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Ken Calhoun, President Daytrading University
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www.DaytradingU.com We hope you enjoy this Daytrading University e-book. It's been designed to help you spot a handful of advanced chart patterns that we use. Visit our main site for exciting new updates and ebooks, videos and other active trader resources. Table of Contents
Introduction Trading the Charts Two-Day High Breakout After Cup on Open Two-Day Low Breakdown Shorts Pivot Long Fibonacci Bounce Pivot Short Fibonacci Drop Off Previous Day High Open Gap Reversals & Gap Fills Bonus: E-Mini Intrarange Cups
Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. This much sought-after ebook has enjoyed almost 4,000 downloads as of late 2003! Ask about our affiliate program! email affiliates@daytradinguniversity.com DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading
activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. All Rights Reserved. Best wishes for successful trading! (c) 2001-2004 Daytrading University Introduction "Take massive, consistent action to achieve your goals." -Tony Robbins "Daytrading can be a real pain in the ass, at first." - Ken Calhoun This ebook is one in a series of ongoing practical daytrader training products that DTU produces to help active traders like yourself learn how to trade effectively. By sharing my own personal favorite Nasdaq daytrading chart pattern setups with you, I hope you will learn to profit as I have in the market. Trading is tough, it's hard work. Do you remember your early trading wins? The losses? What have you learned from them? Has it helped improve your trading? Think now of the exhilaration, the frustration, the stops and and learning curve. Hopefully, you've become more cautious, more accurate at clearly identifying the chart patterns and indicators that work out. I hope you'll let me share some of what works for me in my personal trading activities with you. My method: most of my trades are from 2 to 15 minute round trip trades done in the 9:40-11am timeframe each trading day.
Why I Developed this Book I remember my first year or two of trading - it was a lot of hard work. I read a lot of books and visited a lot of websites, most were not nearly detailed enough to help me when I was in front of the monitor trying to decide whether to buy or sell. So then I tried chatrooms. Most were "buy it now" places, with a lot of offtopic conversation and a lack of realtime training in the technical details of how to daytrade. I didn't know why this stranger in a room was saying to buy a stock where they were. Momentum trading is like gambling, and I do not gamble. Offtopic conversation, while entertaining, was not helping me become a better trader. So, I decided to learn how to trade my own methods. After having tested many techniques and methods out there, and experimenting heavily for a couple of years, I've distilled the "essence of what I've learned" into the course materials and live room at Daytrading University, and update it monthly with new information. This ebook is a sample of my methods - you will learn some of the chart patterns that I have personally found to be the most successful in it. The reason I developed this book was #1) to share with you what I've found works and #2) to continue to build credibility with you and other traders who may want to learn about DTU's other resources, like our videos and daytrading course. Fair enough? Even if you don't decide to get anything else I offer, I provide this ebook to you as my gift, and hope that it will help you identify more profitable trading setups.
How to Use this Book You're busy - let's cut to the chase: Click on everything and check it out (that's what I do lol)...then: Review the charts and take a few weeks comparing them, especially the 2day high breakout pattern, to what you see in your own trading rig. Use bigcharts.com charts on 2-day time horizons if you don't have a commercial data feed, to check the validity of the methods I share, at the end of each market day. Carefully papertrade a core basket of 5-8 stocks using one of the chart patterns at a time. Stocks that are good for trading in August 2003, the revision date of this ebook, include ADBE AMGN BGEN ERTS MERQ EXPE GENZ GILD KLAC LLTC NVLS MXIM QCOM and others. Experiment and see what patterns work out the best for you personally. Can you correctly identify the signals? What percentage of the time do they yield winning trades vs being stopped out? What's your success? Refer back to this book, and others as they are released, for additional tips and techniques. To get on the mailing list for future ebook releases, just email me and I'll let you know when a new one is available.
Put the Trading Odds in Your Favor There's an overwhelming amount of information that exists online for today's active trader. Where to begin? How to get down to business? Let's "filter the noise" out and focus on chart patterns for Nasdaq daytrading.... Become a technical trader - make sure you have specific reasons for every entry, not just "it looks like it's going higher". That will have your trades fade out on you often. Make sure to keep the tiniest of stops possible - I like to use .2 to .3 type stops, and let the wins go from 1/2 to 1.2 or so type trades. Trade stocks in the $20-$60 price range with at least 1M shares average daily volume at first. Do Not trade cheap sub-$20 stocks or low-volume stocks. Do not let bad daytrades or blown stops turn into "swingtrades". Personally, I think it's a good idea to papertrade for at least a year prior to risking live capital in the market, and use 100-share trades for the next 6 months etc. Take your time - this is a profession, like any other. Rushing into trading has left the vast majority of impatient people broke and back at a day job. Don't go there. A few words to the wise: Be very cautious, and test out all the methods and techniques you read about. Be sure to daytrade with a good multimonitor setup
(2-3 monitors minimum) and a fast internet connection (56k won't do) as well as a direct access broker. This is a profession for well-trained and prepared people only. Treat it like a "budget online broker daytrading gambling" approach, and you will likely join the ranks of the broke. Treat the markets with respect, learn it professionally, and your opportunities are limitless. Please be cautious out there, and take your time learning how to trade.
Good trading, Ken Calhoun
Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. (c) 2001 Daytrading University. All Rights Reserved. Best wishes for successful trading! Trading the Charts "A chart is like a map, the more information each one provides, the better the chance of reaching your destination safely." - Steve Nison Using Charts for Nasdaq Daytrading It took me months of experimenting to get my complete chart setup right. Below is a thumbnail of my current six-monitor chart setup. Click here or on the thumbnail to see a full-screen version You don't need to get this elaborate at first, but it's a good example of what a professional trading rig looks like (eg, think, 'hey I'm trading against guys with a setup like this"): What you Need to Know About Chart-Based Daytrading Here's a few tips: I typically spend a lot of time waiting and watching for a chart setup to emerge that looks poweful enough to yield a healthy profit. I may trade from zero to 8 or so roundtrips each morning. Be a skeptic - always look for reasons to not trade the stock. Become discerning, look for specific indicators. Integrate the market signals, look for relationships. Example: Make sure the compq and sector charts are making new highs along with your stock chart for safest long entries. Don't trade "too late" in a trend, eg the market may run for 10-15 minutes max in a single direction on initial moves, don't be buying 10 minutes into the trend, especially for 9:30-10am trading. Make sure you are using the technical indicators correctly eg the TRINQ (should be under 1 for longs), the type of COMPQ day it is, eg green/red, wide vs narrow range, and finally your stochastic/ma crossovers (secondary, use for exit signals).
Also, pay close attention to: #1) the broad market charts (COMPQ/TRINQ) and sector charts (SOX GSO GHA GIN etc). Making new 1-day highs? 2-day highs? By 2-day, I mean today and the previous day. Important to gauge the market relative to previous day's trading range, trend and ohlc values (open/high/low/close). #2) the stock chart pattern for the one you're trading, eg cup pattern? 2day high? intrarange short/long? #3) time and sales for the stock: what's the story of the buy/sell pressure?
Common Mistakes to Avoid in Trading & Reading the Charts Level 2: is for order routing only, you do not make trade decisions based on what you see, since there's a lot of headfaking and bluffing there. I also use it to help me manage my stops and trailing stops, using the red band value as a conservative/close stop level. (eg .2 out of market etc). Stochastics/ma crossovers: these are primarily for exits, they do not work well in the choppy markets we've had this last year or two for determining trade entries. Stochastics and nas futures-based daytrading methods are only for the scalpers who trade 2K-5K blocks of most actives, it's not the right set of indicators for trade entry decisions for most of us, who trade 100-1K shares of the volatile Nasdaq daytrading stocks. Failing to use charts as part of a system: You need to see the big picture of the market each day, eg is it a red or green day, is it a volatile or choppy day First.... then, use the chart patterns to help you identify profitable entries and exits. Also know the time of day patterns, eg best trading is done from 9:40 til 11am each day. Not trading within the reversals - get your timing right: Market has reversal times, eg roughly every 10 minutes during the first half hour, also 10am, 10:30, 11:15, 12:30, 2, 3, 3:30 typical reversal times. So, don't go long into 10-minute long run during the first half hour etc, wait for a consolidation and cup breakout for next entry long.
Other Tips Avoid the noise: I do not watch the financial news television after 9:30 EST (I use it to watch the premkt futures magnitude and trend only). Get a good trading system: For my data, I like using esignal.com. Make sure to have a good set of tools and data and a fast broker to daytrade. Don't skimp on trading, the "price vs total cost" is significant. Your first year or two daytrading Nasdaq stocks, just focus on learning how to correctly enter stocks making new highs over the previous day's high, especially if these follow consolidation or bullish cup breakout patterns. Let's move on... Daytrading University's Trading Success Secret #1 Limit your attempts at "bottomfishing" and "shorting tops" to zero percent your first year, 20% max your subsequent years. If I were to give myself advice as a new trader, this would be a top priority. Make an 80/20 rule, buy breakouts as 80% of your trades, there are plenty of cup breakouts to trade, limit bottom bounce attempts to no more than 20% of your trades. Try it and see!
Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff,
affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. (c) 2001 Daytrading University. All Rights Reserved. Best wishes for successful trading!
"Mastering the chart patterns and being able to instantly spot micro support/resistance & trends is essential for successful daytrading" - Ken Calhoun Daytrading University's Winning Chart Pattern #1: TWO-DAY HIGH BREAKOUT After Cup Pattern On the Open Let's start with our basic "power chart" that I encourage every trader to learn. Want to trade with smart money? Professional traders know this - here I will share the tip with you. Institutional buy programs use the previous day's open/high/low/close data as part of their algorithms, in addition to prem/fair value and other data. Like most gems, it's easy to spot, once you know how. It's revealed here now publicly for you. As a side note, by showing you all this one, it's validity won't diminish - it will continue to be my favorite entry criteria. You know a cup pattern, right? Looks like the letter U. Basic enough, you buy cup breakouts. Here's where it gets interesting: Step by Step Directions: 1. Use a two-day 2-minute time interval candlestick chart as your primary daytrading chart. By Two-Day chart, I mean have a chart that shows today and the previous day's trading ranges and activity, along with volume. 2. Scan through your basket of core trading stocks, and look for a stock that is about to move above it's previous day's high for a long entry. You want to avoid buying "in the range" of the previous day's trading for this play. This is because pro money flow isn't in as strongly. Pro money flows into or out of stocks once they have gone over the previous days high (longs) or under the previous days' low (shorts). 3. These trades are always executed in the 9:40am til 11am timeframe, and last from 2 to 15 minutes max. roundtrip. Here's two examples using MERQ (signal) and VTSS (no signal): How to Use this Chart Pattern Correctly Be sure to wait until the stock has cleared at least .3 above the whole number over the previous days' high. For example, if EBAY's high was 55.8 yesterday, you would wait for it to get to 56.3 for the long breakout entry today. Moderate these entries with the following two factors: a) Know the stocks' average daily trading range, and avoid buying 3/4 of the way into its' range. For example, if PSFT has a 3-4 point average trading range, hold off on a breakout long if its' already moved 3 1/2 points on the day in the direction of your trade; b) Do not enter late in a run, eg if the COMPQ has already just moved for the last 10-15 minutes in one direction without a pullback, you should be careful about a new entry in the same direction - timing is key. Use time & sales to help you gauge the buy/sell pressure prior to any daytrading entry. Tape reading is a skill that must be practiced to help you determine the net buying in the stock. Use this to help support or negate your trading decision, in addition to the chart pattern. In MERQ you can see we waited til it got over 55.5 for a long entry. In VTSS, we didn't trade it since it never made a breakout from the previous day's range. Of all the patterns I train traders in, this one is the single most important to master. It is my "bread and butter" pattern that I use to help me identify a large percentage of correct long entries for. You can go long for a stock that's trending to make a 2day high breakout as well. By the way, a cup isn't required, but it does add solid strength to the pattern as it is "seller tested", vs just a buying continuation. Let's take a look at the next pattern... Daytrading University's Trading Success Secret #2 Patience is needed for breakout trading. You may well go a day or two before you see a setup like this one. Avoid the temptation to overtrade and try riskier intrarange trades. It's better to be bored than broke, and you don't want to trade because you're tired of waiting for a breakout. Simply turn off the pc and wait for the next day. Capital is hard to replace, your time is best spent looking for successful entries, not trading everything that "looks like buyers are there", only to get stopped out. So, wait for breakout trades - it's worth it. Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. (c) 2001-2003 Daytrading University. All Rights Reserved. Best wishes for successful trading!
"..identify a change of trend in a market as early as possible, take your position, ride the trend, and close your position before or shortly after the trend reverses again" - Vic Sperandeo Daytrading University's Winning Chart Pattern #2: TWO-DAY LOW BREAKDOWN Shorts The inverse of the previous chart, we look for stocks that are trending or making cup breakdowns below the previous days' low. As with the prior example, the rationale for this one is that the stock has triggered buy program weighting on loss of the OHLC Low value, and is getting weaker. Step by Step Directions: 1. Use a two-day 2-minute candlestick chart, as in the previous pattern. 2. Look for the stock to dip below the previous day's low. Also check that the TRINQ is over +1 and that the stock has not made a "sudden drop" of .75 or more of a point, to get under the previous days' low. As always, make sure your sector charts are headed down and that we're in a "red day", eg sectors are negative, eg SOX -1.1%, before entering these, for added safety. 3. These trades can be done in a longer timeframe, and off known reversals, eg shorting off a 10am reversal, or shorting into lunch selling weakness. Here's an example trade using NEWP: How to Use this Chart Pattern Correctly Be sure to wait until the stock has cleared at least .5 below the whole number under the previous days' low. For example, if NEWP's low was 23.5yesterday, you would wait for it to get to 23.5 or 22.5 for the short long breakdown entries today. Moderate these entries with the same factors as the longs in the previous example: a) Know the stocks' average daily trading range, and b) Do not enter late in a run Use time & sales as well, it's used for all trades, along with the market, sector and stock charts.
These are much higher percentage than trying to short a stock that's just run up a lot, thinking you're "shorting the top", remember to sell/short weak stocks and buy strong stocks. Do Not fade (go against) the trend unless you are very experienced at reversal pivot trading and can read a stocks' tape (t&s) like the daily newspaper. Even then, limit fades to 20% of your trade attempts max. Let's take a look at the next pattern... Daytrading University's Trading Success Secret #3 Breakdown shorts are for experienced traders - practice order routing extensively prior to shorting. Shorting is an effective daytrading strategy for experienced traders. Since you have to have an uptick to short into, your risk is slightly higher than with long entries. Be sure to spend plenty of time learning how to trade long prior to attempting shorts, so you don't get frustrated by poor fills and short squeezes.
Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. (c) 2001-2003 Daytrading University. All Rights Reserved. Best wishes for successful trading!
"For technical analysis to work for you, you must be totally disciplined: as soon as the reason that you entered the trade is no longer there, you must exit as quickly as possible." - Chris Lewis Daytrading University's Winning Chart Pattern #3: PIVOT LONG FIBONACCI BOUNCE off the Previous Day's Low Breakouts are the best of all trades, and should account for 80%+ of your trading activities. There are also those occasional fibonacci bounce plays that can be profitable to enter, when selected carefully. This chart pattern is designed to help you identify the best entry for a long bounce play, again using the 2day chart. Step by Step Directions: 1. In this trade, we're looking for a fast multipoint drop (over 1 point) down to the previous day's low, followed by a cup pattern long reversal bounce. You do not want to "catch a falling knife" by guessing at a bottom. Make sure that there is a cup pattern, a decent "U" of at least .3 to .5 point off the bottom before trying a long bounce entry. You don't want to buy a downtrending stock til the trend is broken on cup pattern bounce off the previous days' low. 2. Look for volume and time & sales strength accompanying the reversal. Volume reversals are powerful, the initial short covering spurs new buyers and a short squeeze, both of which support our long entry decision. 3. Now, once in, set your trade expectation no higher than 38% (first exit) or 50% (second exit) of the range of the drop, using these Fibonacci retracements as guidelines for exit targets. For more on fibonacci retracements, get Rick's excellent free FibCalc program. Stocks will often fall and bounce to half their initial range, so trail closer stops as the stock recovers to the fibo areas. 4. Your max stop loss is the previous low, once the stock has dropped past this your reason for entering the trade is gone, and so should you be. Typically, good trades are good from the start, and I give them very little "wiggle room", eg .2 or .3 max on any single trade, often less. Here's an example trade using IDPH: How to Use this Chart Pattern Correctly Bounce plays are risky - be skeptical and only enter bounces off large fast multipoint drops, not stocks that are slowly grinding down, those are most likely shorts. :) Confirm these with time & sales volume on a reversal. Make sure that there's solid buying volume on a reversal. You can only determine this if you've been watching the time & sales for the 10 minutes of so prior to where you'd look to go long on a bounce, so you can detect a shift in the trend, a reversal. Needs at least a year experience, so don't try this, new traders. Use candlestick dojis to help spot pivots and reversals. Nison's candlestick books are required reading, be sure to at least get the "Beyond Candlesticks" book - it's excellent. For Nasdaq daytrading, be sure to look for the bottom bounce off the previous days' low following a sharp multipoint drop, nothing less is strong enough. Bounces are tricky, and require faster order routing and trailing stops than breakout trading. Once mastered, they are a useful addition to your trading skills, and are fun to trade, when done right. When I was just starting out, I'd always guess at bottoms and "try to beat the crowd in" and buy the bottom. If I had it to do over again, I'd have just focused on breakout trading my first year, and added bounce attempts only in year two and beyond, limiting them to just 20% of my trade attempts. Let's take a look at the next pattern... Daytrading University's Trading Success Secret #4 Restraint is needed to avoid making too many bounce trade attempts each week. Of all my discipline issues, this one is still up there as a top one. I'm great at keeping small stops, but resisting the occasional bottomfish is a much tougher job. What I've found is that these follow through much less often than the breakouts do. So, to minimize risk, minimize the number of "bounce attempts" you make. Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. (c) 2001-2003 Daytrading University. All Rights Reserved. Best wishes for successful trading!
"You cannot reasonably expect a pullback rally to climb all the way back to a trendline that is ascending at a very steep angle" - Edwards & Magee Daytrading University's Winning Chart Pattern #4: PIVOT SHORT FIBONACCI DROP off the Previous Day's High This is what I call "shorting the right leg of the letter M"... it's a trade in which you look to short the failure of a double top to breakout. Step by Step Directions: 1. On your two-day chart, you look for buying up to the previous days' high. 2. Typically, the faster the move, the faster it will attract a reversal/pivot. So the best types of patterns are those where it shoots up say from 9:45 til 10am and starts to fade/sell back down at 10am, right under the previous day's high, this is where a short entry can be considered. A steep slope is preferred to a gradual climb, which indicates a strong stock. 3. Look to short only after a small bear cup pattern on volume is seen. This looks like an upside down U, eg the letter A... let the stock lose at least .3 to .5 before firing off the short. Enter at the .5 or so under the previous days high when you see sellers and time & sales in favor of sellside bias. Here's an example trade using CHKP:
How to Use this Chart Pattern Correctly Don't try to guess tops or bottoms, make sure you have chart and time & sales confirmations. As with all "fade" trades, eg pivot type trades, you look to close the position as it approached a fibonacci retracement value, 50% of the range max. You trail closer and closer stops, eg up to the red band in L2, yes even with decimal trading, keeping it tight, as it approaches a fibo retracement value. In the example above, there's a triple bottom at 47 on the previous day, a high of 49, so the 50% fibo retrace value is 47.5, at which point the stock consolidates/chops, so we cover out the short for a nice profit. Let's take a look at the next pattern... Daytrading University's Trading Success Secret #5 Dynamic Position Sizing: In any of these trades, you should become familiar with how to incrementally add to and get out of your positions, building them when you're proven right, and getting out with trailing stops to lock in profits on the trades that work out. The technique? Start your position with the largest size first, then add 50% increments to it. In this example, we could for example short our first 400 shares CHKP at the 48.5, then short an additional 200 at the 48.3, and cover out the whole 600 when it starts to bounce at the 47.5 or so.
Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. (c) 2001-2003 Daytrading University. All Rights Reserved. Best wishes for successful trading!
"Every time you look at a chart...the first two questions that should pop into your mind are Where is support? Where is resistance?" - Toni Turner Daytrading University's Winning Chart Pattern #5: OPEN GAP REVERSALS & GAP FILLS These are well-known, and are occurring less often (as of 2001) since the market makers know that daytraders anticipate them. But, they still do pop up on the scanner now and then (I've found only 4-6 tradable opportunities each month, for example), so they're worth learning about. I'll share some specific tips here to help you make the most of gap open trades, with a few subtle entry tips that should help you with these high-percentage trading opportunities, when they do occur. Step by Step Directions: 1. Be sure to use a commercial data feed that gives you premarket chart capability. This provides a powerful edge, so you can see what the stock is doing once it's gapped up or down. The trend and the cup pattern need to be spotted. 2. Look for stocks that have gapped at least a point, over 15%, premarket. It's preferable to see stocks gap over 15% in either direction premarket, well outside of the previous day's trading range. Then, you set your entries above the whole point over the current gap up/down for both continuations and reversals on the open. I do not buy stock premarket, I'll wait til the market's opened and gotten some initial direction before deciding when to enter, eg after 9:40 am. If you're fast, you can trade premarket and on the open. 3. Be ready to buy large gap down recoveries that are making a new cup pattern high over the previous premarket high, or, short a premarket gap up on a bear cup pattern breakdown under the previous premarket low (RIMM). You should be equally prepared to short continuation breakdowns as well (BEAS). Here's two examples using RIMM and BEAS: How to Use this Chart Pattern Correctly Gap plays are for experienced traders only. Your criteria should be: a) must gap at least a point or more premarket on heavy premarket volume (eg over 40K shares by 9:30am) and b) must be in the $20+ / share price range. Your first job is to determine premarket micro-support and resistance lines. For example, in RIMM, it would be roughly 31.7 and 32.3. Your second task is to watch the tape premkt and into the first 10-15 minutes of the open to determine whether it will be a GAP REVERSAL (RIMM) or GAP CONTINUATION (BEAS) type of play. Watching the tape is critical to this, and using your support/resistance lines to help determine your entry. Because of the added volatility, experienced traders can consider stopping out and reversing if their first trade was in the wrong direction. Let's say we had bought BEAS as soon as it got over 33.5 in anticipation of a bounce. This didn't happen, it got sellers instead. An astute trader could have sold and fired off a short into an uptick and covered out as the stock continued on down for a nice profit. Adding position to this, we could consider shorting another 200+ shares under the 32.5 on a continuation, covering over the 30 decade support later in the session.
The gap reversal and continuation trades are difficult to master, and, like "buying bottoms and shorting tops", should wait until you have successfully mastered breakout trading. Even experienced traders should limit reversal/pivot types of trades to no more than 20% of their trade attempts, and focus instead on micro- breakout type trades, as explained in the first two chart patterns.
Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. (c) 2001-2003 Daytrading University. All Rights Reserved. Best wishes for successful trading!
Daytrading University's Winning Chart Pattern #6: E-Mini Inside Cup Interior Cup+ Pattern for NASDAQ E-Minis Let's look at intrarange cup patterns for E-minis in this chart pattern lesson.
Step by Step Directions: 1. Identify the previous day's high, low and any "inside cup patterns" from the previous day's trading chart. See the 1216 cup below, in the previous trading day? I've drawn a line to indicate this. I've drawn a second line to show the previous day's high, which as we know, we use as resistance/exit area for current day's trading. 2. Set your current day's entry trigger just above the cup pattern that was formed in the previous day's trading. In this case, that would be just over the 1218 area.
3. Be ready to exit into the previous day's high, as a resistance area. In this case, that would mean for example, I'd be selling in the 1226 area.
4. "2nd move on breakout": if waiting for a breakout entry, it would be just over the 1228, previous day's high. In this case, however, you can see that it would stop out, since it barely made it over the previous day's high prior to retracing. So, keep both strategies, intrarange cup breakouts, as well as 2-day high/low breakouts, in mind as you're seeking trade opportunities. Here's the chart, see if you can spot these patterns as described above:
CONGRATULATIONS! You've seen many of the patterns I like to use. For more, see the main DTU site (click here) . We have videos, courses and other resources to help you apply these daytrading techniques. Thanks for taking the time to study this popular DTU Ebook. I hope it will continue to serve as a good reference tool for you in the months ahead. Feel free to refer back to it anytime you wish. If you've liked this ebook and would like to be on the email list for future ebook offerings from Daytrading University, feel free to email us (header "ebooks") and I'll make sure you are kept in the loop re: new ones as I have
time to develop and publish them.
Good trading, Ken Calhoun Contact information Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors. Includes your banner and site links. Click here now for details! DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading decisions. 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By receiving information from the Daytrading University and the Hawaii Business Training Group, you agree to assume all risks and liabilities related to any and all trading and/or investment decisions. The Daytrading University/Hawaii Business Training Group (DTU) provides training and information services for investors/traders and is not recommendation to buy or sell securities, nor an offer to buy or sell securities. The publishers are not brokers and are not acting in any way to influence the purchase of any security. 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Daytrading University and Hawaii Business Training Group or its publishers, are not liable for any losses or damages, monetary or otherwise, that result from the content or training & education presented in this website. The publishers recommend that anyone trading securities should do so with caution and consult with a broker before doing so. Past performance may not be indicative of future performance. Securities presented in "Daytrading University" should be considered speculative with a high degree of volatility and risk. The visitor assumes all liability resulting from viewing and/or acting upon information presented here, including but not limited to loss of capital. SEC REGULATIONS REQUIRE DISCLOSURE OF THE FACT THAT WHILE THESE METHODS MAY HAVE WORKED IN THE PAST, PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. WHILE THERE IS A POTENTIAL FOR PROFITS THERE IS ALSO A RISK OF LOSS. A LOSS INCURRED IN CONNECTION WITH TRADING STOCKS CAN BE SIGNIFICANT. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION SINCE ALL SPECULATIVE TRADING IS INHERENTLY RISKY AND SHOULD ONLY BE UNDERTAKEN BY INDIVIDUALS WITH ADEQUATE RISK CAPITAL. Information illustrated in the Daytrading University program and other Daytrading University products and web sites owned by Daytrading University is for educational purposes only. This information is based upon sources believed to be reliable and actual stock market experiences of Jack Carter and many customers who have purchased our products and/or services. Daytrading University/HBTG and/or its affiliates strongly recommend that you seek the services of a qualified stock broker or legal representative. The authors assume no responsibility for the consequences of anyone acting with this educational information. NO ADVICE IS GIVEN OR IMPLIED. It should not be assumed that the methods techniques or indicators presented in this web site or in any book, video or audio product produced by Daytrading University/HBTG will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples in this web site, video and other products are for educational purposes only. This is not a solicitation of any order or offer to buy or sell stocks or securities of any kind. The SEC (Securities And Exchange Commission) requires us to state that HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. THE RESULTS that our materials may lead you to expect MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. The SEC further requires us to state that SIMULATED TRADING PROGRAMS IN
GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN IN ANY EXAMPLE GIVEN ON THIS WEB SITE OR IN ANY PRODUCT PRODUCED BY DAYTRADING UNIVERSITY/HAWAII BUSINESS TRAINING GROUP. CONFIDENTIALITY/NON-COMPETITION CLAUSE You agree to keep the information received from the purchase of all Daytrading University/HBTG products and services CONFIDENTIAL and will NOT Disclose the knowledge gained to other any person or firm for any reason. You hereby consent to the Jurisdiction of the Courts of the State of Hawaii with respect to violation of any part of this Agreement. You further agree to Daytrading University/HBTG's right to obtain an injunction against me or any person or firm who was provided knowledge by me regarding the copyrighted proprietary strategies and tips in any and all Daytrading University products and/or services. You expressly agree that you will be finanically liable for actual and punitive copyright infringement and loss-of-business damages awardable to Hawaii Business Training Group/Daytrading University if you derive any or all of your income from a stock or financial-services related web site and/or we find that you have copied, made derivative works from, or in any other way duplicated the proprietary information located on DTU/HBTG's web servers and/or web site (including but not limited to graphics, trading systems and methods etc). You must make this agreement in order to purchase ANY product created and/or sold by Daytrading University/HBTG. The Daytrading University service is designed to provide information in regard to daytrading in the U.S. Stock Market and makes no warranties or guarantees to the content or accuracy of any information presented herein. The information and commentaries are not meant to be an endorsement or offering of any stock purchase. Principles and employees of the Daytrading University do not represent themselves as acting in the position of an investment advisor, broker, or investment manager for the use of the information in this service. It is further understood that prior to using the techniques suggested by this service, the member should consult a professional stock broker or competent financial advisor.
Best wishes for success in Your trading!
Contact me anytime at ken@daytradinguniversity.com with questions or comments. I reply to every email within 48 hours. Look for the updated 2004-2005 version of this ebook coming soon from Daytrading University!