Knowledge & Discipline is Power

STOCK TRADING STRATEGY


I focus on two intraday stock trading strategies:  Pullback to a prior day Buy/Sell Zone or a Trigger Point Continuation strategy. I trade highly liquid stocks that trade on average a million shares a day. The strategies start with forming a daily watch list followed by applying the proper intraday trading strategy and risk management. I don't chase trades, if price doesn't enter the zone or fit into my plan, then no trade. The number one priority is always to manage risk.


Both trading strategies start with trading in the direction of the major indexes and following these four steps:

  1. Daily Chart: Scanning nightly Daily Charts of stocks in play that trade on average a million shares per day, trending in a bullish or bearish direction and with their moving averages all trending in the same direction. The ema's used are 9, 20, 50, and 200. Each night I scan for and identify a few candidates and place on a watch list for the next day.
  2. Intraday Setups: The watch list stocks are placed on 5 minute charts with the 9, 20, 60 and 240ema's and the R1, R2, S1, and S2 pivots points. Will consider placing a trade when price trades at or near the stocks trigger point or pulls back into the prior day Buy or Sell zone.
  3. Entry: Once the intraday setup is identified I look for the proper entry. The Trigger Point entry is based off a candlestick entry in the vicinity of the Trigger price . The buy/sell zone strategy entry is placing orders in the stocks buy/sell zone.
  4. Manage Risk/Reward: Before entering a trade I identify my stop price followed by identifying the exit goal. Always identify your stop price before entering a trade. My risk reward varies between 1.5 to 3 times the size of the stop.


DAILY CHARTS: The four types of Daily Charts I scan for each night are:


  1. Pullback to Support:  After trading in a strong direction the stock pulls back on the Daily Chart into a rising moving average, or a support/resistance price area. A green or indecisive candle forms off the moving average or support area. Enter if the two day prior high is taken out. The Intraday setup is to time an entry off an anticipated break of the 2 Day Prior High (the high of 2 trading days back). Setups used are the Base, Break an Go - which is for price to consolidate/form a base with 5 minute 9/20ema support under the trigger point (either the R1 pivot or prior 2 day high ) or for price to trade through the trigger point and pullback for a candlestick setup entry.
  2. Multi Top Break: On the Daily Chart the stock trades to a price point multi times, consolidates under the price point and has support from the rising daily chart 9ema. The intraday setup is anticipating a break through of this multi top price trigger point. Setups used are the Base, Break and Go - which is for price to consolidate/form a base with 5 minute 9/20ema support under the trigger point or for price to trade through the trigger point and pullback for a candlestick entry.
  3. Continuation/Follow Through Day: On the Daily Chart the stock forms a solid wide range candle. This candle is formed due to one of the following: A: Bottom range of the candle starts with a bounce off of daily support.  B: The candle is breaking through or gapping over a resistance point on the Daily Chart.  C: The candle is engulfing a prior red candle/down day to continue its trend up. The trigger point is the previous day High or R1 Pivot with tight support from the 9 and 20ema. The next day will look for a follow through day and one of these three intraday setups. 1: Base, Break and Go: Price consolidation/forms a base under the trigger point with 5 minute 9/20ema support 2: Price trade's through the trigger point and pulls back to the trigger point for a candlestick entry.  3: Pullback into the prior day Buy Zone. Will also use the Buy/Sell Zone setup for swing trades, under the right market conditions.
  4. Red to Green: On the daily chart the stock is trending up (pattern of green candles above the 9ema) and a red down day occurs within the trend that closes above the Daily Chart 9ema. The intraday setups used are the Base, Break and Go - which is for price to form a base and tight 9/20ema support entry under the R1 pivot (the trigger point) or a candlestick pullback entry to the trigger point if price trades through the trigger point. If the low of the prior day is above the R1 pivot point then use the low of the prior day as the trigger point. This is a setup that can be used for swing trading, if the overall market conditions agree, with the stop placed at the low of the day upon entry.


INTRADAY SETUPS: From the Daily Watch I set alerts for when price trades near, over or through the stocks trigger point for the continuation setup. With the Buy and Sell zone pullback setup I place orders and alerts pre-market. Before entering any trade I first identify the stop point. The next step is to identify the exit point. Exit points can be previous or current day high, or the next pivot point. Will need a minimum of 1.5 risk reward ratio. For example if my stop is 80.50 and my exit goal is 81.75 - my maximum entry would be 81. Risking .50 to gain .75 - a 1.5 reward.


Trigger Point Continuation Setup:  The goal of the setup is a continuation move with entry near or above the previous day's high price. With the Continuation Setup I identify a trigger point, but will not automatically take a trade at the identified trigger point. The trigger point can be a previous day high or R1 or R2 pivot point with entry in the vicinity of the trigger price. Most trading charting programs will have the pivot points that can be added to the charts. When looking for an entry I prefer to see narrow candles forming in the vicinity of the trigger point. I use the 5 minute charts to look for one of these two setups at the trigger point. Before entering a trade I always peak at the higher time frame 15 minute chart to obtain a more clear picture and to confirm a solid entry and stop placement.


  1. Base, Break and Go:  The stock opens under the trigger point, proceeds to trade up to the trigger point, and begins to base/consolidatein a narrow range under the trigger point. Will enter my order on a break above the base provided there is rising 5 minute 9/20ema support with the stop placed below the 20ema. How to take this trade at the open: If the trigger line is in proximity to the prior day closing price, with the 5 minute 9/20ema as support and the overall premarket (SPY and QQQ) favorable towards the trades direction.(For example: if looking to go long on a stock at the open the indexes should not be tanking pre market – the market should be opening flat to up) then can place an order for a break of the trigger point when the market opens. 5 minute candle option: The conservative option for trading at the open is wait for the first 5 minute candle to close above the trigger point. Enter at the high of the candle, stop low of the candle/under the 20ema.
  2. Pullback to trigger point: The stock gaps above or trades through the trigger point with wide range candles and then proceeds to pull back to the trigger point. Will look to enter a trade off the trigger point if price consolidates at the trigger point, with narrow range candles, and will use the Base, Break and Go entry setup described above. The second option is one of these two candlestick entries off the trigger price. A: On the pullback to the trigger  point small green or indecisive candles form at the trigger price with support from the rising 5 minute 9, 20 or 60ema. Enter if the high of the prior 2 candles is taken out. (I don't enter the high of a small green candle/indecisive candle to help avoid fake outs - a larger green hammer candle I will enter off the high)B: Red to green candle: On the pullback to the trigger point a red candle forms off the trigger price with support from rising 9, 20, or 60ema. Will enter if the high of the red candle is taken out. Stop placed below the 20 or 60ema for both entries.


Buy & Sell Zone Setup:  This setup is based off the stocks placed on the daily watch list from the Daily Chart Continuation/Follow Through Setup. Buy and Sell Zones are where a higher concentration of supply (sellers) and demand (buyers) for the stock exist. I determine the buy/sell zones based off the prior day 15 or 30 minutes charts and use the 5 and 1 minute charts to help fine tune each zone. When scanning through chart's I look to spot where price moves a lot with a preference of large successive candles. I then look for the origin/beginning of the move which tends to start a small sideways movement/base to help you define your buy and sell zone. I look for two types of setups to form these buy/sell zones.


A: Daily Chart Price Break: On the the daily chart a wide range candlestick is formed when price breaks through a prior resistance point on the daily chart and closes strongly beyond the break point. I will mark the resistance point break line and use the 30, 15, and 5 minute charts to determine the buy zone around this break point. I will form a majority of these zones with the top of the zone above the break point and the bottom of the zone under a base of candles beyond the break point.


B. Intraday Buy Zone: The zone is formed from a strong intraday move that was a catalyst to forming a Daily Candle Wide Range Bar. This is a stock that gapped up and broke out to new highs. These zones will be formed around one of these two intraday patterns with 30/15 minute charts and fine tuned with the 5 minute chart:


1: Inside Bar: Price traded up, based to form an inside bar, and broke out to continue its strong move up. The zone is formed around the inside bar.


2: Hammer or V pattern for a Buy Zone: price trades up, has a quick pullback of 1 to 3 candles to form a hammer or small base (middle of the V), and resumes its breakout up to a new high. This zone is formed around a small base of candles or hammer candle in the middle of the V after the pullback. The top of the zone is the high of the hammer or high of the base.  (Sell Zone is an upside down V pattern or hammer). 


Below is an example of the first intraday pattern the Inside Bar. The Buy Zone is formed after a strong intraday move that forms a 30 minute inside bar, and breaks out over the inside bar to trade to higher highs. The buy zone is formed around the inside bar with stop placed outside the zone. Four days later the stock trades back into the buy zone for a nice setup.


















Below is an example of the second intraday pattern the V pattern or upside down V pattern for forming a sell zone. Here a Sell Zone with the upside down V pattern is formed on a 30 minute chart. After a sharp sell off the stock rebounds, forms an inside candle (white arrow) which is in the middle of the upside down V pattern, and proceeds to sell off forming the upside down V pattern. Two days later the stocks trades back into the sell zone for a nice setup.





















Once I determine the zone, stop placement and exit goal, I will then place orders before the market opens with these entry, stop and exit points.  I always determine my stop point first, which is placed outside the zone and prefer beyond the closest moving average (60, 120 or 240ema) ...and prefer beyond a Whole # .00 or half number .50.


I then determine the risk, amount of shares to trade, and entry point in the zone which will vary from from in front of the zone to placed in the middle of the zone. The size of my stop averages around 1% of the stock price or more on faster moving stocks, and is generally determined by how large the zone is and where I located a stop point.


The exit goal is 1.5R to 3R with stop moved to entry when 1R has been achieved (if your risk is .40 then with a gain of .40 move stop to entry price). Once the stock trades out of the zone in my favor will move the stop to the low of the day. 


Manage Risk: With the Trigger Strategy I sell half my shares at the R2/S2 pivot (or next level/pivot) with a risk reward of 1.5 to 3x risk/reward which varies on how strong the market is and how tight my stop was set. I will trail my stop if price closes under the 5 minute rising 20 or 60ema. With the Buy/Sell Zone strategy I exit all at 1.5 to 3x risk/reward.


Once in a trade and have achieved 1R (example: risking .50 and price trades .50 in my favor), will then move the stop to break even for both setups. I will close out the trade by the end of day. An example of a trade using Risk/Reward of 3-1 with a .50 stop: Enter stock XYZ at 60 with the stop placed at 59.50. Will exit with a 1.50 gain - 61.50.


Reverse all strategies for shorting weak stocks in neutral to bearish markets. If your looking to swing trade stock's from the watch list, this post will give you a base idea to start with. Swing trading

Click here for Examples of Long Trigger Point Trades:

Click here for Examples of Short Trigger Point Trades:


Click here for Examples of Buy and Sell Zone Trades:


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RISK CALCULATOR (in excel) will help you determine the amount of shares to purchase per trade. The wider the stop, the less shares that will be purchased. The formula takes the amount you are willing to risk divided by the range between your entry and stop: CLICK HERE