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.