How it got my attention, stalking it, waiting for it to set up, execution, stopping out, then re-entering.
Tools used for this trade.
TC2000 (daily scanning for swing setups)
Heikin Ashi and regular candlestick bars
Sierra Chart (executing a more precise entry)
Aggression Bars (this is what I named it…custom coded indicator for Sierra Chart)
Donchian Channels
In this post I’m going to go through the entire process of this trade. Starting from the moment it arrived in my daily scan, to stalking it for a spot to execute a trade, stopping out, and then re-entering. I’ll continue to update the trade through take profits and the eventual full close.
How $OKLO got my attention.
The entire focus of my swing / trend trading efforts is to buy a stock once strength has shown its hand. I don’t bottom feed, and I don’t buy value in these types of trades. I want to have momentum on my side.
The cornerstone for all entries begins with new 10-day highs after the most recent 10-day low.
Seen here $OKLO makes a new 10-day high on December 18th after the most recent 10-day low, two days before on December 16th.
I use Heikin Ashi bars quite a lot. I use them on every time frames. They help me to see the overall structure much better.
Same view here, just without Heikin Ashi bars.
Now the stock goes into my watch list to stalk it for a recognizable chart pattern that it can “break out” of.
Usually, I try to go down to lower time frames and find a recognizable chart pattern to find something to “break out” of.
After the new 10-day high, I spotted this pattern setting up on the 15min chart.
I bought the 15min breakout on Christmas Eve 2024.
Things were going great…for one day.
The breakout got tested, which is completely normal. But it got tested multiple times. Which was telling me that “maybe, this breakout is going to fail”.
And then it did.
4 trading days later I stopped out of the trade.
That’s trading.
I continued to watch the different time frames and noted the below pattern on the 4hr chart.
Seen here again but with candles only in TC2000 using the 1/2 day chart.
Both of these charts look nice. The price is adhering to the trend lines nicely.
Then yesterday January 3rd 2025 we got a powerful open. The price pushed up against that 4hr trend on the 15min chart.
Price pulled back initially, then it bulldozed on through the 4hr trend line.
Once I got a 15min Aggression Bar on the breakout, I entered again.
I sized the trade so that it has room to breathe. In general I do not believe in tight stops (Note*1 below). I want to give all of my positions every opportunity to work. This one will have to close a 15min bar below the lower 4hr trend line support for me to exit with a stop.
Seen above, the 1/2 day chart in TC2000. Showing the chart pattern and break out.
I’ll continue to post updates on this trade.
Next post will either be a stop out, or a 1/2 position take profit.
If you have any questions or comments, feel feel to post below.
Notes and Nuances:
*1 I don’t subscribe to tight stops. There are very successful traders that utilize tight stops.
This is a personal preference geared more toward risk and reward.
With tight stops you can size more into the position.
With a tight stop you have a larger position, you will potentially have a larger return. You also have a larger chance of stopping out.
With a looser stop you size down so that you can withstand more volatility. Your overall risk might be the same, but you have a greater chance of not getting stopped out on reactions. The give and take of this luxury is that you must get a larger move in the direction of your trade to achieve the same return.
I choose to give my positions more room to breathe.
But there is no right or wrong way across the board. As I said earlier, there are great traders who utilize tight stops. They are not wrong, because their system works for them. There are also great traders who utilize much looser stops to withstand more volatility. They are not wrong either.
All of this said, my loose stop might be a tight stop for others. I remember hearing Stanley Druckenmiller talking one time about how he doesn’t use stops at all. Just a 15% loss and he’s out. This works too,obviously…(Stanley Druckenmiller is a legend).
How it got my attention, stalking it, waiting for it to set up, execution, and trade management.
Tools used for this trade.
TC2000 (daily scanning for swing setups)
Heikin Ashi and regular candlestick bars
Sierra Chart (executing a more precise entry)
Aggression Bars (this is what I named it…custom coded indicator for Sierra Chart)
Donchian Channels
In this post I’m going to go through the entire process of this trade. Starting from the moment it arrived in my daily scan, to stalking it for a spot to execute a trade, to removing some risk, and how I’ll eventually close it out (the trade is still open as of 12-26-24).
How $SERV got my attention.
The entire focus of my swing / trend trading efforts is to buy a stock once strength has shown its hand. I don’t bottom feed, and I don’t buy value in these types of trades. I want to have momentum on my side.
The cornerstone for all entries begins with new 10-day highs after the most recent 10-day low.
Seen here $SERV makes a new 10-day high on December 2nd after the most recent 10-day low, November 18th.
Now the stock goes into my watch list to stalk it for a recognizable chart pattern that it can “break out” of.
I begin to notice at chart pattern forming on the lower time frames. Here it is on the 30 minute chart.
Now I’ve got a “recognizable” (*1 Note below) chart pattern that the stock can “break out” of. (*2 Note below)
Here’s what I now know that the stock is telling me.
First, it’s showing strength. On December 2nd it made a new 10-day high after the most recent 10-day low.
The stock is now in my stalking watch list.
I spot a recognizable chart pattern that we could possibly break out of.
On December 5th the stock breaks out with Aggression. Seen here on the 30 minute chart.
The entry would be anywhere after the break out with an Aggression bar. Aggression bars are custom in Sierra Chart. I programmed them so that they show me extreme volume as well as extreme speed of the move relative to a look back.
Now that I’ve got an entry, I want to monitor for a spot to take some profits.
I always take 1/2 profit on the first 4hr Aggression bar after entry.
The next day, $SERV created a 4hr Aggression bar. I take some risk off. This was about a 30% gain on 1/2 the position.
Now that I’ve removed some risk, I’ll trend follow the remainder using the 10-day Donchain. A close below the 10-day with a Heikin Ashi bar will get out of the trade completely.
My trading is a hybrid approach. Swing trading for 1/2 of the position and trend following for the remainder.
Swing trading generally sells on strength and trend following generally sells on weakness.
So far, it’s working itself higher nicely.
If you have any questions, feel free to comment below or send me an email to [email protected].
Notes and Nuances:
*1. I am very loose with the term “recognizable”. I just want to see some structure building that everyone else can see too. This is crucial. I don’t want to buy a breakout that has very little participation. I want to see traders fighting over good trade location.
*2. “Break out from” is also up for interpretation. But, as a general rule, I always practice the idea from above in *1. If it’s a noticeable pattern that many traders other than me can see, then I have a spot where I can break out from. It’s also important that I have a good spot to break out from, so that I can define my risk based on this area of break out.
Detailing my process for planning and executing a day trade on NASDAQ Futures.
Overview: Since the FOMC meeting on Wednesday (today is Friday 12-20-24), stocks have been under intense pressure. The NASDAQ experienced a throw-up-in-your-mouth red day like we haven’t seen for quite some time on Wednesday and more red yesterday (Thursday).
When you see a nasty red day like this in the NASDAQ or S&P, “generally” there will be an equally violent reaction in the opposite direction at some point fairly quickly.
This is inherent with the indexes. They will puke for a day or two, then they need to spring back to relieve the pressure. This will either allow sellers to unload again at more favorable prices, or the momentum back up just bulldozes everything in sight and it reclaims new swing highs in short order.
So when the indexes jump out of the window for a few days, my first thought is “this is great where might it stop first”. These entry spots are good risk to reward locations. (Note *1 read more on this below)
These are places where smart bear traders are looking to cover their positions. These are also usually places where investors are looking to add some exposure….”buy the effing dip” as they say.
So when you can identify these places in advance it will give you confidence when the time comes to execute. Doing this also releases you from the fear of missing out (FOMO) and all other psychological issues. (*2 more on this below)
I will never come to the screen and initiate a trade “just because” something looks good at the moment. I am a holistic trader. I believe in the power of looking at the big picture. The proverbial “I want to see the whole forest, not just one tree”. This is easier if you trade the same product each and every day like some traders do. (*3 read more on this below)
So I’ll analyze everything from the top down, even if it’s a day trade. I want every possible probability to be on my side at the time of execution.
So let’s take a look at the NASDAQ futures on some higher time frames and see what we can see.
First off….a quick housekeeping note. My futures charts are always continuous and back adjusted. I once heard a Market Wizard talk about how this was like futures blasphemy. My answer to this is, I’m sure he’s right. He’s a Market Wizard, and I’m a nobody. But this works for me.
Here are my Sierra settings:
OK…let’s get into it. Starting with the weekly chart.
The “gimme” trades are always the first back-test of a higher time frame break out.
Trading is not rocket science.
It’s risk and probabilities.
Match your risk to the probability of your trading system over a large sample set and you’ll make money.
Simple as that.
Don’t complicate things that don’t need complicated.
Looking at this weekly chart, I identify a nice clean breakout. Red line on the chart below.
Then I look at it to see where the back test area might be. Again, it’s not rocket science. The #1 green arrow points to the spot where they will likely try to support it should it decide to come back.
And that’s what they did. The #2 green arrow shows a weekly wick coming down to test with near needle-threading precision, to test the #1 high and then bounce.
That would have been the first great spot to catch some points, but that was last week, so let’s keep rolling.
These large time frame breakout will usually hold for several tests before the floor drops out. This excludes news events etc. (like FOMC meetings)
Quick note on looking for asymmetrical reward to risk trade locations.
When you initiate a trade whether long or short, think to yourself something like this:
“If I’m going to buy here, will there be other buyers still buying it higher after I buy?”
“If I’m going to short here, will there be more sellers to sell it lower after I sell?”
This should permeate your brain in everything you do. It should radiate down to your clicking finger right before you click buy or sell.
If I’m going to buy I want to be buying when the probabilities are on my side.
I want to identify places where:
There will be a mass exodus of shorts who are covering at a target. They are BUYING to cover.
New buyers who are buying the effing dip. They are NEW BUYERS.
New shorts who are shorting and continuing to short because “it’s gotta keep going down”. They are adding fuel because they keep having to buy it HIGHER to cover their new shorts.
Let’s continue looking at the weekly chart. If that breakout fails, where will they look to go to next?
If the first back test fails, I’ll go to the next break out that the price will most likely stop and reverse, or at the very least “pause” at.
Green arrow #1 shows where the next breakout point looking directly to the left would be. Remember, this is not rocket science. This is probabilities…and the probabilities suggest that there will be smart buyers waiting there and smart shorts looking to cover there.
Green arrow #2 shows today’s low. Coincidence? Maybe.
But, was it probable? Yes.
So now that we’ve defined some good areas on the weekly chart, let’s move down to the daily.
This daily chart is a master class on how we don’t need too many tools in trading.
Green arrow #1 shows the same weekly level from above, overlaid on this daily chart.
Green arrow #2 shows the absolute perfection on the back test. Patient buyers were waiting, and smart shorts covered there too. This is jet FUEL to go up.
Green arrow #3 shows a daily break out level. This will be important if the first break out fails. It did, after FOMC on Wednesday.
Green arrow #4 shows traders back testing this daily break out level. As we can see from the chart, there were buyers there waiting, and there were certainly smart shorts covering their positions there.
Green arrow #5 shows the weekly chart breakout from above.
These are the areas that I will stalk and watch for things to set up. If you don’t plan like this, you’ll vacillate endlessly going long and short. You’ll paper cut yourself to an absolute brutal death. Trust me…I can teach that class.
So now let’s start going down to the lower time frames to see if there’s any structure forming or is it just a wild west show.
The NASDAQ futures are incredibly precise. The chart below shows the absolute precision of price action relative to the levels that we predefined ahead of time.
Let’s get into it:
Green arrow #1. This is the first weekly break out level that we identified first. It got tested once so it’s under warning of failing.
Green arrow #2. See the nasty Aggression bar (custom coded in Sierra) that just sliced right through it. Sellers were very keen on destroying any interest in that level.
Green arrow #3. Where did smart sellers cover and price conscious buyers buy? Right at the daily breakout back test that we defined in the chart above. Should I say it again? This is not rocket science.
Green arrow #4. Price then found some structure. Creating this channel. Examine it closely. Sellers tried to get Aggressive and break it down. Buyers held it and pushed it up to back test the weekly level overhead.
Green arrow #5. The weekly level that got back tested from the under side. Look at the Aggression bars when it tested that level. Aggressive FOMOers were buying it right at the very worst price location. While smart shorts were selling into them. Creating multiple Aggression bars. Then….BAM…it fell apart…with Aggression. It sliced through the channel structure with the Aggression bar.
Green arrow #6. Price formed an Aggression bar right into the old daily break out level again. Smart shorts are covering some here, as well as price conscious buyers seeing if this level will hold.
Green arrow #7.Tried to bounce and found no interest so down it goes. Note the Aggression bar on the break down.
Green arrow #8. Price is starting to create some kind of recognizable structure. This time in another channel. Great. Now we have something to monitor.
Green arrow #9. Price made it all the way down to the weekly break out back test that we marked from above. With almost absolute precision. It tried to break down with Aggression and then started to reverse. The presence of this last aggression bar is significant. Significant because it was less aggressive than the previous Aggression bars. Noted by not being white or yellow (these are just what I’ve chosen to help me identify the strength of the move). These bars indicate volume and speed of the move relative to a look back period. Yellow is severe Aggressiveness. White is less severe Aggressiveness and so on.
Green arrow #10. Break out of the channel with an Aggression bar. Enter position here. Short term structure broke at a large time frame inflection point. The risk to reward here is in the long traders favor.
These kinds of trade locations, when you pair a large time frame point of interest along with a smaller-time-frame-structure-break-out-point are the asymmetrical locations we as traders have to identify. And this is the kind of work that is needed to identify them.
What did we have at the exact point where green arrow #10 is?
We had a large time frame area of interest.
An area where smart shorts will likely be covering and taking profits.
We have a level where patient buy-the-dip traders and investors will be looking for value.
Next we have some kind of structure on a smaller time frame that we can break out of.
Basically, we have probabilities on our side.
Green arrow #11. As a day trade, this is the first spot to unload some of your risk. This is the next significant level above. The daily break out level that failed previously.
Green arrow #12. As a day trade, this is the second spot to unload some more of your risk. This is the next significant level above. The previous weekly breakout that failed. We don’t know what price will do, so we have to lock in profits along the way. All your dreams of Lambo’s and private islands need to be flushed from your mind. Have a plan, trade your plan. Buy cool things later.
After scaling again at green arrow #12, keep the last portion of your trade for a swing. The real money is holding overnight and adding to the position if more structure shows up in a good risk to reward location.
That’s it for now. I hope this was helpful. If you have questions, please comment below or send me an email to [email protected]. Thanks for reading.
Notes and Nuances:
*1
In all of my trading, having a good trade location is imperative. But these trade locations can look very much the opposite for day trading and swing / trend following. In day trading, I want to be closest to the areas where my trade will be invalidated.
In swing trading I want to buy strength and give my positions a lot of room to breathe.
If you see my swing trade executions on a daily chart, it’s obvious I’m buying higher as the price goes up. If you look at my day trade executions on a daily chart, you’d think I was a value buyer. For me, this is the kind of mentality that it takes to make it in both worlds.
*2
For vast amounts of time in my trader career, I had emotional issues.
Now, in general, I think that trading psychology issues is just pure bullsh*t. I realize that will get me into trouble with a lot of traders. Here is why I think the way I do.
In trading we must accept risk. If you don’t accept risk…don’t trade…you’ll be an emotional wreck.
In trading we must know probabilities. If you don’t know the probabilities that’s OK…create the statistics of your trade system so you know your probabilities. Confidence in your trade system will (should) leave you emotionless.
In trading we must know how we make money? What do you do in the market to withdraw money? What is your system?
If you have all three of those defined…there should be zero emotion. The trade works…or it does not. If it works…good…move on to the next one. If it does not work…good….move on to the next trade.
Think in sample sizes of 1000 trades, not 1. A single loss as part of a sample of one-thousand should be meaningless to you.
Emotions are bullsh*t. When you get emotional…it’s a sign that one of the above is not in alignment with you.
*3
There are great traders out there who trade the same thing each and every day. Many of them are probably very rich. I don’t have an issue with that. But that’s not how I trade. In my work, I don’t ascribe to there being asymmetrical reward to risk each and every day on the same product.
There is something to be said for learning how a single product like the S&P or Nasdaq futures move, learning their nuances etc. I did this for a long time too. But, for most, it’s a short road to a very tall cliff. Everyone has their way of extracting money from the markets, and how ever you make it your own is good with me.
How it got my attention, stalking it, waiting for it to set up, execution, and trade management.
Tools used for this trade.
TC2000 (daily scanning for swing setups)
Heikin Ashi and regular candlestick bars
Sierra Chart (executing a more precise entry)
Aggression (this is what I named it…custom coded indicator for Sierra Chart)
Donchian Channels
In this post I’m going to go through the entire process of this trade. Starting from the moment it arrived in my daily scan, to stalking it for a spot to execute a trade, to removing some risk, and how I’ll eventually close it out (the trade is still open as of 12-19-24).
How $EOSE got my attention.
From a swing / trend following mindset, I won’t give a second glance to anything that hasn’t made a new 10-day high after the most recent 10-day low. I scan for this. Not the entire universe, select criteria. See more about it in this post.
On Monday, November 25th $EOSE made a new 10-day high after the most recent 10-day low. I placed it into a “stalking” watch list. I will then monitor the daily chart and periodically cycle through the lower time frames to see if any structure is building. Some structure that we can “break out” from.
I’m a breakout trader. I’m not a bottom feeder looking for a deal. I don’t buy value. I don’t anticipate breakouts. I want to buy when I get confirmation that there is extreme excitement and fervor in the stock or futures contract.
The first step to achieving this and keeping me on the side of the momentum is to wait for a new 10-day high to be made, after the most recent 10-day low. There’s nothing unique about this. It’s arbitrary really. I could choose a new 5-day high, or a new 50-day high, or even a new 1,000-day and I don’t think it would really matter in the end.
It’s all about process. Having a process that I follow – like a religion.
Here’s what it looked like on a Heikin Ashi daily chart. New 10-day high, after the most recent 10-day low.
Now it’s got my attention. It goes into a different watch list where I’ll stalk it for an entry.
Now I’ll go to Sierra Chart, where I’ll look at it on the smaller time frames.
Here’s what caught my attention. On the 30 minute chart. Some nice structure building. I am constantly cycling through regular candles and Heikin Ashi bars. I can get a more holistic view if I do this. Many times I’ll catch something that is absolutely perfect on the Heikin Ashi chart that is just a choppy mess on the regular candle chart, and vice versa.
Up this point, here’s what I now know.
$EOSE made a new 10-day high after the most recent 10-day low.
On the smaller time frames there is a recognizable chart pattern.
Now I have something to “break out” of.
I can plan the trade in advance. If this happens, I’ll do this, with this much size, according to a stop located here. Etc.
When / if it breaks out, I won’t be thinking. I’ll just be reacting. Zero thinking. None. When I start thinking on the fly, I lose.
On November 29th, the breakout came, and I was ready to enter.
The last piece of confirmation I need to take the trade is Aggression. It’s something proprietary that I coded in Sierra Chart. It shows me with a painted bar if there is extreme volume and urgency in the speed of the move…relative to a look back period.
I will NOT execute a breakout trade without the presence of an Aggression bar. I usually want to see it happen on a 30 minute or a 15 minute breakout bar. If I want to get in earlier, I can use the 5 minute. Even the 1 minute can be used to get in early. Although the risk of the trade failing on the smaller time frames is greater. I’ve found that the 15 and 30 minute are just fine most of the time.
Everyone gets hung up on entries.
I was a victim of this too. In fact, I could teach the class on how to agonize on how to get the best entry. Then, I decided to let go of that agony.
Do I have a plan to place the trade when my if / then system tells me to do so?
Do I have a plan to size appropriately so I can let the trade breathe? Most trades don’t go in a straight line.
Do I have a trade management plan? What will I do once I get in this trade, how do I get paid?
If I have answers to these questions, then I did my job. After these questions are answered, then I’m just a glorified button clicker. (Note *1 more on this below)
I’m in the trade, now what.
I trade via a mind algorithm. I do the same things over and over and over. I do not want to think. I don’t want to guess. I just react.
If I say I want to sell into strength…that’s great. But, what is strength exactly? How do we define strength? Is it just magnitude of move? How do I know that a massive move the next day was not all that strong, and that I should sit tight and wait for “real strength” to exit some of the position? The only way I can do this is to have a system for taking the guess work out of my trading.
I use the Aggression bars. I’ll wait for an Aggression bar to paint on the 4hr time frame. (Note *2 more on this below)
On December 16th I got my signal to remove 1/2 risk.
I still have a 1/2 position on and I’ll trend follow it. I want to see a Heikin Ashi close below the 10 day Donchian to close it out. This will keep me in the trade for as long as possible. (Note *3 read more below)
I’ll update this page when the trade concludes or if I get a spot to add to the position. In the meantime, if you have questions you can comment or send me an email. [email protected] .
Notes and Nuances:
*1 I have the same thinking when it comes to day-trading. While the execution is much faster than executing a swing / trend trade. The concepts are universal. For instance: What am I looking for? What will get me into a trade? Why here…why would I take this trade now? Once I’m in the trade, now what?
The trade planning is done in advance so I know when my if/then statements are true – there is zero thinking. When I think on the fly, I lose.
*2 I like the 4hr to scale some profits because it’s not too long and not too short. I want to scale some profits when we’ve had a long period of volume and speed of movement euphoria. I want to scale out of some when traders think that it’ll never go down again. When that feeling kicks in, it’s time to take some risk off the table. The 4hr gives me that. Conversely, there would be too many 15min Aggression bars, and I’d be guilty of taking profits too quickly before real strength kicked in. The daily chart would give so few signals that I may never get out of a position.
Until I find a better system, the 4hr works.
Sometimes, price will go straight up in the days after I enter. But a 4hr bar will never print Aggression and I’ll eventually get stopped out. That’s trading. That means the move was not strong. The strongest moves will print a 4hr Aggression bar at some point after my entry.
*3 I stole the exit portion of this system from Jerry Parker. I believe he uses 4 different systems. But his smallest look back is much higher than mine. Maybe it’s the 150day Donchian – can’t remember. Meaning he would close his position on the 150 day new low (I’ll wait for a Heikin Ashi close). He also stays in trades for years at times. I’m certain his system is better as he’s a billionaire.
I don’t know the exact details of how he trades. I’ve just pieced together some nuggets here and there from interviews. I’ve been highly influenced by Jerry.
Jerry would never sell partials though. Again…Jerry is a billionaire. His system is better in every way…guaranteed.
How it got my attention, stalking it, waiting for it to set up, execution, and trade management.
Tools used in my daily trading vary. But for swing trading, here’s what I rely on to make decisions.
TC2000 (daily scanning for swing setups)
Heikin Ashi and regular candlestick bars
Sierra Chart (executing a more precise entry)
Aggression (this is what I named it…custom coded indicator for Sierra Chart)
Donchian Channels
So far in 2024 $TSLA signaled 6 different times for me to start looking for trade setups. Today I’ll detail the most recent.
The first thing I look for is strength.
“Strength” is very subjective.
What constitutes “strength”? It can be anything you define. For me, it’s simple.
Has the stock made a new 10-day high after the most recent 10-day low.
If that condition is true, then it goes into a watch list to stalk for an entry.
Let’s look at a big picture view of the $TSLA daily chart from 2024.
The green arrows point to when a new 10-day high was made after the most recent 10-day low (red arrows).
If this first condition is not true, then I’m not watching the stock. It could be the most beautiful chart pattern in the world, but if the stock hasn’t made a new 10-day high after the most recent 10-day low, it’s dead to me (unless it’s a long term investment…completely different strategy).
This is non-negotiable for me. I want to buy stocks that are already displaying strength, not bottom-feeding. Everyone has their own way of pulling money out of the market. There isn’t a right way or a wrong way…there’s just your way. (*1 note below)
After a stock goes into a stalking watch list I’ll be looking for different things that will get me into trades. Entry setups. I’m very discretionary on the actual entry. It could be a breakout of a channel, a breakout of a flag, a breakout of a diagonal or horizontal trend-line, or it could be a failed breakdown and reclaim. (*2 note below)
The one thing that must be present is the formation of an Aggression bar. More on this in a bit.
Let’s get into it.
On October 24th we got a new 10-day high after the most recent 10-day low. It was a gap up.
Now the stock goes into a watch list to stalk.
In my stalk list, I’m watching for things that will get me into the trade. A chart pattern usually. I’m a very visual person, so chart patterns resonate with me. I can spot them quickly. But a chart pattern alone won’t get me into a trade.
$TSLA is now in my stalking watch list. I’ll cycle through all the time frames periodically to see if there is something forming. Sometimes it’s on the daily chart, sometimes it’s on a 15 minute chart.
Here are the things from my notes on $TSLA after it was in my stalking watch list.
First: After the new 10-day high the stock started pulling back. This is common after a gap. The question is, how does it behave on the pullback.
Second: The volume dropped off significantly on the pullback. Meaning, traders and investors aren’t looking to exit at the higher prices. It’s accepted that $TSLA is “worth” this. I don’t care about fundamentals. If there is euphoria, to me it means traders and investors think it’s “worth it”. This keeps me on the right side of trades. The more “I think” the more “I lose”…usually. Whether a stock or commodity is ever worth the trading price is irrelevant to me from a short term trading perspective.
The volume dropping after a large move like that is completely normal and to be expected….if the move is healthy. If the move is not healthy and not accepted then the pullback will be on extreme volume. This would signal to me that the price move was considered too high and investors and traders took advantage of the too-high prices, taking profits.
Here’s an example of a large price move that was rejected from back in 2023.
Price broke out of the consolidation, and was swiftly rejected. Healthy up move vs unhealthy up move. It’s up to us as traders to analyze everything that the market participants are telling us. This is where trading becomes an art, not a science. (*3)
Back to October 2024.
On the light volume pullback, I’m noticing a down-trending channel forming on the smaller time frames. Here it is in regular candles on the 30 minute in Sierra Chart.
And the 30minute in Heikin Ashi
So by now, here’s what I know.
Tesla made a new 10-day high after the most recent 10-day low.
On the daily chart, it pulled back on much lighter volume.
The gap got tested and found buyers.
The smaller time frames are showing an almost perfect down-trending channel.
I have a chart pattern I can monitor for a breakout on Aggression.
Now, I’m in full ready-to-execute mode.
On November 5th, $TSLA gapped up out of the down-trending channel and proceeded to form an Aggression bar on the 30min open bar. This meant to me that the volume and the speed of the move was significant. If this breakout happened but there was not a Aggression bar, I wouldn’t have entered the trade. (*4)
I entered the trade after the first 30min bar produced an Aggression bar.
The Aggression bars are something I programmed in Sierra chart. They are specific to the volume and speed of the move relative to a certain look back period.
See here how they help me read what is happening on this 30 minute time frame.
This is another example of how my trading is a holistic approach. In most of my trading, I try not to predict. I react.
Now that we’re in the trade. What now? I trade using a mental template. I’m like a robot. Once I get in, there is no questions about how I will manage the trade.
I’ll sell 1/2 of my position on a 4hr Aggression bar. This is where buyers are jumping all over each other to get in based on a time frame that is not too long, and not too short. Some trades I’ll get a week of movement before I get a signal to scale out. Sometimes it’ll happen the next day. Sometimes it’ll never happen and I’ll stop out. This is trading.
On November 8th I got my signal.
At this point, I’ll leave my stop in place. I do not move to break-even. If price comes all the way back, so be it. I’m looking for the remainder to hopefully trend. I will exit the trade on a Heikin Ashi daily bar close below the 10-day low. This means I’ll be giving back a lot of open profit. That’s OK with me. I’m looking to milk the most out of my winners that I can.
So far this trade is still open. In fact, it got added to, because of a new chart pattern in late November. Let’s get into that. There was also a stop out.
When this showed up, I started looking at the smaller time frames to see if I could add to the trade.
Inside the daily chart pattern I noticed a chart pattern forming on the 30min and 15min. So I began to stalk it.
These are some of my favorite trades to take. A recognizable chart pattern on a smaller time frame that is currently INSIDE a recognizable chart pattern on a larger time frame.
On Friday, November 22nd, $TSLA broke out of this pattern with Aggression. So I added to the position.
Then on Monday I stopped out of the add-on.
That’s OK. That’s trading.
It gave an even better signal on that Friday the 29th. It reclaimed the trend line with back to back 15min Aggression bars. So I put it back on.
If I don’t stop out of the trade, I default to my the algorithm of my trading. I will be watching for a 4hr Aggression bar to sell into.
On December 12th I got one. Now I can lock in more profits.
Now, I just sit and wait. Stops stay in place. I’ll close the remainder of the position on a Heikin Ashi close below the 10-day Donchian…or I’ll get another setup to add to the position.
This chart shows how I would close the rest of this position.
At the time of this writing, the lower Donchian is sitting at $348ish with price sitting in the $430’s. If traders jump out the window here and it makes a beeline straight down, yeah that wouldn’t be fun to lose out on all that open profit. But, as traders we have to choose what kind of trader we want to be. I’ve chosen a method that works for me, and that I can execute over and over again. Sometimes I give up a lot of profit, and other times my method keeps me in trades for weeks and months at a time.
There are many examples of a stock or future or currency just trending endlessly for for a year or more. Then there are many examples of breakouts failing over and over and a product doesn’t trend for years on end. I choose not to predict how far something will go.
I think adding some day trades to the mix helps keep me entertained while these longer term trades work themselves out. I’ll start documenting them too. These write ups take a lot longer than I anticipated though.
I’ll update this post if I get a spot to add to the trade or when I finally close it out. Until then, drop me a line or email if you have any questions. [email protected].
Notes / Nuances
*1 Jerry Parker, one of my favorite traders to learn from, said in a video interview something to the effect of “he thinks that there is only one right way to trade” I tried to find it so I could link to it but couldn’t find it again. I hope I’m not misquoting him too much. I believe he’s correct in principle. You get into trades and should hold the winners as long as you can. That’s what I’m trying to achieve with my trading. But, I’m sure there is a percentage of traders who aren’t comfortable holding onto large positions for long periods of time…and that’s OK. If you’re extracting money from the market, my hat is off to you. Respect. Makes no difference to me how anyone does it.
*2 I generally think, sizing appropriately, and buying 10 day breakouts would work just fine for anyone who doesn’t want to, or can’t watch the screens so much. Ultimately, that’s what I think I’d like more. But then, I really do love the challenge of getting good entries. I guess that’s the ego talking.
*3 Jim Simons and the quants out there might disagree with me on this. That’s the beauty of trading. Everyone is right, and everyone is wrong. It’s all about perspective. If you make money over a large sample set, it doesn’t matter how you make it, you’re right. You have edge.
*4 Aggression bars are not perfect. But they are perfect for me. They give me confidence to enter a trade. They tell me that participation and fervor is extreme. I like extreme participation and extreme fervor. It gives me joy.
How it got my attention, stalking it, waiting for it to set up, execution, and trade management.
Tools used for this trade.
TC2000 (daily scanning for swing setups)
Heikin Ashi and regular candlestick bars
Sierra Chart (executing a more precise entry)
Aggression (this is what I named it…custom coded indicator for Sierra Chart)
Donchian Channels
Today I’m going to discuss the process of identifying RIVN as a potential swing trade. What initially got my attention, how I stalked it for an entry, what exactly was the signal that got me into this trade, and how am I managing the position.
First, I break the world of stocks that I’ll look at into three different scan groups.
I scan each group for all stocks that has made a new 10-day high.
If it’s the first 10-day high after the most recent 10-day low then it goes into a watch list to monitor for a valid setup for entry. (I’ll discuss the different setups I use in a another post.)
How Rivian got my attention.
Rivian showed up in my IPO scan and the Gainers scan 10 different times since October 24th. The entry wasn’t until December 5th.
From the chart below:
First 10-day high after the most recent 10-day low. Now add it to a watch list to start stalking for a setup to execute. (Note on this below *1)
This is another 10-day high, but mostly irrelevant to me. It’s not the first 10-day high after the most recent 10-day low. Nothing has changed. Still stalking for a setup.
New 10-day low. Remove from watch list. It’s dead to me at this point. It could rocket past the high of #2 and I would have zero fomo. It would simply go back into the watch list.
This is exactly what it did. Made a new 10-day high after the most recent 10-day low. Back into watch list to stalk.
Sold off hard…but did not make a new 10-day low. Still in watch list.
This new high is mostly irrelevant to me…other than it’s signaling that it is done going down for now. Still looking for a setup.
For swing trades, I’m (almost) always looking for a chart pattern to breakout from. There are nuances to this stuff and sometimes an exact chart pattern doesn’t present itself. This doesn’t mean I won’t take the trade. That’s why trading is an art not a science.
In this case, RIVN started to put in a very nice flag / triangle. The actual chart pattern is not really relevant to me too much. I really just want to see that some sort of structure is building and it’s not just a wild west show on display.
I use Heikin Ashi bars along with regular candlesticks. I can get a more holistic view of what is happening with the structure with each chart I view.
See here, the difference in how they look on a daily chart. Note the nice chart pattern starting to set up.
Heikin Ashi
Regular candlesticks
Now that we’ve got a recognizable chart pattern that we can “break out” from…I’ll go down to the smaller time frames. I do this because when I get into trades, I want to time them so I can have the best potential risk / reward entry as possible.
This could be overkill for swing trading, but it works for me. I find that it’s a good skill to hone though, as it is absolutely essential for day-trading.
Now down to Sierra Chart. Sierra is incredibly versatile. First, what I like about it is that I can load any data that I want. If I’m looking at a stock to enter, I want to see ALL price action. I want to see how a stock traded pre-market and regular trading hours…for every day…not just the past two sessions. I don’t know about all other platforms, but in TC2000 you only get pre and post market data for the past two sessions. I believe TradingView allows to view all days. I don’t use it religiously though so I’m not sure.
I’ll start cycling through the lower time frames and see if anything sticks out like a sore thumb. In general, if I have to look too hard it’s not going to end well for me.
Here’s RIVN on 30min Heikin Ashi chart.
Same chart, just without Heiken Ashi.
Now a 15 minute Heikin Ashi chart
Then the same chart, without Heikin Ashi
Now the stock has my absolute attention.
New 10-day high after a recent 10-day low. (Note *2)
Obvious chart pattern on a higher time frame (daily) that we can “BREAK OUT” of. (sometimes an obvious chart pattern does not form on a higher time frame…this is why it’s crucial for me to also watch the lower time frames to find the pattern)
Obvious chart pattern that we can “BREAK OUT” of on a lower time frame that is “INSIDE” the larger time frame.
Now we just watch and wait. The very next day, December 5th we got what we stalked for…an aggressive move out of the smaller time frame chart pattern that was inside the larger time frame chart pattern.
The final piece of the puzzle…AGGRESSION…as seen here with the 15min bar going yellow. This means that the move was a combination of volume and speed that I want to see when I get into a break out trade like this.
I programmed what I want to see in Sierra Chart to paint the bar yellow. Generally I’d like to see the bar close yellow before I start a position. Many times the bar will paint and then un-paint numerous times because the condition is oscillating between true and false while the bar is still in the making. (Note *3)
It’s not just volume, but speed of the move that I’m interested in. I want the entire bar to be all about aggressive traders getting into the trade and I’ll just hop on for the ride.
Here’s a look at how I’ll manage the trade initially. For the first day, my entry areas and my initial stop.
Now where will I scale and hold? I have such hard a hard time holding onto full positions…it’s a struggle of mine. Very much a work in progress.
For now, I use Aggression bars on the 4hr time frame to begin to scale. As seen below. I’ll sell 1/2 into strength on a 4hr Aggression bar. This is serious strength that I’m selling into. The buyers can’t get enough when these bars print….the want it all and they want it all in speed. So let’s let them have some of our risk.
Now we have a 1/2 position left. I won’t move the stop here. I’ll leave it in place on the break out daily low.
We are going to let this ride and go back to our Donchian channels to exit. We could be in this trade for a very long time, or it could take us out tomorrow. It’s up to the market. At this point, I don’t want to think I know what it will do…because I don’t. We are just going to be around for whatever it does.
I choose to give a lot of room to my trades when letting them run. To some this would be too much, to others this wouldn’t be enough. But it works for me. I take a trend following approach to trailing the final piece. I’ll close it on a Heikin Ashi “close” below the 10-day lowest low.
The arrows in the above picture would denote places where there was a Heikin Ashi close below the 10-day lowest low. I like the Heikin Ashi close because it’s allows for a lot more movement and time for the price to recover.
That’s it, I’ll ride this trade now until it gives me a signal to exit. Let me know if you have any questions. I’ll update this post when we get a signal to close out.
Notes and Nuances:
*1: I’ll always look at the smaller times of the new 10-day high candidates… sometimes they’ve just broken out of a very nice chart pattern on a smaller time frame with Aggression, if this happens, I’ll look to initiate a position the following day. Here’s an example:
EOSE Daily Heikin Ashi
Down to the 15min
*2. A new 10-day high after the most recent 10-day low can often occur many times in succession, for weeks and months sometimes…this is the epitome of consolidation. These kinds of consolidations usually end in a break in either direction at some point.
TSLA Daily chart for an example.
*3 Many times when a stock or future breaks out, it will be so intense and powerful that, by the time the bar closes on that time frame, I would have a non-desirable trade entry location.
This is not usually such a big deal in swing trading because I’m looking to get into positions that last much longer than a few minutes or hours like a day trade. But, there are times when a 15min bar will move an entire daily ATR just by itself.
To fix this, I will set ATR levels. If the stock breaks out and moves more than 1/2 of a daily 10 period ATR, I won’t wait for the bar to close. This is strictly from breakout point to 1/2 of a daily 10 ATR.
I’m sure there are better ways, but this works for me. I will never take a trade though unless there is an Aggression signal showing up. I don’t care how beautiful the set up is. I want to see mass participation with traders stumbling over themselves to get into the breakout move.
