Day trading is an intense form of stock market cardio. Especially for those who live on the West Coast.
Waking up at 5:30 am or earlier sounds just dreadful to me. I don’t like waking up in the single digits. But I do it anyway. 8:15 am here in Nashville, TN isn’t terrible, so I rough it. Only because there is so much action in the stock market in the first 3 hours.
USE THIS STRATEGY IN TRENDING MARKET
I am going to outline a strategy that is called the 15 minute strategy. I didn’t invent it, it’s not groundbreaking nor is it hard. It’s something that I feel a trader can use, consistently, in a trending market to carve out small chunks of the market.
QUIZ YOURSELF
Let me explain how the strategy works, in the forms of bullet points.
• Ask yourself, what is the direction of the LONG term trend of the stock? So, the last one to three years, what direction has the stock been going. You want the answer to be bullish or bearish.
• Ask yourself, for the last one to two months, what is the direction of the stock? You want the answer to be bullish or bearish.
• Ask yourself, for the last one to two days, what colors are the candles? You want the answer to be bullish or bearish.
If your answer is the same for all three bullets, you have a great candidate for the 15 minute strategy. If a stock is bullish in its primary trend, bullish in its intermediate trend and bullish in its minor trend, you are going to trade the 15 minute rule with a bullish perspective.
As an example let’s look at WFC recently:
• Primary trend – bullish
• Intermediate trend – bullish
• Minor trend – (this is often the hard one, it’s all about candles. The candle on January 14 2014 is white with a lower shadow, representing bullish buying pressure. So, the answer is bullish.
Remember this strategy is mainly for day traders. However, you can use this exact same strategy to enter early for a swing trade as well. Let’s zoom in on the detail a little bit more and view WFC on an intraday level with 5 minute candles.
Let’s make this wildly easy! As a trader, you wait 15 minutes. Tough, I know, but wait 15 minutes. At this point you are looking at 5-minutes candles. Math is simple. Three five minute candles. And yes, wicks count. If it’s easier for you, mark on your trading screen or platform the 15 minute high. If your primary, secondary and minor trends are bullish, take the trade bullish. From here, the trade entry is entirely your call. You can switch to 1, 2, 3, or 5 minute candles. You want a
1, 2, 3 or 5 minute candle close above your 15 minute candle high.
Number one, in this WFC example, the trade gaps up from the prior day. That’s a good bullish sign. Number 2 the first 5 min candle has a nice lower wick. That represents buying pressure, which is also good. In this instance, if you wait for a close, you would have been entered in on WFC at $46.37 bullish.
Simply place your stop below the third 5 minute candle low. In this example the stop is $46.11. That is a .26 cent risk. Fibonacci is often a great tool to use in order to find a target. I suggest having a goal to sell at two times your risk. Which, in this case is .52 cents. Notice the pull back and the retest at the $46.66 level (old resistance). This is 1 times your risk.
Take some profit off of the table. Either sell some of your shares or your contracts. Lock in some profit and at this point, you can raise your stop to your entry price to mitigate any further risk. You’ll notice this trade worked “a little.” It most certainly isn’t perfect, which is a great example. This is intentional. Once you enter the trade you can manage it in anyway you choose. Simply keep your risk small and mitigated.
This works in bearish trades as well, entering trades short. I’ve found if you take this type of trade in a trending stock, it works quite often. And when it say works, I truly mean, it is a great strategy to mitigate risk, it’s easy and you can carve out 1, 2 and 3 times your risk on trades daily.
ONE A DAY
All you need is one a day folks. There are more opportunities in the market every day than you can take advantage of in a life time. If you have any further questions, please feel free to reach out and let me know!
