Many stocks have a consistent pattern of up and down movements. As a result when you have learned the patterns, they can be traded very profitably. I know investors that make their entire living just trading options or a stock just based on the patterns. Following is one method of trading that is an active day-trade strategy where you are usually out of the trade within 2 hours. This is a bullish strategy and you will only be buying and selling Calls or the stock. For some reason, trying the catch the downside doesn’t seem to be as consistent.
I have found it best to work with charts of 4 different time intervals: 1 minute, 3 minute, 5 minute, and 13 minute. All these charts are used as aids when timing the entry. It is also a good idea to have volume and MACD indicators on the 1 minute and 5 minute charts.
Find the option or stock that you plan to trade. bitcoin investment ideas On options, preferably find one with a.70 delta or higher. Front month is OK but you must exit the same day or your risk is much higher.
By watching either a trend line or candlesticks, we want to see two (2) 13-minute pull backs. (Preferably your MACD will also be down.) We want the 1 minute, 3 minute, and 5 minute charts in an upward movement with the 5 minute just starting it run and the 1 minute in strong upward movement with increasing volume and the MACD starting its upward movement.
Do not make this type of trade within the 1st 20 minutes of the trading day. Usually there is a drop right after market open and they are inconsistent with what they do for the next 20 minutes. Most of your trades will occur after the 1st half hour.
Determine what your target limit is going to be. (Now is not the time to get greedy.) A good rule of thumb is 50-70 cents. Lately, 40-50 cents has been working better.
Immediately on entering the trade set up your limit. Yes, the stock may continue to run and you will leave money on the table. Conversely, the stock may hit the limit and reverse and you never saw it hit the limit but still made money.
Set a stop loss of 20 cents. If the trade goes against you, get out, no matter what.
There are a lot of stocks that you can usually trade whether trending upward or downward but you must understand their patterns. You need to be aware that there are times when the pattern for a trade is only setup once or twice a week however; it is usually once or twice a day. I highly suggest that you trade this strategy in a demo (paper) account until you understand how it works.