TRAINING MATERIAL

SHORT TERM TRADING

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• Registered Office: Sharekhan Limited, 10th Floor, Beta Building, LodhaiThink Techno Campus, Off. JVLR, Opp.
Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai - 400042, Maharashtra.
• Tel: 022 – 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX – Commodity:
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• Disclaimer:
• Investments in securities are subject to market risk. You are requested to read and understand the Risk Disclosure
document, Offer Documents, Information Memoranda, terms and conditions, policies and procedures, and Rights
and obligations carefully before investing. Please verify all scheme related information before investing. You should
be aware that past performance is not necessarily a guide to future performance and value of investments can go
down as well. In the training there may be references to securities, those references do not constitute a
recommendation to buy, sell or hold such securities. The user assumes the entire risk of any use made of this
information. For any reference of any security in the training, you should make such investigations as it deems
necessary to arrive at an independent evaluation of an investment in securities of companies and may consult your
own advisors to determine the merits and risks of such an investment. The investments discussed or views
expressed may not be suitable for all investors and there may be other / better alternatives to the investment
avenues recommended by Sharekhan. This material is for private circulation only and only intended for direct
recipients of this material from authorized sources of Sharekhan Limited. This material should not be reproduced,
copied, circulated or distributed to any other person without approval of Sharekhan Limited. Sharekhan Limited
shall not be responsible for any unauthorized circulation, reproduction or distribution of this material or contents
thereof to any unintended recipient. The charts, graphs and figures displayed are exemplary and not real.
Training Material

What we have learnt

• What is Short Trading
•Introduction to Support/Resistance
•Introduction to Super Trend
• Trading Guidelines I
•Trading Guidelines II
• Money Management
•Price Trends

Short Term Trading

Training Material

What is Short Trading?

 What is it – It’s a style of trading in which a trader wants to hold a trading position for
more than a day but for a very short period of time and wants to benefit from the short term
price momentum. He wants to capture the gains in a single Short term or a price reversal
(either up /down) in the stock price.

 Time frame for trades – A Short term trading position should be taken for a time
frame of 2 to 10 days.

 Analyse a Trade, using 2 tools:

Support and Resistance

Supertrend

Short Term Trading

Training Material

Introduction to Support / Resistance

Support – It’s an area where buyers are more than sellers and the prices are expected to
go up. So as a trader we should be looking at buying opportunities. Once a Support area is
broken, the prices are expected to come near the Support area after that, which can be used
as the next target.

Resistance– It’s an area where sellers are more than buyers and the prices are expected
to go down. So as a trader we should be looking at selling opportunities. Once a Resistance
area is taken out on the up side, prices are expected to target the next Resistance area.

S/R are areas and not Specific levels – There is a common misconception that price
tend to reverse at a prior level where as prices will find buying or selling pressure (Turning
points) in or near an area of Support or Resistance and not an exact level.

Resistance Area Selling

Opportunity

Buying
Support Area Opportunity
Training Material

Introduction to Support / Resistance

How to mark Support area – Mark the lowest low and the lowest close before the
lowest candle.

How to mark Resistance areas – Mark the highest High and the highest close before
the highest candle.

Short Term Trading

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Introduction to Support / Resistance

Basing/Consolidation –
 Basing is an area of indecision. When the buyers and sellers are equally strong and are
not able to take prices in any direction (up/down), then price starts consolidating in a
sideways manner, this area is known as an area of Basing.
 A trader should ideally wait for an either side breakout for initiating a trade, i.e. if the
prices break above the area of basing a long trade should be initiated, whereas if the
prices break below the basing area a short trade should be initiated. {The trade should
only be initiated is the prices are in the respective trend, i.e. no short trade should be
initiated if the trend is up and vice a versa}
Rules of Area of Basing:
1.Prices will move in a range bound movement
for a longer period of time
2.After one point, prices will either break the
support or resistance of area of basing
3.(Rule 3 on Next page)

Short Term Trading

Training Material

Things to remember for a smart trader

 Basing – Area of consolidation tends to act as Support / Resistance. If the basing area is
broken on the upside then the same will act as an area of Support going forward and vice a
versa. (Rule 3)

Prices broke the Basing area on

the Upside now the same area is
acting as Support

Basing Support

Short Term Trading

Training Material

Things to remember for a smart trader

 Support and Resistance areas become weak – If the Support/Resistance area has
been used or tested in the past it loses its important. More the number of times the area is
used weaker it becomes.

Price broke the Resistance

Resistance

2nd time
1st time give Ignore
Importance

Used

Short Term Trading

Training Material

Things to remember for a smart trader

Role reversals – A Support area once broken becomes future Resistance zone and vice
versa.

Resistance

Earlier resistance
Now acting as Support

Short Term Trading

Training Material

Things to remember for a smart trader

Recent = Stronger – The areas of Support and Resistance which are recent are more
stronger than the areas which occurred earlier, i.e. A Support or Resistance of yesterday is
stronger than the area of Support/Resistance one week back, hence should be given higher
importance. While drawing Support/Resistance start from the Right side of the chart and
then go back on the left side to draw the areas.

Short Term Trading

Training Material

What does a smart trader do

Identify Support/Resistance areas – We should draw at least 3 Support and 3
Resistance areas before trading any stock. These areas are our roadmaps and will guide us to
take a successful trade. Fresh (not used) areas of Support and Resistance can act as trading
points like, entry, stop loss and targets.

Don’t consider used Support/Resistance areas – Already tested/used Support and

Resistance areas should not be considered for deciding price targets and stop losses.

Buy on decline to Support area or buy on break of a Resistance area – We

should buy when the price corrects (comes down) to a Support area as it is an area of lot of
buying pressure. We can also buy once the Resistance area is broken on the upside as the
same will start acting like an area of Support going forward. (Role Reversals)

Sell on a rise to Resistance area or sell on break of a Support area – We should

sell when the prices rally (go up) to a prior Resistance area as it is an area of lot of selling
pressure. We can also sell once the Support area is broken as the same will start acting like
an area of Resistance going forward. (Role Reversals)

Short Term Trading

Training Material

What does a smart trader do

Don’t overtrade during Basing – Basing/Consolidation is an area of sideways
movement. As a trader we should ideally be trading a stock which is likely to either go
up/down. However, if one wants to be benefited by a sideways movement of a stock he can
think of buying when the prices come near the lower area of basing and book his profits
(and even go short) near the higher end of the basing area. But we have to make sure that
we don’t do this too many times (Overtrading) as it would simply increase the cost of
trading (brokerage, government charges, etc.)

Don’t go against the TREND - Trend is our Friend. Don’t go against it. Trade in the
Direction of the trend. In order to understand more about trends, request you to go through
the tutorial on Trading Tool Box– Price Trends.
(Explanation of Price Trends from Page 24)

***Please refer the videos of Tool’s –Power of Supports and

Resistances for further clarification

Short Term Trading

Training Material

Introduction to SuperTrend
What is Super Trend – SuperTrend or Super Trend was developed by Olivier Seban.
This indicator has the huge advantage of working on all the time frames in all markets.
SuperTrend is probably one of the simple trend following trading system yet very effective.
It is based on a combination of the average price rate in the current period, and a volatility
indicator. The ATR indicator is most commonly used for this purpose. This indicator has 2
parameters: Period (the ATR Period), and Multiplier (ATR is multiplied by this value and
added to the average price). Link of the recorded video is mentioned in the mail and the
training material is attached.

Trend Change – When SuperTrend changes the colour that is know as Trend Change.
SuperTrend change the colour to Green from Red means Buy after the candle is closed and
when SuperTrend change the colour to Red from Green means Short after the candle is
closed.

Trend Retracement – When price touches SuperTrend for the first time and closes
above or below SuperTrend it time to enter into the trade. SuperTrend colour is green and
price’s touch the SuperTrend and the same candle close above the SuperTrend means Buy
and when the colour of Super Trend is Red and price’s touch the SuperTrend and closes
below the SuperTrend means Short.

Short Term Trading

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Trading Guidelines - I
Use Hourly or daily charts – For Short term trade, we can select a time frame of
30Days 60mins or Daily charts.

Add SuperTrend with default parameters – Add Super Trend from the Add Study
option on the charts. (Right click on the charts in order to get add study option)

Draw the areas of Supports & Resistance

Please find the rules on the next page –

Search for Super Trend Indicator – Search for a Green / Red Super Trend
indicator

Super Trend Green – Green colour indicates Uptrend in the price

Super Trend Red – Red colour indicates Downtrend in the price

Short Term Trading

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Trading Guidelines - I

Long Trade
When the Supertrend indicator becomes GREEN, buy after the
candle is closed, above its high in the immediate next
Entry
candle(Advisably the high should be surpassed in the next
candle itself).
Stop Loss
Below the low of the candle where Supertrend became Green
(Aggressive)
Stop Loss
Below the immediate Support area
(Conservative)
Next areas of Resistances. The resistance area can be an area
Target of selling pressure or it can also be a prior area of Supports
which was broken down.

Short Term Trading

Training Material

Trading Guidelines - I

Short Trade
When the Supertrend indicator becomes RED, Short after the
candle is closed, below its low in the immediate next
Entry
candle(Advisably the low should be broken in the next candle
itself).
Stop Loss
Above the high of the candle where Supertrend became Red
(Aggressive)
Stop Loss
Above the immediate Resistance area
(Conservative)
Next areas of Support. The support area can be an area of
Target buying pressure or it can also be a prior area of Resistance
which was taken out (broken).

Short Term Trading

Training Material

Trading Guidelines - II
Use hourly or daily charts – For trading Short, we can select a time frame of 30Days
60minutes or Daily charts.

Add Super Trend with default parameters – Use Super Trend Indicator with
default parameters given in Sharekhan’s Trade Tiger software.

Look for Prices touching super trend for the first time and close above or below the super
trend (Trend retracement). Refer to the video of Super Trend from the link in the mail.

Please find the rules on the next page–

Short Term Trading

Training Material

Trading Guidelines - II

Long Trade
When Price touches the super trend and closes above the
Entry super trend for the first time, then buy above the high of the
candle.

Stop Loss Below the low of the candle where the price took support on
(Aggressive) super trend for the first time

Stop Loss
Below the immediate Support area
(Conservative)

Next areas of Resistances. The resistance area can be an area

Target of selling pressure or it can also be a prior area of Supports
which was broken down.

Short Term Trading

Training Material

Trading Guidelines - II

Short Trade
When Price touches the super trend and closes below the super
Entry trend for the first time, then Short below the low of the candle.

Stop Loss Above the high of the candle where the price took
(Aggressive) resistance on super trend for the first time

Stop Loss Above the immediate Resistance area

(Conservative)
Next areas of Supports. The support area can be an area of
Target buying pressure or it can also be a prior area of Resistances
which was broken down.

Short Term Trading

Training Material

Money Management Guidelines

 What is it – It is the process of managing money including investments. Also called as
Investment Management.

•Risk:Reward ratio – The ratio between the amount of risk and the expected return.
•Risk – Difference between the entry price and the stop loss
•Reward - Difference between the entry price and the target

* Ideal Risk:Reward ratio is at least 1:2 (i.e. For a Risk of Re. 1 and reward of Rs. 2) Higher
the ratio the better.
* Any trade having a RR of less than 1:1 should not be traded

Short Term Trading

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Money Management Guidelines

Total Trades 100 Total Trades 100

Hit Ratio (% of Profits) 50% Hit Ratio (% of Profits) 50%
Risk Reward 1:1 Risk Reward 1:2
No. of Profitable Trades 50 No. of Profitable Trades 50
Total Profit (50*1) 50 Total Profit (50*2) 100
Loss making trade 50 Loss making trade 50
Total Loss (50*-1) -50 Total Loss (50*-1) -50
Net Profit 0 Net Profit 50

Short Term Trading

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Money Management Guidelines

Risk reward explained - Any trade without a favorable risk reward is not worth taking.
Risk is the difference between the initiation price and stop loss where as reward is the
difference between the target and the initiation price.
We should not be taking a trade if the risk is higher than reward. 1:2 is a commonly
followed risk reward ratio, i.e. if your risk is of Rs.1 the reward should of Rs.2 (Risk:
Reward –1:2). With a risk reward of 1:2, the trading activity will be profitable in spite of
being wrong 50% of the time.
Out of 100 trades, if 50 are stopped out and 50 achieve targets, there would be net
profit of Rs.50 with a risk reward of 1:2 ((Profit = Rs.2 * 50 profitable trades = 100 ) -
(Loss = Rs.1 * 50 loss making trades = 50))

Short Term Trading

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Money Management Guidelines

Do position sizing - What is it – Position sizing is mainly about deciding the number of
shares / contracts to be entered in for a particular trade / trading day.

Calculated risks – Position sizing enables us to take calculated risks. One can do an
efficient Position sizing in following manner.

•Capital Risk – While taking any trading position, we have to limit our loss to the
maximum of 1% of your capital.

•Use of Capital – Along with a per trade maximum loss limit, one has to limit his
exposure for any single trade to a maximum of 15% of the entire capital.

•Please refer to the excel file attached with the mail for executing your trade.

Short Term Trading

Training Material

What is Price Trend

Friend for a trader – The trend is nothing else but the price direction. Trends tell us
the probable movement in price going forward. There is a famous saying, The Trend is
your Friend, which means we should not be going against it. In an uptrend we should
look at buying opportunities and vice a versa. Trading in the direction of the trend is the
way of trading successfully.

Who is in control – Trend tells us the broader psychology of the price action. It tells us
who is in control of the price, buyers or sellers, so that we can be on the winning side.

Trends tend to continue – Once we identify a particular trend (trend identification

explained in a detailed manner later) we can assume that prices will continue to remain in
the trend, till the time the trend changes. I.e. if the trend is up, prices will continue to trade
up and vice a versa. It’s commonly said that, Trend is your friend until it bends, means, one
can trade in the direction of the trend till the time it changes.

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Types of Trend
Uptrend – It is an upward movement in the price. However, an upward movement can
only be confirmed as an uptrend when there are series of higher highs and higher lows
(higher tops and higher bottoms). A trader should be looking at buying opportunities in an
uptrend.

Downtrend - It is a downward movement in the price. But, a downward movement can

only be confirmed as a downtrend when there are series of lower highs and lower lows
(lower tops and lower bottoms). A trader should be looking at selling opportunities in a
downtrend.

Sideways Trend – It’s an area of no direction. In a sideways trend buyers and sellers
are equally strong and are not able to take the control of the price, as a result price trades in
a sideways manner. As a trader it’s advisable to wait and trade only when there is a
breakout/breakdown of the consolidation area.

Short Term Trading

Training Material

Trendlines
Trend identification tool – Trendline is a trend identification tool. It enables us to
identify the price direction. Trend lines are important as they are also capable of spotting
comparatively early trend changing signals.

Measuring the strength of a trend – Trendlines help us in measuring the strength of

a particular trend. Steeper the Trendline faster the price movement and vice a versa. If the
trend line is very steep it shows a sudden price movement, where as if the trend line is not
very steep, it points out towards a sustained movement, either up/down. Trendlines can
also be called as slopping Support & Resistance areas.

Short Term Trading

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How to draw a Trendlines

 Upward slopping – This trendline identifies an uptrend in the price action. In order to
draw an upward trendline, we have to join the 1st two higher bottoms (lows) and then
extend the same. An upward trendline is only confirmed when the prices come near the
trendline and bounce back on the 3rd time. That is a time to initiate a long trade, advisably
when the prices are also trading near Support areas or they break the area of Resistance
which points out to bullishness in the price. When the prices close below an upward
trendline it is considered to be a trend changing signal, prices then can enter in
to a downtrend or a sideways trend.

 Downward slopping – This trendline identifies a downtrend in the price action. In

order to draw a downward trendline, we have to join the 1st two lower tops (highs) and then
extend the same. A downward trendline is only confirmed when the prices rally near the
trendline and start coming down on the 3rd time. That is a time to initiate a sell (short)
trade, advisably when the prices are also trading near Resistance areas or they break the
area of Support which points out to bearishness. When the prices close above a
downward trendline it is considered to be a trend changing signal, prices then
can enter in to an uptrend or a sideways.

Short Term Trading

Training Material

How to draw a Trendlines

Look at a reasonable amount of data – Before identifying a particular trend it is very
important to look at a reasonable amount of data for the respective trading time period.
Which means, by analyzing an intraday chart, one cannot identify the medium term or a long
term trend. While trading for intraday, advisably we should be looking at a data of past 2-3
days. While taking a swing trade (for 2 to 10 days), we should be looking at a data of past 2-3
weeks. While taking a positional trade (for few weeks to few months), we should be looking
at a data of past 2-3 months at least.

Volumes – Force behind the trend – Volumes are the yellow bars we can see at the
bottom of any price chart. It refers to the no. shares traded for the respective time period.
It is also referred as the momentum. It is said to be the force behind the price as it indicates
the strength of a particular price action. Any price move, either up/down, should happen
with increasing volumes which indicates that the movement is happening with an increasing
participation. An upward or a downward price movement with low or decreasing volumes,
suggest that the movement may not be sustainable. However, it is very important to note
that volumes should be used as a supporting factor while taking a trade. The decision to take
a trade should depend on the important factors like Support and Resistance areas, price
trends, Trendlines, etc.

Short Term Trading

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Smart Trader’s Checklist

1. Identify Broad market trend and its strength as 60% of the stocks follow the
trend in the broader markets. It is advisable to take long trades when the
broader market is in an uptrend and vice a versa.

2. Check for stocks following the broader market trend – Selection of stocks for
trading should depend upon its liquidity and volatility. The stocks should very
liquid (volumes more than 2-5 lakh shares per day) and should be reasonably
volatile (at least 5% average daily movement).

3. Trade in the direction of the trend.

4. Take out 3 Supports and 3 Resistances level before taking any trade.

5. Don’t consider used Supports and Resistances.

6. Don’t enter a position before identifying the Stop Loss.

Short Term Trading

Training Material

Plan of Action
Basing / Consolidation / Sideways trend – It’s advisable not to trade
in the basing area and wait for a breakout on either side. If one wants
to trade the range – DON’T OVERTRADE.

Uptrend – BUY when price is near a demand area or surpasses the

supply area.

Downtrend – SELL when price is near a supply area or breaks the

demand area.

***Please refer the videos of Tool’s – ‘Trend is your Friend’ for

further clarification

Short Term Trading

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All the Best!
 Disclaimer
• Registered Office: Sharekhan Limited, 10th Floor, Beta Building, LodhaiThink Techno Campus, Off. JVLR, Opp.
Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai - 400042, Maharashtra.
• Tel: 022 – 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX – Commodity:
INZ000171337; DP: NSDL/CDSL-IN-DP-365-2018; PMS: INP000005786; Mutual Fund: ARN 20669; Research Analyst:
INH000006183; MCX Member id – 56125
• For any complaints email at igc@sharekhan.com
• Compliance Officer: Mr. Joby John Meledan; email id: compliance@sharekhan.com; Tel: 022-61150000.
• Disclaimer:
• Investments in securities are subject to market risk. You are requested to read and understand the Risk Disclosure
document, Offer Documents, Information Memoranda, terms and conditions, policies and procedures, and Rights
and obligations carefully before investing. Please verify all scheme related information before investing. You should
be aware that past performance is not necessarily a guide to future performance and value of investments can go
down as well. In the training there may be references to securities, those references do not constitute a
recommendation to buy, sell or hold such securities. The user assumes the entire risk of any use made of this
information. For any reference of any security in the training, you should make such investigations as it deems
necessary to arrive at an independent evaluation of an investment in securities of companies and may consult your
own advisors to determine the merits and risks of such an investment. The investments discussed or views
expressed may not be suitable for all investors and there may be other / better alternatives to the investment
avenues recommended by Sharekhan. This material is for private circulation only and only intended for direct
recipients of this material from authorized sources of Sharekhan Limited. This material should not be reproduced,
copied, circulated or distributed to any other person without approval of Sharekhan Limited. Sharekhan Limited
shall not be responsible for any unauthorized circulation, reproduction or distribution of this material or contents
thereof to any unintended recipient. The charts, graphs and figures displayed are exemplary and not real.