October 23, 2020 3 winners, 1 loser Today's notes: Wait for bounce off 9 EMA to enter Pay attention to Buy and Sell buttons Don't enter after large bullish 5 min candle Wait for pullback / consolidation
October 26, 2020 5 winners, 10 losers Today's notes: Wait for break over previous high / HOD for flag pattern? Don't enter overextended from 9 EMA (1 min and 5 min) Take profit. Don't exited position too early- let stop loss hit. Stop loss should be below 9 EMA if trading 9 EMA plays. Wait for valid pattern to appear before entering. Don't enter with resistance close overhead (premarket high). Don't enter if higher time frame chart (15 min) signaling reversal Don't enter on 2nd 1 min red candle.
October 27, 2020 11 winners, 4 losers Today was my best day yet. Found a couple stocks that uptrended the whole day. I realized that rather than making many scalp trades on the 1 minute chart, it would be better for me to be more patient and play the longer trend on the 5 minute chart. Today's notes: Don't exit full position too early Pay attention to buy/sell buttons Focus more on 5 min chart for long term trend Enter closer to 9 EMA (1 min) Don't enter after large bearish candle (1 min) Get better risk reward ratio Adhere to stop loss Make sure chart is at current price
October 28, 2020 6 winners, 4 losers Today's notes: Pay attention to buy/sell buttons. Be careful entering on 5 min bearish candle Be careful increasing position without confirmation Don't exit full position without exit signal.
Hi Vince. Cool post and thanks for sharing. Quick question— what is the risk premia you are trying to harvest or arbitrage out here? Specifically, what is your underlying theory behind why a breakout should pay you in excess returns? Afaik you are not trading catalysts, so to me it looks like you’re flying blind. Would love to understand your strategy more.
The info about my strategy is in the 10th post. Here it is. I've only been trading for a week and a half (paper trading of course) so it's a work in progress. About my setup: 9 and 20 EMAs 50 and 200 SMAs VWAP ECI indicator (yellow dots - indicates price contraction, usually followed by a breakout but doesn't indicate direction) Top indicator (indicates possible breakout with target levels) Trend pivots CSA indicator (multi-indicator with trend painting function) I am experimenting with various strategies, mainly momentum plays, including: ORB Bull Flag ABCD Ascending Wedge MA/VWAP retracement/bounce MA/VWAP trend Reversals At the open I'm looking at stocks that have gapped up with high volume for ORB or momentum pullback trades. Then I'm watching scanners for HOD moves to enter with the momentum, on pullbacks or when steadily following trend. I'm also looking for oversold LODs for potential reversal trades. I look for key support and resistance levels and half and whole dollars to inform my decisions. I'm only paper trading for now so I'm not worrying about values and share size- I'm entering with 100 shares of each stock regardless of value. My stop loss is right below key levels depending on the setup. I'm selling half at 1R (a key level, ATR or the value of the stop loss) and raising the stop loss to breakeven, then selling the rest at 2R or letting it ride if there's no resistance. Right now I'm trying to formulate and solidify a winning strategy. When I get more comfortable executing trades I'm going to limit the paper account size to the capital of my real account (quite small) and work with more realistic values and share sizes.
Thanks for the detailed response. Some quick questions: 1. You say you're doing momentum plays -- but then bring up "price formation" things like plags/wedges/etc. AFAIK those formations are not tractable and are not easy to test (e.g. your 5 minute chart looks different on a 30 min, etc.). Pure momentum is really dynamic and requires lots of backtesting to optimize your lookback window and holding period. I'm not seeing any reference to that. Is that because on your trade this is proprietary or have you not been able to conduct that analysis yet? 2. You seem to be trading stocks and there's no reference to information or your mosaic theory for price action & excess returns. I wonder if you've had a chance to conduct event-driven studies. 3. Are you beta or dollar neutral when you trade? How are you isolating momentum in the trade? I ask these to challenge you in a positive way. It takes balls to post your journal on this site, and I respect you for doing it. Means you have a growth mindset.
Thanks for the response, I appreciate the help. 1. I'm not 100% sure what you mean by "tractable" but the dictionary says "easily handled/managed" so I'll assume that's what you mean. Responding to the idea that those formations aren't easy to handle or manage, the plan is to use a tight stop loss and if there's enough momentum behind the move, there's a good probability that it will rip after the formation. These formations apparently indicate that some people are taking profit during the move, and there are indicators that can let you know that the move hasn't run out of steam, particularly the volume of the pullback. Because so many other traders are looking for these same formations, it adds to the probability that these formations will lead to a further breakout, as so many other traders will also be jumping in for the ride. Regarding the different time frames, these formations are most common on 1 and 5 minute charts, but can also appear to an extent on higher time frame charts. It seems that the higher the time frame, the more substantial the move can be. Multiple timeframe confirmation apparently increases the probability of these formations leading to big moves. As far as holding period, that's basically until my stop loss is hit. As I mentioned, I usually use key levels like EMAs or support levels. 2. Regarding my mosaic theory, I haven't done much fundamental analysis nor does it seem to be all that necessary for my style of trading. It seems that usually a good news catalyst is all it takes for big moves to be made. 3. I had to do some research to answer this one. Let me verify that I understand these terms. Beta neutral is a strategy in which the stock's value is uncorrelated to the overall market's value. A dollar neutral strategy invests the same amount of money long and short without accounting for the volatility of either side. Is that right? I've honestly never heard of the concept of "isolating momentum" until now, nor had I known about beta and dollar neutral strategies. But I am very interested. I would love to hear how you personally incorporate these concepts into your trading. Perhaps you could give me some insight or link me with some resources where I can learn more?
Vince -- great response. 1. I'm not 100% sure what you mean by "tractable" but the dictionary says "easily handled/managed" so I'll assume that's what you mean. Tractable, in this context, means easy to test. It's kind of a math-y phrase I suppose. These formations apparently indicate that some people are taking profit during the move, and there are indicators that can let you know that the move hasn't run out of steam, particularly the volume of the pullback. Because so many other traders are looking for these same formations, it adds to the probability that these formations will lead to a further breakout, as so many other traders will also be jumping in for the ride. What is your evidence of that? A good example would be -- "I analyzed over 5k trading days using 5 min bar charts and have identified price patterns that are signals of subsequent price moves. The average return of a long or short trade based upon is 0.20% per trade, with a standard deviation of 0.35%, and a hit rate of 64%". Regarding the different time frames, these formations are most common on 1 and 5 minute charts, but can also appear to an extent on higher time frame charts. It seems that the higher the time frame, the more substantial the move can be. Multiple timeframe confirmation apparently increases the probability of these formations leading to big moves. How did you arrive at these conclusions? Your general thesis seems to be momentum trading, and AFAIK, the best way to analyze that is through the convexity of gemoetric average chg and volatility. As far as holding period, that's basically until my stop loss is hit. As I mentioned, I usually use key levels like EMAs or support levels. Why those? Why not a std move given the setup? 2. Regarding my mosaic theory, I haven't done much fundamental analysis nor does it seem to be all that necessary for my style of trading. It seems that usually a good news catalyst is all it takes for big moves to be made. There's a theory that volatility in prices are driven by investors over or underreacting to news. So having a view of the news and a view of the move is helpful for a discretionary trader, no? 3. I had to do some research to answer this one. Let me verify that I understand these terms. Beta neutral is a strategy in which the stock's value is uncorrelated to the overall market's value. A dollar neutral strategy invests the same amount of money long and short without accounting for the volatility of either side. Is that right? Beta neutral means for every long you jump on, you are shorting another security to hedge market risk, using the beta spread to dictate the amounts (e.g. 1k long, 500 short). Dollar neutral means you do the same but on a dollar basis (1k long, 1k short). I've honestly never heard of the concept of "isolating momentum" until now, nor had I known about beta and dollar neutral strategies. But I am very interested. I would love to hear how you personally incorporate these concepts into your trading. Perhaps you could give me some insight or link me with some resources where I can learn more? I'd recommend taking a look at what CTAs do. These are hedge funds that trade short-term trends all day (and spend $$$ analyzing and researching). Most trade on a theory of mean-reversion and momentum, and will be constantly searching and testing for signals (this is where applications of machine learning and AI come in -- for example, what is the optimal timeframe, what is the optimal sequence, etc.) When you're trading a stock there are lots of orders coming through. These orders are coming from a variety of sources -- ETFs, active funds, other traders, mom & pop, etc. Some of these are more or less sensitive to price, and more or less sensitive to macro. Hedging out macro is important because it can give you a more clear assessment of what the trade actually is. A good example is a ratio spread of STOCK/SPX.
I certainly haven't done 5k analyses but I follow a bunch of experienced and profitable day traders and they attest that this is the case. My limited experience has confirmed this to a limited extent thus far but I certainly have more to learn. I have yet to investigate the percentages you mentioned but I'm starting to think that this research and analysis is something I need to be doing. I learned this from more experienced traders and my experience thus far indicates its validity. Could you explain or recommend any resources so I can learn more about the convexity of geometric average change and volatility? The 9 EMA seems useful because I've learned and noticed myself that trending stocks tend to hold it and it allows a low risk entrance. I honestly haven't done much research into standard deviation but I'm now going to. I have a very basic understanding of what it is, but not so much of how to apply it. How would you recommend using it exactly? Set my target for 1std? For what time frame? Sorry if these are dumb questions. Again if you have any helpful resources to share I would appreciate it. Yes, I agree. I think knowing the news that drives the moves is important and it is part of my game plan. Thanks for the explanation. Do you do this in your trading? Thanks for that explanation. Sounds like something that can make a new trader's head explode lol.