KAGI CHARTS KAGI CHARTS BREAKOUT BREAKOUT

SYSTEMSYSTEM

SYSTEM 1SYSTEM 1

Buy a stock on breakout on a closing basis on Buy a stock on breakout on a closing basis on the kagi chartsthe kagi charts

Keep the reversal for the stock at 3%.Keep the reversal for the stock at 3%. Close the position if the stock retraces 5% Close the position if the stock retraces 5%

intraday or 3% on a closing basis from the intraday or 3% on a closing basis from the highest close.highest close.

Trail the stop loss as long as the stock keeps Trail the stop loss as long as the stock keeps moving up on a closing basis.moving up on a closing basis.

2 ball park targets are 25% and 50%.2 ball park targets are 25% and 50%. Try and get at least 10 positive returns out of Try and get at least 10 positive returns out of

20 trades.20 trades.

Selection of stocks should be on the basis of Selection of stocks should be on the basis of momentum. Always select stocks which are momentum. Always select stocks which are of a bullish in nature. That is they are of a bullish in nature. That is they are making higher tops and higher bottoms.making higher tops and higher bottoms.

If there is an event like results, fed meet, If there is an event like results, fed meet, etc. then avoid taking fresh positions ahead etc. then avoid taking fresh positions ahead of events or square off existing positions.of events or square off existing positions.

Select 35 to 40 stocks keeping in view Select 35 to 40 stocks keeping in view liquidity, their past performance and liquidity, their past performance and fundamentals. Stick to frontlines and large fundamentals. Stick to frontlines and large caps and few of the mid caps. caps and few of the mid caps.

Advantages of System 1Advantages of System 1

The losses will be restricted to -0.1% The losses will be restricted to -0.1% to -5% where as the profits will be to -5% where as the profits will be between +0.1% to 50%.between +0.1% to 50%.

The breakouts may occur at a early The breakouts may occur at a early stage and may result in a greater stage and may result in a greater percentage move.percentage move.

Disadvantages of System Disadvantages of System 11

If the Nifty is in a bearish zone then there are If the Nifty is in a bearish zone then there are greater chances of your position to be stopped greater chances of your position to be stopped out. As even a 2% negative movement on the out. As even a 2% negative movement on the Nifty would mean that the stock would hit the Nifty would mean that the stock would hit the stop loss.stop loss.

If this bearishness in the Nifty last for a long If this bearishness in the Nifty last for a long time say 2 to 3 months then you can have 4 to 5 time say 2 to 3 months then you can have 4 to 5 or even more positions getting stopped out in or even more positions getting stopped out in succession resulting in erosion of huge capital .succession resulting in erosion of huge capital .

This system can also have huge number of This system can also have huge number of breakouts in a short period of time resulting in breakouts in a short period of time resulting in over trading and subsequent lossesover trading and subsequent losses

In order to tackle the disadvantages In order to tackle the disadvantages arising out of System 1, I have arising out of System 1, I have developed System 2. In this system developed System 2. In this system we also take consideration of the we also take consideration of the Nifty before taking positions in any Nifty before taking positions in any stock. stock.

System 2System 2

Track the Nifty on the Kagi Charts. Keep Track the Nifty on the Kagi Charts. Keep the point reversal in Nifty as 100 points.the point reversal in Nifty as 100 points.

Buy or take position in any stock on Buy or take position in any stock on breakout only if Nifty and the stock has breakout only if Nifty and the stock has given a breakout based on the Kagi Charts.given a breakout based on the Kagi Charts.

Once position in the stock has been taken Once position in the stock has been taken then use the same principles of System 1.then use the same principles of System 1.

Close the position if the stock retraces 5% Close the position if the stock retraces 5% intraday or 3% on a closing basis from the intraday or 3% on a closing basis from the highest close.highest close.

Trail the stop loss as long as the stock keeps moving up Trail the stop loss as long as the stock keeps moving up on a closing basis.on a closing basis.

2 ball park targets are 25% and 50%.2 ball park targets are 25% and 50%. Try and get at least 10 positive returns out of 20 trades.Try and get at least 10 positive returns out of 20 trades. Selection of stocks should be on the basis of Selection of stocks should be on the basis of

momentum. Always select stocks which are of a bullish momentum. Always select stocks which are of a bullish in nature. That is they are making higher tops and in nature. That is they are making higher tops and higher bottoms.higher bottoms.

If there is an event like results, fed meet, etc. then If there is an event like results, fed meet, etc. then avoid taking fresh positions ahead of events or square avoid taking fresh positions ahead of events or square off existing positions.off existing positions.

Select 35 to 40 stocks keeping in view liquidity, their Select 35 to 40 stocks keeping in view liquidity, their past performance and fundamentals. Stick to frontlines past performance and fundamentals. Stick to frontlines and large caps and few of the mid caps.and large caps and few of the mid caps.

Advantages of System 2Advantages of System 2 The losses will be restricted to -0.1% to -5% The losses will be restricted to -0.1% to -5%

where as the profits will be between +0.1% to where as the profits will be between +0.1% to 50%.50%.

The positions in stocks would be taken only if The positions in stocks would be taken only if the Nifty is in a bullish mode. This would the Nifty is in a bullish mode. This would increase the probability of trade being increase the probability of trade being profitable.profitable.

A lot of the stock breakouts would be ignored A lot of the stock breakouts would be ignored if the Nifty has not given a breakout. This if the Nifty has not given a breakout. This would result in a limited number of trades would result in a limited number of trades with greater probability of profits then losses.with greater probability of profits then losses.

The system is simple and not very complex. The system is simple and not very complex.

Break Out ChartBreak Out ChartThe position in the stock is taken when the stock breaks out on a closing basis above the previous top.

Break Out on a Closing Basis

Reversal ChartReversal Chart

Break Out on a Closing Basis

Reversal Line

The reversal line is made only when the stock reverses 3% on a closing basis from the highest or lowest close.

Simplicity is the soul of efficiency.Simplicity is the soul of efficiency. There are two ways of constructing a software There are two ways of constructing a software

design: One way is to make it so simple that design: One way is to make it so simple that there are obviously no deficiencies, and the there are obviously no deficiencies, and the other way is to make it so complicated that other way is to make it so complicated that there are no obvious deficiencies.there are no obvious deficiencies.

- C. A. R. Hoare- C. A. R. Hoare A complex system that works is invariably A complex system that works is invariably

found to have evolved from a simple system found to have evolved from a simple system that worked.that worked.