My $2 Stock Day Tading Setup

Discussion in 'Journals' started by bigmrfrank, Mar 8, 2006.

  1. Many people have asked for the details of my day trade setup & method for trading stocks from $2 - $4. Rather than reply to each I thought I'd start a thread. To recap ... I try to start every day with a day trade to the long side with one of these money makers. After 2 years of using this setup it's 94% successful. Here goes .....

    1. Scanners (4) (all realtime)

    (3) Top ten $ gainers for NYSE, NAS & AMEX

    (1) Custom scanner that shows daily highs and 52 week highs for all 3 exchanges at once (52 week highs are highlighted) and the amount of times the high was hit during the scanning period.

    2. Charts (7) (All charts and scanners are linked so all I have to do is click on a target stock and the data is loaded in all charts and Level II ... saves time because you do have to act quickly in some cases.)

    daily, 60 minute, 30 minute, 15 minute, 5 minute, 3 minute & 1 minute

    Level II

    3. Indicators

    3-period EMA (pink), 5-period sma (green), 15-period sma (red), 20-period sma (blue ... same as moving channel) and 200-period sma (white) all plotted over candlesticks. I don't read candles for this method ... they're just pretty to look at.

    moving average channel (20-period offset 2/blue same as 20 sma)

    MACD w/histogram (default settings decreased by 25% to increase responsiveness)

    CCI (set at 17-period w/ oversold/undersold set at +100 & -100)

    William's %R (set at 21-period)

    Accum/Distr (set at default plotted over %R)

    Sounds like a lot of indicators but it is not based on the setup. Adds to complete confirmation of trade.

    4. Setup Rules (must be followed or else!)

    Only go long (no exceptions)

    No volume = no trade (no exceptions)

    Only trade from 8am EST - 10:30am (some exceptions for exits but never entries)

    NO FRICKIN' MARKET ORDERS!! EVER!! Use limit only! (no exceptions)

    Set stop as soon as entry order is executed. Mine are always .05 under regardless of any other factors. (no exceptions)

    If timing was off and my limit buy order is not filled and the stock moves more than .10 higher, cancel buy and wait for 1 last buy signal. Max increase on second buy attempt is .05 higher than first buy attempt. If the price move away again say to yourself "The trade has been made" and move on. (no exceptions)

    If there is a partial fill on buy order cancel the remaining. (no exceptions)

    It does not matter what moved the stock in the first place. Strict charting here. (no exceptions)

    Avoid double dipping. Maybe 1 out of 50 moves you can go back to the well.

    Once you trade on a target stock never go back. Almost every target stock will fill back to the price before the move and sometimes lower within a day or 3 and faster than any others you might be used to. Win or lose ... NEVER LOOK BACK. (no exceptions)

    If you're new or have a weak stomach avoid pre market buys. (no exceptions). Although huge money can be made on strong premarket moves.

    This method is like driving a car. NO DISTRACTIONS and you must watch the charts for the entire duration of the trade. (no exceptions... EVER!) Eat, piss and drink coffe first but DO NOT leave your position unattended or start reading your email. This is a highly profitable set up so don't blow it by slacking off. Don't worry, the trade usually plays out in less than 1 hour. (no exceptions)

    LEVEL II Rules.

    I highly recommend learning how to read a level II. This is very important and will make and save tons of $$. I cannot tell you how. You should study a few for quite some time (on our target stocks only) before you start the method. LII on target stocks have an almost organic feel to them. They'll tell you thier secrets if you learn how to listen. They're like ladies on a first date ... you have to react to the subtle signals so you don't get slapped. Intuition is the key. Be wary of large buy or sell order that you see. 99% of the time they are tricks. If a target stock has a daily volume of 500 or 1000K and you see a 50K+ buy or sell order something is up. You can profit from these tricks or at the bare minimum not get fooled by them. EXAMPLE: While waiting for an entry signal some wiseass entered a sell of 400K shares on target stock and another or 250K. They kept it just enough away from the inside but highly visible. Hmmm ... the stock has a daily volume of 1 mil and this person is trying to dump 650K in broad daylight ... I don't think so. If the trade was legit it would have been done slowly in small blocks over time as not to cause the price to dive .... and that was the plan from the start! The huge blocks caused a panic sell off. Once all the light wieghts were shaken out and selling got exhausted the 650K shares miraculously disappeared and suddenly tons of 2k and 5k lot started being filled at .25 off the price the shakeout began. Pretty slick. Ray Charles would have seen that coming (if he were a day trader) and so did I. He, she or them made me a lot of money that day. Also, works in the other direction too so be careful. (no exceptions)


    I've got to start trading so I'll post the actual method and buy and sell signal later. Stay tuned ... or not.