Day Trade For Living by Andrew Aziz (epub ebook reader txt) 📕

Let's take a look at another example, Celgene Corporation (CELG), on June 16, 2016. In the chart below, you will see how you can trade based on 20 EMA in a I-minute chart. I marked my entry and exit points on the chart.

Example of a Moving Average Trend Strategy on CELG.

Another example is EXAS on July 28, 2016 with 9 EMA.

Example of a Moving Average Trend Strategy on EXAS.

To summarize my trading strategy for Moving Average Trend Trading:

When I am monitoring a stock and notice a trend is respecting moving average, I consider trend trading. I quickly look at the previous days' trading data to see if the stock is responding to these moving averages in a I-minute or 5-minute chart. I have 9 and 20 EMA and 50 and 200 SMA.

Once I learn which moving average is more suitable to the behavior of the trade, I buy the stock after confirmation of moving averages as a support, and I buy as close as possible to the moving average line (in order to have a small stop). My stop will usually be 5 cents below the break of moving average line.

I ride the trend until the break of moving average.

I never use trailing stops and I constantly monitor the trend with my eyes.

If the stock is moving really high away from the moving average, I take some profit, usually at half-position. I do not always wait until the break of moving average for my exit.

I personally don't trade very often based on moving averages. I look at them to see potential levels of support or resistance, but I rarely make any trend trade based upon their trend because, in a trend trade strategy, you are usually exposed in the market for a considerable time. Some trend trades can last as long as several hours and that is too long for my personality .

Another major problem I have with Moving Average Trending is that you don't know in the stock you want to trade which moving average is accurately acting at a support or resistance level. In the examples above, if I changed my moving average from 9 to 12, or to 15, or to any other number, then it won't act as a nice clean support.

I use 9 and 20 EMA on my default charts, but I know not everyone does. Some traders are using 11 and 21 EMA. That in the end is a significant problem with Moving Average Trading. You don't know which moving average is best for a stock and you obviously do not have enough time to test them all out during the trading day.

I recommend using either:

9, 20 EMA and 50 and 200 SMA or:

11, 21 EMA and 50 and 200 SMA

Having said that, Moving Average Trend Strategy is an excellent strategy for beginners, because it usually does not require a very fast decision making process and trade execution. In addition, stop loss and entry points can be clearly recognized from the moving average on the charts.

As I discussed, strategies depend on your account size, personality, psychology of trading and risk tolerance, as well as on your software and the tools and brokers that you have. The combination of all of these factors have led me to be a VWAP trader and support or resistance trader, something I will explain in the next section. However, I want to emphasize that trade strategies are not something that you can imitate just from reading a book, speaking with a mentor, or attending a class. You have to slowly and methodically develop your preferred method and then stick with it. There is nothing wrong with any strategy if it works for you. There is no good and bad in any of these strategies; it truly is a matter of personal choice.

Now let me explain what my favorite trading strategies are.

VWAP Trading

Volume Weighted Average Price, or VWAP, is the most important technical indicator in day trading. Definitions of VWAP can be found in both Wikipedia and many other online resources. I will skip explaining it in detail for the sake of keeping this guide short, but essentially, VWAP is a moving average that takes into account the volumes of the stock being traded. Other moving averages are calculated based only on the price of the stock in the chart, but VWAP also considers the number of the shares that the stock is traded on every price. Your trading platform probably has VWAP built into it and you can use it without changing its default setting.

VWAP is a good indicator of who is in control of the price action - buyers or sellers . When stock is traded above VWAP, it means that the buyers are in overall control of the price. When a stock price breaks below the VWAP, it is safe to assume that the sellers are gaining control over the price action.

Trading based on VWAP can be very easy for beginner traders because so many traders are studying the VWAP and making decisions based on it. Therefore , a beginner trader can easily be on the right side of the trade. When a stock tries to break the VWAP but cannot , you can short stock because you can safely assume that other traders that are watching will also begin to short. A trading strategy based on VWAP is a simple and easy strategy to follow. I usually short stocks when traders try but fail to break the VWAP in 5-minute charts.

Let's take a look at a recent trade that I took on SolarCity Corporation (SCTY) on June 24, 2016.

Example of a long VWAP Strateg y on SCTY.

At around 10:30 a.m. on June 24, 2016, I noticed that SCTY had found a support over VWAP. I purchased 1,000 shares of the stock with the anticipation of moving toward $22 with VWAP as a support. My stop was a close below VWAP. I first sold a half-size position at $22.50, and then moved my stop to break-e ven. I sold another position at $22 because I know half-dollars (such as $1.50, $2.50, $3.50) and whole dollars ($1, $2,

$3) usually act at a support or resistance level.

VWAP also works well when you want to short stocks. Let's take a look at another recent trade that I took on SolarCity Corporation, this time on June 22, 2016, and this time on the short side.

Example of a short VWAP Strategy on SCTY.

At around 11 a.m., I noticed that SCTY had faced a resistance over VWAP. I shorted the stock with the anticipation of losing the VWAP at around

$23. Around 12 pm buyers gave up and the sellers took control of the price action. I had a nice run down to $22 and covered my shorts at $22 for a good $1,000 profit.

To summarize my trading strategy for VWAP trading:

When I make my watch list for the day, I monitor the price action around VWAP. If a stock shows respect toward VWAP, then I wait until a confirmation of the VWAP break or support.

I usually buy as close as possible to minimize my risk. My stop will be a break and close 5-minute chart below VWAP.

I keep the trade until I hit my profit target or until I reach a new support or resistance level.

I usually sell half-positions near the profit target or support or resistance level and move my stop up to my entry point or break­ even.

A similar approach will work equally as well when you short a stock.

Horizontal support or resistance trading is my favorite style of trading. The market doesn't know diagonals. It remembers price levels, which is why horizontal support or resistance lines make sense, but diagonal trend lines are subjective and open to self-deception. I therefore avoid trend lines because, in my opinion, they are wildly subjective and result in wishful thinking and self-deception. In fact, trend lines are among the most deceptive of all tools. You can draw a trend line across the prices or zones in a way that can change its slope and its message. If you're in a mood to buy, for example, you can draw your trend line somehow steeper.

After making thousands of trades and looking at thousands of charts, I've come to the conclusion that the market doesn't know diagonals. It remembers price levels, which is why horizontal support or resistance lines make sense, but diagonal trend lines are subjective and open to self­ deception.

Support is a price level where buying is strong enough to interrupt or reverse a downtre nd. When a downtrend hits support, it bounces like a diver who hits the bottom of the ocean and then automatically pushes away from it. Support is represented on a chart by a horizontal line connecting two or more bottoms (see the figure below).

Resistance is a price level where selling is strong enough to interrupt or reverse an uptrend. When an uptrend hits resistance, it acts like a person who hits their head on a branch while climbing a tree - they stop and might even tumble down. Resistance is represented on a chart by a horizontal line connecting two or more tops.

Minor support or resistance causes trends to pause, while major support or resistance causes them to reverse. Traders buy at support and sell at resistance , making their effectiveness a self-fulfilling prophecy.

Using this method, every morning I shortlist the stocks that I would like to trade based on the criteria I set forth in Chapter 4: a stock that has

fundamental catalysts such as news, an extreme earnings report or a new drug approval. These stocks are the ones that retail traders are watching and planning to trade.

Before the market opens, I go back to the daily charts and find price levels that have been shown in the past to be critical. Finding price support or resistance levels is tricky and requires trading experience . If you watch me trading every morning, you will see how I place my support or resistance lines on my Alpha Predators.

For example, let's take a look at a SCTY daily chart without support or resistance lines and another including the lines.

Example of a Support or Resistance Strategy on SCTY daily chart.

Support or resistance lines in daily charts are not always easy to find, and at times you will not be able to draw anything clear. If I cannot see anything clear, I don't have to draw anything. There is a good chance that other traders will also not see these lines clearly and therefore there is no point in forcing myself to draw support or resistance lines. In that case, I will plan my trades based on the VWAP or Moving Averages or chart patterns that I earlier discussed.

Here are some hints for drawing support or resistance lines:

You will usually see indecision candles (Chapter 6) in the area of support or resistance because that is where buyers and sellers are closely fighting each other.

Half-dollars and whole dollars usually act at a support or resistance level. If you don't find a support or resistance line around these numbers on daily charts, remember that in intraday these numbers can act as an invisible support or resistance line.

You should always look at the recent data to draw lines.

The more of a line that is touching price lines, the more that the line is a better support or resistance and has more value. Give that line more emphasis.

Only the support or resistance lines in the current price range are important. If the price of the stock is currently $20, there is no point in finding support or resistance lines in the region when it was $40. It is unlikely that the stock will move and reach that area. Find only the support or resistance area that is close to your day trading range.

Support or resistance lines are actually an "area" and not exact numbers. For example, when you find an area around $19.69 as a support line, you must expect price action movement around that number but not at exactly $19.69. Depending on the price of the stock, an area of 5 to 10 cents is safe to assume. In the example with a support line of $19.69, the real support area might be anything from

$19.62 to $19.72.

The price must have a clear bounce from that level. If you are not certain if the price has bounced in that level, then it is probably not a support or resistance level.

For day trading, it is better to draw support or resistance lines across the extreme prices rather than across areas where the bulk of the bars stopped. This is the complete opposite of swing trading. For swing trading, you need to draw support or resistance lines across the edges of congestion areas where the bulk of the bars stopped rather than across the extreme prices.

Placing support or