In Step 1 I use AI to help create a short list of fundamentally strong stocks that are technically promising. That list is a starting point, not a buy list. But before I allow a name on that shortlist to move forward in my process, it must pass one more filter: the industry it belongs to.
This is Step 2 of my position trading process, and it may be the most neglected step in how retail traders select stocks. Everybody wants to talk about the company. Hardly any people pause to think about whether the industry can actually support the stock price of that company.
A Good Company Can Still Be a Bad Trade
Here’s the uncomfortable truth I’ve learned the hard way: it doesn’t matter how strong a company’s fundamentals are if the sector around it is stagnating, out of favor, or actively declining. There’s always a reason why stocks move. They move with the capital flows and the capital flows sector by sector, not stock by stock.
So for every stock that survives my shortlist, I ask one question before anything else: is money actually flowing into this industry right now?
Peer Comparison: How I Check the Industry
This peer comparison is a simple, repeatable process I have here. For every stock on my list, I go to Screener.in, search for the company, and open the peer comparison section. Then I go and pull up the price charts of the best-performing peers in the same industry and compare them side by side.
What I want to know is simple: Are the other big players in this industry already flexing their muscles? If most stocks in that space are going up, that’s a green light. I cut the stock from the list if the whole industry is flat or down, no matter how good it looks on its own.
The approach is not limited to the Indian market. Any trader on any exchange can apply the same logic using whatever peer comparison or sector data tool is available in that market.
Jesse Livermore: The Principle Behind This Step
This principle is not something I invented; it’s a page from Jesse Livermore’s approach to reading markets. Stocks also rarely move alone, Livermore pointed out. The strongest stocks in the group will often move first, and the rest of the group tends to follow as a real trend builds in an industry. One leading stock is a data point. If you see many stocks in the same industry moving together, that is a sign.
I use this exact logic as an early confirmation tool. If I see other stocks in an industry that is already in the middle of, or even done with, a strong run and the stock on my short list is just beginning to turn, this can often be an indicator I am seeing real sector-wide strength and not just a one-off run in a single stock.
A Real Example: CUMMINSIND, KIRLOSENG, and ELGIEQUIP
Let me walk you through an actual case from my own charts.
In early November 2023, CUMMINSIND had just completed a retracement and was showing the first signs of turning upward, specifically around the ₹1,653 low, which is the exact setup I look for at Step 1 of my process. On its own, that’s a promising but unconfirmed signal.
So I checked its industry peers. Looking at KIRLOSENG’s chart at that same point, the stock was already midway through a substantial rally. And ELGIEQUIP had gone even further; its move was nearing completion, having already run from its retracement low to new highs.
While CUMMINSIND was just starting, two of the biggest names in the same business had already been operating successfully for quite some time. That told me something important: This was not a random bounce in one stock. The industry was gaining real strength, and CUMMINSIND needed to catch up to its peers. That’s the kind of confirmation I want before moving a stock forward in my process. And in this case, CUMMINSIND went on to rally from around ₹1,653 to well north of ₹4,000.
Why This Step Matters More Than People Think
It’s easy to skip this step and go straight from a nice-looking chart to a trade. The industry context helps distinguish between a stock that the market is genuinely re-rating and one that is merely experiencing a temporary bump. The industry context differentiates a situation where the market is genuinely re-rating from one that is simply experiencing a temporary bump. When I see several stocks in the same sector moving together, I have a lot more confidence that the move in my target stock has some real support behind it, not just short-term noise.
Final Thoughts
If a stock can pass both the fundamental and technical screens in the first step and also show sector strength by comparing to its peers in Step 2, then it makes my active watchlist. From there I move to the chart itself, drawing trendlines and watching for the breakout that tells me it’s time to prepare an entry, which I’ll cover in the next article in this series.
If you’re building your own process, don’t skip this step. Check the neighborhood before you buy the house.
Find out here: How I Draw My First Trendline Before Taking a Position
Disclaimer: This column reflects the author’s personal trading experience and analysis. It is not financial advice. Please consult a registered advisor before making any investment decisions.
Satyajit Baidya
An option writer who came to the markets through curiosity and stayed through conviction. He studies price action through the lens of Elliott Wave theory and draws his trading philosophy from Jesse Livermore—the belief that discipline, timing, and patience matter more than predictions do. A student of history by training, he sees the market as just another chapter in a very long story: the details change, the patterns don’t.
