I have been getting a lot of questions lately on what patterns to concentrate as a newbie or how i grew my small account from $2500 - 50k+ in 8 months.
I am writing this post outlining my strategies and how i manage my risk.
I want to make it very clear that without proper risk management, having strategies wont work.
Some people might have questions on how to risk manage. So i am going to open my up risk management sheet for who ever wants to see/use it.
If you see in the sheet, i trade multiple strategies and I allocate different risk to each strategy based on what I have tracked.
Lets talk about the strategies I trade and I will talk about criteria for each strategy.
1. Dip buy into panic
This is one of my favorite strategy which works great for both nasdaq and OTCs.
Ideally for this strategy I look for a stock thats running up on high volume for multiple days and look to dip buy the first and second day of panic.
1. Stock needs to be over extended
2. stock needs to drop more than 20% from previous close.
3. For Otc's normally its the third bounce that really starts bouncing but I am still relying heavily on level 2 for signs of bottom confirming. If I see that the bottom is set after the 3rd bounce on 5 min and time of the day is between 10 am - 11:30 am and level 2 is showing signs of big bids, I use those multiple indicators to size up big. For Nasdaqs look for a supports +20% away from previous day close.
4. Time of the day is also very important. Normally around 10:30 a.m. - 11 a.m. is where you should be looking to dip buy this strategy.
5. For this strategy I take my full position in one go as sometimes the stock bounces too fast and the lower high is set way further than the area where stock dips and bounces from.
2. Buy 1st green day high volume stocks
This is also a great strategy that offers amazing r/r and is great for growing a small account.
This strategy should only be traded in the afternoon and you should not anticipate the 1st green day in advance.
I will take a small starter after around 3 pm if the stock is near vwap just for a good average but I will add major size on a high of day trigger. I need the daily to be clean and also no overhead resistance. Ideally this play works great on recent reverse splits or sector momentum plays.
1. Stock should be on the first green day
2. Market cap should be less than 500 mil
3. Stock should be trading above average volume which in todays market mean 60+ million in volume
4. Stock needs to consolidate above vwap most of day on light volume
5. There should not be any overhead resistance
6. Daily chart should be clean and should show history of multiday runs even if that history is on low volume.
7. If the stock is a recent reverse split that even better as long as daily chart history meets the criteria.
3. Multiday breakouts
This is also one of my favorite strategies and when the market conditions are ripe the stock offers great risk reward and also you can build into a position moving risk up. Also works great with sector momentum
When i am looking to move my risk up I look at the 5 min chart and see where the last major dip held and use that new dip as my risk.
Time of the day is also very important when entering this trade.
I only buy this strategy after 11:30 am and stock needs to show some level of consolidation before the breakout. If the stock spikes straight into the breakout level i ignore it as the stock mostly fails to hold the breakout and comes back down.
Also if the stock breaks out in the morning, i will not buy it and wait for afternoon high of day as my trigger to buy the breakout using the consolidation low as my risk and if i see major dips holding on 5 min than I will use those dip low as my new risk and average up.
I normally swing the full position overnight and sell it into the morning gap.
1. No overhead resistance
2. The breakout candle on daily should contain some level of heavy volume.
3. Only buy this strategy past 11:30 am
4. The breakout volume on daily should be almost equal or more than the breakout candle volume.
1. Shorting Green to red moves
This is one of my favorite strategy and i size pretty heavily on this strategy.
The stock needs to be overextended on daily.
The reason i love this strategy so much is because when the stock runs for multiple days gapping up each day and the stock finally goes red on the day, its a major momentum shift, buyers find a reason to sell and shorts get a reason to attack.
Also If the stock is very much over extended i will start shorting on the font side risking couple hundred bucks and averaging down after stock creates new lows on a bounce (Note, the key is I will always short on a bounce after each subsequent new low crack). The reason i do this is so my average stays good and I am confidently size up on a g/r move and keep my average still way above the green/red level as some times after the stock goes red for the first time it will bounce back and go green to fake weak hands out and since my size is pretty heavy on this setup, I like to make sure my risk doesnt get out of hand. Also this helps my emotions to not run wild knowing that if I have to cut the trade I can cut it for breakeven or a small win/loss.
1. Stock needs to be gapping up for multiple days on heavy volume. Heavy volume is key as if the stock gaps up on weak volume the g/r move could be a short trap and there arent enough buyers to sell.
2. Above average volume means stock is trading 50-60+ mil for todays market conditions.
3. Market cap for my requirements needs to be less than 500 mil.
2. Bounce short
This is also a very good shorting strategy and for this strategy to work the stock needs to go g/r and then offer a significant bounce. I use vwap as a indicator and i take a partial size near vwap and add another partial size when the stock crosses way over vwap risking r/g.
Since the risk on this trade is pretty wide, the position size needs to be small.
3. Shorting first red days
This strategy also revolves around the fact that stock needs to be gapping up for multiple days on high volume.
The next day if the stock has not gapped down more than 10%, you can short a pretty heavy size risking a previous day bounce close to r/g level as your risk.
4. Shorting a recent runner that is gapping up after coming back near its lows after running previously on high volume
This is also one of my favorite strategy and I risk pretty heavily on this trade.
Also this strategy offers a great amount of range.
the reason i love this strategy is because when the stock has done a recent run and after a week or month or so its back near 50-60-70-80% from the high of previous run and the stock is gapping up more than 50% on some news, the bag holders get a reason to exit the trade cutting their losses short and also the shorts get reason to attack knowing bag holders are going to be selling.
1. The previous run should be on above average volume ideally over 60 mil+ volume.
2. The stock needs to offer some kind of spike before it fails. If the stock is spiking near a key consolidation level from previous run I will short my first size there. (hack, you can use TOS/think or swim's on demand feature to find the exact consolidation level if the previous run is way far off and your platform doesnt show the intraday level)
3. My most favorite pattern for this strategy is the stock has spiked in the morning is consolidating above vwap on heavy volume then when it crack the consolidation, i take my first size, then add my second size under vwap and then add the third size once it break the morning dip low.
4. If the stock spikes and fails too qucikly and i cant identify any clear entry on the spike i will wait until 10 am and look for the break of the initial dip stock created in the morning before the spike or looks for a spike back up towards HOD for a entry.
Note that before the crack of morning dip/support happens, the stock needs to do a little 5-10 min sideways grind near support before the crack. Also note that I will only short under vwap if the stock cracks vwap after 11am. The later in the day the vwap break the better as I have seen enough instances of stock cracking vwap early in day and recovering and breaking out to new highs.
5. Over Extended gapdown short
Not my most favorite strategy in this bull market but if i see that the previous day run was on more than 60+ mil volume and the stock is gapping down premarket, and the stock is close to r/g level, I will look to short on a spike near r/g level.
The spike needs to be on relatively heavy volume for me to short. If the spike is on low volume i ignore this setup.
This covers all the strategies I trade. If you notice I pay heavy emphasis on volume for every pattern I trade as heavy volume is key for me because thats where the buyer/seller psychology plays a key role for either shorts or longs to get trapped.
I have tried describing the strategy to the best of my knowledge and by no means i would say you have to follow my strategy. This is just based on what I have observed in the markets and how I like to trade.
Also I will never take a full position from the get go as I like trading setups that have a lot of range and I always know that i can add to a winner and increase my size. But if I am wrong I will loose money on just my starter position. This is the key to how I keep my losses small and my profits big.
Best of luck trading!!