We can use day trading as a means to supplement our daily income. Using a modest sum of capital, we will show you one method that we use to accomplish our daily goals.
The Strategy : Criteria and Concepts
In order to make this a consistent process, we must use a strategy. The method should be repeatable and reinforce successful day trading. Members will recognize this from my book, the 10e/STO/MACD and Box Trade Setups.
We use the same strategy for determining a bullish or bearish bias, no matter what time frame we are trading.
The 9/20 EMA
Where is price relative to the short term moving averages? This is the first question you should ask yourself whenever taking a trade.
Side Note: Use any duration. Test the concept using the 8ema, 9ema or 10ema.
Price relative to the 9/20ema is paramount. When we are bullish, we want to see price action emerging above the 9/20ema. We also want to see the moving averages changing directions and sloping upward. This will signal a change of trend. If you are bearish, you want the 9/20ema to be over ahead and descending. Short any price action rejected at the descending 9/20ema.
Volume is a prerequisite in this strategy. Above average volume signals the presence of traders. Without this, a trade will languish. You need volume!
Predefined scans, are one way of finding stocks that exhibit above average volume. We have a custom scan that looks for “pocket pivots”. The concept is simple: look for above average volume that eclipses the previous 10 trading days. Breakouts at 52 week highs are more significant. This is based on the teachings of William O’Neil, founder Investors Business Daily.
KKR exhibits criteria we are looking for. Price moves above the 9/20ema on above average volume. As a swing trader, we could stop right here and enter a long with a stop below the previous trading day lows or 9ema. Bollinger Bands are tight, which leads to expansion as volatility returns. RSI is rising. KKR is above VBP resistance.
Day Traders should use a short timeframe. We use the 3 and 5 minute charts for this task and move to higher time frames as prices accelerate higher.
We look for the same criteria. Price should be moving above the 9/20ema on above average volume.
In addition we want to see a visible price pattern. A proper pattern, is paramount as it delineates supply and demand. When demand outstrips supply we have a breakout. This happened yesterday, shortly after the Opening Bell. KKR showed large candles, indicating the presence of institutions and professional traders.
Scalping using options, would garner a quick profit. Note SOTEMA is bullish. As price moves higher, we use the moving averages as a stop.
Profit taking peaked towards the end of the day, as day traders closed positions. Since the daily chart shows tight Bollinger Bands, we will be looking for this pattern to repeat on the 5 minute time frame. Probabilities are high, that we will see volatility increase over the next few days. This will setup another scalp on KKR.
For the next valid setup, we will wait for price to move above the 9/20ema, then watch for volume. Finally, SOTEMA should resume its trend higher. If one of these criteria is missing, wait.
Cloud Peak Energy (CLD) was also on the pocket pivot scan. Bollinger Bands are tight. the 200ma is sloping upward and price action closed above the 9/20ema. The pivot lows are holding above 4.80. RSI is rising, along with MACD and stochastic. If we see a continuation day (Traders Tip #10 video), a swing long from this point makes sense. We would also consider a day trade if CLD starts a new uptrend.
Triangle patterns are recognizable on the 5 minute time frame. RSI shows promise as price moves higher along the 9/20ema. Volume is present.
AMZN shows similar characteristics. The stock is well known, has great fundamentals and moved lower post earnings. That said, price is stabilizing above Fibonacci confluence zones. Notes on the chart.
Stochastic is oversold. Any change in direction from this point will likely be exacerbated by the direction AMZN trades from here. Our guess is we will see a move higher, as many institutions have AMZN in their portfolio(s).
Yesterday we scalped options on AMZN, very briefly, netting a 0.30 profit or $300.00 in a short period of time (10 calls). The same strategy applies.
From the open, price action accelerated to the upside, with pullbacks the rising SOTEMA being bought. We bought calls as prices rose and exited 15 minutes later when the wick high signaled sellers. After 11AM price action dropped below the 9/20ema stopping any remaining long trades. Now we wait.
Please paper trade this technique for a couple of weeks until you are comfortable. It is an easy way to grab $200~300 dollars a day utilizing a small portion of your trading capital. Never use money you cannot afford to lose.
From this point forward, you can use this brief post to reference trades that we take using this strategy. Whether you are long or short, always check to see where price is relative to the 9/20ema. The rest is up to you.
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