Summary
A Beginner`s Guide: How to day trade for a living provided an outline for beginners to start day trading with detailed and often practical info. The book by Andrew Aziz imbibes trading principles, methods to trade, practical tips and tools.
Of course, the part I treasure the most of this book is the seventh chapter: Important Day Trading Strategies with easy-to-understand case studies for each and every chapter. I also appreciate the way he writes it with important trading artifacts like watchlist, candlestick map and pricing points that provide deep insights in those case studies.
Useful Concepts Explained
*Each entry of the notes is followed by the exact number of the page where the notes was taken from from. n.d. means the page of the entry was undocumented.
Average True Range (A.T.R.): A technical analysis indicator that measures market volatility by breaking down the range of an asset price for that period. According to J. Welles Wilder Jr, a market technician, ATR is calculated by counting the biggest value between the absolute value of the current high minus the previous close, the absolute value of the current low minus the previous close and the current high minus current low. A 14 days ATR is widely used in the trading world (investopedia).
Average Daily Volume (A.D.V.): Equals the average number of shared traded over a fixed period of time. It could be used to measure liquidity. A trade is regarded as high-touch with a higher than 5% ADV. A trade is regarded as a low-touch with a lower than 5% ADV (Breaking Down Finance).
Average Relative Volume (A.R.V.): It means how much the stock is trading compared to its normal volume.
P351 Alpha stock: A stock that moves independently from both market and its sector. Always look for it.
Ask: The price sellers are demanding. Higher than bid price.
Average down: add more shares to losing positions to lower the average cost. With the hope of selling it in the next rally.
P352 Bid ask spread: The difference between willingness to pay and desire to sell can change throughout the trading day.
u.d. Bull flag: A type of candlestick pattern that looks like a flag on a pole. See a few large candles & several small candlesticks moving sideways (like a flag).
u.d. Buying long: Buy a stock in the hope of going higher.
P356 Consolidation period: Sellers begin to sell while buyers still keep entering. Sellers are not yet in control of the price.
u.d. Exponential moving average: A form of moving average where more weight is assigned to the more recent data.
P357 Fundamental catalyst: A day trader should look for that. It will impact the stock price during the day!
u.d. V.W.A.P.: VWAP is a technical analysis indicator used on intraday charts. The benchmark measures both volume and value. The average price a stock has been traded at throughout the day is based on both volume and price.
Volume-weighted average price (VWAP)= (cumulative typical price X volume)/ cumulative volume
Demonstration of the way to calculate VWAP:
VWAP = Cumulative Typical Price x Volume/Cumulative Volume
Typical Price= (High price+ Low Price + Closing Price)/3
TPV = Typical Price X Volume
Calculate VWAP by: (TPV(candle1) + TPV(candle 2))/ (V(candle 1) + V(candle 2))
And similarly for each subsequent candle
According to Investopedia, Relative Strength Index (R.S.I.) is a technical indicator used in momentum trading that measures the velocity and magnitude of a stock`s recent fluctuations.
Five Biggest Walkaways Distilled for Microlearning
Always have a plan or if-then statement before entering. Always check if a condition for leaving satisfied before exiting.
Never revenge trading. To avoid it, simply ask about reasons and basis to let the rational voice naturally take over the best of you.
Pick your battle. Pick the winner by checking the optimum factors such as catalysts, trade volume, average value per volume, pre-market movement and ATR. Use the scanner and watchlist if you can to pick the best horses in the best situation.
Seek more than one piece of evidence or basis to triangulate an interpretation when trading.
Always stop loss and stop loss correctly, immediately and decisively! Take profit at multiple points and take it flexibly according to the market condition.
Who needs it the most
People who trade for "get rich quick" scheme
Day traders who just start to trade within half a year
Other traders who want to learn day trading as an alternative source of trading inspirations
Notes and annotations arranged by themes
Who are day traders?
P44 Short sellers help the market. By discovering the true value of a company.
Long turn investors lend their shares to traders who trade short. In exchange for lending , they charge interest.
P45 Day traders don’t need to pay interest. Swing traders pay daily interest.
P49 Your job as a trader is to find recognizable and consistent patterns that you know from the past and then trade them.
General Rule of thumb and all things high above us
P40 Human being tends not to accept a small loss. On the other hand, it’s common for people to accept profits quickly.
Never hold positions overnight as a day trader. And one should get out of a losing trade immediately and stay according to the plan when it is tempting to take profits.
P63 Success in trading stems from a triangle:
1/ Learn and master one or a few trading strategies.
2/ Proper risk management. (Knowing how much a size to enter a trade and when to exit a trade.
3/ Control emotions and have a stable psychology. Meaning: stable enough to avoid impulsive and irrational decisions
p63 Nike’s five facets of training: movement, recovery, nutrition and sleep. For traders: technical knowledge, risk management, nutrition, sound psychology and sleep
p46 Use an irregular approach. Wait until opportunity.
p47 Learn to have an exit plan and use that to trade against the institutional. Use hot key to act fast and control loss.
p49 Need to use the upside and downside trend
Be honest and accept you cannot catch everything. Only catch those patterns that earn your trust based on their past performance.
Choose your retail stock territory and avoid those heavily traded by institutional trader.
P50 The more people use this strategy, the more it works.
P50 The best way to tackle High Frequency Trading (HFT) activities: selective on moments and monitor price action closely.
P51 Buy the new low program: catch when a stock reaches intraday low. The program begins to buy shorts from day traders to push the price higher. The plan breaks when another large begins to sell. It never works out because other players will dump their shares.
P59 Can follow a few traders and stay in the conversation and the sport.
Market has the most trading volume and the most volatility. Good Liquidity.
P63 Success in trading stems from a triangle:
1/ learning and mastering one or a few trading strategies
2/ Proper risk management (Knowing how much a size to enter a trade and when to exit a trade).
3/ Control emotions and have a stable psychology.
Nike’s five facets of training: movement, recovery, nutrition and sleep. For traders: technical knowledge, risk management, nutrition, sound psychology and sleep p63
Avoid making impulsive decisions, sloppy risk and money management. Have self-decipline rather than skills. P63
Live to play another day p64
Accept profits is easy to do, but it is much more difficult for beginners to overcome the temptation to wait for losing traders to the breakeven point p64
p65-66 Case study: American Airlines Group Inc (NASDAQ: AAL)
Situation: the author traded AAL without a stop loss in mind. And share it on the social media. Met some objection.
Action: The author was overconfident and did not heed the advice.
Outcome: Accepted a $25000 loss on the trade. The author think the mistake is avoidable when he lost $1000.
Notice how the author used the online community while trading.
Notice he did not set a stop loss.
P66 Remember the job is to trade for a profit rather than being correct.
3 essentials: Entry point, exit target and stop loss.
Rule 5: Find low-risk entries w a high potential reward. Minimum win-lose ratio for the author: 2:1
*There are ten rules. I just include the most useful ones in this article.
It make sense, because there are plenty of fish there. And never risk $100 to make 50. Especially in a high risk battlefield.
What is a good setup? Get into trade w minimum risk like 5:1 win lose ratio.
P68 Case study: Molina Healthcare Inc (NYSE: MOH)
Situation: The author monitored MOH on Feb 16, 2017. At 9:30am it was strong and it then went higher. Around 9:45, it started to sell off below VWAP (volume weighted average price).
Action: decided to sell short MOH below VWAP at around $50 to stop loss.
Experience-based judgement: The stock can make a pull back towards VWAP any time.
Rationale: profit target was $48.82, $1.2 reward per share. Stop loss was set above VWAP, $50.40. Therefore, he risks $0.4 for $1.2 per share. A 1:3 win lose ratio.
p70 Another situation: assuming you missed the 9:45 opportunity, and caught it at the 49.60 level with the profit target at 48.82
Optimum action: Do not do anything
Rationale: Win-lose ratio should be 0.8:0.6 < 2:1. You shall not take in this case. And accept the opportunity has been missed.
Notice: The situation changed pretty fast within 10 minutes. Optimum action is completely different.
Put VWAP in context
Go long when price below VWAP and go short when price above VWAP.
The filter works well for days with relatively sideways price action
By contrast, other trades might go an opposite approach. Based on POV that benchmark watchers can’t get the price they want and will be forced to push the stock into its trend for the day. Work well for days that had a well-defined trend for the day, whether upward or downward.
It is not clear which of the two tactics can win in the majority situation. Other indicators are often used in combo.
e.g. EVFM Bollinger. Trader may enter based on a VWAP and exit based on a Bollinger band signal.
Programmers often use VWAP to create a standard deviation of price range anchored to the VWAP. Thereinafter, they can make a robust, real time support and resistance measures.
p147 Fun fact: A Japanese rice trader developed candlestick charts and technical analysis and he is seen as a great contributor.
p147-148 Must have a data set that contains opening price, highest price in a chosen time frame and lowest price at that time, closing price values for each time period. Time frame can be daily, 1-hour, 5-minute, 1-minute or any other period you prefer. The hollow (white) and the filled (red) is called the body. The long thin line above and below the body represent the high/low range and are called shadows (wicks and tails).
p148 Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicating selling pressure.
Analyze the balance of power between the buyer and sellers and bet on the winning group.
p152 We all see candles. Normal traders do not know what a candle will become until it dies. Candle displays who is winning.
p153 Bullish candle: A type of candles that tell buyers are in control of the price action.
p154 Bearish candles indicate the otherwise.
They can be used as a shortcut whether a long position is wise
p157 Spinning tops, a. k. a. indecisive candles. candles that have similar-sized high wicks and low wicks that are larger than the body and will often be a little indecisive
p158 Doji: Simple, shooting star, hammer
p161 If a doji forms a bearish downward trend, it suggests that bears have become exhausted and bulls fight back to take control of the price. And the opposite applies to shooting star doji.
p162 To use indecision candles effectively, you must look for confirmation candles and ideally use them with other forms of analysis such as support or resistance levels.
p162 Other patterns: Abandoned baby, dark cloud cover, downside tanuja gap, dragonfly, morning star, evening star, falling three methods, Harami, stick sandwich, three black crows, three white soldiers.
p163 In the author’s opinion, these are pretty useless and make ppl fall prey to wishful thinking
His strategy based on a simple formation: the ABCD pattern.
Strategy 1 - ABCD Pattern
p165 His strategies based on 1/ price action, 2/ technical indicators and 3/ candlesticks and chart patterns. Practice all three at the same time.
p165 He don’t mingle day trading strategies with others. He makes trade in time period as 10-30s.
u.d. Can trade according to hourly charts, 5-minute charts or 1-minute charts.
p167 Most successful day traders monitor two time frames at one time. The author prefer 1-minute chart and also monitor 5-minute chart.
His philosophy: you must master only a few solid setup to be consistently profitable.
u.d. Simplify the method and decision making to reduce confusion and stress and focus more on psychological aspect of trading
u.d. Trade management is equally important as the initial trade plan.
p169 The price action of the stock will either be supporting or not supporting my reasons for being in that trade. So need to manage my open position.
Out of the book quotation - Investopedia: Scalping is a trade style that specializes in profiting off small price changes and making a fast profit off reselling.
p170 The author recommend to join chat room when trading to observe how experienced traders trade.
p171 Position sizing means how large a position that you take per trade. Poor position sizing tends to lead to inconsistent result
Need to know how large risk or reward is at each time.
Annotation: Can make modest size position to avoid heated in a moment.
For low float stocks, the author never take large position. It is tempting but not recommended. He suggests to build trading account, and grow your trading skills as your account grows.
Trade size depends on the price of the stock, acc size and risk man. Rule. 2000 is his usual size if trading in 10-50 price range.
Procedure
1/ Buy 1000 shares.
2/ Add another 1000 shares shall the trade goes in your favor (add in a winning position).
3/ Sell 400 shares at first target to bring your stop loss to breakeven.
4/ Sell another 600 shares at the next target point
5/ Keep the last 1000 shares until you are stopped out. Retain in case the stock move well.
p172 Experienced trader start at a small share size but add to their position as price action validated their idea.
Start with 100shares and then add to their position in various steps.
e.g. For a 1000-share trade, enter either 500/500 or 100/200/700 shares.
Traders should consider commission when managing position.
Scaling not recommended for beginners! consider that scaling in a trade is a double edged sword, and beginner might use it incorrectly as a way to average down their losing positions.
Case Study: Direxion Daily S&P Biotech Bull 3X Shares ETF (NYSEARCA:LABU)
The author trader LABU using a margin.
p175 He purchased 100 shares at 120 hoping it would go to 148, 200 more at 80. 400 at 60. The. Margin call. His account froze. And two days later, LABU rebounded to over $100. And he thought if only he had a bigger account.
p176 Brian Hunter ignored the market and repeatedly averages down on a risky volatile bullish position on natural gas. Call for more collateral to sup his big positions. When collateral sis not arrive, forced to liquidate his position. Amaranth advisors had to accepting a 6.6 b loss which caused the company to dissolve. Just a few weeks after, natural gas price rebounded higher.
The reason of the failures of those trades are not about account size. It is about the belief and wishful thinking. Don’t be obsessed about being correct. The market can remain irrational longer than they survive in the game.
P176: Do not make the trade if you have an irrefutable opinion (position in your head) and the price action does not confirm the bias. Need to identify trend and then make successful ride on them.
Also apply lateral thinking and always be critical about your projection.
p184: Summary:
The author does not jump into the trade right away but wait to see if the price makes a support higher than pA until pC
Using this consolidation period to decide share size, stop and exit strategy
At point C, enter the trade that stays close to Price c speculating it to move to point D.
His stop is the loss of point C.
Some traders wait until point D to see ABCD is working but in his opinion, it reduces the reward and increases the risk.
If the price moves Higher. Sell half position at point D and being his stop higher to his entry point (breakeven).
Sell the remaining position. As soon as his target buys or he senses the price is losing steam or that the sellers are getting control of the price action. When the price reaches a new low on his 5-minute chart, it indicates buyers are almost exhausted.
P186 Don’t chase the stock, when price is increasing significantly.
Enter the trade during quiet times and take the profit during volatile.
As soon as the price starts breaking up in the consolidation area. Begin purchasing stock.
Strategy 2 - Bull flag
A bull flag usually shows a few consolidation periods. The author enters only during the first and the second consolidation area.
The third is risky and you are losing profits at this point. Price has been up and buyers may losing the control.
His stop loss was the breakdown of the consolidation period.
P190 1/ The author patiently waited until the consolidation period. Even when the stock shot up.
P191 2/ Watch the stock during the consolidation period and choose share size and exit strategy
3/ As soon as prices were moving the high of the consolidation candlesticks, he enter the trade. His stop loss is the break below consolidation period.
4/ he sold half of his position. And he moved his stop loss to the break even point.
5/ sell his remaining positions as soon as his target hits or he senses price is losing steam.
Momentum scalper:
1/ Get in at the breakout
2/ Take your profit
3/ Get out of the way
Bull flag is a (relatively) long term Strategy.
Should not short bull flag unless trading in small size with a super fast execution system for scalping
P192 Strategy 3 - Reversal trading: bottom reversal
Learning goal:
Find reversal setup using scanners.
Use indecision or doji candlesticks to take an entry.
How to understand where to set your stops and your profit targets, how to trail the winners.
P192 Reasons why a stock starts to sell off:
1/Institutional trader and hedge funds have started to see their large position to the public market and the stock price is tanking.
2/ traders decide to short equivocally based on some bad fundamental news. But they will come back to cover short. Pick a point for entry and ride the “short squeeze”.
Doji as a sign to gauge the changing wind in the market.
Use the indecision candle at a support level.
P194 4 elements for each reversal strategy
1/ At least 5 candle sticks on a 5-min chart moving upward or downward.
2/ The stock will have an extreme 5min RSI indicator developed by Welles Wilder, Jr. The author is interested in RSI above 90 or below 10.
RSI over 90 often used to Identify Overbought conditions and RSI below individual oversold.
Pro-tip: configure the scanner to RSIs lower than 20 and higher than 80.
3/ The stock is being traded at intraday support or resistent levels. The author only trade when the price is near a significant support level or a different resistance level.
4/ Recognize indecision candles such as spinning top or doji form, which usually indicates an end of a trend.
Don’t catch a falling knife.
Wait for sign of reversal patiently, which might include:
1/ The formation of a Doji or indecision candle
2/ the first 1-minute or the first 5-minute candle to reach a new high near an important inter day level. The author Enter there and set his stop at the low of the previous day or at the loss of the support level.
In a reversal. The 1st candle that makes the new high near an impressive support level is significant, he enters there with in the 1-min chart or in the 5-min chart. He typically wait for the 5-min chart, which is cleaner and a better confirmation. The stop at the low of the day.
He takes profit when the price reaches a moving average (either 9EMA, 20EMA or VWAP) or reaches another impressive intraday level.
The author seems to stop loss decisively when there is a bottom reversal. If he jumps in long, and the price end up going down against the hope of the author. if he gets in, holds for a few min and the price stays flat, he gets out, rain or shine after that, given that he does not like to see his account exposed to the unknown with a unready setup.
He also start to adjust his stop in the profit zone. First to be patient and then to the low of the last 5min candle. He will then keep adjusting his stop as he moves up.
It is a trader’s job to watch stocks run up or down while simultaneously identify Support or resistance levels and areas that could provide a reversal opportunity on daily charts. By doing so, you controls your urge and rush into the trade. Waiting for the areas of stagnation.
Case study: Emergent Biosolutions Inc (NYSE:EBS)
Situation: EBS starts to show an indecision: a shooting star
The author interprets it as a potential reversal.
Action: Kept his stop at the low of that doji. When EBS hits his scanner, he quickly change his chart to a daily one and found impressive nearby support and resistance level of 27.36 and 28.
Advantages of this strategies: Overcome the difficulty of anticipating trend. Prepare for the reversal trade.
Case study Alerislife (WSE: ALR)
Situation: scanner alerts seven consecutive candles to the downside, a medium float (80mshares) and a relative volume 1.21, meaning a higher than usual trading volume. Reversal indicated by a strong bullish candlestick even without an obvious indecision candle.
Action: the author missed the trade entry.
What to do when there is no form:
It is important to observe the price action near significant intraday levels and confirm the reversal with an indication of higher than usual trading volume.
When looking at reversals, ensure only trade in extremes.
A stock sold off slowly all day long is not suitable for reversal. Good for a moving average trend trade.
Find a considerable trading volume, meaning a stock stretched out to the downside and a stock stretched out to the upside for short selling. And triangulate that with other key indicators that suggest a turning point.
To qualify these extremes:
1/ An extreme RSI above 90 or below 10
2/ A high volume of traded shares
3/ More than five consecutive candles ending w a indecision candle. 5-10 combined with other signals.
Never argue with the crowd even if it does not make sense to you.
Many new traders trade with a poor ratio because they sell the winners too soon and hold the losers too long. For those new traders, use the reversal strategy to expand profit to loss ratio.
To sum up:
1/ Set up a scanner to flag stock with 4or more continuing doji going downward. Then check if those stocks’ volume and daily level of support or resistance
2/ Wait for confirm of a bottom reversal Strategy
a. Formation of a bullish doji or indecision candle or a bullish candle stick.
b. Being traded near a sig support level.
c. RSI lower than ten
3/ Buy it when it hits a new 1- min or 5min high
4/ Stop loss - low of the previous red candle stick or low of the day
5/ Conclude the trade when profit target is:
a. Next level of support
b. VWAP or 9EMA or 20EMA moving average.
c. It makes a new 5-min low-buyers losing control.
P206 Strategy 4 - Top reversal
Case study: Beyond Inc. (Former Bed and Beyond, former NYSE: BBBY)
Situation: On June, 23, 2016, His scanner showed that BBBY going up with six consecutive candlestick, price: 21.6, higher than common. He also looked at fit and relative volume in his chart. Observing a bearish doji, Mr. Aziz Reviewed daily chart and found a resistance level at $44.4.
Entry Action: Took this trade at 44.4. his stop being the break of the high of the last 5-min candle stick.
Exit action: Short 800 shares at $44.10 when a new 5-min candlestick was made. Covered his short at VWAP near $43.10 for $800 profit when the stock was pulled towards VWAP.
Outcome: A good profit.
To sum up.
1/ He set up a scanner to highlight stocks w four or more consecutive candlesticks moving upward. Quickly review the volume. & daily level of support or resistance near the stock 2 see if it will be a good trade.
2/ Wait for confirmation of a top reversal at:
a. formation of a bearish doji or indecision candle or a bearish Candlestivk
b. candlesticks being traded at or near a sig resis level at high volume
c. the RSI must be higher than 90
3/ Consider a new 5-min low a sign of weakness. St short selling if he has shares avail. to short.
4/ My stop will be the high of the prev cdst or the high of the day.
5/ my profit that:
a. next level of support.
b. VWAP or 9EMA or 20EMA moving Average.
c. when the stock Makes a new 5-min high, which means the buyer once again gaining control
u.d. Mr. Aziz traded more reversal trades especially during late morning and afternoon trading. He was more of VWAP and support or resistance trader. He mainly use 1-min opening range breakouts.
u.d. The author also uses RSI for scanner for reversal trading only. Conditioned to find stocks at extremes rather than a buy or sell indicator.
Strategy 5 - Moving Average Trend Trading
Many stocks will start an upside or downside trend around 11am and you will see their moving average on 1-min and 5-min charts as a type of moving support or resistance line.
Situation: on June 23, 2016. The stock held a powerful support at 99.90.
Action: Based on 9 EMA on a 5-minute chart, the author entered the long position. And he then rode the trend until 9 EMA broke at $100.40.
Outcome: profit of about 50c per share.
Case Study: AMAG Pharmaceuticals Inc (VIE: AMAG)
Situation: on Jan 9 2017 the stock sold off from $31 to $23 in only a few hours,the 9EMA held as a strong resistance.
Judgement: short sell on AMAG w a stop loss of the break of 9 EMA. Wait for a 5-min cdst to close above 9 EMA before getting out. A sudden break may not be sufficient.
Case study: Uber (NYSE: Uber)
Situation: Uber came above VWAP and held 20EMA on the 1-min chart.
Action: Go long and ride the trend from $24.70 to 25.60 and then go out when the moving average trend line is broken at 12:40pm
P217 Summary:
1/ The author monitors a stock in play and notice a trend is establishing around a moving Avr (usually 9 EMA), he considers trend trading. He quickly review the previous days’ trading data to see if the stock is responding to these moving averages.
2/ after learning and deciding which moving average is suitable, he buys the stock after confirmation of moving average as a sup, and buy as close as pos. To the moving average line or, a close of cd st below the line. For long.
For short: he will stop when there is a close above the moving average line.
3/ He rides the trend until the break of moving average .
4/ he observe trend without using trailing stops
5/ he may take some profits at half position, if the stock is moving high away from moving average. Take the profit when the profit is nice. He could continue trend trade when it moves back to the moving average.
This trader does not like to be exposed to the market for a longer time frame.
It does not require fast decision making process and trade execution or hot keys. With clear entry points and stop loss, no need to enter or exit trade often.
P219 Strategy 6 - VWAP trading
VWAP (Volume Weighted Average Price): Compared to others, consider the number of shares traded on every price.
Institutions use VWAP to identify Good entry and exit points. Institutional traders with large orders try to buy and sell large positions around VWAP.
Traders who buy significant portions over VWAP will be punished. And Vice versa.
Observation: in the first five minute. I am known heavy trading is happening between the overnight shareholders and the new investors.
Scalpers usually ride immediately when the market opens. It is seen as a test to see a large investment. bank waiting to buy or sell, since stock could pop higher at this time and it is a good opportunity for day traders to go along.
The converse is also true. Large shareholders may want to get rid of shares. It can be short selling opportunity there for day traders.
Wise traders will stay away from that stock if large investors involve with the stock heavily.
Case study: SolarCity Corporation (SCTY, acquired by Tesla today)
Situation: the author noticed SCTY had reached a point of support above VWAP at about $21 at 10:30am on Jun24 2016.
Action: The author purchased 1000 shares of the stock. Set the stop at a 5min candlestick close below VWAP.
Rationale: expect the stock will move toward $22 w VWAP as a support.
Action2: sold a half-size position at $21.50. Moved his stop to break even
Action3: Sold another position at 22
Rationale: he knows half-dollars (such as $1.5,$2.5,$3.5) usually act as a support or resistance level.
Situation 4: he noticed that VWAP was acting as a resistance level.
Action 4: shorted the stock at $23.25
Rationale: expected he will lose VWAP at around $23:25.
Outcome: Had a nice run down to $22 and had a profit of $1000.
To sum up: monitor the VWAP at the open.
If a stock go sideways from VWAP, then he waits until a confirmation of VWAP break for short or a VWAP support for long.
He buys pretty damn close to VWAP to reduce risk. His stop: a break and a close 5-min close below VWAP. For short selling, he shorts near VWAP with a stop loss of a close above VWAP.
Keeps the trade until he hits profit or level or until he reaches a new support or resistance level.
He often self half-positions near the profit Target or support or resistance level and move his stop up to his entry point or break-even.
Strategy 7 - Support or resistance (S or R) trading
Many traders draw diagonal trend lines, which may be used to justify their bias.
According to the author, the market only remembers price levels. He probably speaks of experience. And the editor agrees.
According to Mr. Aziz, Horizontal Support or resistance trading is his favorite Style of trading.
What is support or resistance?
Support is a price level where buying is strong enough to reverse a d-trend.
Support level: A horizontal line connecting two or more bottoms.
Resistance is a price level where selling is strong to reject a uptrend.
Minor support or resistance level causes trends to pause. Major causes it to reverse.
Preparation before a S or R trade:
When his scanner detects a stock, he looks for significant news that explains the price swings. And then he identifies the support and resistance levels.
How do you identify?
With these stocks in play identified, before the market opens, Mr. Aziz go back to the daily charts and find critical price points that were shown in the past. It requires trading experience to find price support or resistance.
P228: To sum up
1/ Often see indecision candles in the area of sup or resistance because that is where buyers and sellers are closely fighting
2/ Half-dollar or whole-dollar could act as an invisible support or resistance line.
3/ Always look at the recent data to draw lines
4/ The more of a line that is touching extreme price lines, the more that the line is a better sup or resistance and has more value.
5/ only the support or resistance lines in the current day price range are important.
6/ Support or resistance, lines are an “area” and not exact numbers.
7/ The price must have clear bounce from that level. Grab stand-out lines.
8/ For day trading, better to draw sup or resistance lines across the extreme prices or wicks on daily levels rather than stop levels.
Case study: Carnac Inc (NYSE: KMX)
Situation: Found the support or resistance area levels on a daily chart and watched the price action around those levels. Found four support level after reviewing the previous daily chart: 47.93, 48.42, 48.67, 49.15. When the market opened, realized $48.67 as a resistance level. Then sold off to $47.93 with high volume. Took note on that.
Action: Bought 1000 shares at that support. Set a stop loss below 47.93. Sold 500 at 48.42. Sold other 500 at 48.67. The author went short with a stop loss of a new high of the day or a close above $49.15. Covered half at 48.67. The other half at 48.42.
Outcome: nice profit
To sum up:
1/ Make watchlist each morning.
2/ Monitor the price action around those areas of support or resistance on a 5-min chart. Indecision candlestick in these areas mark the entry pt.
3/ Take profit beat the next support or resistance point
4/ keep the trade open until his profit target was hit or be reached a new sup or resistance level
5/ sell half-position near the profit target or new resistance or sup level and move his stop up to his entry point for break-even.
6/ Consider closing his trade at or near half-dollar or one-dollar if no obvious Support or resistance level.
7/ It also applies to situation when selling short a stock below a resistance level.
Strategy 8 - Red to green trading
If current price of a stock is higher than the previous day close, the market is moving from a Green Day to a red day.
The market is moving from a red day to Green Day if the price is lower than the previous day close.
The strategy is identical for both Red-to-Green and Green-to-Red except for the the direction.
Case study of 5-min chart for Malinckrodt Public Limited Company (OTCMKTS:: MNK)
Situation: The price went below VWAP. The author went short but there was no nearby support or resistance level except the previous day close 46.52.
Action: he decided to go short at $47.80 for the previous day close at 46.52, the previous day close.
Outcome: Earned 1.20 per share.
Summary:
1/ Monitor the previous day close at the beginning of the day
2/ Consider go long with the profit of the previous day close, shall the stock moves to the previous close with a high volume.
3/ His stop loss is the nearest technical level.
4/ Sell all at the profit target. Shall the price goes according to expectation, move stop loss to break-even.
Strategy 9: Open Range breakouts (O.R.B.)
ORB signals an entry point but does not decide the profit target. The STRATEGY only define an entry point. Therefore, not a full strategy. A new trader gives the opening range five minutes. Some will wait for 30min or longer to identify the balance of power. Then develop a trade plan in the direction of the 30-min or 60 min breakout.
With most setups, ORP works best with mid to large stocks. Not low float stocks. Upper and lower boundaries of the range can be identified. By the high and low of the 5- 15- 30- or 60- min candlestick.
It requires a stock to:
1/ Have a controlled volatility; If a stock moves higher than its ATR in the open, it is too volatile to catch.
2/ Shows a directional signal: avoid stocks which constantly move up and down.
It is not recommended to participate in the first 5min trade for new traders.
Gauge the breakout signal on 1-min or 5-min charts.
To sum the author’s ORB strategy for 5min ORB
1/ Build the watchlist. Closely monitor the shortlisted stocks in the 1st five min. Identify the opening range and their price action. Observe the volume, directional signal, order size.
2/ The opening range significantly smaller than the ATR
Have ATR as a column in the Trade idea scanner.
3/ After the close of the 1st 5min, stick may continue to be traded in the next 5 min. If he saw the stock is breaking the opening range, enter the trade according to the direction of the breakout
4/ Set stop loss close below VWAP for long and above for short
5/ Set profit target at:
a. Intraday day level in the pre-market
b. Moving average on a daily chart.
c. The previous day close
6/ Exit when the stock show signs of weakness or strength when no obvious Signals are given.
Avoid 1 min ORB if you’re new.
Trading insights
u.d. According to the author, opening range breakouts, bull flag momentum and VWAP trades tend to be the best strategies for the open (9:30-10:30).
u.d. During the late morning (10:30-12:00), there are still good volatility in the stocks in play.
u.d. Mid-day trade is unexpected and dangerous according to the author. Statistically perform the worst.
u.d. Price movement during the closing hour (3pm - 4pm) tends to reflect the opinion of Wall Street traders on the valuation of stocks.
Take Calculated Risk
P342 Take risks but manage and minimize their risk as much as possible. Define rules and build protocols on how to protect themselves to do what they are passionate about. Traders need to diversify and avoid being tied up to a losing trade.
u.d. The author created a rule: No more than 30% of what he has made in the open could be lost in the late morning, mid day and close trade.
u.d. You could develop your own risk management methods and strategies.
Decision shortcut
u.d. Average Daily Volume (ADV): the author don’t trade stocks w an ADV less than 500000. The volume gives day trader liquidity.
u.d. Average Relative Volume (ARV): no ARV < 1.5. Trading at least 1.5 it’s normal daily volume.
u.d. A.T.R.: how large of a range a stock has on average each day. Look for an ATR of > 50c. Move > 50cents most days
u.d. some traders rely on the crossover and MACD to make decisions. The author believe the importance to make decisions in real time. Judgement and execution. When trading, he tries to keep his indicators simple limited to CWAP and other moving averages without MACD.
u.d. Rule: 2000 is his usual threshold if trading in 10-50 price range.
u.d. To spot a potential reversal trade, pay attention to those stocks with a RSI above 90 or below 10.
u.d. Identify potential reversal trade: more than five consecutive candles ending w a indecision candle. 5-10 combined with other signals.
Decide what news to pay attention to:
(n.d.) A few news that cause stock to change as catalysts:
Earning reports
Earning warnings or pre-announcements
Earning surprises
FDA approvals or disapprovals
M&A
Alliance, partnership or major product releases
Major contract wins or losses
Restructuring, layoffs or management changes
Stock splits, buybacks or debt offerings
Character Building
P343 Maintain passionate like mountaineers and embrace the unpleasant tidbits.
Discipline, patience and delay in judgement.
Consult communities when appropriate.
Routine Building
P59 You can follow a few traders and stay in the conversation and the sport.
During the late morning (10:30-12:00 am), trading is easy for new traders. VWAP reversal and VWAP false breakout are the best strategy in the late morning.
The mid-day market (12-3 pm) has good trading patterns but no volume and lack of liquidity. And weak against HFT.
The author rarely trade after 11:30 am
u.d. Mr. Aziz usually lowers his share size and keeps his stops tight. He only makes trades that offer the best risk reward. Use reversal, VWAP moving average and support or resistance trades as the best strategy for the mid-day.
P258 During the close (3-4 pm), the author raised his tier size again.
P62 Once you reached your daily profit goal. Can stop trading or switch to trading in simulator
After lunch, watch for perfect setup or not move.
P61 At closing (4pm-6pm). Basically Mr. Aziz does not not trade at all.
P258 Use VWAP, support or resistance and moving average trades for the close.
P254 Master one strategy at the beginning, the strategy can be forementioned or my own strategy
plan a trade, trade a plan and write a strategy down to the paper. Have historical data to verify the value.
Cannot change the plan once you have entered the trade and have an open position.
u.d. Have a name for your STRATEGY.
Learning Process and change management
P349 It can be hard to be consistently profitable. Be realistic and it might take 6-8months intensive training.
P343 Needs to practise in real time and under stress.
u.d. The goal is to have a skills rather than earn money.
u.d. Test when developing a new strategy.
P345 Ask about process rather than money. Focus on the right things.
P344 Opening range breakouts or ABCD patterns are easier to master than moving average trend trades.
u.d. You could develop your own risk management methods and strategies.
u.d. You could iterate the strategy of others based on personal factors such as account size, amount of time to focus, trading experience, personality and risk tolerance
u.d. Practice to place support or resistance lines.
Journaling and record keeping
P337 Use blog as a way to keep record of all trades and help others.
Journaling must be integrated as a part of your trading journey. You could use online service such as Tradevue or Chartlog. The info can include:
Your biggest loss
Your biggest gain
Your ratio of losers to winners
The commissions you are paying out
The best time of the day
The worst of the day
The average hold time
u.d. Good traders take note of what time of the day their most profitable trades occur and adjust trading and strategies shall they see fit.
Tools and their Applicable Scenarios
P342 If-then statement or a game plan helps to maintain focus even when things not go by expectations.
p58 Good places to learn what is trending: Stockwits and Twitter
u.d. The author also uses RSI for scanner for reversal trading only. Conditioned to find stocks at extremes rather than a buy or sell indicator.
P337 Journaling must be integrated as a part of your trading journey. You could use online service such as Tradevue or Chartlog.
Swing Trade and other trades
As a swing trader, he uses MACD since he does not have to make quick decisions. Also review swing trade with due diligence and evaluation.
For swing trade, the close price is more important than the extreme price.
Albeit this article tries to capture the essence of this book and convey much details of case studies, the book contains much more details and graphs.
Here is a link to buy this book by Andrew Aziz: Amazon.com: How to Day Trade for a Living: A Beginner's Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology (Audible Audio Edition): Andrew Aziz, Kevin Foley, AMS Publishing Group: Books
Other books mentioned in this book
One good trade by Mike Bellamore
Trading for a living by Dr Alexander Elder
Trading Community Resources
Theotrade (www.theotrade.com)
Trading room (www.simpletrading.com run by J Carters
education program by Dr. Alexander Elder and Kerry Lovvorn (www.spiketrade.com)
Investor Underground www.investorunderground.com by Nathan Michaud
Warruir Trading www.warriortrading.com run by Ross Cameron
Elite Trader www.elitetrader.com
Trade2Win www.trade2win.com
Trade Ideas www.tradeideas.com
Citations:
Steve is a thinker, innovator, practitioner of digital marketing, founder of Flying Pug Digital, a boutique digital marketing agency. He writes about productivity, trading, business opportunities and actionable food ideas in his blog: 1000 book notes and food ideas. His background is in digital marketing with expertise in Google ads, Facebook ads and AI-driven content. Based in Toronto, ON, Steve has a master of Digital Experience and Innovation from the University of Waterloo. When he is not hard at work, he likes to reading, writing and trading.
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