STAGE 2 BREAKOUT TRADING - QUICK REFERENCE SHEET

✅ PRE-TRADE CHECKLIST (ALL MUST BE TRUE)

📊 MARKET ENVIRONMENT (MANDATORY)

[ ] Nifty 50 above 50-day MA
[ ] Nifty 50 above 200-day MA
[ ] Nifty making higher highs & higher lows
[ ] Midcap/Smallcap index in uptrend (if trading those)
[ ] Positive or neutral FII flows

📈 SECTOR STRENGTH

[ ] Sector index in uptrend (preferred)
[ ] Sector outperforming Nifty
[ ] Multiple stocks in sector showing strength

🎯 STOCK SETUP

[ ] Stock breaking above base (4-12 weeks minimum)
[ ] Clear pivot point identified
[ ] Volume 40-50%+ above average on breakout
[ ] Stock above 200-day MA (or breaking above)
[ ] 50-day MA rising or crossed above 200-day MA
[ ] Stock outperforming Nifty (RS improving)
[ ] Stock among leaders in its sector

🚦 TRAFFIC LIGHT SYSTEM

Signal	Nifty Position	Action	Position Size	Stop Loss
🟢 GREEN	Above 50 & 200 MA	Trade normally	100%	7-8%
🟡 YELLOW	Below 50, above 200 MA	Reduce activity	50%	5-6%
🔴 RED	Below 200 MA	Cash only	0%	-

💰 ENTRY RULES

BUY WHEN:

Stock breaks pivot point with volume
Within 5% of breakout price
On positive market day (preferred)

POSITION SIZING:

Risk only 1-2% of total capital per trade
Example: ₹5 lakh account → Max risk ₹10,000 per trade
If stop is ₹40/share → Buy max 250 shares

DON'T BUY IF:

Stock already 10%+ past pivot (too extended)
Low volume on breakout
Market/sector in downtrend
Late in the day with big gap up

🛑 STOP LOSS STRATEGY

METHOD 1: FIXED STOP (For New Positions)

Set at 7-8% below entry
Non-negotiable
Exit on close below this level

METHOD 2: TRAILING STOP (For Profitable Positions)

Switch to MA trailing when stock up 10%+:

Timeframe	MA to Use	Style
Short-term	10-day MA	Aggressive
Medium-term	20-day MA	Balanced
Long-term	50-day MA	Patient

GOLDEN RULE: Never let a winner turn into a loser!

📐 POSITION MANAGEMENT FLOW

1. ENTRY (₹500)
   ↓ Set 8% stop at ₹460
   
2. UP 10% (₹550)
   ↓ Move to 20-day MA trail (₹540)
   
3. UP 20-25% (₹625)
   ↓ Take 25-50% profit
   ↓ Trail rest with 20-day MA
   
4. BREAKS MA
   ↓ EXIT remaining position

🎲 RELATIVE STRENGTH (RS) PRIORITY

Check in this order:

Stock vs Nifty → Must be outperforming
Stock vs Sector → Should be among top 3-5 leaders
Sector vs Nifty → Sector showing leadership (bonus)

Best scenario: Stock is #1 in a leading sector

⚠️ BEAR MARKET RULES

If Nifty Below 200-day MA:

OPTION 1: Stay in Cash (Recommended)

Preserve capital
Wait for market confirmation

OPTION 2: Trade Selectively (Advanced Only)

Only extreme RS stocks (new highs while market new lows)
Defensive sectors only (Pharma, FMCG, Utilities)
25-50% normal position size
5-6% stops (tighter)
Take profits at 10-12% (faster)
Maximum 1-2 positions

❌ DEADLY MISTAKES TO AVOID

❌ Trading when Nifty below 50 & 200-day MA
❌ Chasing stocks 10%+ past pivot
❌ Ignoring volume on breakout
❌ No stop loss or moving it lower
❌ Letting 10% winner become 5% loser
❌ Risking more than 2% per trade
❌ Averaging down on losers
❌ Overtrading in sideways/down markets
❌ Buying based on tips without setup
❌ Holding through 200-day MA break

📅 DAILY ROUTINE

BEFORE MARKET OPEN:

Check Nifty vs 50/200-day MA
Review sector indices
Scan watchlist for setups
Check FII/DII data
Set price alerts on pivots

DURING MARKET:

Monitor breakouts with volume
Execute entries in buy zone (within 5% of pivot)
Watch existing positions
Update stops if needed

AFTER CLOSE:

Adjust trailing stops
Update watchlist
Journal trades (what worked/didn't)
Plan for tomorrow

💡 EXAMPLE CALCULATION

Account Size: ₹5,00,000
Max Risk Per Trade: 2% = ₹10,000

Stock Setup:

Entry: ₹500
Stop: ₹460 (8% = ₹40/share)
Risk per share: ₹40

Position Size: ₹10,000 ÷ ₹40 = 250 shares maximum

Investment: 250 × ₹500 = ₹1,25,000 (25% of capital)

🏆 SUCCESS FORMULA

RIGHT MARKET (Nifty uptrend)
    +
RIGHT SETUP (Stage 2 breakout + volume)
    +
RIGHT RISK (7-8% stop, 1-2% capital risk)
    =
HIGH PROBABILITY SUCCESS

📊 MARKET vs SECTOR DECISION MATRIX

Nifty	Sector	Your Action
✅ Up	✅ Up	TRADE FREELY
✅ Up	❌ Down	Caution - only extreme RS
❌ Down	✅ Up	High risk - small size only
❌ Down	❌ Down	CASH - NO TRADING

🎯 THE 3 CORE PRINCIPLES

TREND IS YOUR FRIEND
- 75% of stocks follow market
- Never fight the trend
- Market > Sector > Stock
CUT LOSSES, LET WINNERS RUN
- Small losses (7-8% max)
- Big wins (20-50%+)
- Trail winners with MA
CAPITAL PRESERVATION
- Cash is a position
- Miss 10 trades > Take 1 bad loss
- Live to trade another day

📱 QUICK DECISION TREE

When you spot a potential trade:

Is Nifty above 50 & 200-day MA?
    ↓ NO → DON'T TRADE
    ↓ YES
    
Is sector in uptrend?
    ↓ NO → SKIP (or extreme caution)
    ↓ YES
    
Stock breaking pivot with volume?
    ↓ NO → WAIT
    ↓ YES
    
Within 5% of pivot point?
    ↓ NO → TOO LATE
    ↓ YES
    
Can you risk 1-2% of capital?
    ↓ NO → POSITION TOO LARGE
    ↓ YES
    
    → ✅ TAKE THE TRADE

🔑 KEY NUMBERS TO REMEMBER

7-8% = Maximum stop loss
5% = Maximum chase above pivot
1-2% = Capital risk per trade
10% = Switch to trailing stop
20-25% = Consider taking partial profits
40-50% = Minimum volume increase on breakout
4-12 weeks = Ideal base duration
50 & 200 = Key moving averages for Nifty

⚡ WHEN IN DOUBT

Remember:

If setup isn't perfect → WAIT
If market is weak → CASH
If you're confused → DON'T TRADE
The best trade is the one you don't take when conditions aren't right

New opportunities appear EVERY SINGLE WEEK when market is healthy!

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INTELLECTUAL TRADING