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Kindle Notes & Highlights
We call these Stocks in Play.
Retail traders trade only Stocks in Play - high relative volume stocks that have fundamental catalysts and are being traded regardless of the overall market.
Here are some examples of the fundamental catalysts for stocks that make them suitable for day trading:
I categorize stocks for retail trading into three classes.
Float means
Market cap is
Low float stocks can be volatile and move very fast.
stocks, the Bull Flag and Fallen Angel Strategies — which I detail in Chapter 6 - work best.
medium float stocks
especially the VWAP and ABCD Pattern.
mega cap
VWAP and ABCD Strategies usually work well on these stocks.
Our Stocks in Play can be found in two ways:
Our pre-market Gappers Scanner is set based
clean and uniform pre-market price action, and 2) clean trading levels.
As I mentioned before, to select the best stocks on your watchlist, you are looking for two elements in the pre-market: volume and clean price action.
In summary, for finding Stocks in Play from your Gappers watchlist:
A good pre-market activity
Having gradual moves to the upside or downside, establishing clear pre-market levels, and respecting VWAP and moving averages are sufficiently clean price action for me.
The beauty of the five above-mentioned support and resistance levels - 1) previous day close or PCL, 2) Y Low, 3) Y High, 4) YY High, 5) YY Low
Two powerful levels for day traders are the high and the low of the pre-market activity.
especially the larger moving averages such as 50 SMA and 200 SMA.
Daily chart >> 5-minute chart >> 1-minute chart 200 SMA >> 50 SMA >> 20 EMA >> 9 EMA
Strategy 1: Fallen Angel
3: Bull Flag / Bear Flag
VWAP is an indicator of who is in control of the price action - the buyers or the sellers. When a stock is traded above the VWAP, it means that the buyers are in overall control of the price and there is a buying demand on the stock. When a stock price breaks below the VWAP, it is safe to assume that the sellers are gaining control over the price action.
If there is no interest in the stock from market makers or institutions, the price may trade sideways near VWAP. Wise traders will then stay away from that stock.
follow. I usually short stocks when traders try but fail to break the VWAP on 5-minute charts.
Do note though that VWAP is only an intraday indicator; VWAP has no meaning on daily or weekly charts.
I use VWAP as an important support and resistance level for entry and stop loss levels as well as for profit target.
However, they will also often reverse and test the VWAP.
I take the trade only if I can get a good entry and a good risk/reward ratio. Remember,
Bull Flags, the ABCD Pattern and Opening Range Breakouts happen at the Open.
Remember, when you take profit, you should always bring your stop loss to break-even. Never go red on a stock that you already booked some profit on.
I usually do not trade the VWAP Moving Average Trend Strategy, primarily because most of the time I am not trading in the afternoon. Often VWAP Moving Average Trend trades can last as long as several hours and that is too long for my personality. I prefer to take my profit in a matter of minutes. I rarely will wait even an hour. Another reason that I do not often trade these strategies is that they usually best work during Mid-day and the Close. At the Open (in the morning session), when volatility is high,
I categorize day trading sessions based upon the time of day: the Open, Late-Morning, Mid-day, and the Close. Each time period should be treated differently, and you have to be careful because not all strategies are effective in every time period.
The Open tends to last about 30 to 60 minutes (from 9:30 up to 10:30 a.m. New York time). Bull Flag, ORB, ABCD, VWAP Reversals and Fallen Angel tend to be the best strategies for the Open.
day for new traders.
VWAP Reversal and VWAP False Breakout tend to be the best strategies for the Late-Morning. I rarely trade Bull Flag in the Late-Morning, Mid-day or at the Close.
During the Mid-day (12 p.m. to 3 p.m.) the market is slower. There is less volume and volatility, but Stocks in Play will often start finding their trend to the upside or downside. VWAP Moving Average Trend and VWAP False Breakout tend to be the best strategies for the Mid-day. Wait to see if the Stocks in Play hold the VWAP or lose it before trading based on the VWAP Moving Average Trend Strategy.
It is thus a good idea to trade with the professionals and not against them.
VWAP Moving Average Trend trades tend to be the best strategies for the Close.
If I lose more than the allowed 30%, then I either stop trading or start trading in a simulator.
You cannot change your plan once you have already entered the trade and have an open position.
Successful day trading is based on these important
