Table of Contents

Chapter 1:
Understanding Markets…………………………………………………………………………………

Chapter 2:
Chapter 1
Understanding Markets

One of the key reasons most traders fail to achieve consistent success is that they do
NOT understand the game they are playing.
 They fail to understand the true nature of the markets.
 They fail to understand the true nature of the game of trading.

Most trading books and courses focus on price movement, patterns and indicator based
signals. They’re missing a key fundamental concept that underlies this price movement.

At the end of this chapter, you’ll have a clear understanding of:

 The true nature of the markets.
 The true nature of the trading game.

Plato’s Allegory of the Cave

In other words,
That, which is perceived to be reality, is actually an illusion.
Or
Jo dikhta hai wo hota nahi, aur jo hota hai who dikta nahi.

The same applies to trading.

Successful trading is to feel the reality that forms the shadows. That is, the reality
that produces the price movement, then indicators and the patterns.
The reality is not just “price‟.
It exists at an even deeper level of understanding – that which creates price and price
movement.

What is Price? Price is two traders making a buy and sell decision.
Why Price moves? Supply & Demand

 Price rises while demand is greater than supply, and while those buyers are
willing to pay higher prices.
 Price rises until we run out of buyers, or until supply increases sufficiently to
absorb all the demand.
 Price falls while supply is greater than demand, and while those sellers are
willing to sell at lower prices.
 Price falls until we run out of sellers, or until demand increases to the point it
absorbs all the supply.

price movement is a result of supply/demand imbalance.

And the supply/demand imbalance is created by trader’s sense of urgency to transact.

Market is an auction place. The role of the marketplace is to facilitate trade between
buyers and sellers. Price continually auction higher and lower as it attempts to find an
area where trade can be easily facilitated.

[e.g. sosa @ 200 per kg]

Sometimes, stocks/securities are in price discovery phase & price needs to test higher
or lower in order to find a compromise between buyers and sellers.

[Bakery shop @20rs 1000 sale/w then @30rs 1000 sale/w then @35rs 500
sales/week. So price set @30]

This example gives a picture of why you will see price rally through resistance only to
sell off sharply, or drop through support only to rally. To understand the auction
process further, let's understand its participants: buyers and sellers.

THE TYPES OF BUYERS AND SELLERS

There are two types of buyers and two types of sellers. Your ability to determine which
market participants are influencing price will allow you to judge the conviction and
behavior of price movement.

A buyer that enters the market when price is below value is considered a responsive
buyer. Likewise, a responsive seller enters the market when price is above value.
Responsive buying and selling will typically drive price back toward the mean,
sending price toward an area that is considered fair value by the market. Therefore,
price movement is short-term oriented and lacks true conviction.

An initiative buyer enters the market when price is at or above value. This type of
buyer is taking the initiative to push price to a higher area of value. This type of
buying would cause other buyers to enter the market in masses, causing price to
explode to new heights.
Along the same lines, an initiative seller enters the market when price is at or below
value. This seller is taking the initiative to push price to a lower area of value. Initiative
participants have greater conviction behind their behaviors, which has a greater
influence on price. These types of moves indicate a more confident buyer or seller,
which is then reflected in aggressive price movement.
THE TYPES OF MARKET DAYS
 There are Six types of market days that we will cover.
 These types of days are repeatedly seen in the market because of trader
psychology, and human psychology, and that will never change;
But no two days are ever identical.
 These categories should be used more as guidelines.

1. Trend Day
 The Trend Day is the most aggressive type of market day.
 On a bullish Trend Day, usually 1st candle low marks the day's low, while the
close usually marks the day's high. [Vice-Versa]
 Initiative buying or selling is the culprit on this type of market day.
 Price conviction is strongest during a Trend Day.

2. Double-Distribution Trend Day

 Also a trending day, without any confidence or conviction of a Trend Day.
 indecisive nature in opening session.
 Trading within a tight range for the first hour or two of the session.
 Create a narrow initial balance.
 Now price break out from the range and auction toward new value, where it will
form a second distribution of price.
 This is the market's attempt at confirming whether new value has indeed been
established.
 3. Typical Day

 Characterized by a Wide Initial Balance (IB)

 Price move sharply in opening session and moves far enough, establishing the
day's trading extremes.
 Now responsive players came in market & push price back to mean.
 The market then trades quietly within IB rest of the day.
 The opening rally usually sparked by economic news, global event.
 4. Expanded Typical Day

 Moderate Initial Balance.

 IB is wider than Double-Distribution Trend Day
 But not as wide as Typical Day, which leaves it a chance to violation later in the
session.
 Eventually, one of the day's extremes is violated and price movement is seen in
the direction of the break.
 Which is usually caused by initiative players.

Note: during an Expanded Typical Day, one or both of the boundaries of the initial
balance are susceptible to violations.

5. Trading Range Day

 This type of day is basically like a game of tennis.

 On this day, the IB is as wide as Typical Day.
 But instead of quietly trading within these two extremes throughout the day,
buyers and sellers are actively pushing price back and forth.
 6. Sideways Day
 No directional conviction.
 The initial balance is narrow, which at first indicates the potential for a Double
Distribution Trend Day.
 However, no initiative players enter the market, which leaves the market terribly
quiet the rest of the session.
 This type of session usually occurs ahead of the release of a major economic
report or news event, or in advance of a trading holiday.
Chapter 2
Price Action & Candle sticks

What is Price action in Trading?

In Price action trading, Trader makes decision based on candle by candle movement on
the chart, not based on any lagging indicators like MACD / RSI / Bollinger bands /
Stochastic etc.

Price action and Candle patterns keep repeating because of Human Emotions.

ANATOMY OF A CANDLESTICK:

3 Important candlestick patterns in Day Trading:

Candlesticks are important only at the Right Location

Marubozu Candle
• The most powerful Bullish / Bearish candle.
• Most commonly happens near breakout.

Doji reversal setup

Pin bar
Bullish candle Rank wise

Bearish candles Rank wise

Chapter 3
Pivot Points & CPR

My trading career significantly changed when I first discovered the power of Floor
Pivots. After combining Pivot & Candle I have never look back and I had finally joined
the Traders Club.

Basics of Pivot Points

Pivot Points are most underrated in the Trading community but most powerful tool, I
hardly see any new trader trading with pivots, instead, they are running after lagging
Indicators like RSI, MACD, Stochastic, Etc.…. The reason could be they look fancier tools
and Pivots are just lines on the chart.

What are Pivots?

 Pivots are simply support & Resistance, calculated based on the average price of
high, low & close of previous day/week/month.

 Pivots are stagnant on Chart; it is same on all time frame. Unlike others lagging
indicators, Pivots doesn’t change as you change your timeframe, once Pivots are
plotted on your chart at the market opening, it’s stagnant till market closes.

 Pivots are purely derived by price; pivots are Leading Indicator.

Lagging Indicators- Indicators that gives delayed signals. E.g. MACD, RSI, BB
Leading Indicators- Indicators which gives a signal in well in advance

 Most Importantly, Pivots are used by Big players, Professionals, Institutes, etc.
Pivot Points Calculation

R3 = R1 + (High - Low)
R2 = Pivot + (High - Low)
R1 = 2 x Pivot - Low
Pivot = (High + Low + Close)/3
S1 = 2 x Pivot – High
S2 = Pivot - (High - Low)
S3 = S1 - (High - Low)

Types of Pivots
 Traditional(Standard)
 Fibonacci pivots
 Woodies Pivots
 Camarilla Pivots

Important Pivot Points in Day Trading

There are Daily, Weekly, Monthly and Yearly pivots, but which is the most powerful
one?

• In Day Trading, Daily pivots are more powerful than Weekly or Monthly
• For weekly positions Weekly pivots are Important
• For monthly positions monthly pivots are Important
• For Investment Yearly Pivots are important

• 15 min or Below Candle – we use Daily Pivot; for 1 hr. Candle – Weekly Pivot,
1d – Monthly, 1w – Yearly Pivots are considered.
 CPR – Central Pivot Range

CPR is unarguably the most powerful Support & Resistance on your chart, where price
likely to change its direction most of the time.
o It is the heartbeat of the indicator.
o it can forecast trending or sideways price behavior,
o dictate the day's direction.

As long as the price is above CPR, it is a bullish day, and as long price trading below CPR
it’s a bearish day. (It’s a guideline...Not hard n Fast rule)

Knowing where is current day CPR can give you Edge in Trading.
So, it is advised not to go Long when CPR is just above the candle and not to short the
candle if there is CPR is just below it.
TWO-DAY CPR Relationships

There are seven types of 2 Day relationships to analyze the current strength and
direction of the market:

Higher Value Bullish

Overlapping Higher Value Moderately Bullish
Lower Value Bearish
Overlapping Lower Value Moderately Bearish
Unchanged value Sideways/Breakout
Outside Value Sideways
Inside Value Breakout

Each of the seven CPR relationships depend on two important prices:

1. Prior day's closing price and

2. Current day's opening price.

Where the market closes in relation to the pivot range gives you an initial directional
bias for the following session. The next day's opening price will either confirm or reject
this bias, which then gives you a road map for which type of trade you should be
prospecting.

Let's take a look at the first two-day relationship:

1) The Higher Value relationship

If price closed above its pivot range in the prior session, the market is positioned to
move higher in the upcoming session. However, how the market opens the day will
either confirm or reject this initial bias.
Case 1 [Confirming initial Bias]:
If the market opens the day anywhere above the CPR, it indicates that market sentiment
remained bullish overnight. When this occurs, any pull-back to the CPR will likely be
met with responsive buying activity (i.e. Buying opportunity).
Case 2 [Rejecting initial Bias]: If opening print rejected the bullish bias by opening
well below the pivot range, you must observe price to pivot behavior as a test occurs at
the pivot range. A rejection at the pivot range create another round of selling pressure.
When this occurs, initiative participants are extremely eager to push price to new value.
2) Overlapping Higher Value relationship
Offers a moderately bullish outlook for the upcoming session. This relationship
occurs when today's pivot range is higher than yesterday's range, but overlaps to
some degree.
 3) The Lower Value relationship
Occurs when the current day's pivot range is completely lower than the prior
session's range. This is the most bearish two-day relationship. and typically leads to
further weakness should the current day's opening price confirm the directional
bias.

Case 1 [Confirming initial Bias]:

If price opens the session below the central pivot range, you will look to sell any pull-
back to the range ahead of a drop to new lows within the current trend.
Case 2 [Rejecting initial Bias]:
Here opening print did not confirm the bearish directional bias. Instead, price opened
the day above the central pivot range, which is emphatically bullish.
This is a perfect example of a drastic shift in market sentiment occurring overnight.
When this occurs, initiative participants are extremely eager to push price to new value,
which sparks a major move in the direction of the break, which was up in this case.

[Ideal case is price open Above PDH]

4) Overlapping Lower Value relationship
Offers a moderately bearish outlook for the upcoming session. This relationship
occurs when today's pivot range is lower than yesterday's range, but overlaps to
some degree.
 5) Unchanged Value relationship
This type of relationship occurs when the current pivot range is virtually
unchanged from the prior day's range. It can project Two very different outcomes.
Outcome is typically driven by the opening print of the current session.

Case 1: If the market opens near the prior session's closing price and well within the
prior 2-3 day's range, the market will trade quietly within the boundaries of the existing
trading range.

Case 2: If the opening print occurs beyond the prior day's price range, the chances are
high that a breakout opportunity may lie ahead.
6) Outside Value relationship
The Outside Value relationship occurs when the current day's pivot range
completely engulfs the prior day's range. This two-day relationship typically
implies sideways or trading range activity, as the market is happy with the current
price range.
7) Inside Value relationship
In Inside Value scenario, current day's pivot range is completely inside the prior
day's range. This two-day relationship typically indicates a Breakout Opportunity
for the current session.
In an ideal case, if market opens the day beyond the prior day's price range, there is a
very high chance that initiative participants will enter the market with conviction in
order to push price to new value, since market sentiment has clearly changed overnight.

As a quick reference, the two-day Pivot range relationships.

CPR WIDTH FORECASTING
It is extremely important to understand how the market behaved in the prior day in
order to forecast upcoming day.
--- More specifically, if the market experienced a wide range of movement in the prior
session, the CPR for the following day will likely be wider than normal, which usually
leads to a Typical Day, Trading Range Day, or Sideways Day scenario.
--- Conversely, if the market experiences a very quiet trading day in the prior session,
the CPR for the following day are likely to be narrow, which typically leads to a Trend
Day, Double-Distribution Trend Day, or Extended Typical Day scenario.
Narrow CPR
Typically, a narrow central pivot range indicates the market traded sideways or
consolidated in the prior session. As such, this price behavior usually leads to breakout
or trending behavior in the following session.
Narrow CPR forecast:
--Trend Day
--Double-Distribution Trend Day or
--Extended Typical Day

Remember, Only-If the market breaks free from the prior day's price range, a Trend
Day could be seen. If price opened the day within the prior day's price range, which
means you must wait for a violation of the prior day's range before considering a trade.
If the opening print confirms a drastic change in market sentiment by opening beyond
the prior day's price range, you are likely to see an explosive breakout opportunity.
Extra Note: Sometimes a Narrow CPR day experience a sideways trading behavior. In
this scenario, a trend day may be seen on next day.
Wide CPR
Typically, a wide CPR indicates that market traded in a wide range in the prior session.
Wide CPR Forecast:
--Typical Day
--Trading Range Day
--Sideways Day scenario

The key to trading a day when the centrals are wide is to identify the day's initial
balance after the first hour of trading. If the initial balance has a wide enough width,
you are likely to see trading range behavior within the high and low of the first sixty
minutes of the day.
  If CPR is Wide, market is less likely to reach pivots beyond the second layer
(S2/R2).

Being a trader means being prepared and do in advance what the market is likely to
do. Anytime you have an edge in trading, you are putting yourself in a position to
profit.
 Price Vs CPR Width

 If CPR is narrow its easy for price to penetrate the CPR.

 More wider the CPR, more difficult for price to penetrate, so wider-CPR is more
powerful than narrow-CPR
 Virgin CPR
On any specific day, if price did not touch its CPR it will be considered as Virgin CPR for
next coming Days (preferably 5-6 Trading days)

Virgin CPR is one of the most powerful CPR.

Price generally respects Virgin CPR at morning session, compared to mid to late
afternoon.

If there is virgin CPR, and today after opening price approaches that level then that
Virgin CPR works as a strong support or resistance.

Sometime there is no candles inside the CPR, but only one or two wicks touched the
CPR, still you can consider it as Virgin CPR and it’s still very powerful as
support/resistance.
 Chart Preparation
Prepare your own charts at least 30 minutes before market opens. Once the market
opens you must be ready with your chart with important levels marked.

Turn your attention to world markets (specially SGX Nifty), that will give you a hint on
how our market likely to open. SGX Nifty is traded on Singapore stock market, most of
the time Nifty takes a hint from SGX Nifty and opens accordingly.

I always advise my students, if there is going to be any Events day, take a trading
Holiday. Because, on events day, price moves purely on News, nothing works. E.g.
Election result, Exit poll result, FM Press conference, RBI Policy, Major economic events
etc.

Professional traders use 2 to 5 Min. Time Frame for Day Trading (But for me 5 Min
Time frame is most ideal for Day Trading)

Important levels on your chart for Day Trading

 CPR + Pivot points (1st & 2nd Layer)

 Previous Day High (PDH)
 Previous Day Low (PDL)
 Virgin CPR
 Previous supply zone (Selling zone)
 Previous demand zone (Buying zone)
 Swing high/Swing low [Mark on Day Timeframe]
 GAP Border [Mark on Day Timeframe]

Only Indicator that I Use: Exponential Moving Average (EMA 21)

PDH-PDL
PDH & PDL is an important level for a Price Action Trader.
But it becomes much more important level when market opens above/below the
previous day range.
Supply & Demand Zone
Supply zones are the specific zones from where sell-off started. [in smaller timeframe]

Demand Zone are the specific zones from where buyers pushed prices up.
Swing high/Swing low
swing high is the top point reached by price before it declines.
Swing Low is just the opposite of it. It Marked on higher timeframe unlike supply
demand zone.

Above image shows Swing-High & Low marked on Day timeframe.

Below image shows how on 15th Feb candle taking support on Swing Low [on 5 min
timeframe]
GAP Border
Markets don’t like Gaps. If there is a GAP on chart, then very high chances that those
Gaps gets filled sooner or later (sometime Gaps remain forever).

Borderline of Gaps also act as a strong Support or Resistance. Whenever price comes
close to that border, price bounces at least once (sometime twice) before Gaps getting
filled.

In this image shows how price reacted on GAP Border on Higher Timeframe

Below shows what happened on 19 Mar [marked 1 on above image] on 5-Min

timeframe
Nifty & Bank Nifty moves in Sequence (most of the time)

Sometime it happens that Nifty is showing bullish pattern but Bank Nifty facing CPR
resistance, I don’t consider such trades.

Sometime Nifty showing bullishness and Bank nifty on sideways but it doesn’t have any
resistance above it, in such cases I consider the trade in Nifty because Bank Nifty
doesn’t have any resistance above it
(vice versa)
Trading Mindset

Rule No. 1:
Trading is a Game of Probability

Rule No. 2:
Never forget Rule No. 1
My Day Trading patterns & Strategies