Jun 21, 2007

My trading style

EDIT: Updated 11/09/2008

As of today, I'm basically trading only off the :15 timeframe. What I look for are NR bars after a pullback to the 5ema. For longs, I don't mind entering on a red candle so long as that candle has a long lower tail and not too much of an upper tail. The same logic applies for shorts... just in reverse. The pullback to the 5ema is key. Here are a few charts to sum up my trading style:

EDIT: This is pretty much outdated. I still use intraday fib. levels for entry points but my overall trading strategy right now is much different.

Rudy asked me in the comments section yesterday to detail my trading style. So, here it is:
  • Intraday fibonacci levels: Fibonacci levels are great as far as showing areas of resistance or support. I typically draw my fibonacci levels from the low to high or high to low of the day and in the direction of price action. So, if price is moving up... I draw it from low to high. If price is moving down... high to low. Now, once the fib. levels are drawn I look to see how price interacts with the certain levels. For instance, if a stock gaps ups I look for price to retrace back to the 38% or 50% level (support) and show me a good entry candle ABOVE the 38% level. Here's an example:

To really understand this concept better, I recommend purchasing the materials from tradethemove.com... that's what I did.
  • Candlestick formations: Using the above chart as an example, if I'm looking to go long, I want a strong candle to form above the 38% fib. level. In this instance, it formed a hammer which is very bullish. Basically, I look for entry bars with little to no upper tails (for longs) or lower tails (for shorts). I am also looking for regular or inside NR7 bars that form at either the 38.2% or 61.8% fib. level.
  • 5ema: For longs, I want the candle to be very near the 5ema and close above it. Vice versa for shorts (close below it).
  • Volume: On my entry bars, I look for volume to be higher than the previous candle (unless it's an inside nr7 bar). This signifies 'backing' behind the potential move. I've recently changed this requirement to be at least 1.25X more than the previous candle.
  • Stock candidates: I mostly look for stocks that have gapped up or down at least 1.5% from the previous close on higher than normal volume.
  • Timeframe: I find my strategy works well with the 5, 10 and 15-min charts.
  • Share size: Risk amount divided by spread of the entry candle or stop loss point. So, if I'm risking $300 per trade and my entry candle spread from high to low is .20, my position size is: 1500 shares. Also, trade within your means when it comes to risk size... .5% of your capital is the norm, but risk whatever you feel you can afford.
  • Stop loss: Generally, it's the opposite side of the candle that I'm entering. So, if I'm going long, my stop loss is the break of the low of my entry candle. However, I sometimes place my stop loss at a fib. level (50% for example). ALWAYS OBEY YOUR STOPS. Take a hit, tomorrow is another day. It's okay to be wrong sometimes. When you think the stock will climb back up... it won't. It's much better to lose $150 than $1500.
That's pretty much it. Simple... that's the way I like it. Now, I also apply these rules when price forms a nice candle at the OR high or low. Also, it's important to look at the whole chart, not just one single candle. The two biggest things I wish I implemented as a new trader 2 years ago were share size and obeying my stops. That would have eliminated 90% of my losses as a trader.


rudy said...

Nice breakdown. Simple yet sophisticated. Just like a fine wine or a beautiful woman (man for you ladies, or sophisticated gents.lol.), it takes simplicity to bring out the real beauty. Thanks for sharing. And yes, your daily postings and commentaries does reflect exactly what you do, and do so well. Rudy

OONR7 said...

thanks for the kind words Rudy. It was a great suggestion on your part as I had it all in my head, not on paper.

Jim C. said...

OONR7, thanks for summarizing your trading style... nicely done. It is impressive that you evolved to a solid trading method in such a short period of time (2 years). Most folks struggle for several years (if they last that long) before achieving breakeven.

hermosaj said...

Do you always draw your lines based on the current days range, or do you also incorporate the prior day--a la trader x?

Anonymous said...

I'm using a similar way of trading, but on 15 minutes chart only. I am using IB as my broker so I have a homemade script to screen the gappers from a list that contains 700 symbols. May I ask what screener do you use?


bl said...

Thanks for the style info. Much appreciation. I printed it and is in the X Binder with some Warrior and Victoria's Box info. Today was a slam dunk if you could put the cause and effect info togethor: upgrade nvda amd symc hoku(+business) and the semi's took off. I had 20 premkt stocks from Trade Ideas, 24/7, Briefing gappers. If I took interesting Briefing + gaps mostly from nazdaq-8 of them: hoku amd nvda bam ande symc tstc wsci-there was no lack of set ups and serious money to be made. Most of them were fib retracement reversals. Traded BAM 4/10' for coffee money,
CAKE -9/10' stopped out. I'll focus on up gaps from Briefing and have Trade Ideas as a back up. No shorts and KSS! Thanks again for the strategy input.

Bubs said...

Great article. I know sometimes I get so stuck on looking for specific candle formations I forget the rest of the chart.

OONR7 said...

@jim c: I struggled a lot in the beginning and, honestly, I was struggling last summer. But, I kept with it, understood the fibonacci levels a little more and started looking for candle patterns and everything came together. I went through a lot of systems (mostly ones I created) until I got to where I am right now. I can still make tweaks to this system, but I really like it and - best of all - understand it. With all that said... I still make a lot of mistakes :)

@hermosaj: No, I sometimes incorporate X's technique. If there's a strong formation at the OR high or low, I'll usually draw the fibs. using the previous day's high/low. Also, if there's a big pullback (ala X's bread and butter).

@dt: I use prophet.net and scan for gappers above yesterday's close (and also yesterday's high). I also use IB, that script sounds interesting.

@bl: thanks for putting me in with such good company. NVDA set up nicely on the 5-min chart and early at the ORH, but I should've used fibs. from yesterday's low to today's ORH as the R:R would've been better than the intraday fibs (which prevented me from entering). My winner today was RSH long. I'll probably post a chart. I was also short on SONC but revised my stop for breakeven before it eventually moved down to touch the fib. ext. (that sucked). Also took a silly trade in BCE that worked for awhile, but then worked against me.