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TRADE TYPES – All opportunities must be able to be quantified by being one of the following.
1. Fade extreme of value area if from a starting point within value area
• Internals should be mixed or not in trending mode and tempo should be relatively slow.
• Odds of success increase if there is already some value built within the value area and the market breaks towards an extreme later in session.
• Odds of success decrease if market breaks towards VA extreme early.
• Market internals show the underlying strength or weakness of any particular move and define the odds of that move continuing through the next inflection point or rejecting or stalling.
2. Buy the high or sell the low of value area if starting outside of value area
• Internals should be positive if buying, negative if selling.
• It should be apparent that internals and tempo do not support a larger move into the prior day’s value.
• The market wants to reject balance and establish value elsewhere.
3. Buy the breakout from the value area if starting inside of value area
• Internals must be positive if buying and negative if selling
• There must be small countermove upon first touch of VAH or VAL to build pressure.
• Do not buy a “coming up from bottom” or “coming down from top”
4. Fade opening gap when ONL or ONH fails to get taken in opening drive
• Gap must be less than 10 points /ES.
• Overnight inventory must be at least 90% or > net long or short.
• Odds of success increase if prior days structure does not support prior strong or weak settle and gap is just adding to imbalance.
• Trade location must be close enough to ONL or ONH to allow for proper risk – reward ratio.
• Internals should not be indicative of indicative of ignoring overnight inventory, especially $TICK
• Targets should be in stages. Prior high/low, VAH/VAL, POC
5. Pattern based continuation or reversal trade according to 5/15 candlestick chart
• Trend line using 24 hour or RTH.
• Consolidation breakout from tight range
• Buyers or sellers shut off pattern
• Favor setups that are outside of balance but can be taken inside VA if apparent that the game is to get all the way to other extreme of the VA.
6. Larger directional bounce or retracement driven from larger timeframes such as daily
• Day timeframe guidelines do not apply.
• Best trade will fly in the face of current market activity
• Enter first on limit order and manage later.
• Better if at major support or resistance or swing high/swing low
7. Buy or sell move to VPOC or HVN
• Look for VPOC or HVN as end point for larger directional move that has already been underway for some time.
8. Fade R3’s and S3’s
• Market may be moving with huge increase in momentum and tempo to this level, thus use tight stop.
• RORO – “Right or Right Out” .
• If range of prior day is compressed, then odds are weaker of rejection at this level.
9. Buy highs or sell lows if developing profile is incomplete
• Target is same distance as from end of value to end of excess on opposite side of range.
• Tempo and internals must be showing a building of pressure below poor high or above poor low.
• Acceptance should have already occurred around this area in terms of volume and TPO’s.
10. Buy or sell 80% rule trade
• Trade location is imperative.
• Look for move back into value that holds value without falling back out.
• Stop is always below/above last pullback/retracement after entering VA first time.
Day Trading Setups – 6 Classic Formations
By Alton Hill
Day trading is all about getting in a rhythm. Over time you will begin to identify day trading setups that consistently work for your trading style.
Whether you have a high win ratio or the average winning profit runs much greater than your losers, you just need to come out ahead.
Your trading style is what makes your market experience unique from everyone else's. This is where your background, fears, and beliefs all converge in how you view the market. No matter how good the system or the day trading setups placed right before your eyes, if the system is counter to how you view the world, you will not make money.
One of the most popular trading systems of all-times is the Turtle Trading system. The Turtles, as they have been affectionately called, were able to make 100s of millions of dollars trading commodities. That's right folks, 100s of millions of dollars, but did you know that some of the trainees in the program were let go. Even though these folks received the same training as the other Turtles, some could not grasp the concept of allowing their profits to run. It's never about the system; it's about you the trader.
In this article we will cover 6 classic day trading setups you can use to trade the markets. When I say classic, it means these setups would have worked in the 1980s and will continue to work well into the 2030s.
As you study each day trading setup, it's important to remember you must find the one that matches your trading style the most, in order to have success.
#1 Day Trading Breakout
No matter if the market is trending or aimlessly floating sideways, there will always be breakouts in the morning. A breakout is defined when a stock gaps up or down on high volume first thing on the open. These types of moves are almost always related to a news event.
Day Trading Setups - Breakouts
Day Trading Breakout Rules
Stock gaps up or down on high volume.
Wait for a trading range to develop between 9:30 and 9:50.
Buy or sell short the breakout of the morning range high/low sometime between 9:50 am and 10:10 am.
Have a predetermined profit target for your position. Your profit target should be in alignment with the volatility of the stock.
You must have a stop loss order. My personal stop is a maximum of 2% and I look to exit trades if they are not profitable once the 11 am time strikes.
You may be thinking what's up with the time references? Day trading is fast, so you only have a set amount of time to capitalize on each trade. At 11 am the number of participants in the market drops off dramatically and you will find it very difficult to trade breakouts. So, get in and out in a hurry; time is not on your side.
Trader Profile - Day Trading Breakout
Expects quick returns
Perceives volatility as their friend
Able to make trading decisions in a matter of seconds
Less concerned with riding the trend and more attracted to making quick profits before the trend reverses course
Your ability to accurately pre-screen a breakout will determine how often the stock will continue in the direction of the primary trend. I have been able to successfully introduce the concept of volatility into my trading system which has greatly increased my overall win rate.
If you are just buying and selling any and every breakout, then your success rate will likely land around 50%. So, the takeaway from this statistic is there are just as many failing breakouts as ones that will continue trending.
I'm a firm believer you should profit off of the failed breakout attempts as well.
Stock gaps up or down on high volume.
Wait for a trading range to develop between 9:30 and 9:45.
If the stock gaps up, the first 15-minute range high cannot be breached. Conversely, if the stock gaps down, the first 15-minute range low cannot be breached.
Buy or sell the break of the trading range between 9:45 and 10:10 in the opposite direction of the gap.
The profit target is the closure of the gap.
Stop loss is below the high or low of the morning range, depending on the direction of the gap.
Trader Profile - Fade the breakout
Expects quick returns
Perceives Volatility as their friend
Able to make trading decisions in a matter of seconds
Enjoys the idea of going counter to the trend
Loves to punish other traders that jump in a trade too soon
#3 Trading Ranges
Believe it or not, there are trading ranges that can develop intraday. It's hard for people to think of day trading in terms of ranges, because most people assume day trading is some wild man's game with flashing lights bouncing off the screen.
I personally could not make money trading ranges. It's not that ranges don't work; they just didn't work for me. The slowness of the moves and the fact I had to trade with larger sums of money to achieve the same profits made me uneasy. I would close trades well before they had time to develop. You may not have these issues, so review the trading range rules and see if you have found a match for your trading style.
Trading Range
Trading Ranges Rules
Stocks volume should be light compared to the morning's trading volume.
Identify a discernible high low range between 9:30 am and 11:00 am. This may not always correlate to the high low of the day; just make sure you have identified the primary range.
Range should be a minimum of 1% from high to low. This will give you enough profit to cover commissions and the inherit risk that comes with any trade.
Open new positions between 11:00 am and 2:00 pm.
Buy the low of the range and sell the high of the range.
Profit target is again the high and low of the range.
Stop Loss is relative to the size of the range. A rule of thumb is you do not want to see the range exceeded by .20% of its value. So, if a range is 2%, you do not want to see the stock move out of the range by more than .4%.
Trader Profile - Ranges
Slow to react
Likes to perform thorough analysis over the course of a few minutes to a few hours
Views volatility as unwanted risk
Seeks to limit risk by placing tight stops
Gravitates towards a clear trading channel versus sloping lines and other geometric shapes
Is okay with placing multiple trades for the same stock
#4 Late Day Breakout
At the end of the day around 2 pm the volatility picks up again in the market. This is where traders return from lunch and are looking to enter or close positions in preparation for the next trading day. This is a great trading opportunity for active traders as the high low ranges set earlier in the day are breached.
Again, I only trade the mornings, largely because I will over trade if given the opportunity, but if you are a volatility trader after 2 pm is when you can get back into the game.
Day Trading Setups - Late Day Breakouts
Late Day Breakout Rules
The stock exceeds the morning range with an increase in volume after 2 pm.
The stock is able to clear the range by .2%.
Profit target is the size of the move that preceded the trading range.
Stop loss is the middle of the range. This would imply the stock failed on the breakout attempt and is now falling back inside of the range from the morning.
Trader Profile - Late Day Breakout
Slow to react
Likes to perform thorough analysis over the course of a few minutes to a few hours
Likes volatility
Enjoys riding the trend into the close
#5 Trading the Flag
A flag is a classic technical analysis pattern that predates anyone reading this article. If you are unfamiliar with the pattern it's a sloping rectangular formation that occurs after a strong move. The primary characteristics of the formation are an increase in volume with a sharp price move. The stock then begins to consolidate in a range pattern that goes counter to the trend and volume completely dries up.
While I do not trade flags, I do like the fact the formation is soundly based on price and volume principles.
Flag Formation
Flag Rules
Stock needs to breakout with high volume
A sloping rectangular range will develop with a minimum of 4 candlesticks
Open new positions on a breakout above or below the range
The profit target is the same length of the move that preceded the flag formation
Stops should be placed below the low of the range if going long and above the high of the range if going short
Trader Profile - Flags
Less concerned with a particular time of day and more focused on trading the setup
Likes to see a number of inside bars and consolidation patterns before a continuation move
Enjoys riding the primary trend to profits, regardless if this takes a few minutes or a few hours
Only looking to trade a stock once, in order to reap the rewards of the next major move
# 6 Triangles
I trade the Wyckoff method which calls for parallel trend channels and stays away from the head and shoulders patterns, diamond formations, and other complicated chart formations. However, I would be re-missed if I did not touch on the concept of ascending and descending triangles. Like the flag formation an ascending or descending triangle will develop after a strong move in a stock. The part of the triangle formation I like the most is that the reactions are smaller and smaller each failed attempt at the breakout level.
Funny enough when a trade goes against me, the ascending or descending triangle is the one formation that you can literally feel pulling away at your life. If you are short, the stock fails at the high of the day, so you immediately feel relieved as the stock backs away. This flash of hope is replaced by fear as the stock quickly turns back up again and does not break the previous low of the day. This process goes on and on, for what feels like ages, and by the time the stock finally breaks out, you already knew you were toast two hours into the formation.
Ascending Triangle
Triangle Rules
Stock needs to have a strong move with price and volume
Once a high or low is set, each reaction from that swing point should become more shallow
Buy or sell short the break of the daily range
Place your stop below the last swing reaction if long and above the last swing if short
Profit target is the length of the move that preceded the triangle formation
Trading Profile - Triangles
Less concerned with a particular time of day and more focused on trading the setup
Likes to see a number of inside bars and consolidation patterns on a chart
Enjoys riding the primary trend to profits, regardless if this takes a few minutes or a few hours
Only looking to trade a stock once, in order to reap the rewards of the next major move
Summary of Day Trading Setups
In this article we covered 6 classic day trading setups. I could have easily highlighted another dozen or so; but that would only expose one of the main problems confronting active traders.
There are just too many opportunities present in the market on any given day.
Your job is not to trade everything, but only trade a limited few. Remember, it only takes mastery of one day trading setup to make consistent profits in the market.
Do you have an idea of what type of day trading setup you should be trading? If not, or if you are looking to refine your current trading methodology, try out our trading simulator built by and for active traders. Learn to trade in a risk free environment before placing your hard earned money in the market.
SPX 1-month and 3-month normalized skews, the difference between 25-delta puts and calls divided by 50-delta implied volatility, have also declined from recent highs.
SPX term structure is turning relatively smoother with skews declining as opinion polls show Clinton may triumph over Trump, Bloomberg strategist Tanvir Sandhu writes.
The kink that had formed in SPX term structure, the curve that captures the difference in implied volatilities with differing maturities, on November options has since been unwound as the perception of uncertainty surrounding the U.S. election outcome reduces.
To give you a flavour of what this energy is about, I shall quote from Reinhold Ebertin’s book ‘The Combination of Stellar Influences’. The positive side of the Saturn/Pluto combination is described by Ebertin as
Tenacity and toughness, endurance, capability to make record efforts of the highest possible order, ability to perform the most difficult work with extreme self-discipline, self-denial and renunciation.
I hope this energy will help me with all those massive projects I have ahead of me. And I hope to avoid as much as possible the negative sides of this combination, which are:
A hard and unfeeling disposition, cold-hearted, severe, tendency to violence, fanatical adherence to one’s principles once they have been adopted.
Tenacity and Toughness
It is that time of the year when the energy of Scorpio becomes strong in Nature. The Sun entered Scorpio last night, and Mercury will do the same tomorrow. On those days when the Moon will also be passing through Scorpio, like on the 30th and 31st of October, the energy of this fixed, emotional, extreme sign will be prominent indeed. This will be good for activities that require devotion, concentration, emotional intensity, and not so good for anything that requires rationality, harmony, or an easygoing attitude.
Industries from finance to health care to utilities are experimenting with distributed-ledger technology. On Wall Street, blockchain tech is being hailed as a way to reduce payment times from days or weeks to real time, freeing up billions of dollars in capital that’s now tied up until accounts are verified.
Scotex says trades on its exchange will clear nearly instantly and won’t require a clearinghouse, which collects collateral and monitors risks between traders. The company says investors and brokers will get their money within 15 minutes after a trade is executed.
Scotex is raising money to meet the capital requirements, and it also needs cash to cover the costs of authorizing its distributed ledger as a designated payment system, according to the statement.
