gap-down, or flat compared to the previous day’s close.
   • Segment Performance: Analyze how sectors open (gap-up, gap-down) in correlation to Nifty.
2. Create Watchlists
   • Sector Watchlist: Identify top performing sectors; typically 2-3 sectors.
   • Stock Watchlist: Based on sectors, compile stocks (F&O) forming roughly 100-200 stock lists categorized under each sector.
3. Analyze Pre-Open Data
   • Top Gain Stocks: Identify stocks that gap-up the most.
   • Top Losing Stocks: Identify stocks in sectors that gap-down.
4. Watch 9:15 AM Trends
   • First Candle Analysis: Observe as sectors/stocks’ first candles form strong or weak patterns.
   • Adjust Selection: Post 9:30 AM, stable data helps decide the dominant sectors/stocks.
5. Sector Comparison to Nifty
   • Relative Strength: Compare sector performance against Nifty to confirm strength or weakness.
   • Weekly Example: Look at movements, stability, and identify exemplar days with strong or weak behavior patterns.
6. Incorporate Technicals
   • Key Indicators: Utilize PDL (previous day’s low), PDH (previous day’s high), LSL (last swing low), LSH (last swing high), volume bars, and VWAP (Volume Weighted Average Price).

Entry and Exit Strategies

1. Intraday Preferences
   • Identify Trends: Examine trends (uptrend, downtrend) in intraday data.
   • Swing Bias: Determine swings and previous day’s bias to guide the current day’s trends.
2. Stock Market Open Analysis
   • Initial Shock: Observe immediate shifts within the first minutes post pre-open (e.g., sectoral transitions at 9:14 AM).
   • Sector Watchlist Maintenance: Post significant gain/loss sectors for tracking during the first crucial minutes.

Real-life Example Demonstrations

1. Daily Sector Movement Examples
   • IT Sector Performance: Seek instances where strong IT sector movement is validated through performative strength.
   • Commodity Sector: Align marginal deviation patterns (e.g., hazy candle formations) into stock behavior.
2. Implementations
   • Gap-Up/Gain Cycle: Track strong performing stock samples (historical verification of IT, Commodity, with time slots).
   • Gap-Down/Sell Cycle: Instance of stock pulling back post quick rallies forming intraday pivot points.

Key Indicators for Effective Stock Selection

1. Volume and VWAP: Consistently analyze volumes and VWAP convergence with price movement.
2. Candlestick Analysis: Employ key formations like bullish/bearish engulfing, shooting stars within chosen stocks.
3. Technical Support/Resistance: Ensure strategic stocks break out or sustain key technical indicators.

Practical Trade Management

1. Case Studies
   • Sector Entry Points: Identify meticulous sectoral points correlating with individual stock apex movements.
   • Stock Pullback Examples: Track stock corrections and rallies through sectoral relative strengths during random intraday timeframes.

Question and Answer (Q&A) Section

• Sectoral vs Stock Analysis: Detailed questions answered regarding balancing sectoral trends with individual stock evaluations.
• Tools and Practices: Addressing utility of indices, technical aids like AOC, broker tools – FAQs include creating sector lists, day-to-day trade executions.

Conclusion

• Strategic Advantage: Leveraging sectoral analyses to inform stock choices provides verifiable advantage in stock selection processes.
• Continued Learning: Reinforces ongoing adaptation and practice to refine stock picking skills using structural analysis tools effectively.

Related posts:

Chapter 3 | Defining Support and Resistance Free Community Class and Nifty Post Market Analysis of 15th July and QnA By Gopal Sing Sir and AOC Team Swing Trading using AOC | Oi to Oi Trade using Strong Support and Resistance Screener by Advance Option Chain Chapter 1 | Introduction to AOC