How to Use Technical Analysis to Trade Futures

CA Manish Singh: 
Hello everyone, and welcome to Chapter 19. 
Up to this point you have understood what Futures are, what a long position means, and what a short position means. Now the question is very simple: what do you do with this knowledge? 

Eventually everything comes down to trading. 
How do you trade? 
How do you decide where to enter and where to exit? 
That is where technical analysis comes in. 

We will now use everything we learnt earlier to understand how to trade Futures with more clarity. 

Understanding Confirmations 

CA Manish Singh: 
Let us start with one basic idea. 
If you enter a trade based on only one confirmation, the probability of being right or wrong is almost the same. But if you add more confirmations, the chance of being wrong starts reducing. 

For example, suppose you feel the market can move up from a certain level. You decide to go long in Futures. At this point you are either right or wrong. 

Now imagine you look for an additional confirmation. 
You check whether the price is trading above important moving averages. That adds strength to your view. 
You check whether there is buying volume. That adds another layer of confirmation. 

More confirmations mean the probability of your view being correct becomes stronger. And this is why we use technical analysis. 

Moving to the Chart 

CA Manish Singh: 
Let us look at the Nifty Futures chart. This is the July Futures contract. 

What did we learn first in technical analysis? 
Support and resistance. 
Candlestick patterns. 
Basic structures. 

Now look at this candle here. It is a big candle with almost no wick. 
This is a classic Marubozu candle. 
A Marubozu usually indicates strong directional interest. 

If this candle forms near a resistance zone and the market begins trading above that resistance, it can give you a potential long trade. Why? 
Because: 

• The Marubozu suggests strong buying
• Price is near resistance
• A breakout may confirm continuation 

If you take a long position here, where would your stop-loss be? 
Either near the midpoint of the Marubozu candle, or near the new support that forms once the resistance is broken. 

What Can the Market Do Next 

CA Manish Singh: 
Once price comes near an important zone, three things can happen. 

1. The market can break the resistance.
2. The market can break the support.
3. The market can remain inside the range. 

If the market breaks resistance and closes above it, the bullish sentiment stays intact. 
If the market fails near resistance and falls back, we watch the support zone. 

If support breaks and a candle clearly closes below it, short trades can be planned. Not before the close. Only after a confirmed close below the level. 

For a short entry, the resistance above becomes your stop-loss. 

Position Sizing and Stop-Loss Logic 

CA Manish Singh: 
Your stop-loss also depends on your target. 
If you are targeting a 100-point move, a 25 to 30-point stop-loss may be acceptable. 
If your target is only 40 points, then a large stop-loss does not make sense. 

So stop-loss must always be aligned with your expected reward. 

When the Market Does Something Else 

CA Manish Singh: 
Sometimes you expect a breakout but the market has other plans. That is fine. 
If price returns towards support, we again wait and observe. 
Support may hold, or it may break. 

If it breaks with a confirmed candle close below it, then a short position is valid. 
Your stop-loss will now be the earlier resistance. 

If the market moves above that resistance again, your short trade should be closed. 

Adding the 20 EMA for Confirmation 

CA Manish Singh: 
Now let us add a 20-period exponential moving average. 

This is a simple rule to remember: 
If the price is above the 20 EMA, avoid shorting. 
If the price is below the 20 EMA, avoid going long. 

This gives you a clear filter for direction. 

For example, if price is above the 20 EMA and approaching resistance, and then breaks above it with strength, that gives you another confirmation for a long trade. 

If price breaks support and also falls below the 20 EMA, you get a double confirmation for a short position. 

Patterns Supporting the View 

CA Manish Singh: 
Candlestick patterns also add clarity. 
Look here. This is a spinning top near the top of the trend. 
Then there is a red candle forming after it. 
Together these candles create an evening star formation, which is a bearish reversal pattern. 

If this pattern appears along with a break below the 20 EMA, you get multiple signals pointing in the same direction. 

Throughout the day the market will keep forming patterns. You simply need to watch, plan, and decide based on structure and confirmation. 

What Comes Next 

CA Manish Singh: 
In the next chapter we will talk about Open Interest. 
We will understand what Open Interest tells traders, how it connects with Futures pricing, and how it helps you interpret market sentiment. 

Thank you for following along with this chapter. 

Disclaimer: Investments in securities markets are subject to market risks. Read all related documents carefully before investing.