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Hey there 👋🏼
Today in less than 5 minutes:
1) Why consolidations are good
2) The Checkmate Trading Strategy
3) Example trade
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Stop & Reverse in Trading
Imagine a spring being pressed down on a table, storing energy with every bit of compression. Suddenly, you release your hand, and the spring leaps up, releasing all its stored energy instantly.
Now think of this coiled spring as a market in consolidation, where prices move in a tight range, quietly building tension. This moment you release your hand, equivalent to the price breaking out, the market bursts out of its range, sending prices soaring or plummeting.
Such significant moves can lead to immense profits, only if you can identify such ‘compression phases’.
✨ You can learn several profitable strategies with Upsurge PRO, subscribing to which you get access to 50+ courses on trading & investing taught by industry experts.
Worry not, since we have a strategy that can help you identify a ‘compression’ phase, helping you predict and trade the next breakout ↓
Checkmate Trading Strategy
The strategy
The strategy we will be learning today is all about capitalizing on consolidation breakouts, also known as the ‘Checkmate strategy’. It involves:
- Waiting for sideways price movement, i.e. a consolidation
- Entering the trade when the price breaks out of the consolidation
- Having a decent risk-to-reward ratio.
We will be using the following stock universe & time frame for this strategy:
- Stock Universe: NSE 200
- Time frame: Can be used across time frames
You can plot trendlines and patterns on TradingView, a freely available charting software. Learn to make the most of it with our How to Use TradingView course, a full guide on how to use multiple tools to draw on charts and build your trading set-up.
Here’s how we will enter and exit a trade using this strategy:
LONG TRADE 1) Look for a sideways price movement after a clear downtrend. 2) Draw a rectangle pattern to visualize the consolidation forming after the downtrend. 3) An entry is triggered on the candle that breaks out of the rectangle, breaching its upper zone. 4) The lower zone of the rectangle acts as a stop-loss. 5) A target can be marked with a risk-to-reward ratio of at least 1:1.5, i.e. at 1.5x of the rectangle’s height above the entry price. | SHORT TRADE 1) Look for a sideways price movement after a clear uptrend is visible. 2) Draw a rectangle pattern to visualize the consolidation forming after the uptrend. 3) An entry is triggered on the candle that breaks out of the rectangle, breaching its lower zone. 4) The upper zone of the rectangle acts as a stop-loss. 5) A target can be marked with a risk-to-reward ratio of at least 1:1.5, i.e. at 1.5x of the rectangle’s height below the entry price. |
✅ Even if the breakout/breakdown fails, continue holding until the stop-loss is breached.
Read on to see an example trade using the above strategy…
Learn to decode trends, reversals, and catch momentum in stocks for deploying several swing trading strategies in Mr. Himanshu Arora’s Momentum Swing Trading Course.
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Ask us anything!
Do you have any doubts related to this strategy, or want to learn something else? Reply to this email & let us know!
Long trade in Tech Mahindra (TECHM)
Here’s an example of the strategy playing out:
TECHM, 1H
Entry
On 7th November 2023, an entry was triggered in Tech Mahindra (TECHM) at ₹1,148.70 as per the strategy. A clear downtrend was established in the 1-hour time frame, and a consolidation was visible, marked by a rectangle pattern (orange).
The stop loss was placed at the bottom end of the rectangle (at ~ ₹1.093.45) and a target price of ~ ₹1,214 was set.
Though the price did break out on that day, and it could not retest the high of the rectangle too, the stop loss (bottom of the rectangle) was still not breached.
Exit
Soon after, another breakout was seen and the target was achieved on 17th November, yielding a gain of 5.7%!
Note that we are not SEBI-registered advisors and none of the above trades are intended as recommendations. Do your own due diligence before trading/investing.
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