Module 6: Day Trading Strategies (Done)

Question 1

What is a trend trade?

Answer 1

• When a stock shows strong evidence that it will continue to either rise/fall in price for a long period of time
• David Green has advised traders in his Investopedia course to not enter a trend trade until at least 9:45 am
• Traders looking to take advantage of a trend trade must ask themselves four important questions:

1. Is this stock in a trend?
2. Where would we enter the trade if in a trend?
3. Where would our stop orders go?
4. What would our profit target be?

• As the stock trends higher, the trader should raise the stop loss to lock in profit
• Always adjust the stop order for every $0.50 increase in the stocks price to lock in profits
• David Green has advised traders in his Investopedia course to never enter a trend trade after 3:00 pm

Explanation of how we would go about a trend trade:

• We look for our stock to fall back to the 9 period or 15 period EMA once we’ve established the stock is in a trend
• Method 1: 100 shares at the 9 period EMA and do not sell until the end of day, trendline break, or stopped out
• Method 2: 1/3 position at the 9 period EMA, 2/3 position at the 15 period EMA and take 1/3 profits after each $0.50 increase in the price of the stock (leave the last 1/3 to run until the end of the day, trendline break, or stopped out)
• Keep raising your stop to lock in profit
• Initial stop is dependent on stock price
• Profit targets are also dependent on stock price

Question 2

What are the different profit targets for stock?

Answer 2

• Low price stocks ($20 - $50): Aim to make $0.25 per trade
• Mid price stocks ($50 - $200): Aim to make $0.50 per trade
• High price stocks ($200+): Aim to make $1.00 per trade
• In day trading, we look to make between $0.25 and $1.00 on all of our trades

Question 3

What is a regular moving average trade?

Answer 3

• This type of trade is when a stock quickly dips or rises to either our 65 EMA or 200 EMA
• Here, it’s time to trade against the market, as the stock will dip or rise against its previous trend

What we look for:

• We want to see the stock go up or down $0.50 from its current price before it hits our 65 EMA or 200 EMA
• We want this to happen quickly (in approximately 30 minutes or less)
• Limit orders will be placed at the price of our 65 EMA or 200 EMA
• Place our stop orders based on the stock price and profit targets based on the stock price
• Something to note is that it’s easy to look at a chart after the fact and say you could have made money
• Stick to your plan, stick to your systems, and never look back
• No “rearview mirror” in trading; be happy with your results and move on

Some questions to ask ourselves with regular moving average trades:

1. Is this a regular moving average trade?
2. Where would we enter that type of trade?
3. Where would our stop order go?
4. Where would our profit target be?

SHADOW OR BODY DOES NOT MATTER FOR TRADE ENTRY - IT JUST MATTERS THAT PRICE GOES THERE

Question 4

What is a base trade?

Answer 4

• This is a type of trade where the stock exhibits next to no price movements for an extended period of time (a minimum of 30 minutes)
• The stock is said to be going sideways (not trending)
• We say that it is forming a base
• A base trade can breakout up or down
• We want the range of the base to be no more than $0.50
• Think of a base trade as a rubber band; as the stock goes sideways the band gets tighter and tighter until it lets go and whips around
• There is a high of the base and there is a low of the base
• Once the stock breaks the high or low range by $0.05, enter the trade with a market order
• Stop orders will be the bottom of the base when going long and the top of the base when going short

Question 5

What is a consolidation trade?

Answer 5

• A type of trade that occurs when the setup is similar to a trend trade but stock never dips to 9 EMA or 15 EMA
• Stock is in consolidation so we need to enter it differently than we would with a trend trade
• This is essentially a trend trade but we enter the trade like a base trade because consolidation looks like a base
• The difference between this trade and a base trade is that we only look for consolidation in an uptrend
• When the stock breaks consolidation, we expect the stock movement to be upwards
• When the stock breaks consolidation by $0.05 we go long and place our stop at the bottom of consolidation
• We won’t exit this trade until the trend breaks
• If only entered with 100 shares, until the trend changes you are not to exit
• If entered with 300 shares, exit as 1/3, 1/3, 1/3 (same exit as a trend trade)
• Again, this is essentially a trend trade with the entry of a base trade

Question 6

What is a double top/double bottom trade?

Answer 6

• This is not necessarily relevant to this specific trade but its smart (below)
• “It’s not about how much you make, it’s about how much you keep” - this applies to both trading and life
• Again, not relevant to this trade specifically but David Green is “not risking a dollar no matter what the price of the stock”
• If you are unsure about double top/double bottom trading strategies refer to your CSI TAC notes (better explanations)

Question 7

What is a far from moving average trade?

Answer 7

• This is a trade in which our stock diverts from our closest EMA by at least $1.50 and RSI surpasses the low or high point (20 or 80)
• The second we see a green or red candle forming enter a market order
• We put our stop at the low/high sale of the previous candle (situation dependent)