Chapter 1 – Intro to trading:
· We broker that fits you and can accommodate your day trading needs.
o Convenience does not translate into fitness ( sure traders, TD, Etrade, LS,ST)
o Think about cost, not just trading fees ( cost per trades) but also
§ Data fees – ( type of data you need)
§ Routing – ( routing plan)
◦ Margin accounts vs Cash accounts
o All day traders needs a margin account which gives leverage
o Do not use leverage – always trade within the cash limit
◦ PDT Rules
· 3 trades within a rolling 5 business day period if account is 25K. Do not violate, will translate into
o 90 trading restriction
o Account closure
o Bypass with/ 2 plus account or use Suretrader high fees – find work around.
◦ Leverage- Be careful cut losses quickly do not leverage.
◦ The process of opening an account ◦ Order Types (Limit vs Market) ◦ Routing Options & Fees
· ◦ Entering Orders
· ◦ Bid/Ask
· ◦ Level 1 and Level 2
Shows sellers and buyers
o Tape reading – to get better sense of market direction
o Use for market dept
o Watch for sellers and print
◦ Float ◦ Long vs Short ◦ Short Sale Restrictions
· Close market –Initial public offering
· 500K to 10 M – low float
· 20- 30 – Medium float
· Supply and demand impact for explosive moves ( D to D pockets – Momo strategy) and ( S cto S pockets) – short strategy
· SSR restrictions- 2.5 per stock shorting.
◦ Understanding the overall Market ◦ The Volatility Index
· Watch the spy and violate index- impact or little but meaningful
· Most violitle time frames
· 9:30 to 10 AM – most violitle
· 11-12 more calm
· 11:30 to 12 PM – risky.
· 2- 4 PM market closure
Market Sentiment and Voility index
· Reversals and trends – countertrend trades.
◦ Reporting your Trades
· Track your trades in tradevue and document setup, feelings and time frame cut losses quickly.
Try to be good at one strategy, than branch out
Gap and GO, Moentum and reversal startegies
Chapter 2 – Risk management
· Risk management is critical to long term success as a day trader. Without it, you will not succeed.
· An inability to Manage Risk is the leading cause of Failure as a Day Trader ( top reason 1 of 9 is successful)
Choosing Strong Stocks vs Managing Risk
· Choose the best stocks
· Set hart stops and keep losses low (important) 100 to 200 per trade. Cut it off.
◦ Profit Loss Ratios
· Aim for to 1 to 1, but mainly focus on 1/2 setups and set stops and limit closely.
· Always know what I am willing to loose
· Some times no trades at at all is okay.
· Put stats in your favor
Target Percentage of Success ◦ Personality test ◦ defining a strategy around YOUR personality
· What type of trader are you?
o Do you prefer to hold positions for several hours while thinking about the trade and analyzing the potential?
o Do you prefer to enter a position, set your stop, and walk away so you don’t over trade it?
o Do you prefer to trade with small amounts of capital and let the trades work for a longer period of time?
o Do you think holding some positions overnight might be acceptable for you?
o Are your computer skills leaving something to be desired?
o Do you trade via Mobile or Tablet while at work
· The above will help you decided and understand what type of trader you are ( Long or short Bias intraday or SWING or long term trader)
◦ Balancing your Risk
· Work on Position sizing 1000 share per trade is a good start and cutting loses quickly- keep a 5 cent stop – enforce this.
· Be consistent
· Trade A –quality setups
· Building a Cushion- be careful always try to build a cushion first so trade the best setups so you
· Do not start the day with a losing trade.
· Use mental stops
· Think about risk.
· Be good at being wrong
o Wining is not guaranteed be careful
o Take small losses
o Position is a huge thing push it
· Take control of losses and consider it put of business
· Do not average down and average up only.
· Plan the trade and trade the plan
o Do not Turn intraday plan turn into a SWING
o Do not add to a bad chart
· Determine a profit target – 2 time risk.
· Watch for snowball days
o Have a daily stop once reach stop sop trading and take a day pause.
· Reasons why traders fail ◦ Gambling Mentality
· Fear of Missing Out ◦ Twitter Traders never lose
· Take the traders who brag about big winners with a grain of salt ◦ Snow ball conditions
· NO Revenge Trading- take the fucking lost and move on. No chasing winners. Take a dame break
◦ Breakout or Bailout
· Bail out or break out – use this LIMU was an example do not be studborn.
· This can kill your account. Get out in 15 secs.
· Keep losses tight.
◦ 6 Types of Risk
· Exposure risk ( position size)
· Distance ( stop and share size)
· Float and volatility – (Big or small float to Great volatility)
· Time in the trade ( short time lesser risk)
· Slippage ( selling at market on down trending stocks)
· Halt RisK – SEC halts
o T1- News pending – scary as shit biotech sucks.
o LUDP – Circuit breaker – sales
o H10 – Sec suppend investigation halt – this is a 5 min halt .
o Stocks under 3 have different rules and SP500 nd indices have different rules also.
o Look for time frames to trade
§ 9.30 through 10
§ 2 to 4 PM
Chapter 3 – Risk management
We will continue to discuss risk management and emotional conditioning during this chapter as we talk about Stock Selection. Proper Stock Selection is an extension of risk management. We can further reduce our risk in the market by only trading the strongest stocks each day.
◦ HFT Trading – right 705 of shares trades is done with machines and algo-trading. Look for charts where these thisn are not impacted. Retail trader charts AND stocks.
◦ Stock Selection – Use stock Scanners (trade ideas), put stocks through the criteria’s below.
· Low Float and it’s potential (Float under 10mil preferred, under 20mil ideal, rarely will I trade over 100mil)
o Low float can cause gapes on good news catalyst. Can move 3000% HNMY, DLGT, VLTC
o Watch the lesson 3 – 40 mins for live price action movement demonstration news.
· 2) High Relative Volume (at least 2x average)
o Ensure many traders are in the stock. It’s hot. Confirmation people are interested.
o Especially when patterns starts to form.
o Watch for turning in light volume stocks and charts
· 3) Volume Spiking at or around time of entry.
· 4) Ideally a former runner with history of making big moves
· 5) Ideally we need a news catalyst driving the momentum, but a technical breakout on the daily chart can work.
o Watch for old news if it’s recycled
o News posted afterhours or premarket
o After hours new be careful
§ Earning, FDA approval, new contract, big order, sales of company, activist, clinical studies etc.
· 6) Ideally we want a strong daily chart with no nearby resistance (we will review this in more detail later)
◦ Extreme MOMO Stocks characteristic
· High relative volume
· Beta – of stocks makes biger moves than a penny per share
· Do not trade low volume stock.
o Look for gapers and clean chart
◦ Follow through days
The day AFTER a huge move is considered a follow through day.
Look for 3 biggest movers today and watch for continuation.
Continuation might be possible. Trade only if :::::::…….
· If they break the previous day High or LOW be interested for follow through day only
o Unless that happens you are trading within the inside candle and that does not work 80% of the time.
o Watch is based on the is so becareful
o Look for Technical breakout also.
Ross Watch list example: keep it simple with a plan – very important. Do add unnecessary information. Be flexible add and remove from watch through the day base on market conditions .e news
Things to watch for:
· Trade breaking news – Trade on pull back only
· Stock buyout –Typically trades flat
o But if the market is below the purchase price, there might be opportunity there.
· Play stock with news catalyst and be patient
o sub pennies
o Low volume
o Jumping in without a plan
o Deterring from a your plan
o Less than 1:1 ratios
· USE EDGEX for ARCA premarket
o Day/ EEXT for order type.
CHAPTER 4. INTRODUCTION TO CANDLE STICKS
How to understand candlestick charts and how to setup your charts.
We will also discuss recognizing Gaps, Triggers, and Windows.
◦ Candle Stock Charts use this type of chart and ;learn to understand.
◦ Hammers and Inveter hammers: Hamering the bottowm of a down trend or stopping an uptrend for a potential short move. and it’s a trend reversal candle. Just an indicator but not confirmation – look at the next candle to make a new high or low depending on the chart trend after the hammer candle.
◦ Doji’s – Indecision candle where the struggle of sellers and buyers or even – reversal candle. Look at volume and tape and level 2 to determine who is winning. If sellers are wining get out on long position and go short. If buyers are wining, staying in a long position and continue to ride the MOMO
Technical Breakouts and analysis Fuck Fundamental Analysis:
· Look for technical break out patterns on charts. look for Technical Breakout patterns on charts
· These are areas on the chart where we will see many buyers and sellers
· Volume will confirm the technical breakout is happening
We use charts to find our entries, profit targets, max loss points, etc. They are the heart of any trade.
· We learn to anticipate the breakout levels on a chart where volume will come in.
· By anticipating these, we have our orders ready to buy just before or just as volume begins pouring in.
· This allows us to get the max profit with the min amount of time waiting.
· Technical Indicators are simply designed to give you a context for the current price action
· and sometimes gives you an indication of future direction Y
· You can never rely on Technical Indicators.
o Instead use them to confirm what you already suspect in chart patterns.
· Use 9,20,200 EMA and VWAP and B-bands returns to setup charts
· Reversal Setups – when stock are extreme and are extended and out it its range. Go short
· RSI -80 overbought and 20 are oversold. To go long or short.
· Strong daily charts is important, but does not override intraday daily chart. What to look for:
o You want – Strong Daily and intraday chart with catalyst – resistance areas
o Look at ascending and descending support/resistance Trend Lines. – resistance areas
o For are the windows, and I mark them out with trend lines.
o Mark out all the potential breakout Triggers.
§ stocks moving up we look LEFT and UP for triggers.
§ Stocks moving down we look LEFTand DOWN.
What Makes a Strong Daily?
Two other types of charts that can be strong but may not be obvious.
1) Stocks hitting 52week highs with no recent resistance. These stocks can continue to be strong since they have no resistance. This will depend on the catalyst driving the move.
2) Stocks coming out of oversold after a long period of trading at low prices. This is acceptable as long as the price is above the moving averages. If we are below the 200ema, expect some resistance around that moving average.
3) Whole and half $ marks
· A window is a large area of no support or resistance.
· This can be in the form of a gap or a large candle stick. It must be one or the other.
· A good window has the Average True Range of a stock in open area.
· The best setups have several big windows lined up.
What is Average True Range (ATR)
· Average True Range is the average price range of a stock in a typical day.
· For some stocks this will be as low as 15-20 cents of average range, while other stocks will have an average range exceeding 5.00 a day.
· We look for higher ATR stocks because we have more room for setups and profit potential. I like a min of a 50 cent ATR on most stocks.
Daily Resistance Levels
· When I look at daily chats, I look UP and to the LEFT when I’m looking to go long.
· For shorting, I look DOWN and to the LEFT. Anytime I see a space of at least the ATR of the stock, I mark the high and low of that space or “window”.